The purpose of this discussion is to point out key factors in the Corporation's
recent performance compared with earlier periods. The discussion should be read
in conjunction with the financial statements beginning on page three of this
report. All figures are for the consolidated entities. It is presumed the
readers of these financial statements and of the following narrative have
previously read the Corporation's financial statements for 2022 in the 10-K
filed for the fiscal year ended December 31, 2022.

This Quarterly Report on Form 10-Q contains forward-looking statements.
Forward-looking statements provide current expectations or forecasts of future
events and are not guarantees of future performance, nor should they be relied
upon as representing management's views as of any subsequent date. The
forward-looking statements are based on management's expectations and are
subject to a number of risks and uncertainties. Although management believes
that the expectations reflected in such forward-looking statements are
reasonable, actual results may differ materially from those expressed or implied
in such statements. Risks and uncertainties that could cause actual results to
differ materially include, without limitation, the Corporation's ability to
effectively execute its business plans; changes in general economic and
financial market conditions; changes in interest rates; changes in the
competitive environment; continuing consolidation in the financial services
industry; new litigation or changes in existing litigation; losses, customer
bankruptcy, claims and assessments; changes in banking regulations or other
regulatory or legislative requirements affecting the Corporation's business; and
changes in accounting policies or procedures as may be required by the Financial
Accounting Standards Board or other regulatory agencies. Additional information
concerning factors that could cause actual results to differ materially from
those expressed or implied in the forward-looking statements is available in the
Corporation's Form 10-K for the year ended December 31, 2022, and subsequent
filings with the United States Securities and Exchange Commission (SEC). Copies
of these filings are available at no cost on the SEC's Web site at www.sec.gov
or on the Corporation's Web site at www.first-online.com. Management may elect
to update forward-looking statements at some future point; however, it
specifically disclaims any obligation to do so.

                          Critical Accounting Policies

Certain of the Corporation's accounting policies are important to the portrayal
of the Corporation's financial condition and results of operations, since they
require management to make difficult, complex or subjective judgments, some of
which may relate to matters that are inherently uncertain. Estimates associated
with these policies are susceptible to material changes as a result of changes
in facts and circumstances. Facts and circumstances which could affect these
judgments include, without limitation, changes in interest rates, in the
performance of the economy or in the financial condition of borrowers.
Management believes that its critical accounting policies include determining
the allowance for credit losses and the valuation of goodwill and valuing
investment securities. See further discussion of these critical accounting
policies in the 2022 Form 10-K.

Allowance for credit losses. The allowance for credit losses (ACL) represents
management's estimate of expected losses inherent within the existing loan
portfolio. The allowance for credit losses is increased by the provision for
credit losses charged to expense and reduced by loans charged off, net of
recoveries. The allowance for credit losses is determined based on management's
assessment of several factors: reviews and evaluations of specific loans,
changes in the nature and volume of the loan portfolio, current economic
conditions, nonperforming loans, determination of acquired loans as purchase
credit deteriorated, and reasonable and supportable forecasts. Loans are
individually evaluated when they do not share risk characteristics with other
loans in the respective pool. Loans evaluated individually are excluded from the
collective evaluation. Management elected the collateral dependent practical
expedient upon adoption of ASC 326. Expected credit losses on individually
evaluated loans are based on the fair value of the collateral at the reporting
date, adjusted for selling costs as appropriate.

Management utilizes a cohort methodology to determine the allowance for credit
losses. This method identifies and captures the balance of a pool of loans with
similar risk characteristics, as of a particular point in time to form a cohort,
then tracks the respective losses generated by that cohort of loans over their
remaining life. The cohorts track loan balances and historical loss experience
since 2008, and management extends the look back period each quarter to capture
all available data points in the historical loss rate calculation. The
quantitative component of the ACL involves assumptions that require a
significant level of estimation; these include historical losses as a predictor
of future performance, appropriateness of selected delay periods, and the
reasonableness of the portfolio segmentation.

A historical data set is expected to provide the best indication of future
credit performance. Delay periods represent the amount of time it takes a cohort
of loans to become seasoned, or incur sufficient attrition through pay downs,
renewals, or charge-offs. Portfolio segmentation relates to the pooling of loans
with similar risk characteristics, such as industry types, collateral, and

consumer purpose.

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On an annual basis, in the first quarter, management performs a recalibration of the delay periods and portfolio segmentation to determine whether they are reasonable and appropriate based on the information available at that time.



Management considers qualitative adjustments to expected credit loss estimates
for information not already captured in the loss estimation process. Where past
performance may not be representative of future losses, loss rates are adjusted
for qualitative and economic forecast factors. Management uses the peak three
consecutive quarter net charge off rate to capture maximum potential volatility
over the reasonable and supportable forecast period. Historical losses utilized
in setting the qualitative factor ranges are anchored to 2008 and may be
supplemented by peer information when needed. The qualitative factor ranges are
recalibrated annually to capture recent behavior that is indicative of the
credit profile of the current portfolio.

Qualitative factors include items, such as changes in lending policies or
procedures, asset specific risks, and economic uncertainty in forward-looking
forecasts. Economic indicators utilized in forecasting include unemployment
rate, gross domestic product, housing starts, and interest rates. Management
uses a two-year reasonable and supportable period across all loan segments to
forecast economic conditions. Management believes the two-year time horizon
aligns with available industry guidance and various forecasting sources.
Economic forecast adjustments are overlaid onto historical loss rates. As such,
reversion from forecast rates to historical loss rates is immediate.

The ACL and allowance for unfunded commitments were $39.6 million and $2.1
million, respectively at March 31, 2023, compared to $39.8 million and $2.1
million, respectively at December 31, 2022. The qualitative amount of the
reserve decreased $92 thousand to $10.9 million. The quantitative amount is
$28.4 million at March 31, 2023, compared to $28.6 million at December 31, 2022.
There was no change in the allowance for unfunded commitments. See additional
discussion of ACL in the Allowance for Credit Losses section below.

Based on management's analysis of the current portfolio, management believes the
allowance is adequate. Changes in the financial condition of individual
borrowers, economic conditions, historical loss experience, or the condition of
the various markets in which collateral may be sold may affect the required
level of the allowance for credit losses and the associated provision for credit
losses. As management monitors these changes, as well as those factors discussed
above, adjustments may be recorded to the allowance for credit losses and the
associated provision for credit losses in the future.

                          Summary of Operating Results

Net income for the three months ended March 31, 2023 was $16.0 million, compared
to $20.9 million for the same period in 2022. Basic earnings per share decreased
to $1.33 for the first quarter of 2023 compared to $1.67 for the same period in
2022. Return on Assets and Return on Equity were 1.32% and 13.10% respectively,
for the three months ended March 31, 2023 compared to 1.63% and 14.81% for the
three months ended March 31, 2022.

In light of recent events in the banking sector, including recent bank failures,
continuing interest rate hikes and recessionary concerns, the Corporation has
proactively positioned the balance sheet to mitigate the risks affecting the
Corporation and the overall banking industry in order to serve its clients and
communities.

Liquidity remains strong, with cash and available for sale securities

representing approximately 29.5% of assets at March 31, 2023. The Corporation

maintains the ability to access considerable sources of contingent liquidity at

? the Federal Home Loan Bank and several correspondent banks. Management

considers the Corporation's current liquidity position to be adequate to meet

both short-term and long-term liquidity needs. Refer to the section Liquidity

Risk for additional information.

Capital remains strong, with ratios of the Corporation, and its subsidiary

? bank, well above the standards to be considered well-capitalized under

regulatory requirements. Refer to the section Capital Adequacy, included

elsewhere in this report for additional details.

Asset quality remains solid, with a non-performing asset ratio of 0.31% of

total assets as of March 31, 2023 and net charge-offs of 0.26% to average loans

? and leases, reflecting the Company's disciplined underwriting and conservative

lending philosophy which has supported the Corporation's strong credit

performance during prior financial crises. Refer to the section Non-Performing


   Loan for additional information.


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The Corporation will continue its safe and sound banking practices, but the continuing impact of the crisis and further extent on the Corporation's operations and financial results for the remainder of 2023 is uncertain and cannot be predicted.



On October 31, 2022, First Financial Corporation issued a press release
announcing plans to optimize its banking center network as part of a plan to
improve operating efficiencies and accommodate changing customer preferences.
Subject to regulatory requirements, the Corporation closed and consolidated
seven of its seventy-two branches on January 31, 2023. The buildings and land on
the owned branches recorded impairment on December 31, 2022 for $1.3 million.
These consolidations are projected to save the Corporation approximately $1.5
million per year in operating expenses.

The primary components of income and expense affecting net income are discussed in the following analysis.



Net Interest Income

The Corporation's primary source of earnings is net interest income, which is
the difference between the interest earned on loans and other investments and
the interest paid for deposits and other sources of funds. Net interest income
increased $6.5 million in the three months ended March 31, 2023 to $44.3 million
from $37.8 million in the same period in 2022. The net interest margin for the
three months ended March 31, 2023 is 3.96% compared to 3.16% for the same period
in 2022, a 25.32% increase. Interest rates increased significantly throughout
2022 and in the first quarter of 2023, due to federal rate adjustments.

Non-Interest Income



Non-interest income for the three months ended March 31, 2023 was $9.4 million
compared to $13.7 million for the same period of 2022. The change in
non-interest income from 2022 to 2023 was primarily driven by a $4.0 million
legal settlement received in February, 2022. The Corporation does not expect
this income to reoccur.

Non-Interest Expenses

The Corporation's non-interest expense for the quarter ended March 31, 2023 was $32.3 million compared to $31.3 million for the same period in 2022.

Allowance for Credit Losses


The Corporation's provision for credit losses increased to $1.8 million for the
first quarter of 2023 as compared to negative provision of $6.6 million for the
same period in 2022. Net charge-offs for the first quarter of 2023 were $2.0
million compared to $1.2 million for the same period of 2022. The negative
provision for first quarter 2022 was the result of several factors. The first
was the annual model recalibration. Each year, in the first quarter, management
reviews each model variable to determine if adjustments are necessary to improve
the model's predictability. In the first quarter 2022 the delay periods were
shortened to pick up more recent losses. Also, the qualitative factor maximum
scorecard ranges for certain cohorts were reduced, which reduced the reserve.
Secondly, management removed two qualitative factors that were deemed no longer
applicable. The first was related to an acquisition, which management believed
to have seasoned adequately that it was no longer warranted. The second was
related to the CECL model and the related uncertainty. The uncertainty
surrounded the newness of the model and potential regulatory scrutiny. Following
two exam cycles, management elected to remove the factor. Also, during the
quarter, historical loss rates continued to decline, which lowers the required
reserve. The historical loss rate declined in most segments. Based on
management's analysis of the current portfolio, an evaluation that includes
consideration of changes in CECL model assumptions of credit quality, economic
conditions, and loan composition, management believes the allowance is adequate.
In the first quarter 2023, no significant changes were made.

Income Tax Expense



The Corporation's effective income tax rate for the first three months of 2023
was 18.42% compared to 21.79% for the same period in 2022. Pretax income for the
first quarter 2022 was significantly higher than pretax income for first quarter
2023. Since our permanent differences remained similar, income was the driving
factor for the decrease in effective tax rate.

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Non-performing Loans


Non-performing loans consist of (1) non-accrual loans on which the ultimate
collectability of the full amount of interest is uncertain,  and (2) loans past
due ninety days or more as to principal or interest. Non-performing loans
decreased to $12.1 million at March 31, 2023 compared to $12.7 million at
December 31, 2022. Nonperforming loans decreased 43.4% compared to $8.4 million
as of March 31, 2022. A summary of non-performing loans at March 31, 2023 and
December 31, 2022 follows:

                                                                                                   (000's)
                                                                                    March 31, 2023      December 31, 2022
Non-accrual loans                                                                   $        10,920    $            11,554
Accruing loans past due over 90 days                                                          1,157                  1,119
                                                                                    $        12,077    $            12,673

Ratio of the allowance for credit losses as a percentage of non-performing loans

              328.1 %                414.4 %

The following loan categories comprise significant components of the nonperforming non-restructured loans:



                            March 31, 2023     December 31, 2022
Non-accrual loans
Commercial loans            $         4,098   $             4,874
Residential loans                     3,422                 3,715
Consumer loans                        3,400                 2,965
                            $        10,920   $            11,554
Past due 90 days or more
Commercial loans            $           293   $               112
Residential loans                       863                 1,007
Consumer loans                            1                     -
                            $         1,157   $             1,119

Interest Rate Sensitivity and Liquidity

First Financial Corporation has established risk measures, limits and policy
guidelines for managing interest rate risk and liquidity. Responsibility for
management of these functions resides with the Asset Liability Committee. The
primary goal of the Asset Liability Committee is to maximize net interest income
within the interest rate risk limits approved by the Board of Directors.

Interest Rate Risk

Management considers interest rate risk to be the Corporation's most significant market risk. Interest rate risk is the exposure to changes in net interest income as a result of changes in interest rates. Consistency in the Corporation's net interest income is largely dependent on the effective management of this risk.



The Asset Liability position is measured using sophisticated risk management
tools, including earning simulation and market value of equity sensitivity
analysis. These tools allow management to quantify and monitor both short-term
and long-term exposure to interest rate risk. Simulation modeling measures the
effects of changes in interest rates, changes in the shape of the yield curve
and the effects of embedded options on net interest income. This measure
projects earnings in the various environments over the next three years. It is
important to note that measures of interest rate risk have limitations and are
dependent on various assumptions. These assumptions are inherently uncertain
and, as a result, the model cannot precisely predict the impact of interest rate
fluctuations on net interest income. Actual results will differ from simulated
results due to timing, frequency and amount of interest rate changes as well as
overall market conditions. The Committee has performed a thorough analysis of
these assumptions and believes them to be valid and theoretically sound. These
assumptions are continuously monitored for behavioral changes.

The Corporation from time to time utilizes derivatives to manage interest rate
risk. Management continuously evaluates the merits of such interest rate risk
products but does not anticipate the use of such products to become a major part
of the Corporation's risk management strategy.

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The table below shows the Corporation's estimated sensitivity profile as of
March 31, 2023. The change in interest rates assumes a parallel shift in
interest rates of 100, 200, and 300 basis points. Given a 100 basis point
increase in rates, net interest income would increase 1.22% over the next
12 months and increase 3.86% over the following 12 months. Given a 100 basis
point decrease in rates, net interest income would decrease 2.57% over the next
12 months and decrease 6.00% over the following 12 months. These estimates
assume all rate changes occur overnight and management takes no action as a
result of this change.

Basis Point                Percentage Change in Net Interest Income
Interest Rate Change     12 months        24 months        36 months
Down 300                      (7.10) %        (18.15) %        (26.53) %
Down 200                      (5.09)          (12.30)          (17.94)
Down 100                      (2.57)           (6.00)           (8.81)
Up 100                          1.22             3.86             6.66
Up 200                        (0.50)             4.78            10.37
Up 300                        (0.37)             7.55            16.00

Typical rate shock analysis does not reflect management's ability to react and thereby reduce the effect of rate changes, and represents a worst-case scenario.

Liquidity Risk



Liquidity represents an institution's ability to provide funds to satisfy
demands from depositors, borrowers, and other creditors by either converting
assets into cash or accessing new or existing sources of incremental funds.
Generally the Corporation relies on deposits, loan repayments and repayments of
investment securities as its primary sources of funds. The Corporation has $8.5
million of investments that mature throughout the next 12 months. The
Corporation also anticipates $113.7 million of principal payments from
mortgage-backed and other securities. Given the current rate environment, the
Corporation anticipates $11.2 million in securities to be called within the next
12 months. The Corporation also has $93.8 million of unused borrowing capacity
available with the Federal Home Loan Bank of Indianapolis, $118.5 million
available with the Federal Reserve Bank, and $125 million of available fed funds
lines with correspondent banks. With these sources of funds, the Corporation
currently anticipates adequate liquidity to meet the expected obligations of its
customers.

Financial Condition

Comparing the first three months of 2023 to year-ended December 31, 2022, loans
net of deferred loan costs, have increased $13 million to $3.1 billion. Deposits
decreased 4.66% to $4.2 billion at March 31, 2023 compared to December 31, 2022.
The decline was in part driven by a decline in interest bearing public funds
checking, which historically declines in the first quarter each year, and a
decline in institutional deposits as a result of a pricing decision.
Shareholders' equity increased 6.36% or $30.2 million. This financial
performance increased book value per share 6.21% to $41.89 at March 31, 2023
from $39.44 at December 31, 2022. Book value per share is calculated by dividing
the total shareholders' equity by the number of shares outstanding. Accumulated
other comprehensive income increased $14.4 million primarily due to the market
value of the securities portfolio, which reflected the increase in securities
pricing.

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Capital Adequacy

The Federal Reserve, OCC and Federal Deposit Insurance Corporation
(collectively, joint agencies) establish regulatory capital guidelines for U.S.
banking organizations. Regulatory capital guidelines require that capital be
measured in relation to the credit and market risks of both on- and off-balance
sheet items using various risk weights. On January 1, 2015, the Basel 3
rules became effective and include transition provisions through January 1,
2019. Under Basel 3, Total capital consists of two tiers of capital, Tier 1 and
Tier 2. Tier 1 capital is further composed of Common equity tier 1 capital and
additional tier 1 capital.

Common equity tier 1 capital primarily includes qualifying common shareholders'
equity, retained earnings and certain minority interests. Goodwill, disallowed
intangible assets and certain disallowed deferred tax assets are excluded from
Common equity tier 1 capital.

Additional tier 1 capital primarily includes qualifying non-cumulative preferred
stock, trust preferred securities (Trust Securities) subject to phase-out and
certain minority interests. Certain deferred tax assets are also excluded.

Tier 2 capital primarily consists of qualifying subordinated debt, a limited
portion of the allowance for loan and lease losses, Trust Securities subject to
phase-out and reserves for unfunded lending commitments. The Corporation's Total
capital is the sum of Tier 1 capital plus Tier 2 capital.

To meet adequately capitalized regulatory requirements, an institution must
maintain a Tier 1 capital ratio of 8.50 percent and a Total capital ratio of
10.50 percent. A "well-capitalized" institution must generally maintain capital
ratios 200 bps higher than the minimum guidelines. The risk-based capital
rules have been further supplemented by a Tier 1 leverage ratio, defined as Tier
1 capital divided by quarterly average total assets, after certain adjustments.
BHCs must have a minimum Tier 1 leverage ratio of at least 4.0 percent. National
banks must maintain a Tier 1 leverage ratio of at least 5.0 percent to be
classified as "well capitalized." Failure to meet the capital requirements
established by the joint agencies can lead to certain mandatory and
discretionary actions by regulators that could have a material adverse effect on
the Corporation's financial position. Below are the capital ratios for the
Corporation and lead bank.

The fully phased in capital conservation buffer set the minimum ratios for common equity Tier 1 capital at 7%, the Tier 1 capital at 8.5% and the total capital at 10.5%. Currently the Corporation exceeds all of these minimums.



                                        March 31, 2023       December 31, 2022       To Be Well Capitalized
Common equity tier 1 capital
Corporation                                      14.27 %                 13.58 %                        N/A
First Financial Bank                             12.74 %                 12.09 %                          - %
Total risk-based capital
Corporation                                      15.32 %                 14.61 %                        N/A
First Financial Bank                             13.81 %                 13.14 %                          - %
Tier I risk-based capital
Corporation                                      14.27 %                 13.58 %                        N/A
First Financial Bank                             12.74 %                 12.09 %                          - %
Tier I leverage capital
Corporation                                      11.30 %                 10.78 %                        N/A
First Financial Bank                             10.00 %                  9.50 %                          - %


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