# FIRST FINANCIAL BANCORP /OH/ (FFBC) FY 2023 MD&A

Verbatim Item 7 Management's Discussion and Analysis from FIRST FINANCIAL BANCORP /OH/'s 10-K for fiscal year 2023.

SEC filing source: https://www.sec.gov/Archives/edgar/data/708955/000070895524000018/ffbc-20231231.htm
Accession: 0000708955-24-000018
Filing date: 2024-02-22
Report date: 2023-12-31
Extracted from a later financial-section MD&A body after the formal Item 7 span was a short reference. Published MD&A gate trimmed front/tail over-capture. Source document followed from filing index: ffbc-20231231_d2.htm.
Confidence: high

Company profile: /company/FFBC/
All MD&A years: /company/FFBC/mda/
Previous year: /company/FFBC/mda/fy2022/ (FY 2022)
Next year: /company/FFBC/mda/fy2024/ (FY 2024)

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

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, 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 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 $17.5 billion financial holding company headquartered in Cincinnati, Ohio. The Company primarily operates through First Financial Bank, an Ohio-chartered commercial bank with 130 full service banking centers. First Financial provides banking and financial services products to business and retail clients through its six lines of business: Commercial, Retail Banking, Mortgage Banking, Wealth Management, Investment Commercial Real Estate and Commercial Finance. The Commercial Finance business lends to targeted industry verticals on a nationwide basis. Operating under the brand of Yellow Cardinal Advisory Group, Wealth Management had $3.5 billion in assets under management as of December 31, 2023 and provides the following services: financial planning, investment management, trust administration, estate settlement, business succession planning, 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. First Financial also has certain lending platforms that extend beyond the geographic banking center footprint to provide financing to franchise owners and clients within the financial services industry as well as equipment lease financing to commercial businesses. 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 seek 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

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

The transaction was accounted for using the acquisition method of accounting and, accordingly, assets acquired, liabilities assumed and consideration exchanged were recorded at estimated fair value on the acquisition date in accordance with FASB

2 First Financial Bancorp 2023 Annual Report

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

First Financial Bancorp 2023 Annual Report 3

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

[[GREPCENT_TABLE]]
[["Table 1 \u2022 Financial Summary"],["","","December 31,"],["(Dollars in thousands, except per share data)","","2023","","2022","","2021"],["Summary of operations"],["Interest income","","$","903,004","","","$","585,006","","","$","483,217"],["Tax equivalent adjustment (1)","","6,356","","","6,357","","","6,091"],["Interest income tax \u2013 equivalent (1)","","909,360","","","591,363","","","489,308"],["Interest expense","","275,234","","","65,863","","","31,099"],["Net interest income tax \u2013 equivalent (1)","","$","634,126","","","$","525,500","","","$","458,209"],["Interest income","","$","903,004","","","$","585,006","","","$","483,217"],["Interest expense","","275,234","","","65,863","","","31,099"],["Net interest income","","627,770","","","519,143","","","452,118"],["Provision for credit losses","","43,107","","","11,713","","","(18,121)"],["Noninterest income","","212,422","","","189,641","","","171,506"],["Noninterest expenses","","478,489","","","455,349","","","400,812"],["Income before income taxes","","318,596","","","241,722","","","240,933"],["Income tax expense","","62,733","","","24,110","","","35,773"],["Net income","","$","255,863","","","$","217,612","","","$","205,160"],["Per share data"],["Earnings per common share"],["Basic","","$","2.72","","","$","2.33","","","$","2.16"],["Diluted","","$","2.69","","","$","2.30","","","$","2.14"],["Cash dividends declared per common share","","$","0.92","","","$","0.92","","","$","0.92"],["Average common shares outstanding\u2013basic (in thousands)","","93,939","","","93,529","","","95,035"],["Average common shares outstanding\u2013diluted (in thousands)","","95,096","","","94,587","","","95,897"],["Selected year-end balances"],["Total assets","","$","17,532,900","","","$","17,003,316","","","$","16,329,141"],["Earning assets","","14,966,741","","","14,331,900","","","13,941,829"],["Investment securities","","3,231,392","","","3,636,829","","","4,409,237"],["Total loans and leases","","10,933,176","","","10,298,971","","","9,288,299"],["Interest-bearing demand deposits","","2,993,219","","","3,037,153","","","3,198,745"],["Savings deposits","","4,331,228","","","3,828,139","","","4,157,374"],["Time deposits","","2,718,390","","","1,700,705","","","1,330,263"],["Noninterest-bearing demand deposits","","3,317,960","","","4,135,180","","","4,185,572"],["Total deposits","","13,360,797","","","12,701,177","","","12,871,954"],["Short-term borrowings","","937,814","","","1,287,156","","","296,203"],["Long-term debt","","344,115","","","346,672","","","409,832"],["Shareholders\u2019 equity","","2,267,974","","","2,041,373","","","2,258,942"],["Select Financial Ratios"],["Average loans to average deposits (2)","","82.04","%","","76.11","%","","76.15","%"],["Net charge-offs to average loans and leases","","0.33","%","","0.06","%","","0.26","%"],["Average shareholders\u2019 equity to average total assets","","12.53","%","","12.85","%","","14.06","%"],["Average tangible shareholders\u2019 equity to average tangible assets","","6.51","%","","6.59","%","","8.29","%"],["Return on average assets","","1.51","%","","1.33","%","","1.28","%"],["Return on average equity","","12.01","%","","10.34","%","","9.08","%"],["Return on average tangible shareholders' equity","","24.72","%","","21.62","%","","16.43","%"],["Net interest margin","","4.36","%","","3.73","%","","3.27","%"],["Net interest margin (tax equivalent basis) (1)","","4.40","%","","3.77","%","","3.31","%"],["Dividend payout","","33.82","%","","39.48","%","","42.59","%"],["Tangible book value per share","","$","12.38","","","$","9.97","","","$","12.26"]]
[[/GREPCENT_TABLE]]

(1) Tax equivalent basis calculated using a 21% tax rate

(2) Includes loans held for sale

4 First Financial Bancorp 2023 Annual Report

OVERVIEW OF OPERATIONS

Net income for the year ended December 31, 2023 was $255.9 million, resulting in earnings per diluted common share of $2.69. This compares to net income of $217.6 million and earnings per diluted common share of $2.30 in 2022. Return on average assets was was 1.51% and 1.33% for 2023 and 2022, respectively. First Financial’s return on average tangible shareholders’ equity for 2023 was 24.72%, compared to 21.62% for 2022.

Net interest income in 2023 increased $108.6 million, or 20.9%, from 2022, to $627.8 million, primarily driven by higher yields earned on the loan and investment portfolios resulting as a result of higher interest rates offsetting higher funding costs. The net interest margin on a fully tax equivalent basis was 4.40% for 2023 compared to 3.77% in 2022.

Noninterest income increased $22.8 million, or 12.0%, to $212.4 million during 2023 from $189.6 million in 2022. The increase in 2023 was primarily driven by increases in leasing business income, other noninterest income and wealth management fees, which were partially offset by lower mortgage banking income.

Noninterest expense increased $23.1 million, or 5.1%, from $455.3 million in 2022 to $478.5 million in 2023. This increase was largely driven by higher salaries and incentives, data processing expenses, FDIC assessments and leasing business expenses. These increases were partially offset by a decline in other noninterest expenses.

Income tax expense increased $38.6 million, or 160.2%, to $62.7 million in 2023 from $24.1 million in 2022, with the effective tax rate increasing to 19.7% in 2023 from 10.0% in 2022. The increase in the effective tax rate in 2023 was primarily related to the recognition of fewer tax credit investments in 2023 compared to 2022.

Total loans increased $634.2 million, or 6.2%, to $10.9 billion at December 31, 2023 from $10.3 billion at December 31, 2022, primarily driven by growth in residential real estate loans, lease financing and C&I loans. Total deposits increased $659.6 million, or 5.2%, to $13.4 billion as of December 31, 2023 from $12.7 billion at December 31, 2022 due to increases in time and savings deposits, which offset declines in noninterest bearing deposits.

The ACL on loans and leases was $141.4 million, or 1.29% of total loans at December 31, 2023, compared to $133.0 million, and 1.29% of total loans at December 31, 2022. First Financial recorded $43.1 million in provision expense during 2023, compared to $6.7 million in provision expense during 2022.

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.

NON-GAAP FINANCIAL MEASURES

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

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

First Financial Bancorp 2023 Annual Report 5

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

[[GREPCENT_TABLE]]
[["Table 2 \u2022 Non-GAAP - Net Interest Income"],["","","Year ended December 31,"],["(Dollars in thousands)","","2023","","2022","","2021"],["Net interest income","","$","627,770","","","$","519,143","","","$","452,118"],["Tax equivalent adjustment","","6,356","","","6,357","","","6,091"],["Net interest income - tax equivalent","","$","634,126","","","$","525,500","","","$","458,209"],["Average earning assets","","$","14,404,909","","","$","13,921,563","","","$","13,826,645"],["Net interest margin (1)","","4.36","%","","3.73","%","","3.27","%"],["Net interest margin (FTE) (1)","","4.40","%","","3.77","%","","3.31","%"]]
[[/GREPCENT_TABLE]]

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

In addition to capital ratios defined by the U.S. banking agencies, First Financial considers various other measures when evaluating capital utilization and adequacy, including the return on average tangible shareholders' equity and the tangible shareholders' equity ratio. These calculations are intended to complement the capital ratios defined by the U.S. banking agencies for both absolute and comparative purposes. As GAAP does not include capital ratio measures, the Company believes there are no comparable GAAP financial measures to these ratios. These ratios are not formally defined by GAAP or codified in the federal banking regulations and, therefore, are considered to be non-GAAP financial measures.

First Financial believes return on average tangible shareholders' equity is an important measure for comparative purposes with other financial institutions, but it is not defined under GAAP, and therefore is considered a non-GAAP financial measure. This measure is useful for evaluating the performance of a business as it calculates the return available to common shareholders without the impact of intangible assets and their related amortization.

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

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

[[GREPCENT_TABLE]]
[["Table 3 \u2022 Non-GAAP - Capital Ratios"],["","","Year ended December 31,"],["(Dollars in thousands)","","2023","","2022","","2021"],["Net income (a)","","$","255,863","","","$","217,612","","","$","205,160"],["Average total shareholders' equity","","2,129,751","","","2,105,339","","","2,259,807"],["Less:"],["Average goodwill","","(1,005,805)","","","(999,611)","","","(937,943)"],["Average other intangibles","","(88,724)","","","(99,081)","","","(73,496)"],["Average tangible equity (b)","","1,035,222","","","1,006,647","","","1,248,368"],["Total shareholders' equity","","2,267,974","","","2,041,373","","","2,258,942"],["Less:"],["Goodwill","","(1,005,868)","","","(1,001,507)","","","(1,000,749)"],["Other intangibles","","(83,949)","","","(93,919)","","","(104,367)"],["Ending tangible equity (c)","","1,178,157","","","945,947","","","1,153,826"],["Total assets","","17,532,900","","","17,003,316","","","16,329,141"]]
[[/GREPCENT_TABLE]]

6 First Financial Bancorp 2023 Annual Report

[[GREPCENT_TABLE]]
[["Table 3 \u2022 Non-GAAP - Capital Ratios"],["","","Year ended December 31,"],["","","2023","","2022","","2021"],["Less:"],["Goodwill","","(1,005,868)","","","(1,001,507)","","","(1,000,749)"],["Other intangibles","","(83,949)","","","(93,919)","","","(104,367)"],["Ending tangible assets (d)","","16,443,083","","","15,907,890","","","15,224,025"],["Risk-weighted assets (e)","","13,374,177","","","12,923,233","","","11,642,201"],["Total average assets","","16,997,223","","","16,382,730","","","16,072,360"],["Less:"],["Average goodwill","","(1,005,805)","","","(999,611)","","","(937,943)"],["Average other intangibles","","(88,724)","","","(99,081)","","","(73,496)"],["Average tangible assets (f)","","15,902,694","","","15,284,038","","","15,060,921"],["Ending common shares outstanding (g)","","95,141,244","","","94,891,099","","","94,149,240"],["Ratios"],["Return on average tangible shareholders' equity (a)/(b)","","24.72","%","","21.62","%","","16.43","%"],["Ending tangible shareholders' equity as a percent of:"],["Ending tangible assets (c)/(d)","","7.17","%","","5.95","%","","7.58","%"],["Risk-weighted assets (c)/(e)","","8.81","%","","7.32","%","","9.91","%"],["Average tangible shareholders' equity to average tangible assets (b)/(f)","","6.51","%","","6.59","%","","8.29","%"],["Tangible book value per share (c)/(g)","","$","12.38","","","$","9.97","","","$","12.26"]]
[[/GREPCENT_TABLE]]

NET INCOME

2023 vs. 2022. First Financial’s net income increased $38.3 million, or 17.6%, to $255.9 million in 2023, compared to net income of $217.6 million in 2022. The increase in 2023 was primarily related to a $108.6 million, or 20.9%, increase in net interest income and a $22.8 million, or 12.0%, increase in noninterest income, partially offset by a $23.1 million, or 5.1%, increase in noninterest expenses, a $36.3 million, or 539.9%, increase in provision expense and a $38.6 million, or 160.2%, increase in income tax expense.

2022 vs. 2021. First Financial’s net income increased $12.5 million, or 6.1%, to $217.6 million in 2022, compared to net

income of $205.2 million in 2021. The increase in 2022 was primarily related to a $67.0 million, or 14.8%, increase in net

interest income, a $18.1 million, or 10.6%, increase in noninterest income and a $11.7 million, or 32.6%, decrease in income

tax expense, partially offset by a $54.5 million, or 13.6%, increase in noninterest expenses and a $25.8 million, or 135.4%,

increase in provision expense.

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

NET INTEREST INCOME

First Financial’s net interest income for the years 2021 through 2023 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

First Financial Bancorp 2023 Annual Report 7

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

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. First Financial's tax equivalent net interest margin was 4.40%, 3.77% and 3.31% for 2023, 2022 and 2021, respectively.

Table 5 – 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 5 – Volume/Rate Analysis - Tax Equivalent Basis, which should be read in conjunction with Table 4 – Statistical Information.

Loan fees included in the interest income computation for 2023, 2022 and 2021 were $19.0 million, $19.2 million and $46.8 million, respectively, with the 2021 fees being heavily influenced by PPP activity. Interest income also included purchase accounting accretion of $4.2 million, $8.8 million and $12.3 million for 2023, 2022 and 2021, respectively.

2023 vs. 2022. Net interest income increased $108.6 million, or 20.9%, to $627.8 million in 2023 from $519.1 million in 2022, as interest rates rose during 2023. This increase was due to higher asset yields and higher earning asset balances more than offsetting an increase in interest bearing liabilities and rates paid on those liabilities during the period.

Net interest margin on a fully tax equivalent basis increased 63 bps to 4.40% for 2023 compared to 3.77% in 2022 as the Company's asset sensitive balance sheet responded to further Fed rate hikes. This resulted in a 206 bp increase in asset yields, which more than offset an increase in interest-bearing liabilities and a 190 bp increase in funding costs during the period.

Interest income grew $318.0 million, or 54.4%, in 2023 when compared to the prior year as the yield on earning assets rose to 6.31% from 4.25%. Additionally, average earning assets increased to $14.4 billion as of December 31, 2023 from $13.9 billion in 2022, primarily due to a $1.0 billion increase in average loan balances.

Total interest expense increased due to a 184 bp increase in the cost of interest-bearing deposits coupled with a $878.3 million increase in those deposit balances, a 218 bp increase in the cost of average borrowings and a $183.4 million increase in those borrowings. The increasing rate environment resulted in a shift in deposit mix as customers migrated from noninterest bearing accounts to higher cost deposit products. Additionally, higher interest rates drove the increase in the cost of interest-bearing deposits, which was 2.18% in 2023 compared to 34 bps for the same period in the prior year. Average borrowed funds increased $183.4 million in 2023, while the cost of these borrowed funds increased to 5.38% in 2023 from 3.20% during 2022.

2022 vs. 2021. Net interest income increased $67.0 million, or 14.8%, from $452.1 million in 2021 to $519.1 million in 2022,

as interest rates rose during 2022. This increase was due to higher asset yields and higher earning asset balances more than offsetting an increase in interest-bearing liabilities and rates paid on those liabilities during the period.

Net interest margin on a fully tax equivalent basis increased 46 bps to 3.77% for 2022 compared to 3.31% in 2021 as the

Company's asset sensitive balance sheet responded to multiple Fed rate hikes. This resulted in a 71 bp increase in asset yields,

which more than offset an increase in interest-bearing liabilities and a 36 bp increase in funding costs during the period.

Interest income grew $101.8 million, or 21.1%, in 2022 when compared to the prior year as the yield on earning assets rose to

4.25% from 3.54%. Additionally, average earning assets increased to $13.9 billion as of December 31, 2022 from $13.8 billion

in 2021.

Total interest expense increased due to a 17 bp increase in the cost of interest-bearing deposits, an increase in average

borrowings and a 63 bp increase in the average rate on those borrowings. The increasing rate environment drove the rise in the

cost of interest-bearing deposits, which was 34 bps in 2022 compared to 17 bps for the same period in the prior year. Average

borrowed funds increased $529.8 million in 2022, while the cost of these borrowed funds increased to 3.20% in 2022 from

2.57% during 2021.

8 First Financial Bancorp 2023 Annual Report

[[GREPCENT_TABLE]]
[["Table 4 \u2022 Statistical Information"],["","","2023","","2022","","2021"],["(Dollars in thousands)","","Average Balance","","Interest","","Average Yield","","Average Balance","","Interest","","Average Yield","","Average Balance","","Interest","","Average Yield"],["Earning assets"],["Loans and leases (1), (4)"],["Commercial and industrial (2)","","$","3,447,984","","","$","263,632","","","7.65","%","","$","2,979,273","","","$","154,152","","","5.17","%","","$","2,790,733","","","$","137,841","","","4.94","%"],["Lease financing (2)","","342,243","","","25,063","","","7.32","%","","153,380","","","11,785","","","7.68","%","","67,822","","","2,739","","","4.04","%"],["Construction-real estate","","535,715","","","41,302","","","7.71","%","","476,597","","","23,036","","","4.83","%","","575,883","","","18,743","","","3.25","%"],["Commercial-real estate (2)","","4,038,457","","","293,353","","","7.26","%","","4,040,365","","","185,017","","","4.58","%","","4,379,325","","","152,251","","","3.48","%"],["Residential-real estate","","1,231,507","","","54,065","","","4.39","%","","989,743","","","40,083","","","4.05","%","","971,692","","","40,275","","","4.14","%"],["Installment and other consumer","","970,681","","","69,016","","","7.11","%","","935,607","","","46,118","","","4.93","%","","854,780","","","34,906","","","4.08","%"],["Total loans and leases","","10,566,587","","","746,431","","","7.06","%","","9,574,965","","","460,191","","","4.81","%","","9,640,235","","","386,755","","","4.01","%"],["Investment securities (3)"],["Taxable","","2,952,767","","","125,520","","","4.25","%","","3,293,010","","","102,314","","","3.11","%","","3,271,601","","","79,213","","","2.42","%"],["Tax-exempt (2)","","489,466","","","17,596","","","3.59","%","","739,036","","","23,374","","","3.16","%","","841,639","","","23,193","","","2.76","%"],["Total investment securities (3)","","3,442,233","","","143,116","","","4.16","%","","4,032,046","","","125,688","","","3.12","%","","4,113,240","","","102,406","","","2.49","%"],["Interest-bearing deposits with other banks","","396,089","","","19,813","","","5.00","%","","314,552","","","5,484","","","1.74","%","","73,170","","","147","","","0.20","%"],["Total earning assets","","14,404,909","","","909,360","","","6.31","%","","13,921,563","","","591,363","","","4.25","%","","13,826,645","","","489,308","","","3.54","%"],["Nonearning assets"],["Allowance for credit losses","","(145,472)","","","","","","","(125,001)","","","","","","","(162,477)"],["Cash and due from banks","","216,625","","","","","","","233,925","","","","","","","242,201"],["Accrued interest and other assets","","2,521,161","","","","","","","2,352,243","","","","","","","2,165,991"],["Total assets","","$","16,997,223","","","","","","","$","16,382,730","","","","","","","$","16,072,360"],["Interest-bearing liabilities"],["Deposits"],["Interest-bearing demand","","$","2,932,477","","","$","42,388","","","1.45","%","","$","3,158,560","","","$","8,933","","","0.28","%","","$","2,988,359","","","$","1,930","","","0.06","%"],["Savings","","3,932,100","","","68,168","","","1.73","%","","4,049,883","","","8,871","","","0.22","%","","4,065,654","","","4,122","","","0.10","%"],["Time","","2,397,289","","","91,454","","","3.81","%","","1,175,086","","","10,336","","","0.88","%","","1,601,295","","","8,383","","","0.52","%"],["Total interest-bearing deposits","","9,261,866","","","202,010","","","2.18","%","","8,383,529","","","28,140","","","0.34","%","","8,655,308","","","14,435","","","0.17","%"],["Borrowed funds"],["Short-term borrowings","","1,019,470","","","53,378","","","5.24","%","","817,495","","","19,132","","","2.34","%","","204,503","","","198","","","0.10","%"],["Long-term debt","","340,950","","","19,846","","","5.82","%","","359,518","","","18,591","","","5.17","%","","442,720","","","16,466","","","3.72","%"],["Total borrowed funds","","1,360,420","","","73,224","","","5.38","%","","1,177,013","","","37,723","","","3.20","%","","647,223","","","16,664","","","2.57","%"],["Total interest-bearing liabilities","","10,622,286","","","275,234","","","2.59","%","","9,560,542","","","65,863","","","0.69","%","","9,302,531","","","31,099","","","0.33","%"],["Noninterest-bearing liabilities"],["Noninterest-bearing demand deposits","","3,617,961","","","","","","","4,196,735","","","","","","","4,005,034"],["Other liabilities","","627,225","","","","","","","520,114","","","","","","","504,988"],["Shareholders' equity","","2,129,751","","","","","","","2,105,339","","","","","","","2,259,807"],["Total liabilities and shareholders' equity","","$","16,997,223","","","","","","","$","16,382,730","","","","","","","$","16,072,360"],["Net interest income and interest rate spread (fully tax equivalent)","","","","$","634,126","","","3.72","%","","","","$","525,500","","","3.56","%","","","","$","458,209","","","3.21","%"],["Net interest margin (fully tax equivalent)","","","","","","4.40","%","","","","","","3.77","%","","","","","","3.31","%"],["Interest income and yield","","","","$","903,004","","","6.27","%","","","","$","585,006","","","4.20","%","","","","$","483,217","","","3.49","%"],["Interest expense and rate","","","","275,234","","","2.59","%","","","","65,863","","","0.69","%","","","","31,099","","","0.33","%"],["Net interest income and spread","","","","$","627,770","","","3.68","%","","","","$","519,143","","","3.51","%","","","","$","452,118","","","3.16","%"],["Net interest margin","","","","","","4.36","%","","","","","","3.73","%","","","","","","3.27","%"],["(1) Nonaccrual loans are included in average loan balance and loan fees are included in interest income."],["(2) Interest income on tax-exempt investments and on certain tax-exempt loans and leases has been adjusted to a tax equivalent basis using a 21% tax rate."],["(3) Includes HTM securities, AFS securities and other investments"],["(4) Includes loans held-for-sale"]]
[[/GREPCENT_TABLE]]

First Financial Bancorp 2023 Annual Report 9

[[GREPCENT_TABLE]]
[["Table 5 \u2022 Volume/Rate Analysis - Tax Equivalent Basis (1)"],["","","2023 change from 2022 due to","","2022 change from 2021 due to"],["(Dollars in thousands)","","Volume","Rate","","Total","","Volume","Rate","","Total"],["Interest income"],["Loans (2)","","$","70,049","","","$","216,191","","","$","286,240","","","$","(3,137)","","","$","76,573","","","$","73,436"],["Investment securities (3)"],["Taxable","","(14,463)","","","37,669","","","23,206","","","665","","","22,436","","","23,101"],["Tax-exempt","","(8,972)","","","3,194","","","(5,778)","","","(3,245)","","","3,426","","","181"],["Total investment securities interest (3)","","(23,435)","","","40,863","","","17,428","","","(2,580)","","","25,862","","","23,282"],["Interest-bearing deposits with other banks","","4,079","","","10,250","","","14,329","","","4,208","","","1,129","","","5,337"],["Total","","50,693","","","267,304","","","317,997","","","(1,509)","","","103,564","","","102,055"],["Interest expense"],["Interest-bearing demand deposits","","(3,268)","","","36,723","","","33,455","","","481","","","6,522","","","7,003"],["Savings deposits","","(2,042)","","","61,339","","","59,297","","","(35)","","","4,784","","","4,749"],["Time deposits","","46,626","","","34,492","","","81,118","","","(3,749)","","","5,702","","","1,953"],["Short-term borrowings","","10,575","","","23,671","","","34,246","","","14,346","","","4,588","","","18,934"],["Long-term debt","","(1,081)","","","2,336","","","1,255","","","(4,302)","","","6,427","","","2,125"],["Total","","50,810","","","158,561","","","209,371","","","6,741","","","28,023","","","34,764"],["Net interest income","","$","(117)","","","$","108,743","","","$","108,626","","","$","(8,250)","","","$","75,541","","","$","67,291"]]
[[/GREPCENT_TABLE]]

(1) Tax equivalent basis calculated using a 21% 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 2023, 2022 and 2021 are shown in Table 6 – Noninterest Income and Noninterest Expenses.

NONINTEREST INCOME

2023 vs. 2022. Noninterest income increased $22.8 million, or 12.0%, to $212.4 million in 2023 from $189.6 million in 2022. The increase was primarily attributed to a $19.7 million, or 62.5%, increase in leasing business income, a $4.4 million, or 24.9%, increase in other noninterest income and a $2.6 million, or 11.0% increase in wealth management fees. These increases were partially offset by an $1.8 million, or 12.2%, decrease in gain on sale of loans, a $0.9 million, or 1.7%, decrease in foreign exchange income, and a $0.8 million, or 2.8%, decrease in service charges on deposit accounts.

The growth in leasing business income in 2023, reflected continued growth from Summit Funding Group during the year. The increase in other noninterest income was driven by BOLI gains as well as higher loan syndication fees, while wealth management fees were boosted by an increase in managed assets.

Partially offsetting these increases, gains on sales of retail mortgage loans declined in 2023 as loan demand slowed due to a significant increase in interest rates. Foreign exchange income declined slightly following record high levels in 2022, and service charge income declined due to a full-year impact of the Company's changes to its service charge and overdraft programs in 2022.

2022 vs. 2021. Noninterest income increased $18.1 million, or 10.6%, to $189.6 million in 2022 from $171.5 million in 2021.

The increase was attributed to $31.6 million of leasing business income, a $10.2 million, or 22.7%, increase in foreign

exchange income and a $2.0 million, or 12.6%, increase in other noninterest income. These increases were partially offset by

an $18.0 million, or 54.4%, decrease in gain on sale of loans, a $3.8 million, or 12.0%, decrease in service charges on deposit

accounts, a $2.5 million, or 31.4%, decrease in client derivative fees and a $1.3 million, or 191.0%, decrease in unrealized gain

(loss) on equity securities.

Noninterest income in 2022 was bolstered by leasing business income, which reflected new activity acquired as part of the

10 First Financial Bancorp 2023 Annual Report

Summit Funding Group acquisition at the end of 2021. In addition, foreign exchange income increased during the year due to record demand for currency transactions in 2022. The increase in other noninterest income was driven by higher income earned on limited partnership investments during the year.

Partially offsetting those increases, gains on sales of retail mortgage loans declined from the prior year as loan demand slowed due to a significant increase in interest rates. Service charge income declined during the year as a result of the Company's changes to its service charge and overdraft programs, and client derivative fees declined as a result of lower product demand. The unrealized loss on equity securities in 2022 was related to a decline in the value of the Company's Class B Visa shares.

[[GREPCENT_TABLE]]
[["Table 6 \u2022 Noninterest Income and Noninterest Expenses"],["","","2023","","2022","","2021"],["(Dollars in thousands)","","Total","","% Change","","Total","","% Change","","Total","","% Change"],["Noninterest income"],["Service charges on deposit accounts","","$","27,289","","","(2.8)","%","","$","28,062","","","(12.0)","%","","$","31,876","","","8.3","%"],["Wealth management fees","","26,081","","","11.0","%","","23,506","","","(1.2)","%","","23,780","","","11.7","%"],["Bankcard income","","14,039","","","(2.4)","%","","14,380","","","0.6","%","","14,300","","","22.0","%"],["Client derivative fees","","5,155","","","(5.3)","%","","5,441","","","(31.4)","%","","7,927","","","(23.1)","%"],["Foreign exchange income","","54,051","","","(1.7)","%","","54,965","","","22.7","%","","44,793","","","13.8","%"],["Leasing business income","","51,322","","","62.5","%","","31,574","","","N/M","","0","","","N/M"],["Net gains from sales of loans","","13,217","","","(12.2)","%","","15,048","","","(54.4)","%","","33,021","","","(35.5)","%"],["Net gain (loss) on equity securities","","206","","","(132.2)","%","","(639)","","","(191.0)","%","","702","","","(92.2)","%"],["Other","","22,320","","","24.9","%","","17,873","","","12.6","%","","15,866","","","30.1","%"],["Subtotal","","213,680","","","12.3","%","","190,210","","","10.4","%","","172,265","","","(6.7)","%"],["Net gain (loss) on sales/transfers of investment securities","","(1,258)","","","121.1","%","","(569)","","","(25.0)","%","","(759)","","","(116.6)","%"],["Total","","$","212,422","","","12.0","%","","$","189,641","","","10.6","%","","$","171,506","","","(9.3)","%"],["Noninterest expenses"],["Salaries and employee benefits","","$","292,731","","","8.7","%","","$","269,368","","","9.5","%","","$","245,924","","","3.9","%"],["Net occupancy","","22,990","","","3.5","%","","22,208","","","0.3","%","","22,142","","","(4.8)","%"],["Furniture and equipment","","13,543","","","2.4","%","","13,224","","","(4.3)","%","","13,819","","","(7.7)","%"],["Data processing","","35,852","","","6.5","%","","33,662","","","7.3","%","","31,363","","","14.0","%"],["Marketing","","9,647","","","10.3","%","","8,744","","","9.5","%","","7,983","","","24.5","%"],["Communication","","2,729","","","1.7","%","","2,683","","","(8.4)","%","","2,930","","","(16.1)","%"],["Professional services","","9,926","","","2.0","%","","9,734","","","(16.6)","%","","11,676","","","17.2","%"],["State intangible tax","","3,914","","","(8.7)","%","","4,285","","","0.7","%","","4,256","","","(29.7)","%"],["FDIC assessments","","11,948","","","66.1","%","","7,194","","","27.8","%","","5,630","","","10.2","%"],["Intangible assets amortization","","10,402","","","(7.0)","%","","11,185","","","13.7","%","","9,839","","","(11.6)","%"],["Leasing business expense","","32,500","","","59.6","%","","20,363","","","N/M","","0","","","N/M"],["Other","","32,307","","","(38.7)","%","","52,699","","","16.5","%","","45,250","","","16.9","%"],["Total","","$","478,489","","","5.1","%","","$","455,349","","","13.6","%","","$","400,812","","","2.6","%"]]
[[/GREPCENT_TABLE]]

First Financial Bancorp 2023 Annual Report 11

NONINTEREST EXPENSES

2023 vs. 2022. Noninterest expenses increased $23.1 million, or 5.1%, to $478.5 million in 2023 compared to $455.3 million in 2022, primarily due to a $23.4 million, or 8.7%, increase in salaries and employee benefits, a $12.1 million, or 59.6% increase in leasing business expenses, a $4.8 million, or 66.1%, increase in FDIC assessments, and a $2.2 million, or 6.5%, increase in data processing expenses. Partially offsetting these increases was a $20.4 million, or 38.7%, decrease in other noninterest expenses.

Salaries and employee benefits in 2023 were driven higher by annual compensation adjustments, incentive compensation tied to fee income, and performance related incentives tied to the Company's financial results. Leasing business expense reflected continued growth from Summit Funding Group during the year. FDIC assessment expense increased during 2023 due to higher assessment rates coupled with a one-time special assessment of $0.9 million, while data processing expenses increased as the Company continued to make strategic investments in technology, including its online banking platform. Partially offsetting these increases, other noninterest expense declined in 2023 due to elevated tax credit investment write-downs in 2022 that did not recur in the current year.

2022 vs. 2021. Noninterest expenses increased $54.5 million, or 13.6%, in 2022 compared to 2021, primarily due to

a $23.4 million, or 9.5%, increase in salaries and employee benefits, $20.4 million of leasing business expense, a $7.4 million,

or 16.5%, increase in other noninterest expenses, a $2.3 million, or 7.3%, increase in data processing expenses, a $1.6 million,

or 27.8%, increase in FDIC assessments and a $1.3 million, or 13.7%, increase in intangible asset amortization expense. These

increases were partially offset by a $1.9 million, or 16.6%, decrease in professional services.

Salaries and employee benefits in 2022 were driven higher by annual compensation adjustments, incentive compensation tied to fee income, and performance related incentives tied to the Company's financial results. Leasing business expense

reflected new activity acquired as part of the Summit Funding Group transaction. The increase in other noninterest expense

was largely attributed to higher write-downs of tax credit investments in 2022, while data processing expenses increased as the

Company continued to make strategic investments in technology. FDIC assessment expense increased during the year due to

higher assessment rates while intangible amortization expenses increased following the acquisition of Summit. Professional

services declined in 2022 due to acquisition and loan sale related expenses in 2021 that did not recur in 2022.

INCOME TAXES

2023 vs. 2022. First Financial’s income tax expense in 2023 totaled $62.7 million compared to $24.1 million in 2022, resulting in effective tax rates of 19.7% and 10.0% for 2023 and 2022, respectively. The higher effective tax rate in 2023 was primarily related to higher pre-tax income during the year as well as tax credit activity during 2022 that did not recur in 2023.

2022 vs. 2021. First Financial’s income tax expense in 2022 totaled $24.1 million compared to $35.8 million in 2021, resulting

in effective tax rates of 10.0% and 14.8% for 2022 and 2021, respectively. The lower effective tax rate in 2022 was primarily

related to an increase in tax credit activity during the year, partially offset by higher pre-tax income.

For further information on income taxes, see Note 16 – 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 as 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 51.0% and 47.4% of First Financial's investment securities portfolio as of December 31, 2023 and 2022, 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

12 First Financial Bancorp 2023 Annual Report

portfolio. Securities not supported by government or agency guarantees represented 49.0% and 52.6% of First Financial's investment securities portfolio as of December 31, 2023 and 2022, 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.

2023 vs. 2022. First Financial’s investment portfolio at December 31, 2023 totaled $3.1 billion, compared to $3.5 billion at December 31, 2022, and represented 17.7% of total assets at December 31, 2023. The $392.2 million, or 11.2%, decline in the investment portfolio during 2023 was primarily related to the Company's strategic redeployment of balance sheet liquidity to fund loan growth during the year.

First Financial classified $3.0 billion, or 97.4%, and $3.4 billion, or 97.6%, of investment securities as AFS at December 31, 2023 and 2022, respectively. First Financial classified $80.3 million, or 2.6%, and $84.0 million, or 2.4%, of investment securities as HTM at December 31, 2023 and 2022, respectively.

First Financial recorded a $282.0 million unrealized after-tax loss on the investment portfolio as a component of equity in AOCI resulting from changes in the fair value of AFS securities at December 31, 2023 due to rising interest rates. This unrealized loss position improved $44.0 million in 2023 from a $325.9 million unrealized after-tax loss at December 31, 2022. The overall duration of the investment portfolio was 4.6 years as of both December 31, 2023 and December 31, 2022. 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.

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, were not meaningful as a percentage of the portfolio at either December 31, 2023 or December 31, 2022.

Investments in MBS securities, which include CMOs, represented 52.5% and 51.6% of First Financial's total investment portfolio at December 31, 2023 and 2022, 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 $660.7 million as of December 31, 2023 and $716.6 million as of December 31, 2022, comprising 21.3% and 20.5% of the investment portfolio at December 31, 2023 and 2022, 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 $560.2 million, or 18.1% of the investment portfolio at December 31, 2023 and $711.3 million, or 20.4% of the investment portfolio at December 31, 2022. 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 $151.7 million, or 4.9% of the investment portfolio, at December 31, 2023 and $164.6 million, or 4.7% of the investment portfolio, at December 31, 2022.

First Financial Bancorp 2023 Annual Report 13

[[GREPCENT_TABLE]]
[["Table 7 \u2022 Investment Securities as of December 31"],["","","2023","","2022"],["","","","","Percent of","","","","Percent of"],["(Dollars in thousands)","","Amount","","Portfolio","","Amount","","Portfolio"],["U.S. Treasuries","","$","31,243","","","1.0","%","","$","32,696","","","0.9","%"],["Securities of U.S. government agencies and corporations","","69,780","","","2.2","%","","66,468","","","1.9","%"],["Mortgage-backed securities-residential","","661,048","","","21.3","%","","650,063","","","18.6","%"],["Mortgage-backed securities-commercial","","540,156","","","17.4","%","","664,925","","","19.0","%"],["Collateralized mortgage obligations","","426,618","","","13.8","%","","486,992","","","14.0","%"],["Obligations of state and other political subdivisions","","660,692","","","21.3","%","","716,591","","","20.5","%"],["Asset-backed securities","","560,248","","","18.1","%","","711,325","","","20.4","%"],["Other securities","","151,662","","","4.9","%","","164,609","","","4.7","%"],["Total","","$","3,101,447","","","100.0","%","","$","3,493,669","","","100.0","%"]]
[[/GREPCENT_TABLE]]

The estimated maturities and weighted-average yields of HTM and AFS investment securities as of December 31, 2023 are shown in Table 8 – 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 $793.0 million and $388.2 million of cash on deposit with the Federal Reserve at December 31, 2023 and 2022, respectively. First Financial continually monitors its liquidity position as part of its ERM framework, specifically through its asset/liability management process.

The Company had a $0.2 million unrealized gain on equity securities recorded in noninterest income for the twelve months ended December 31, 2023 compared to a $0.6 million unrealized loss for the same period of 2022.

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 23 – Fair Value Disclosures for additional information on how First Financial determines the fair value of investment securities.

14 First Financial Bancorp 2023 Annual Report

[[GREPCENT_TABLE]]
[["Table 8 \u2022 Investment Securities as of December 31, 2023"],["","","Maturity (2)"],["","","Within one year","","After one but within five years","","After five but within ten years","","After ten years"],["(Dollars in thousands)","","Amount","","Yield(1)","","Amount","","Yield(1)","","Amount","","Yield(1)","","Amount","","Yield(1)"],["Held-to-Maturity"],["Securities of other U.S. government agencies and corporations","","$","0","","","0.00","%","","$","0","","","0.00","%","","$","0","","","0.00","%","","$","0","","","0.00","%"],["Mortgage-backed securities-residential","","0","","","0.00","%","","0","","","0.00","%","","0","","","0.00","%","","0","","","0.00","%"],["Mortgage-backed securities-commercial","","0","","","0.00","%","","485","","","3.00","%","","32,441","","","2.35","%","","0","","","0.00","%"],["Collateralized mortgage obligations","","0","","","0.00","%","","3,917","","","2.45","%","","4,053","","","1.64","%","","0","","","0.00","%"],["Obligations of state and other political subdivisions","","0","","","0.00","%","","4,595","","","3.46","%","","1,880","","","3.67","%","","1,700","","","2.25","%"],["Other securities","","0","","","0.00","%","","0","","","0.00","%","","31,250","","","5.13","%","","0","","","0.00","%"],["Total","","$","0","","","0.00","%","","$","8,997","","","3.00","%","","$","69,624","","","3.60","%","","$","1,700","","","2.25","%"],["Available-for-Sale"],["U.S. treasuries","","$","0","","","0.00","%","","$","31,243","","","1.32","%","","$","0","","","0.00","%","","$","0","","","0.00","%"],["Securities of other U.S. government agencies and corporations","","0","","","0.00","%","","0","","","0.00","%","","69,780","","","1.74","%","","0","","","0.00","%"],["Mortgage-backed securities-residential","","83","","","3.50","%","","69,690","","","3.30","%","","250,719","","","2.31","%","","340,556","","","2.35","%"],["Mortgage-backed securities-commercial","","222,460","","","7.72","%","","214,156","","","4.63","%","","61,378","","","1.87","%","","9,236","","","2.90","%"],["Collateralized mortgage obligations","","11,228","","","6.07","%","","165,141","","","2.78","%","","136,299","","","2.29","%","","105,980","","","2.25","%"],["Obligations of state and other political subdivisions","","33,156","","","3.46","%","","131,334","","","2.97","%","","274,178","","","2.49","%","","213,849","","","2.39","%"],["Asset-backed securities","","283,977","","","6.26","%","","209,987","","","3.17","%","","55,169","","","2.68","%","","11,115","","","3.40","%"],["Other securities","","0","","","0.00","%","","72,720","","","7.23","%","","44,778","","","4.75","%","","2,914","","","4.08","%"],["Total","","$","550,904","","","6.66","%","","$","894,271","","","3.69","%","","$","892,301","","","2.43","%","","$","683,650","","","2.39","%"]]
[[/GREPCENT_TABLE]]

(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 and leasing lines of business serve 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

First Financial Bancorp 2023 Annual Report 15

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 and/or classified based on individual borrower performance or industry and environmental factors. Criticized and classified loans are subject to more frequent internal reviews to assess the borrower’s credit status and develop appropriate action plans.

Management considers classified loans to be the leading indicator of credit losses, and these loans 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 

2023 vs. 2022. Loans, excluding loans held for sale, totaled $10.9 billion at December 31, 2023, increasing $634.2 million, or 6.2%, compared to December 31, 2022.

Residential real estate loans increased $241.4 million, or 22.1%, as rising interest rates led to more adjustable rate and nonconforming jumbo mortgage originations, which the Company retains on its balance sheet. Finance lease balances increased $238.7 million, or 101.1%, due to new production from Summit Funding Group. C&I loans increased $90.9 million, or 2.7%, largely due to the Company's strong origination efforts over the course of 2023. Additionally, construction real estate loans increased $52.8 million, or 10.3%; commercial real estate loans increased $28.2 million, or 0.7%; home equity loans increased $24.9 million, or 3.4%; and credit card balances increased $8.1 million, or 15.7%. Partially offsetting these increases was a decline in installment loans, which decreased $50.8 million, or 24.2%, during 2023.

Average loan balances, including loans held for sale, were $10.6 billion for 2023, an increase of $1.0 billion, or 10.4%, compared to 2022.

Table 9 – Loan Maturity/Rate Sensitivity indicates the contractual maturity of all loans outstanding at December 31, 2023 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 Allowance for Credit Losses section included in Management’s Discussion and Analysis.

16 First Financial Bancorp 2023 Annual Report

[[GREPCENT_TABLE]]
[["Table 9 \u2022 Loan Maturity/Rate Sensitivity"],["","","December 31, 2023"],["","","Maturity"],["","","","","After one","","After five"],["","","Within","","but within","","but within","","After"],["(Dollars in thousands)","","one year","","five years","","fifteen years","","fifteen years","","Total"],["Commercial & industrial","","$","698,171","","","$","2,224,560","","","$","575,751","","","$","2,739","","","$","3,501,221"],["Lease financing","","104,116","","","339,677","","","31,024","","","0","","","474,817"],["Construction real estate","","133,294","","","281,196","","","39,807","","","110,535","","","564,832"],["Commercial real estate","","782,812","","","2,110,544","","","1,141,385","","","46,198","","","4,080,939"],["Residential real estate","","38,361","","","146,207","","","425,495","","","723,611","","","1,333,674"],["Home equity","","22,183","","","95,139","","","132,907","","","508,447","","","758,676"],["Installment","","37,289","","","93,600","","","26,700","","","1,489","","","159,078"],["Credit card","","0","","","0","","","0","","","59,939","","","59,939"],["Total","","$","1,816,226","","","$","5,290,923","","","$","2,373,069","","","$","1,452,958","","","$","10,933,176"],["","","","","After one","","After five"],["","","Within","","but within","","but within","","After"],["(Dollars in thousands)","","one year","","five years","","fifteen years","","fifteen years","","Total"],["Fixed rate"],["Commercial & industrial","","$","151,861","","","$","419,545","","","$","150,981","","","$","1,186","","","$","723,573"],["Lease financing","","91,277","","","292,047","","","22,545","","","0","","","405,869"],["Construction real estate","","742","","","725","","","1,516","","","64,111","","","67,094"],["Commercial real estate","","77,087","","","283,952","","","175,099","","","4,025","","","540,163"],["Residential real estate","","30,209","","","109,009","","","317,841","","","540,091","","","997,150"],["Home equity","","13,056","","","42,081","","","69,868","","","34,816","","","159,821"],["Installment","","33,352","","","87,017","","","23,751","","","1,438","","","145,558"],["Credit card","","0","","","0","","","0","","","490","","","490"],["Total","","$","397,584","","","$","1,234,376","","","$","761,601","","","$","646,157","","","$","3,039,718"],["Variable rate"],["Commercial & industrial","","$","546,310","","","$","1,805,015","","","$","424,770","","","$","1,553","","","$","2,777,648"],["Lease financing","","12,839","","","47,630","","","8,479","","","0","","","68,948"],["Construction real estate","","132,552","","","280,471","","","38,291","","","46,424","","","497,738"],["Commercial real estate","","705,725","","","1,826,592","","","966,286","","","42,173","","","3,540,776"],["Residential real estate","","8,152","","","37,198","","","107,654","","","183,520","","","336,524"],["Home equity","","9,127","","","53,058","","","63,039","","","473,631","","","598,855"],["Installment","","3,937","","","6,583","","","2,949","","","51","","","13,520"],["Credit card","","0","","","0","","","0","","","59,449","","","59,449"],["Total","","$","1,418,642","","","$","4,056,547","","","$","1,611,468","","","$","806,801","","","$","7,893,458"]]
[[/GREPCENT_TABLE]]

First Financial Bancorp 2023 Annual Report 17

In an effort to mitigate credit risk, First Financial routinely reviews its loan portfolio for various concentrations. These reviews consider the Bank's collateral position as well as exposure to a given industry sector. First Financial believes that the loan portfolio is sufficiently diversified to provide protection from deterioration in any particular industry or devaluation of a specific collateral type. Table 10 - C&I and Owner Occupied Loans by Sector and Table 11 - Investor CRE Loans by Property Type provide additional detail behind the Company's C&I and CRE loan portfolios as of December 31, 2023.

[[GREPCENT_TABLE]]
[["Table 10 \u2022 C&I and Owner Occupied CRE Loans by Sector (1)"],["(Dollars in thousands)","","December 31, 2023","","% of Total Loans"],["NAICS Sector"],["Finance and Insurance","","$","834,614","","","18.8","%"],["Real Estate and Rental and Leasing","","774,814","","","7.1","%"],["Manufacturing","","557,859","","","5.1","%"],["Accommodation and Food Services","","308,219","","","2.8","%"],["Health Care and Social Assistance","","260,386","","","2.4","%"],["Construction","","254,909","","","2.3","%"],["Professional, Scientific, and Technical Services","","221,985","","","2.0","%"],["Retail Trade","","187,222","","","1.7","%"],["Transportation and Warehousing","","168,515","","","1.5","%"],["Other Services (except Public Administration)","","167,080","","","1.5","%"],["Agriculture, Forestry, Fishing and Hunting","","157,287","","","1.4","%"],["Wholesale Trade","","149,576","","","1.4","%"],["Administrative and Support and Waste Management","","96,949","","","0.9","%"],["Arts, Entertainment, and Recreation","","83,413","","","0.8","%"],["Public Administration","","57,569","","","0.5","%"],["Other","","170,791","","","1.6","%"],["Total","","$","4,451,188","","","40.7","%"]]
[[/GREPCENT_TABLE]]

(1) Excludes loan marks and loans in process

[[GREPCENT_TABLE]]
[["Table 11 \u2022 Investor CRE Loans by Property Type (1)"],["(Dollars in thousands)","","December 31, 2023","","% of Total Loans"],["Property Type"],["Residential Multi Family 5+","","$","891,488","","","8.2","%"],["Retail Property","","742,293","","","6.8","%"],["Office","","441,339","","","4.0","%"],["Industrial","","327,939","","","3.0","%"],["Hospital/Nursing Home","","253,434","","","2.3","%"],["Hotel","","204,104","","","1.9","%"],["Land","","92,037","","","0.8","%"],["Residential 1-4 Family","","77,975","","","0.7","%"],["Industrial","","57,777","","","0.5","%"],["Other","","57,696","","","0.5","%"],["Total","","$","3,146,082","","","28.8","%"]]
[[/GREPCENT_TABLE]]

(1) Excludes loan marks and loans in process

18 First Financial Bancorp 2023 Annual Report

Additionally, given the potential for stress related to commercial office space, First Financial performed a targeted review of its exposure to this sector during 2023. As of December 31, 2023, First Financial had $462.4 million of loans collateralized by non-owner occupied office space, which represents 4.2% of the total loan portfolio. The overall LTV of the portfolio at origination is strong, and 67.9% of the portfolio is located in suburban locations. Additionally, the majority of the portfolio is secured by Class A and Class B assets with recourse to the sponsor. As of December 31, 2023, 91.0% of the office portfolio was pass rated, and there were two relationships totaling $22.6 million on nonaccrual status.

COMMITMENTS AND CONTINGENCIES

Off-balance sheet arrangements include commitments to extend credit and financial guarantees.  Loan commitments are agreements to extend credit to a client absent any violation of any condition established in the commitment agreement. Commitments generally have fixed expiration dates or other termination clauses and may require payment of a fee.  

First Financial had commitments outstanding to extend credit totaling $4.5 billion and $4.4 billion at December 31, 2023 and 2022, respectively. This increase in commitments was driven by the Company's strong origination efforts during the year.

As of December 31, 2023, loan commitments with variable interest rates totaled $4.4 billion, while commitments with a fixed interest rate totaled $108.2 million. At December 31, 2022, commitments with variable interest rates totaled $4.2 billion, while loan commitments with a fixed interest rate totaled $126.3 million. The fixed rate loan commitments have interest rates ranging from 0% to 21% for both December 31, 2023 and 2022 and have maturities ranging from less than 1 year to 31.6 years at both December 31, 2023 and December 31, 2022.

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 issued letters of credit aggregating $34.9 million and $31.5 million at December 31, 2023, and 2022, 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 amounts of $341.7 million and $379.3 million at December 31, 2023, and 2022, 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, 2023, 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 $96.4 million and $84.3 million at December 31, 2023 and 2022, respectively.

In the ordinary course of business, First Financial and its subsidiaries are parties to litigation, including claims to the ownership of funds in particular accounts, the collection of delinquent accounts, challenges to security interests in collateral, foreclosure interests that are incidental to our regular business activities and other matters. While the ultimate liability with respect to these litigation matters and claims cannot be determined at this time, First Financial believes that damages, if any, and other amounts relating to pending matters are not probable or cannot be reasonably estimated as of December 31, 2023. 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, 2023 or December 31, 2022.

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.

As detailed in Note 2, the Company prospectively adopted ASU 2022-02 effective as of January 1, 2023. The new rule

eliminated the accounting for TDRs while establishing a new standard for the treatment of modifications made to borrowers

experiencing financial difficulties, defined by First Financial as FDMs. Effective with the adoption of the standard, the

First Financial Bancorp 2023 Annual Report 19

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

Company prospectively will not include FDMs in the calculation of nonperforming loans, nonperforming assets or classified

assets. Prior period data, which included TDRs, has not been adjusted.

See Table 12 – Summary of the ACL and Selected Statistics for a summary of First Financial’s nonaccrual loans and OREO, which collectively comprise nonperforming assets.

2023 vs. 2022. Nonaccrual loans as of December 31, 2023 were $65.8 million, or 60 bps of total loans. This represents a $37.1 million, or 129.7%, increase from $28.6 million as of December 31, 2022. The increase in nonaccrual loans was primarily attributed to two large CRE credits that were downgraded during 2023. Total nonperforming assets increased $26.1 million, or 65.6%, to $65.9 million at December 31, 2023 from $39.8 million at December 31, 2022. The increase in nonperforming assets was driven by the increase in nonaccrual loans, partially offset by the impact from adopting ASU 2022-02, which eliminated consideration of $11.0 million of accruing TDRs from nonperfoming assets.

Classified asset balances increased $12.9 million, or 10.0%, to $141.0 million at December 31, 2023 from $128.1 million at December 31, 2022. The increase was largely attributed to two CRE loans downgraded to nonaccrual, partially offset by the payoff of one large healthcare credit.

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 12 – 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.

2023 vs. 2022. The total ACL, which includes both funded and unfunded reserves, was $159.9 million at December 31, 2023, which combined with 33 bps of net charge-offs to result in $43.1 million in total provision expense for the year. This compared to a total allowance of $151.4 million as of December 31, 2022 and $11.7 million of provision expense in 2022.

The Company utilized the Moody's December baseline forecast as its R&S forecast in the quantitative model at December 31, 2023. For reasonableness, the Company also considered the impact to the model from alternative, more adverse economic forecasts and slower prepayment speeds. These alternative analyses were utilized to inform the Company's qualitative adjustments. Additionally, First Financial considered its credit exposure to certain industries believed to be at risk for future credit stress, such as franchise, hotel and investor commercial real estate lending, when making qualitative adjustments to the ACL model.

ACL - Loans and Leases. The ACL on loans and leases at December 31, 2023 was $141.4 million, which was an $8.5 million, or 6.4%, increase from $133.0 million at December 31, 2022. The ACL was 1.29% as a percentage of total loans as of both December 31, 2023 and December 31, 2022. Provision expense increased $36.3 million, or 539.9%, to $43.1 million in 2023 from $6.7 million of provision expense in 2022. Modest ACL growth in 2023 was driven by loan growth and slower prepayments speeds during the period.

20 First Financial Bancorp 2023 Annual Report

Net charge-offs increased $28.9 million, or 502.5%, to $34.6 million for 2023 compared to $5.7 million for 2022, while the ratio of net charge-offs as a percentage of average loans outstanding increased to 33 bps in 2023 from 6 bps in 2022. The increase in 2023 was largely attributed to two large relationships, which totaled $16.1 million. Additionally, $6.1 million of losses were incurred on loan sales during 2023 intended to minimize concentration risks.

The ACL as a percentage of nonaccrual loans was 215.1% at December 31, 2023 and 464.6% at December 31, 2022. The decrease in this ratio was attributed to the increase in nonaccrual loans during the period outpacing the increase in the ACL.

Provision expense is a product of the Company's ACL model combined with net charge-off activity during the period. Provision expense increased $36.3 million during 2023 as the Company recorded $43.1 million of provision expense during the period compared to $6.7 million in 2022. The increase in provision expense was driven by loan growth and the increase in net charge-offs during the period.

ACL - Unfunded Commitments. The ACL on unfunded commitments was $18.4 million as of both December 31, 2023 and December 31, 2022. First Financial recorded insignificant provision expense on unfunded commitments for the year ended December 31, 2023 compared to $5.0 million for the same period of 2022.

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

First Financial Bancorp 2023 Annual Report 21

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

[[GREPCENT_TABLE]]
[["Table 12 \u2022 Summary of the ACL and Selected Statistics"],["(Dollars in thousands)","","2023","","2022","","2021","","2020","","2019"],["Transactions in the allowance for credit losses:"],["Balance at January 1","","$","132,977","","","$","131,992","","","$","175,679","","","$","57,650","","","$","56,542"],["Day one adoption impact of ASC 326","","0","","","0","","","0","","","61,505","","","0"],["Purchase accounting ACL for PCD","","0","","","0","","","17","","","0","","","0"],["Provision for credit losses","","43,074","","","6,731","","","(19,024)","","","70,796","","","30,598"],["Loans charged-off:"],["Commercial & industrial","","19,175","","","5,899","","","15,620","","","5,345","","","26,676"],["Lease financing","","4,423","","","152","","","0","","","852","","","162"],["Construction real estate","","0","","","0","","","1,498","","","0","","","0"],["Commercial real estate","","8,723","","","3,667","","","13,471","","","12,100","","","3,689"],["Real estate-residential","","39","","","224","","","127","","","488","","","677"],["Home equity","","340","","","160","","","1,073","","","1,541","","","2,591"],["Installment","","6,442","","","1,549","","","334","","","148","","","223"],["Credit card","","1,173","","","907","","","780","","","885","","","1,547"],["Total loans charged-off","","40,315","","","12,558","","","32,903","","","21,359","","","35,565"],["Recoveries of loans previously charged-off:"],["Commercial & industrial","","1,534","","","939","","","1,612","","","2,907","","","2,883"],["Lease financing","","55","","","49","","","0","","","0","","","0"],["Construction real estate","","0","","","0","","","3","","","17","","","68"],["Commercial real estate","","2,523","","","4,304","","","4,785","","","2,262","","","1,113"],["Real estate-residential","","247","","","174","","","228","","","381","","","273"],["Home equity","","615","","","898","","","1,223","","","1,132","","","1,335"],["Installment","","441","","","165","","","151","","","158","","","251"],["Credit card","","282","","","283","","","221","","","230","","","152"],["Total recoveries","","5,697","","","6,812","","","8,223","","","7,087","","","6,075"],["Net charge-offs","","34,618","","","5,746","","","24,680","","","14,272","","","29,490"],["Balance at December 31","","$","141,433","","","$","132,977","","","$","131,992","","","$","175,679","","","$","57,650"],["Net charge-offs to average loans and leases"],["Commercial & industrial","","0.51","%","","0.17","%","","0.50","%","","0.08","%","","0.95","%"],["Lease financing","","1.28","%","","0.07","%","","0.00","%","","1.07","%","","0.17","%"],["Construction real estate","","0.00","%","","0.00","%","","0.26","%","","0.00","%","","(0.01)","%"],["Commercial real estate","","0.15","%","","(0.02)","%","","0.20","%","","0.23","%","","0.07","%"],["Real estate-residential","","(0.02)","%","","0.01","%","","(0.01)","%","","0.01","%","","0.04","%"],["Home equity","","(0.04)","%","","(0.10)","%","","(0.02)","%","","0.05","%","","0.16","%"],["Installment","","3.42","%","","0.87","%","","0.20","%","","(0.01)","%","","(0.03)","%"],["Credit card","","1.49","%","","1.14","%","","1.13","%","","1.39","%","","2.81","%"],["Total net charge-offs","","0.33","%","","0.06","%","","0.26","%","","0.14","%","","0.33","%"],["Nonperforming assets"],["Nonaccrual loans (1)","","$","65,753","","","$","28,623","","","$","48,392","","","$","80,752","","","$","48,165"],["Accruing troubled debt restructurings (2)","","N/A","","10,960","","","11,616","","","7,099","","","11,435"],["Total nonperforming loans (2)","","65,753","","","39,583","","","60,008","","","87,851","","","59,600"],["Other real estate owned (OREO)","","106","","","191","","","98","","","1,287","","","2,033"],["Total nonperforming assets (2)","","65,859","","","39,774","","","60,106","","","89,138","","","61,633"],["Accruing loans past due 90 days or more","","2,028","","","857","","","137","","","169","","","201"],["Total underperforming assets (2)","","$","67,887","","","$","40,631","","","$","60,243","","","$","89,307","","","$","61,834"],["Total classified assets (2)","","$","140,995","","","$","128,137","","","$","104,815","","","$","142,021","","","$","89,250"],["Credit quality ratios:"],["As a percent of year-end loans, net of unearned income:"],["Allowance for credit losses","","1.29","%","","1.29","%","","1.42","%","","1.77","%","","0.63","%"],["Nonaccrual loans","","0.60","%","","0.28","%","","0.52","%","","0.82","%","","0.52","%"],["Nonperforming loans (2)","","0.60","%","","0.38","%","","0.65","%","","0.89","%","","0.65","%"],["Allowance for credit losses to nonaccrual loans","","215.10","%","","464.58","%","","272.76","%","","217.55","%","","119.69","%"],["Allowance for credit losses to nonperforming loans","","215.10","%","","335.94","%","","219.96","%","","199.97","%","","96.73","%"]]
[[/GREPCENT_TABLE]]

(1) Nonaccrual loans include nonaccrual TDRs of $10.0 million, $16.0 million, $14.7 million, and $18.5 million, as of December 31, 2022, 2021, 2020, and 2019, respectively.

(2) Upon adoption of ASU 2022-02 as of January 1, 2023, the TDR model was eliminated. Prospectively, disclosures will include modifications of loans to borrower experiencing financial difficulty (FDM). FDMs are excluded from nonperforming, underperforming and classified assets.

22 First Financial Bancorp 2023 Annual Report

[[GREPCENT_TABLE]]
[["Table 13 \u2022 Allocation of the ACL"],["","","December 31,"],["","","2023","","2022","","2021","","2020","","2019"],["(Dollars in thousands)","","Allowance","","Percent of Loans to Total Loans","","Allowance","","Percent of Loans to Total Loans","","Allowance","","Percent of Loans to Total Loans","","Allowance","","Percent of Loans to Total Loans","","Allowance","","Percent of Loans to Total Loans"],["Balance at End of Period Applicable to:"],["Commercial and industrial","","$","44,319","","","32.0","%","","$","42,313","","","33.1","%","","$","44,052","","","29.3","%","","$","51,454","","","30.4","%","","$","18,584","","","32.6","%"],["Lease financing","","12,365","","","4.4","%","","3,571","","","2.3","%","","1,633","","","1.2","%","","995","","","0.8","%","","971","","","0.8","%"],["Real estate \u2013 construction","","11,003","","","5.2","%","","13,527","","","5.0","%","","11,874","","","4.9","%","","21,736","","","6.4","%","","2,381","","","5.0","%"],["Real estate \u2013 commercial","","34,903","","","37.3","%","","41,106","","","39.3","%","","53,420","","","45.5","%","","76,795","","","43.5","%","","23,579","","","42.6","%"],["Real estate \u2013 residential","","18,088","","","12.2","%","","12,684","","","10.6","%","","6,225","","","9.6","%","","8,560","","","10.1","%","","5,299","","","10.3","%"],["Installment, home equity & credit card","","20,755","","","8.9","%","","19,776","","","9.7","%","","14,788","","","9.5","%","","16,139","","","8.8","%","","6,836","","","8.7","%"],["Total","","$","141,433","","","100.0","%","","$","132,977","","","100.0","%","","$","131,992","","","100.0","%","","$","175,679","","","100.0","%","","$","57,650","","","100.0","%"]]
[[/GREPCENT_TABLE]]

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. The Company has risk limits and internal controls in place to help ensure excessive risk is not being taken in providing this service to customers.

First Financial may enter into interest rate collars and floors, which are designated as cash flow hedges. These cash flow hedges are utilized to mitigate interest rate risk on variable-rate commercial loan pools. Changes in the fair value of cash flow hedges included in the assessment of hedge effectiveness are recorded in AOCI and reclassified from AOCI to current period earnings when the hedged item affects earnings.

The structure of the interest rate collars is such that First Financial pays the counterparty an incremental amount if the collar index exceeds the cap rate. Conversely, First Financial receives an incremental amount if the index is below the floor rate. No payments are required if the collar index is between the cap and floor rates.

The structure of First Financial's interest rate floors is such that First Financial receives an incremental amount if the index falls below the floor strike rate. No payments are required if the index remains above the floor strike rate.

As of December 31, 2023, the notional value of the Company's cash flow hedges was $1.0 billion, with the $3.8 million change in the fair value recorded in AOCI in the Consolidated Balance Sheet. There were no cash flow hedges outstanding at December 31, 2022. As of December 31, 2023, the maximum length of time over which the Company is hedging its exposure

First Financial Bancorp 2023 Annual Report 23

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

to the variability in future cash flows is 60 months. It is estimated that $0.7 million will be reclassified from OCI to interest income during the next 12 months.

See Note 13 – 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.

2023 vs. 2022. First Financial's total deposits increased $659.6 million, or 5.2%, to $13.4 billion as of December 31, 2023 from $12.7 billion at December 31, 2022. This change was driven by a $1.0 billion, or 59.8%, increase in time deposits and a $503.1 million, or 13.1%, increase in savings deposits. These changes were partially offset by an $817.2 million, or 19.8%, decrease in noninterest bearing deposits and a $43.9 million, or 1.4%, decrease in interest-bearing checking deposits. Total non-time deposit balances were $10.6 billion as of December 31, 2023 and $11.0 billion as of December 31, 2022. The increase in total deposits was largely driven by the Company's utilization of brokered deposits as a source of funding. While core deposit balances were relatively flat year over year, the mix continued to shift to higher cost products such as retail CDs and money market savings as a result of higher interest rates.

Total average deposits for 2023 increased $299.6 million, or 2.4%, from 2022, primarily due to a $1.2 billion, or 104.0%, increase in average time deposits as the Company increased its reliance upon brokered deposits as a source of funding and customers migrated to higher yielding deposit products. These increases were partially offset by a $578.8 million, or 13.8%, decrease in average noninterest bearing deposits, a $226.1 million, or 7.2%, decrease in average interest-bearing demand deposits and a $117.8 million, or 2.9%, decrease in average savings deposits.

Uninsured deposit balances were $5.6 billion, or 42.1% of total deposits, as of December 31, 2023. The Company reviews

uninsured deposits for concentration risk, and typically evaluates this risk by excluding public funds and intercompany deposits

to arrive at an adjusted uninsured deposit amount. As such, excluding public funds and intercompany accounts, adjusted

uninsured deposits were $3.2 billion, or 23.8% of total deposits, at December 31, 2023.

Table 14 – Uninsured Deposits-Maturities of Time Deposits Greater Than or Equal to $250,000 details the contractual maturity of certain deposits that are not FDIC insured. Time Deposits Greater Than or Equal to $250,000 represented 2.2% of total deposits outstanding at December 31, 2023 and 1.3% at December 31, 2022.

[[GREPCENT_TABLE]]
[["Table 14 \u2022 Uninsured Deposits-Maturities of Time Deposits Greater than or Equal to $250,000"],["(Dollars in thousands)","","CDs","","IRAs","","","","Total"],["December 31, 2023"],["Maturing in"],["3 months or less","","$","53,542","","","$","969","","","","","$","54,511"],["3 months to 6 months","","85,206","","","2,971","","","","","88,177"],["6 months to 12 months","","94,412","","","4,071","","","","","98,483"],["over 12 months","","55,965","","","2,924","","","","","58,889"],["Total","","$","289,125","","","$","10,935","","","","","$","300,060"],["December 31, 2022"],["Maturing in"],["3 months or less","","38,264","","","1,382","","","","","$","39,646"],["3 months to 6 months","","21,380","","","610","","","","","21,990"],["6 months to 12 months","","46,710","","","2,385","","","","","49,095"],["over 12 months","","49,806","","","4,602","","","","","54,408"],["Total","","$","156,160","","","$","8,979","","","","","$","165,139"]]
[[/GREPCENT_TABLE]]

BORROWINGS

24 First Financial Bancorp 2023 Annual Report

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.

2023 vs. 2022. First Financial utilizes both short-term borrowings and long-term advances from the FHLB as wholesale funding sources. Borrowed funds were $1.3 billion as of December 31, 2023 compared to $1.6 billion as of

December 31, 2022. Borrowings decreased during the period largely as a result of the Company utilizing brokered CDs in lieu of borrowings to satisfy its funding needs.

Short-term borrowings decreased $349.3 million, or 27.1%, to $937.8 million at December 31, 2023, from $1.3 billion at December 31, 2022. First Financial had $800.0 million of short-term borrowings from the FHLB at December 31, 2023 compared to $1.1 billion at December 31, 2022. Short-term borrowings included no repurchase agreements as of December 31, 2023 or 2022. Additionally, Company had no federal funds purchased as of December 31, 2023 or 2022.

Total long-term debt was $344.1 million and $346.7 million at December 31, 2023 and 2022, respectively. Outstanding subordinated debt totaled $314.2 million and $313.7 million as of December 31, 2023 and 2022, respectively. The subordinated debt is treated as Tier 2 capital for regulatory capital purposes and also included unamortized valuation and debt issuance costs of $6.9 million and $7.8 million as of December 31, 2023 and 2022, respectively.

The Company had no FHLB long-term advances as of December 31, 2023 or 2022. First Financial's total remaining borrowing capacity from the FHLB was $611.3 million at December 31, 2023. For ease of borrowing execution, First Financial utilizes a blanket collateral agreement with the FHLB. First Financial pledged $6.2 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, 2023.  

See Note 12 – 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 other short and long-term funding sources, which include subordinated notes, longer-term advances from the FRB and FHLB and its short-term line of credit. For further information regarding the company's liability-funded liquidity, see Note 11 - Deposits and Note 12 - Borrowings.

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, 2023 were as follows:

First Financial Bancorp 2023 Annual Report 25

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

[[GREPCENT_TABLE]]
[["Table 15 \u2022 Credit Ratings"],["","First Financial Bancorp","First Financial Bank"],["Senior Unsecured Debt","BBB+","A-"],["Subordinated Debt","BBB","BBB+"],["Short-Term Debt","K2","K2"],["Deposit","N/A","A-"],["Short-Term Deposit","N/A","K2"]]
[[/GREPCENT_TABLE]]

First Financial's principal source of asset-funded liquidity is marketable investment securities, particularly those of shorter maturities. AFS securities were 97.4% and 97.6% of the total investment portfolio as of December 31, 2023 and 2022, respectively. The market value of investment securities classified as AFS totaled $3.0 billion and $3.4 billion at December 31, 2023 and 2022, respectively. As of December 31, 2023, $1.4 billion of AFS securities were unpledged and there were $358.0 million of securities available to be sold at breakeven. Additionally, $533.3 million of AFS securities have floating rates and could be sold with minimal losses at December 31, 2023.

HTM securities that are maturing within a short period of time can be an additional source of liquidity. As of December 31, 2023 and 2022, the Company had no HTM securities maturing within one year.

In total, First Financial expects $622.9 million of cash flows from its investment portfolio in the next 12 months.

Other sources of liquidity include cash and due from banks and interest-bearing deposits with other banks. At December 31, 2023, these balances totaled $1.0 billion, and First Financial had unused and available overnight wholesale funding sources of $5.1 billion, or 29.0% of total assets, to fund loan and deposit activities in addition to general corporate requirements.

First Financial has a $40.0 million short-term credit facility with an unaffiliated bank that matures in December 2024. This facility has a variable interest rate and provides First Financial additional liquidity, if needed, for various corporate activities including the repurchase of First Financial common stock and the payment of dividends to shareholders. As of both December 31, 2023 and 2022, First Financial had no outstanding balance. 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, 2023 and 2022. This credit facility also required First Financial to pledge as collateral the Bank's common stock where the lender is granted a security interest in this collateral.

Certain restrictions exist regarding the Bank's ability to transfer funds to First Financial in the form of cash dividends, loans, other assets or advances and the approval of the Bank's primary federal regulator is required to pay dividends in excess of regulatory limitations. Dividends paid to First Financial from the Bank totaled $160.0 million, $170.0 million and $200.0 million for 2023, 2022 and 2021, respectively. As of December 31, 2023, the Bank had retained earnings of $918.9 million, of which $248.7 million was available for distribution to First Financial without prior regulatory approval. As an additional source of liquidity, First Financial had $134.7 million in cash at the parent company as of December 31, 2023.

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

Capital expenditures were $24.1 million for 2023, $13.8 million for 2022 and $15.3 million for 2021. Material commitments for capital expenditures as of December 31, 2023, were $40.4 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. For a discussion of liquidity risk management, please see the Market Risk section that follows.

26 First Financial Bancorp 2023 Annual Report

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

First Financial's Tier 1 capital increased to 12.06% at December 31, 2023 compared to 11.17% at December 31, 2022, while the total capital ratio increased to 13.61% from 13.09% during the same period. The leverage ratio increased to 9.70% at December 31, 2023, compared to 8.89% at December 31, 2022. Likewise, the Company’s tangible common equity ratio increased to 7.17% at December 31, 2023 from 5.95% at December 31, 2022. The increase in the tangible common equity ratio was primarily driven by the Company's strong earnings as well as the increase in accumulated other comprehensive income during the period, which was primarily due to improvement in the investment portfolio during the year.

As of December 31, 2023, First Financial met all capital adequacy requirements to which it was subject. At December 31, 2023 and 2022, regulatory notifications categorized First Financial Bank as well-capitalized under the regulatory framework for 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, 2023, see Note 20 – Capital in the Notes to Consolidated Financial Statements.

First Financial Bancorp 2023 Annual Report 27

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

[[GREPCENT_TABLE]]
[["Table 16 \u2022 Capital Adequacy"],["","","","December 31,"],["(Dollars in thousands)","","2023","","2022"],["Consolidated capital calculations"],["","Common stock","","$","1,638,972","","","$","1,634,605"],["","Retained earnings","","1,136,718","","","968,237"],["","Accumulated other comprehensive loss","","(309,819)","","","(358,663)"],["","Treasury stock, at cost","","(197,897)","","","(202,806)"],["Total shareholders' equity","","2,267,974","","","2,041,373"],["","Common equity tier 1 capital adjustments"],["","Goodwill and other intangibles","","(1,089,817)","","","(1,095,426)"],["Total tangible equity","","$","1,178,157","","","$","945,947"],["","Total assets","","$","17,532,900","","","$","17,003,316"],["","Goodwill and other intangibles","","(1,089,817)","","","(1,095,426)"],["Total tangible assets","","$","16,443,083","","","$","15,907,890"],["Common tier 1 capital","","$","1,568,815","","","$","1,399,420"],["Tier 1 capital","","1,613,480","","","1,443,698"],["Total capital","","1,820,285","","","1,691,255"],["Total risk-weighted assets","","13,374,177","","","12,923,233"],["Average assets (1)","","16,628,122","","","16,240,905"],["Regulatory capital"],["","Common tier 1 ratio","","11.73","%","","10.83","%"],["","Tier 1 ratio","","12.06","%","","11.17","%"],["","Total capital ratio","","13.61","%","","13.09","%"],["","Leverage ratio","","9.70","%","","8.89","%"],["Other capital ratios"],["","Total shareholders' equity to ending assets","","12.94","%","","12.01","%"],["","Total tangible shareholders' equity to ending tangible assets","","7.17","%","","5.95","%"],["","Total tangible shareholders' equity to risk-weighted assets","","8.81","%","","7.32","%"],["(1) For purposes of calculating the Leverage ratio, certain intangible assets are excluded from average assets."]]
[[/GREPCENT_TABLE]]

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 33.8%, 39.5% and 42.6% for the years 2023, 2022 and 2021, 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 2024, the board of directors authorized a dividend of $0.23 per common share, payable on March 15, 2024 to all shareholders of record as of March 1, 2024.

Share Repurchases. First Financial did not purchase any shares under the 2022 Repurchase Plan during 2023 or 2022.

Effective January 2024, First Financial's board of directors approved a new stock repurchase plan (the 2024 Repurchase Plan), replacing the 2022 Repurchase Plan which expired in December of 2023. The 2024 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 2025.

28 First Financial Bancorp 2023 Annual Report

Shareholders' Equity. Total shareholders’ equity at December 31, 2023 and December 31, 2022 was $2.3 billion and $2.0 billion, respectively. The increase in total equity compared to the prior year was primarily due to an increase in retained earnings during the year, which was the result of the Company's strong earnings.

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 2023 and 2022, 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, 2023, assuming shifts in the significant assumptions: 

[[GREPCENT_TABLE]]
[["Table 17 \u2022 Rate Change Impact on Pension Parameters"],["","Discount rate","","Expected return on plan assets","","Rate of compensation increase"],["(Dollars in thousands)","","-100 BP","","+100 BP","","-100 BP","","+100 BP","","-100 BP","","+100 BP"],["Change in Projected Benefit Obligation","","$","3,351","","","$","(2,580)","","","N/A","","N/A","","$","(291)","","","$","635"],["Change in Pension Expense","","(366)","","","471","","","$","1,490","","","$","(1,490)","","","(23)","","","125"]]
[[/GREPCENT_TABLE]]

Based upon the plan’s current funding status and updated actuarial projections for 2023, First Financial recorded expense related to its pension plan of $3.5 million for 2023, $2.0 million for 2022 and $3.4 million for 2021. 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 2023, 2022 or 2021 nor does it expect to make a cash contribution in 2024.

See Note 17 – 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, cybersecurity and legal.

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.

First Financial Bancorp 2023 Annual Report 29

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

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. The Board's oversight responsibilities 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;

•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

•confirming 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

30 First Financial Bancorp 2023 Annual Report

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.

Risk Committees. The ERM program utilizes multiple cross-functional management committees as its primary assessment and communication mechanism for identified risks.  These committees include:

•Board Enterprise Risk & Compliance

•Enterprise Risk Management

•Credit

•Compliance

•CRA & Fair Banking

•Human Resources

•Vendor Management

•Operational Risk

•Cybersecurity

•Information Technology

•Balance Sheet Strategy / ALCO

•Allowance for Credit Loss

•Sarbanes Oxley

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.

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 is responsible for identifying which processes and activities are critical to achieving the Company’s business objectives within tolerance levels.  Management then delegates 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 and key performance indicator dashboards.

Chief Administrative Officer. The Chief Administrative Officer (CAO) provides executive leadership to various critical administrative functions. The CAO's responsibilities include oversight of the Risk Management, Compliance, Legal, Human Resources, Information Security, and Community Development departments. The CAO is responsible for ensuring regulatory compliance, implementing robust internal controls, and fostering a culture of adherence to policies and procedures. Additionally, the CAO works with senior executives to develop strategic initiatives aimed at enhancing risk mitigation strategies, helping our communities thrive, corporate responsibility and promoting the bank's overall stability and growth.

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.

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.

First Financial Bancorp 2023 Annual Report 31

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

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, are designed to accomplish the following:

•identify risks and their respective owners;

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

•utilize risk and control assessments that evaluate both inherent risks and their associated likelihood of occurrence and consequences, as well as the associated controls employed and their effectiveness in reducing risk; 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;

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

Potential cash flows, sales, or replacement value of many of our assets and liabilities, especially those that earn or pay interest, are sensitive to changes in the general level of interest rates. This interest rate risk arises primarily from our normal business activities of gathering deposits and extending loans. Many factors affect our exposure to changes in interest rates, such as general economic and financial conditions, client preferences, historical pricing relationships, and re-pricing characteristics of

32 First Financial Bancorp 2023 Annual Report

financial instruments. Our earnings can also be affected by the monetary and fiscal policies of the U.S. Government and its agencies, particularly the Federal Reserve.

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

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

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

Non-maturity deposit modeling is particularly dependent on the assumption for repricing sensitivity known as a beta. Beta is the amount by which First Financial’s interest bearing non-maturity deposit rates will increase when short-term interest rates rise. The Company utilized a weighted average deposit beta of 42% in its interest rate risk modeling as of December 31, 2023. 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, 2023, assuming immediate, parallel shifts in interest rates:

[[GREPCENT_TABLE]]
[["Table 18 \u2022 Rate Change Impact on NII and EVE"],["","","% Change from base case for immediate parallel changes in rates"],["","","-100 BP","","+100 BP","","+200 BP"],["NII - Year 1","","(6.45)%","","3.12%","","4.78%"],["NII - Year 2","","(6.10)%","","2.49%","","3.39%"],["EVE","","(2.09)%","","1.20%","","2.39%"]]
[[/GREPCENT_TABLE]]

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

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

First Financial continually evaluates the sensitivity of its interest rate risk position to modeling assumptions. The following table reflects First Financial’s estimated NII sensitivity profile as of December 31, 2023 assuming both a 25% increase and decrease to the beta assumption on managed rate deposit products:

First Financial Bancorp 2023 Annual Report 33

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

[[GREPCENT_TABLE]]
[["Table 19 \u2022 Estimated Interest Sensitivity on NII"],["","","Beta sensitivity (% change from base)"],["","","+100 BP","","+200 BP"],["","","Beta 25% lower","","Beta 25% higher","","Beta 25% lower","","Beta 25% higher"],["NII-Year 1","","4.19","%","","2.05","%","","5.81","%","","3.75","%"],["NII-Year 2","","3.58","%","","1.40","%","","4.44","%","","2.34","%"]]
[[/GREPCENT_TABLE]]

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

Table 20 – Market Risk Disclosure projects the principal maturities and yields of First Financial’s interest-bearing financial instruments at December 31, 2023 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.

[[GREPCENT_TABLE]]
[["Table 20 \u2022 Market Risk Disclosure"],["","","","","Fair Value"],["","","Principal Amount Maturing In","","December 31,"],["(Dollars in thousands)","","2024","","2025","","2026","","2027","","2028","","Thereafter","","Total","","2023"],["Rate sensitive assets"],["Fixed interest rate loans (1)","","$","399,097","","","$","370,474","","","$","333,634","","","$","301,693","","","$","228,346","","","$","1,372,007","","","$","3,005,251","","","$","2,802,503"],["Average interest rate","","5.54","%","","5.64","%","","5.65","%","","5.58","%","","5.73","%","","4.39","%","","5.05","%"],["Variable interest rate loans (1)","","1,418,191","","","1,182,445","","","1,148,670","","","904,150","","","880,726","","","2,261,523","","","7,795,705","","","7,674,854"],["Average interest rate","","8.02","%","","7.86","%","","7.79","%","","7.72","%","","8.47","%","","7.36","%","","7.78","%"],["Fixed interest rate securities","","144,200","","","132,320","","","141,926","","","226,054","","","282,932","","","1,566,562","","","2,493,994","","","2,488,741"],["Average interest rate","","3.99","%","","3.30","%","","3.31","%","","3.17","%","","2.52","%","","2.28","%","","2.59","%"],["Variable interest rate securities","","406,703","","","74,737","","","23,950","","","17,350","","","4,000","","","80,713","","","607,453","","","604,073"],["Average interest rate","","7.67","%","","8.41","%","","7.90","%","","8.54","%","","9.43","%","","4.88","%","","7.41","%"],["Other earning assets","","792,960","","","0","","","0","","","0","","","0","","","0","","","792,960","","","792,960"],["Average interest rate","","5.40","%","","0.00","%","","0.00","%","","0.00","%","","0.00","%","","0.00","%","","5.40","%"],["Rate sensitive liabilities"],["Noninterest-bearing checking (2)","","$","3,317,960","","","$","0","","","$","0","","","$","0","","","$","0","","","$","0","","","$","3,317,960","","","$","3,317,960"],["Savings and interest-bearing checking (2)","","7,324,447","","","0","","","0","","","0","","","0","","","0","","","7,324,447","","","7,324,447"],["Average interest rate","","2.36","%","","0.00","%","","0.00","%","","0.00","%","","0.00","%","","0.00","%","","2.36","%"],["Time deposits","","2,441,829","","","225,140","","","33,439","","","12,370","","","5,612","","","0","","","2,718,390","","","2,704,912"],["Average interest rate","","4.46","%","","4.15","%","","0.69","%","","0.59","%","","0.85","%","","0.00","%","","4.37","%"],["Fixed interest rate borrowings","","942,591","","","121,996","","","5,679","","","6,365","","","7,130","","","150,168","","","1,233,929","","","1,240,372"],["Average interest rate","","5.51","%","","5.52","%","","11.50","%","","11.43","%","","11.37","%","","5.36","%","","5.58","%"],["Variable interest rate borrowings","","0","","","0","","","0","","","0","","","0","","","48,000","","","48,000","","","47,868"],["Average interest rate","","0.00","%","","0.00","%","","0.00","%","","0.00","%","","0.00","%","","8.14","%","","8.14","%"]]
[[/GREPCENT_TABLE]]

(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. 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

34 First Financial Bancorp 2023 Annual Report

enhancing liquidity by maximizing collateral-based liquidity availability. First Financial manages liquidity in relation to the trend and stability of deposits; degree and reliance on short-term, volatile sources of funds, including any undue reliance on borrowings or brokered deposits to fund longer-term assets. Management identifies, measures, monitors and manages liquidity while seeking to maintain diversification of funding sources, both on- and off-balance-sheet.

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

Management closely monitors the usage of excess business deposits, the balance of personal deposits and the broader macroeconomic environment. This monitoring includes consideration of various metrics and establishment of internal thresholds related to balance sheet composition, borrowing composition, and liquidity composition. Balance sheet composition metrics reviewed include the loan to deposit, loans to total assets and core deposits to total assets ratios among others. Borrowing composition monitoring includes, but is not limited to, consideration of borrowing capacity as a percentage of total assets, brokered CDs as a percentage of total assets and Fed funds lines to total assets. Liquidity composition ratios include remaining liquidity to total assets, and tier 1 liquidity sources as a percentage of both 30 and 90 day maturing liabilities, among others. As of December 31, 2023, all metrics reviewed were within the Company's policy limits.

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

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

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.

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

First Financial Bancorp 2023 Annual Report 35

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

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.