What changed in this filing

/stocks — the workspaceLOADING

Item 1. Financial Statements

2020-11-04 compared with 2020-08-06 · 154 added, 140 removed, 1314 unchanged (18% of the section changed)

3 unchanged sentences

(Dollar amounts in thousands, except per share data)

September 30,

2020 December 31,

44 unchanged sentences

Three Months Ended

June 30, Six Months Ended

September 30, Nine Months Ended

September 30,

2020 2019 2020 2019

44 unchanged sentences

Three Months Ended

June 30, 2020, and 2019

September 30, 2020, and 2019

(Dollar amounts in thousands, except per share data)

4 unchanged sentences

Income/(Loss) Treasury

Balance, April 1, 2019 $ 1,825 $ 76,974 $ 466,398 $ ( 12,927 ) $ ( 69,474 ) $ 462,796

Balance, July 1, 2019 $ 1,826 $ 77,173 $ 472,577 $ ( 4,282 ) $ ( 69,474 ) $ 477,820

Net income — — 12,257 — — 12,257

1 unchanged sentence

Omnibus Equity Incentive Plan — 200 — — — 200

Balance, June 30, 2019 $ 1,826 $ 77,173 $ 472,577 $ ( 4,282 ) $ ( 69,474 ) $ 477,820

Balance, April 1, 2020 $ 2,005 $ 139,898 $ 504,236 $ 6,001 $ ( 70,369 ) $ 581,771

Acquisition of HopFed, Inc.

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

Balance, September 30, 2019 $ 2,004 $ 139,073 $ 484,834 $ 145 $ ( 69,474 ) $ 556,582

Balance, July 1, 2020 $ 2,006 $ 140,103 $ 509,029 $ 9,515 $ ( 70,369 ) $ 590,284

Net income — — 14,000 — — 14,000

1 unchanged sentence

Omnibus Equity Incentive Plan — 205 — — — 205

Cash dividends, $.52 per share — — (7,131) — — (7,131)

Balance, June 30, 2020 $ 2,006 $ 140,103 $ 509,029 $ 9,515 $ ( 70,369 ) $ 590,284

Balance, September 30, 2020 $ 2,006 $ 140,308 $ 523,029 $ 12,121 $ ( 70,369 ) $ 607,095

See accompanying notes.

1 unchanged sentence

CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY

Six Months Ended

June 30, 2020, and 2019

Nine Months Ended

September 30, 2020, and 2019

(Dollar amounts in thousands, except per share data)

9 unchanged sentences

Treasury shares purchased (7,866 shares) — — — — ( 315 ) ( 315 )

ASU 2018-02 adjustment — — — — — —

Acquisition of HopFed, Inc.

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

Cash dividends, $.51 per share — — ( 6,390 ) — — ( 6,390 )

Balance, June 30, 2019 $ 1,826 $ 77,173 $ 472,577 $ ( 4,282 ) $ ( 69,474 ) $ 477,820

Balance, September 30, 2019 $ 2,004 $ 139,073 $ 484,834 $ 145 $ ( 69,474 ) $ 556,582

Balance, January 1, 2020 $ 2,005 $ 139,694 $ 492,055 $ ( 7,501 ) $ ( 68,645 ) $ 557,608

4 unchanged sentences

Cash dividends, $.52 per share — — ( 7,131 ) — — ( 7,131 )

Balance, June 30, 2020 $ 2,006 $ 140,103 $ 509,029 $ 9,515 $ ( 70,369 ) $ 590,284

Balance, September 30, 2020 $ 2,006 $ 140,308 $ 523,029 $ 12,121 $ ( 70,369 ) $ 607,095

FIRST FINANCIAL CORPORATION

1 unchanged sentence

(Dollar amounts in thousands, except per share data)

Six Months Ended

Nine Months Ended

September 30,

CASH FLOWS FROM OPERATING ACTIVITIES:

36 unchanged sentences

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

The accompanying June 30, 2020 and 2019 consolidated financial statements are unaudited.

The accompanying September 30, 2020 and 2019 consolidated financial statements are unaudited.

The December 31, 2019 consolidated financial statements are as reported in the First Financial Corporation (the “Corporation”) 2019 annual report.

32 unchanged sentences

Allowance for Loan Losses

The following table presents the activity of the allowance for loan losses by portfolio segment for the three months ended June 30.

The following table presents the activity of the allowance for loan losses by portfolio segment for the three months ended September 30.

Allowance for Loan Losses:

June 30, 2020

September 30, 2020

(Dollar amounts in thousands) Commercial Residential Consumer Unallocated Total

5 unchanged sentences

Allowance for Loan Losses:

June 30, 2019

September 30, 2019

(Dollar amounts in thousands) Commercial Residential Consumer Unallocated Total

4 unchanged sentences

Ending Balance $ 9,006 $ 1,323 $ 8,112 $ 1,358 $ 19,799

The following table presents the activity of the allowance for loan losses by portfolio segment for the six months ended June 30.

The following table presents the activity of the allowance for loan losses by portfolio segment for the nine months ended September 30.

Allowance for Loan Losses:

June 30, 2020

September 30, 2020

(Dollar amounts in thousands) Commercial Residential Consumer Unallocated Total

5 unchanged sentences

Allowance for Loan Losses:

June 30, 2019

September 30, 2019

(Dollar amounts in thousands) Commercial Residential Consumer Unallocated Total

4 unchanged sentences

Ending Balance $ 9,006 $ 1,323 $ 8,112 $ 1,358 $ 19,799

The following table presents the allocation of the allowance for loan losses and the recorded investment in loans by portfolio segment and based on the impairment method at June 30, 2020 and December 31, 2019.

Allowance for Loan Losses June 30, 2020

The following table presents the allocation of the allowance for loan losses and the recorded investment in loans by portfolio segment and based on the impairment method at September 30, 2020 and December 31, 2019.

Allowance for Loan Losses September 30, 2020

(Dollar amounts in thousands) Commercial Residential Consumer Unallocated Total

3 unchanged sentences

Ending Balance $ 12,128 $ 1,782 $ 11,123 $ 1,927 $ 26,960

June 30, 2020

September 30, 2020

(Dollar amounts in thousands) Commercial Residential Consumer Total

17 unchanged sentences

The following tables present loans individually evaluated for impairment by class of loans.

June 30, 2020

September 30, 2020

Principal Recorded Allowance

64 unchanged sentences

Three Months Ended

June 30, 2020 Six Months Ended

June 30, 2020

September 30, 2020 Nine Months Ended

September 30, 2020

Recorded Interest

33 unchanged sentences

Three Months Ended

June 30, 2019 Six Months Ended

June 30, 2019

September 30, 2019 Nine Months Ended

September 30, 2019

Recorded Interest

33 unchanged sentences

The tables below presents the recorded investment in non-performing loans.

June 30, 2020

September 30, 2020

90 Days Still Troubled

33 unchanged sentences

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

June 30, 2020

September 30, 2020

30-59 Days 60-89 Days Greater

31 unchanged sentences

TOTAL $ 21,801 $ 3,421 $ 6,368 $ 31,590 $ 2,634,852 $ 2,666,442

During the three and six months ended June 30, 2020 and 2019, the terms of certain loans were modified as troubled debt restructurings (TDRs).

During the three and nine months ended September 30, 2020 and 2019, the terms of certain loans were modified as troubled debt restructurings (TDRs).

The following tables present the activity for TDRs.

(Dollar amounts in thousands) Commercial Residential Consumer Total

April 1, $ 4 $ 3,438 $ 714 $ 4,156

July 1, $ — $ 3,231 $ 668 $ 3,899

Added — 313 81 394

1 unchanged sentence

Payments — ( 112 ) ( 54 ) ( 166 )

June 30, $ — $ 3,231 $ 668 $ 3,899

September 30, $ — $ 3,432 $ 665 $ 4,097

(Dollar amounts in thousands) Commercial Residential Consumer Total

3 unchanged sentences

Payments ( 11 ) ( 483 ) ( 169 ) ( 663 )

June 30, $ — $ 3,231 $ 668 $ 3,899

September 30, $ — $ 3,432 $ 665 $ 4,097

(Dollar amounts in thousands) Commercial Residential Consumer Total

April 1, 136 4,019 619 4,774

July 1, 127 3,797 617 4,541

Added — — 73 73

1 unchanged sentence

Payments ( 110 ) ( 300 ) ( 42 ) ( 452 )

June 30, 127 3,797 617 4,541

September 30, 17 3,497 613 4,127

(Dollar amounts in thousands) Commercial Residential Consumer Total

3 unchanged sentences

Payments ( 128 ) ( 652 ) ( 160 ) ( 940 )

June 30, 127 3,797 617 4,541

September 30, 17 3,497 613 4,127

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

5 unchanged sentences

Modifications involving an extension of the maturity date were for periods ranging from twelve months to ten years.

Troubled debt restructurings during the three months ended June 30, 2020 and 2019 did not result in any material charge-offs or additional provision expense.

The Corporation has no allocations of specific reserves to customers whose loan terms have been modified in troubled debt restructurings as of June 30, 2020 and 2019.

The Corporation has not committed to lend additional amounts as of June 30, 2020 and 2019 to customers with outstanding loans that are classified as troubled debt restructurings.

None of the charge-offs during the three and six months ended June 30, 2020 and 2019 were of restructurings that had occurred in the previous 12 months.

Troubled debt restructurings during the three months ended September 30, 2020 and 2019 did not result in any material charge-offs or additional provision expense.

The Corporation has no allocations of specific reserves to customers whose loan terms have been modified in troubled debt restructurings as of September 30, 2020 and 2019.

The Corporation has not committed to lend additional amounts as of September 30, 2020 and 2019 to customers with outstanding loans that are classified as troubled debt restructurings.

None of the charge-offs during the three and six months ended September 30, 2020 and 2019 were of restructurings that had occurred in the previous 12 months.

The CARES Act includes a provision that permits a financial institution to elect to suspend temporarily troubled debt restructuring accounting under ASC Subtopic 310-40 in certain circumstances (“section 4013”).

6 unchanged sentences

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

As of June 30, 2020, 1,341 loans totaling $343 million were modified, related to COVID-19, that were not considered troubled debt restructurings.

As of September 30, 2020, 1,431 loans totaling $328 million were modified, related to COVID-19, that were not considered troubled debt restructurings.

1,139 loans totaling $208 million have resumed normal scheduled payments.

292 remaining loans are still under a debt relief plan, which include 42 commercial loans totaling $80 million that have been provided additional payment relief since the initial payment relief plan.

250 loans totaling $40 million are under the original payment relief plan.

Credit Quality Indicators:

17 unchanged sentences

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

As of June 30, 2020 and December 31, 2019, and based on the most recent analysis performed, the risk category of loans by class of loans are as follows:

June 30, 2020

As of September 30, 2020 and December 31, 2019, and based on the most recent analysis performed, the risk category of loans by class of loans are as follows:

September 30, 2020

(Dollar amounts in thousands) Pass Special

31 unchanged sentences

All securities are classified as available-for-sale.

June 30, 2020

September 30, 2020

(Dollar amounts in thousands) Amortized

25 unchanged sentences

TOTAL $ 907,575 $ 20,976 $ ( 1,834 ) $ 926,717

Contractual maturities of debt securities at June 30, 2020 were as follows.

Contractual maturities of debt securities at September 30, 2020 were as follows.

Securities not due at a single maturity or with no maturity date, primarily mortgage-backed and equity securities are shown separately.

9 unchanged sentences

TOTAL $ 914,362 $ 956,239

There were $ 34 thousand and $278 thousand in gross gains and $3 thousand and $53 thousand in losses from investment sales/calls realized by the Corporation for the three and six months ended June 30, 2020.

For the three and six months ended June 30, 2019 there were $ 16 thousand and $18 thousand in gross gains and zero and $6 thousand in losses on sales/calls of investment securities.

The following tables show the securities’ gross unrealized losses and fair value, aggregated by investment category and length of time that individual securities have been in continuous unrealized loss position, at June 30, 2020 and December 31, 2019.

June 30, 2020

There were $ 5 thousand and $283 thousand in gross gains and zero and $53 thousand in losses from investment sales/calls realized by the Corporation for the three and nine months ended September 30, 2020.

For the three and nine months ended September 30, 2019 there were $ 6 thousand and $24 thousand in gross gains and zero and $6 thousand in losses on sales/calls of investment securities.

September 30, 2020

Less Than 12 Months More Than 12 Months Total

2 unchanged sentences

Government agencies $ 5,017 $ ( 2 ) $ 998 $ ( 2 ) $ 6,015 $ ( 4 )

Mortgage Backed Securities - Residential $ 37,117 $ ( 282 ) $ — $ — $ 37,117 $ ( 282 )

Collateralized mortgage obligations 5,702 ( 124 ) 3,716 ( 93 ) 9,418 ( 217 )

State and municipal obligations 8,059 ( 64 ) 452 ( 22 ) 8,511 ( 86 )

Municipal taxable 747 (3) — — 747 (3)

Total temporarily impaired securities $ 56,642 $ ( 475 ) $ 5,166 $ ( 117 ) $ 61,808 $ ( 592 )

19 unchanged sentences

The previous amortized cost basis less the OTTI recognized in earnings becomes the new amortized cost basis of the investment.

Gross unrealized losses on investment securities were $ 234 thousand as of June 30, 2020 and $1.8 million as of December 31, 2019.

Gross unrealized losses on investment securities were $ 592 thousand as of September 30, 2020 and $1.8 million as of December 31, 2019.

A majority of these losses represent negative adjustments to market value relative to the interest rate environment reflecting the increase in market rates and not losses related to the creditworthiness of the issuer.

2 unchanged sentences

There is one remaining collateralized debt obligations security with previously recorded OTTI but there was no additional OTTI recorded in 2020 or 2019.

The table below presents a rollforward of the credit losses recognized in earnings for the three month period ended June 30, 2020 and 2019:

Three Months Ended June 30, Six Months Ended June 30,

The table below presents a rollforward of the credit losses recognized in earnings for the three and nine month periods ended September 30, 2020 and 2019:

Three Months Ended September 30, Nine Months Ended September 30,

(Dollar amounts in thousands) 2020 2019 2020 2019

24 unchanged sentences

The fair value of derivatives is based on valuation models using observable market data as of the measurement date (Level 2 inputs).

June 30, 2020

September 30, 2020

Fair Value Measurements Using Significant

28 unchanged sentences

There were no transfers between Level 1 and Level 2 during 2020 and 2019.

The tables below presents a reconciliation and income statement classification of gains and losses for all assets measured at fair value on a recurring basis using significant unobservable inputs (Level 3) for the three and six months ended June 30, 2020 and the year ended December 31, 2019.

The tables below presents a reconciliation and income statement classification of gains and losses for all assets measured at fair value on a recurring basis using significant unobservable inputs (Level 3) for the three and nine months ended September 30, 2020 and the year ended December 31, 2019.

Fair Value Measurements Using Significant Unobservable Inputs (Level 3)

Three Months Ended June 30, 2020

Three Months Ended September 30, 2020

(Dollar amounts in thousands) State and

1 unchanged sentence

obligations Total

Beginning balance, April 1 $ 2,235 $ 3,233 $ 5,468

Beginning balance, July1 $ 2,235 $ 2,945 $ 5,180

Total realized/unrealized gains or losses

3 unchanged sentences

Settlements — — —

Ending balance, June 30 $ 2,235 $ 2,945 $ 5,180

Six Months Ended June 30, 2020

Ending balance, September 30 $ 2,235 $ 3,036 $ 5,271

Nine Months Ended September 30, 2020

(Dollar amounts in thousands) State and

7 unchanged sentences

Settlements ( 330 ) — ( 330 )

Ending balance, June 30 $ 2,235 $ 2,945 $ 5,180

Ending balance, September 30 $ 2,235 $ 3,036 $ 5,271

Fair Value Measurements Using Significant Unobservable Inputs (Level 3)

10 unchanged sentences

Ending balance, December 31 $ 2,565 $ 3,619 $ 6,184

The following table presents quantitative information about recurring and non-recurring Level 3 fair value measurements at June 30, 2020.

The following table presents quantitative information about recurring and non-recurring Level 3 fair value measurements at September 30, 2020.

(Dollar amounts in thousands) Fair Value Valuation Technique(s) Unobservable Input(s) Range

10 unchanged sentences

Impaired loans disclosed in footnote 2, which are measured for impairment using the fair value of collateral, are valued at Level 3.

They are carried at a fair value of $2.5 million, after a valuation allowance of $ 237 thousand at June 30, 2020 and at

a fair value of $ 100 thousand, net of a valuation allowance of $ 48 thousand at December 31, 2019.

The impact to the provision for loan losses for the three and six months ended June 30, 2020 and for the twelve months ended December 31, 2019 was a $195 thousand increase, a $189 thousand increase, and a $ 689 thousand decrease, respectively.

They are carried at a fair value of $4.7 million, after a valuation allowance of $ 1.7 million at September 30, 2020

and at a fair value of $ 100 thousand, net of a valuation allowance of $ 48 thousand at December 31, 2019.

The impact to the provision for loan losses for the three and nine months ended September 30, 2020 and for the twelve months ended December 31, 2019 was a $1.4 million increase, a $1.6 million increase, and a $ 689 thousand decrease, respectively.

Other real estate owned is valued at Level 3.

Other real estate owned at June 30, 2020 with a value of $ 3.6 million was reduced $ 50 thousand for fair value adjustment.

At June 30, 2020 other real estate owned was comprised of $ 3.4 million from commercial loans and $ 199 thousand from residential loans.

Other real estate owned at September 30, 2020 with a value of $ 3.5 million was reduced zero for fair value adjustment.

At September 30, 2020 other real estate owned was comprised of $ 3.4 million from commercial loans and $ 119 thousand from residential loans.

Other real estate owned at December 31, 2019 with a value of $ 3.6 million was reduced $ 64 thousand for fair value adjustment.

16 unchanged sentences

Other real estate and impaired loans carried at fair value are primarily comprised of smaller balance properties.

The following tables presents loans identified as impaired by class of loans, and carried at fair value on a non-recurring basis, as of June 30, 2020 and December 31, 2019, which are all considered Level 3.

June 30, 2020

The following tables presents loans identified as impaired by class of loans, and carried at fair value on a non-recurring basis, as of September 30, 2020 and December 31, 2019, which are all considered Level 3.

September 30, 2020

(Dollar amounts in thousands) Carrying

31 unchanged sentences

TOTAL $ 148 $ 48 $ 100

The carrying amounts and estimated fair value of financial instruments at June 30, 2020 and December 31, 2019, are shown below.

The carrying amounts and estimated fair value of financial instruments at September 30, 2020 and December 31, 2019, are shown below.

Carrying amount is the estimated fair value for cash and due from banks, federal funds sold, short-term borrowings, accrued interest receivable and payable, demand deposits, short-term debt and variable-rate loans or deposits that reprice frequently and fully.

7 unchanged sentences

The fair value of off-balance sheet items is not considered material.

June 30, 2020

September 30, 2020

Carrying Fair Value

25 unchanged sentences

Period–end short-term borrowings were comprised of the following:

June 30, 2020 December 31, 2019

(Dollar amounts in thousands) September 30, 2020 December 31, 2019

Federal Funds Purchased $ 1,325 $ 900

8 unchanged sentences

Collateral pledged to repurchase agreements by remaining maturity are as follows:

June 30, 2020

September 30, 2020

Repurchase Agreements Remaining Contractual Maturity of the Agreements

6 unchanged sentences

Components of Net Periodic Benefit Cost

Three Months Ended June 30, Six Months Ended June 30,

(000's) (000's)

Pension Benefits Post-Retirement

Three Months Ended September 30, Nine Months Ended September 30,

(Dollar amounts in thousands) Pension Benefits Post-Retirement

Health Benefits Pension Benefits Post-Retirement

10 unchanged sentences

Contributions of $ 3.0 million have been made to the Pension Plan thus far in 2020.

Contributions of $ 119 thousand have been made through the first six months of 2020 for the Post Retirement Health Benefits plan.

Contributions of $ 176 thousand have been made through the first nine months of 2020 for the Post Retirement Health Benefits plan.

No contributions have been made in 2020 for the ESOP.

The Pension plan was frozen for most employees at the end of 2012 and for those employees there will be discretionary contributions to the ESOP plan and a 401K plan in place of the former Pension benefit.

In the first six months of 2020 and 2019 there has been $ 870 thousand and $ 726 thousand of expense accrued for potential contributions to these alternative retirement benefit options.

In the first nine months of 2020 and 2019 there has been $ 1.4 million and $ 1.1 million of expense accrued for potential contributions to these alternative retirement benefit options.

New accounting standards

31 unchanged sentences

The entity's estimate would consider relevant information about past events, current conditions, and reasonable and supportable forecasts, which will result in recognition of lifetime expected credit losses upon loan origination.

ASU 2016-13 is effective for interim and annual reporting periods beginning after December 15, 2019, with early adoption permitted for annual reporting periods beginning after December 15, 2018.

ASU 2016-13 is effective for interim and annual reporting periods beginning after December 15, 2019.

The Corporation formed a cross-functional internal management committee and engaged a third party vendor to assist with the transition to the guidance set forth in this update.

30 unchanged sentences

All of the Corporation's revenue from contracts with customers in the scope of ASC 606 is recognized within Non-Interest Income.

The following table presents the Corporation's sources of Non-Interest Income for the three months ended June 30, 2020 and 2019.

The following table presents the Corporation's sources of Non-Interest Income for the three and nine months ended September 30, 2020 and 2019.

Items outside the scope of ASC 606 are noted as such.

Three Months Ended June 30, Six Months Ended June 30,

Three Months Ended September 30, Nine Months Ended September 30,

(Dollar amounts in thousands) 2020 2019 2020 2019

13 unchanged sentences

(a) Not within the scope of ASC 606.

(b) The Other category includes gains/(losses) on the sale of OREO for the three months ended June 30, 2020 and June 30, 2019, totaling $(2) thousand and $(20) thousand, respectively, and for the six months ended for the same periods, totaling $(8) thousand and $(40) thousand, which is within the scope of ASC 606;

(b) The Other category includes gains/(losses) on the sale of OREO for the three months ended September 30, 2020 and September 30, 2019, totaling $5 thousand and $2 thousand, respectively, and for the nine months ended for the same periods, totaling $(3) thousand and $(38) thousand, which is within the scope of ASC 606;

the remaining balance is outside the scope of ASC 606.

73 unchanged sentences

Fair value of acquired loans at acquisition $ 8,870 $ (1,857) $ 7,013

The carrying amount of loans accounted for in accordance with FASB ASC 310-30 at June 30, 2020 and 2019 are shown in the following tables:

The carrying amount of loans accounted for in accordance with FASB ASC 310-30 at September 30, 2020 and 2019 are shown in the following tables:

(Dollar amounts in thousands) Commercial Consumer Total

Beginning balance, April 1, $ 6,347 $ — $ 6,347

Beginning balance, July 1, $ 4,836 $ — $ 4,836

Discount accretion — — —

Disposals ( 469 ) — ( 469 )

ASC 310-30 Loans, June 30, $ 4,836 $ — $ 4,836

ASC 310-30 Loans, September 30, $ 4,367 $ — $ 4,367

(Dollar amounts in thousands) Commercial Consumer Total

Beginning balance, January 1, $ 7,269 $ — $ 7,269

Loans added — — —

Discount accretion — — —

Disposals ( 2,902 ) — ( 2,902 )

ASC 310-30 Loans, June 30, $ 4,836 $ — $ 4,836

ASC 310-30 Loans, September 30, $ 4,367 $ — $ 4,367

(Dollar amounts in thousands) Commercial Consumer Total

Beginning balance, April 1, $ 1,494 $ — $ 1,494

Beginning balance, July 1, $ 1,458 $ — $ 1,458

Loans added 8,610 260 8,870

Discount accretion — — —

Disposals ( 35 ) — ( 35 )

ASC 310-30 Loans, June 30, $ 1,458 $ — $ 1,458

ASC 310-30 Loans, September 30, $ 10,033 $ 260 $ 10,293

(Dollar amounts in thousands) Commercial Consumer Total

Beginning balance, January 1, $ 1,530 $ — $ 1,530

Loans added 8,610 260 8,870

Discount accretion — — —

Disposals ( 107 ) — ( 107 )

ASC 310-30 Loans, June 30, $ 1,458 $ — $ 1,458

ASC 310-30 Loans, September 30, $ 10,033 $ 260 $ 10,293

Accumulated Other Comprehensive Income

The following tables summarize the changes, net of tax, within each classification of accumulated other comprehensive income/(loss) for the three and six months ended June 30, 2020 and 2019.

The following tables summarize the changes, net of tax, within each classification of accumulated other comprehensive income/(loss) for the three and nine months ended September 30, 2020 and 2019.

gains and 2020

1 unchanged sentence

(Dollar amounts in thousands) Securities plans Total

Beginning balance, April 1, $ 27,991 $ ( 21,990 ) $ 6,001

Beginning balance, July 1, $ 31,121 $ ( 21,606 ) $ 9,515

Change in other comprehensive income (loss) before reclassification 2,227 — 2,227

1 unchanged sentence

Net current period other comprehensive income (loss) 2,223 383 2,606

Ending balance, June 30, $ 31,121 $ ( 21,606 ) $ 9,515

Ending balance, September 30, $ 33,344 $ ( 21,223 ) $ 12,121

gains and 2020

6 unchanged sentences

Net current period other comprehensive income (loss) 18,451 1,171 19,622

Ending balance, June 30, $ 31,121 $ ( 21,606 ) $ 9,515

Ending balance, September 30, $ 33,344 $ ( 21,223 ) $ 12,121

gains and 2019

1 unchanged sentence

(Dollar amounts in thousands) Securities plans Total

Beginning balance, April 1, $ 4,119 $ ( 17,046 ) $ ( 12,927 )

Beginning balance, July 1, $ 12,460 $ ( 16,742 ) $ ( 4,282 )

Change in other comprehensive income (loss) before reclassification 4,128 — 4,128

1 unchanged sentence

Net current period other comprehensive income (loss) 4,124 303 4,427

Ending balance, June 30, $ 12,460 $ ( 16,742 ) $ ( 4,282 )

Ending balance, September 30, $ 16,584 $ ( 16,439 ) $ 145

gains and 2019

6 unchanged sentences

ASU 2018-02 adjustment — — —

Ending balance, June 30, $ 12,460 $ ( 16,742 ) $ ( 4,282 )

Ending balance, September 30, $ 16,584 $ ( 16,439 ) $ 145

Period Balance

34 unchanged sentences

TOTAL $ ( 23,454 ) $ 23,599 $ 145

Three Months Ended June 30, 2020

Three Months Ended September 30, 2020

Details about accumulated Amount reclassified from Affected line item in

11 unchanged sentences

(see Footnote 6 for additional details).

Six Months Ended June 30, 2020

Nine Months Ended September 30, 2020

Details about accumulated Amount reclassified from Affected line item in

11 unchanged sentences

(see Footnote 6 for additional details).

Three Months Ended June 30, 2019

Three Months Ended September 30, 2019

Details about accumulated Amount reclassified from Affected line item in

11 unchanged sentences

(see Footnote 6 for additional details).

Six Months Ended June 30, 2019

Nine Months Ended September 30, 2019

Details about accumulated Amount reclassified from Affected line item in

12 unchanged sentences

The Corporation leases certain branches under operating leases.

At June 30, 2020, the Corporation had lease liabilities totaling $5,817,000 and right-of-use assets totaling $5,802,000 related to these leases.

At September 30, 2020, the Corporation had lease liabilities totaling $5,976,000 and right-of-use assets totaling $5,955,000 related to these leases.

Lease liabilities and right-of-use assets are reflected in other liabilities and other assets, respectively.

For the three months ended June 30, 2020, the weighted average remaining lease term for operating leases was 11.1 years and the weighted average discount rate used in the measurement of operating lease liabilities was 2.92%.

For the three months ended September 30, 2020, the weighted average remaining lease term for operating leases was 10.7 years and the weighted average discount rate used in the measurement of operating lease liabilities was 2.92%.

The calculated amount of the lease liabilities and right-of-use assets are impacted by the length of the lease term and the discount rate used to present value the minimum lease payments.

7 unchanged sentences

Lease costs were as follows:

(Dollar amounts in thousands) Six Months Ended June 30, 2020

(Dollar amounts in thousands) Nine Months Ended September 30, 2020

Operating lease cost $ 710

5 unchanged sentences

Right-of-use assets obtained in exchange for new operating lease liabilities 7,111

Future minimum payments for operating leases with initial or remaining terms of one year or more as of June 30, 2020 were as follows:

(Dollar amounts in thousands) June 30, 2020

Twelve Months Ended June 30,

Future minimum payments for operating leases with initial or remaining terms of one year or more as of September 30, 2020 were as follows:

(Dollar amounts in thousands) September 30, 2020

Twelve Months Ended September 30,

Thereafter 2,978

36 unchanged sentences

Summary of Operating Results

Net income for the three months ended June 30, 2020 was $11.9 million, compared to $12.6 million for the same period in 2019.

Basic earnings per share decreased to $0.87 for the second quarter of 2020 compared to $1.02 for the same period in 2019.

Return on Assets and Return on Equity were 1.10% and 8.06% respectively, for the three months ended June 30, 2020 compared to 1.66% and 10.67% for the three months ended June 30, 2019.

Net income for the six months ended June 30, 2020 was $24.1 million, compared to $22.3 million for the same period in 2019.

Basic earnings per share decreased to $1.76 for the first six months of 2020 compared to $1.81 for the same period in 2019.

Return on Assets and Return on Equity were 1.16% and 8.30% respectively, for the six months ended June 30, 2020, compared to 1.47% and 9.66% for the six months ended June 30, 2019.

Net income for the three months ended September 30, 2020 was $14.0 million, compared to $12.3 million for the same period in 2019.

Basic earnings per share increased to $1.02 for the third quarter of 2020 compared to $0.93 for the same period in 2019.

Return on Assets and Return on Equity were 1.28% and 9.29% respectively, for the three months ended September 30, 2020 compared to 1.33% and 9.97% for the three months ended September 30, 2019.

Net income for the nine months ended September 30, 2020 was $38.1 million, compared to $34.5 million for the same period in 2019.

Basic earnings per share increased to $2.78 for the first nine months of 2020 compared to $2.74 for the same period in 2019.

Return on Assets and Return on Equity were 1.20% and 8.62% respectively, for the nine months ended September 30, 2020, compared to 1.42% and 9.74% for the nine months ended September 30, 2019.

These quarterly comparisons and the ones following include the Corporation's acquisition of HopFed Bancorp, Hopkinsville, Kentucky on July 27, 2019.

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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 $6.1 million in the three months ended June 30, 2020 to $35.9 million from $29.8 million in the same period in 2019.

The net interest margin for the three months ended June 30, 2020 is 3.97% compared to 4.33% for the same period in 2019, a 8.31% decrease.

Net interest income increased $13.1 million in the six months ended June 30, 2020 to $72.2 million from $59.2 million in the same period in 2019.

The net interest margin for the six months ended June 30, 2020 is 4.05% compared to 4.32% for the same period in 2019.

Net interest income increased $2.5 million in the three months ended September 30, 2020 to $36.5 million from $34.0 million in the same period in 2019.

The net interest margin for the three months ended September 30, 2020 is 3.99% compared to 4.00% for the same period in 2019, a 0.35% decrease.

Net interest income increased $15.6 million in the nine months ended September 30, 2020 to $108.8 million from $93.2 million in the same period in 2019.

The net interest margin for the nine months ended September 30, 2020 is 4.03% compared to 4.21% for the same period in 2019.

The Corporation deferred fees through the Paycheck Protection Program (“PPP”) totaling $6.2 million.

Interest income increased by $171 thousand in the three months ended June 30, 2020 as a result of the accretion of PPP fees.

Interest income increased by $733 thousand in the three months ended September 30, 2020 as a result of the accretion of PPP fees.

Non-Interest Income

Non-interest income for the three months ended June 30, 2020 was $8.8 million compared to $9.7 million for the same period of 2019.

Non-interest income for the six months ended June 30, 2020 was $17.9 million compared to $17.4 million for the same period in 2019.

Non-interest income for the three months ended September 30, 2020 was $11.7 million compared to $9.7 million for the same period of 2019.

The increase included an increase in gains on mortgages sold in the three months ended September 30, 2020.

Non-interest income for the nine months ended September 30, 2020 was $29.6 million compared to $27.1 million for the same period in 2019.

Non-Interest Expenses

The Corporation’s non-interest expense for the quarter ended June 30, 2020 was $26.9 million compared to $23.5 million for the same period in 2019.

The Corporation's non-interest expense for the six months ended June 30, 2020 increased $7.3 million to $54.4 million compared to the same period in 2019.

The Corporation’s non-interest expense for the quarter ended September 30, 2020 was $27.1 million compared to $27.4 million for the same period in 2019.

The Corporation's non-interest expense for the nine months ended September 30, 2020 increased $7.0 million to $81.6 million compared to the same period in 2019.

Allowance for Loan Losses

The Corporation’s provision for loan losses increased to $3.0 million for the second quarter of 2020 as compared to $0.2 million for the same period in 2019.

The Corporation increased the allowance for loan losses by $1.0 million in the second quarter of 2020 directly related to the initial estimate of losses resulting from the COVID-19 pandemic.

The Corporation’s provision for loan losses increased to $4.4 million for the third quarter of 2020 as compared to $1.5 million for the same period in 2019.

The Corporation increased the allowance for loan losses by $1.0 million in the third quarter of 2020, increasing the year-to-date total to $3.0 million, directly related to the estimate of losses resulting from the COVID-19 pandemic.

Also, as provided by the Coronavirus Aid Relief and Economic Security Act, the Corporation elected to delay the implementation of the Current Expected Credit Loss accounting standard.

Net charge offs for the second quarter of 2020 were $743 thousand compared to $940 thousand for the same period of 2019.

The provision for loan losses increased $4.0 million to $5.7 million for the six months ended June 30, 2020 compared to $1.7 million for the same period in 2019.

Net charge offs for the first six months of 2020 increased $427 thousand to $2.3 million compared to the same period in 2019.

Net charge offs for the third quarter of 2020 were $750 thousand compared to $2.0 million for the same period of 2019.

The provision for loan losses increased $6.9 million to $10.1 million for the nine months ended September 30, 2020 compared to $3.2 million for the same period in 2019.

Net charge offs for the first nine months of 2020 decreased $774 thousand to $3.1 million compared to the same period in 2019.

Based on management’s analysis of the current portfolio, an evaluation that includes consideration of historical loss experience, non-performing loans trends, and probable incurred losses on identified problem loans, management believes the allowance is adequate with the adjustments made for the estimates relating to the COVID-19 pandemic.

Income Tax Expense

The Corporation’s effective income tax rate for the first six months of 2020 was 19.71% compared to 19.59% for the same period in 2019.

The Corporation’s effective income tax rate for the first nine months of 2020 was 18.47% compared to 18.82% for the same period in 2019.

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, (2) loans which have been renegotiated to provide for a reduction or deferral of interest or principal because of a deterioration in the financial position of the borrower, and (3) loans past due ninety days or more as to principal or interest.

Non-performing loans increased to $23.0 million at June 30, 2020 compared to $15.3 million at December 31, 2019.

Nonperforming loans increased 51.0% compared to $15.2 million as of June 30, 2019.

A summary of non-performing loans at June 30, 2020 and December 31, 2019 follows:

June 30, 2020 December 31, 2019

Non-performing loans increased to $23.7 million at September 30, 2020 compared to $15.3 million at December 31, 2019.

Nonperforming loans increased 64.4% compared to $14.4 million as of September 30, 2019.

A summary of non-performing loans at September 30, 2020 and December 31, 2019 follows:

September 30, 2020 December 31, 2019

Non-accrual loans $ 16,628 $ 9,535

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

June 30, 2020 December 31, 2019

September 30, 2020 December 31, 2019

Non-accrual loans

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

As of June 30, 2020, 1,341 loans totaling $343 million were modified, related to COVID-19, that were not considered troubled debt restructurings.

As of September 30, 2020, 1,431 loans totaling $328 million were modified, related to COVID-19, that were not considered troubled debt restructurings.

1,139 loans totaling $208 million have resumed normal scheduled payments.

292 remaining loans are still under a debt relief plan, which include 42 commercial loans totaling $80 million that have been provided additional payment relief since the initial payment relief plan.

250 loans totaling $40 million are under the original payment relief plan.

On these modifications, we have granted payment deferrals, generally for up to three months.

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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.

The table below shows the Corporation’s estimated sensitivity profile as of June 30, 2020.

The table below shows the Corporation’s estimated sensitivity profile as of September 30, 2020.

The change in interest rates assumes a parallel shift in interest rates of 100 and 200 basis points.

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Financial Condition

Comparing the first six months of 2020 to the same period in 2019, loans, net of deferred loan costs, have increased $767 million to $2.8 billion.

Deposits increased 44.9% to $3.6 billion at June 30, 2020 compared to June 30, 2019.

Comparing the first nine months of 2020 to the same period in 2019, loans, net of deferred loan costs, have increased $85 million to $2.8 billion.

Deposits increased 11.9% to $3.6 billion at September 30, 2020 compared to September 30, 2019.

Shareholders' equity increased 9.1% or $50.5 million.

This financial performance increased book value per share 10.71% to$43.04 at June 30, 2020 from $38.88 at June 30, 2019.

This financial performance increased book value per share 9.07% to $44.27 at September 30, 2020 from $40.59 at September 30, 2019.

Book value per share is calculated by dividing the total shareholders' equity by the number of shares outstanding.

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As a Small Business Administration lender, we were well positioned to assist business customers in accessing funds available through the Paycheck Protection Program (“PPP”) implemented in April.

Through June 30, 2020, we processed approximately $170 million of approved PPP loans.

Through September 30, 2020, we processed approximately $170 million of approved PPP loans.

Goodwill is reviewed for impairment annually.

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While the Corporation does anticipate higher losses to occur as a result of the pandemic, we believe those to be in line with past economic cycles.

Based on these factors, we have determined that goodwill was not impaired as of June 30, 2020.

Based on these factors, we have determined that goodwill was not impaired as of September 30, 2020.

Capital Adequacy

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Currently the Corporation exceeds all of these minimums.

June 30, 2020 December 31, 2019 To Be Well Capitalized

September 30, 2020 December 31, 2019 To Be Well Capitalized

Common equity tier 1 capital

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Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 1. Financial Statements