What changed in this filing

/stocks — the workspaceLOADING

Item 1. Financial Statements

2021-05-05 compared with 2020-11-04 · 295 added, 585 removed, 883 unchanged (50% of the section changed)

3 unchanged sentences

(Dollar amounts in thousands, except per share data)

September 30,

2021 December 31,

7 unchanged sentences

Net deferred loan (fees)/costs 6,109 4,181

Allowance for loan losses ( 26,960 ) ( 19,943 )

Allowance for credit losses ( 46,776 ) ( 47,052 )

2,600,161 2,563,242

34 unchanged sentences

Three Months Ended

September 30, Nine Months Ended

September 30,

2020 2019 2020 2019

(unaudited) (unaudited) (unaudited) (unaudited)

(unaudited) (unaudited)

INTEREST INCOME:

10 unchanged sentences

NET INTEREST INCOME 34,913 36,350

Provision for loan losses 4,425 1,500 10,080 3,200

Provision for credit losses 452 2,690

NET INTEREST INCOME AFTER PROVISION

FOR LOAN LOSSES 32,106 32,499 98,696 89,977

FOR CREDIT LOSSES 34,461 33,660

NON-INTEREST INCOME:

27 unchanged sentences

Three Months Ended

September 30, 2020, and 2019

(Dollar amounts in thousands, except per share data)

Stock Additional

Capital Retained

Earnings Accumulated

Comprehensive

Income/(Loss) Treasury

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

Net income — — 12,257 — — 12,257

Other comprehensive income — — — 4,427 — 4,427

Omnibus Equity Incentive Plan — 200 — — — 200

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

Other comprehensive income — — — 2,606 — 2,606

Omnibus Equity Incentive Plan — 205 — — — 205

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

See accompanying notes.

FIRST FINANCIAL CORPORATION

CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY

Nine Months Ended

September 30, 2020, and 2019

March 31, 2021, and 2020

(Dollar amounts in thousands, except per share data)

6 unchanged sentences

Net income — — 12,181 — — 12,181

Other comprehensive loss — — — 23,599 — 23,599

Other comprehensive income (loss) — — — 13,502 — 13,502

Omnibus Equity Incentive Plan — 204 — — — 204

Treasury shares purchased (46,989 shares) — — — — (1,724) (1,724)

Acquisition of HopFed, Inc.

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

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

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

Balance, March 31, 2020 $ 2,005 $ 139,898 $ 504,236 $ 6,001 $ ( 70,369 ) $ 581,771

Balance, January 1, 2021 $ 2,007 $ 140,820 $ 521,103 $ 9,764 $ ( 76,702 ) $ 596,992

Net income — — 12,877 — — 12,877

Other comprehensive income — — — 19,622 — 19,622

Other comprehensive income (loss) — — — ( 10,596 ) — ( 10,596 )

Omnibus Equity Incentive Plan 1 204 — — — 205

Treasury shares purchased (34,441 shares) — — — — (1,366) (1,366)

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

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

Balance, March 31, 2021 $ 2,008 $ 141,024 $ 533,980 $ ( 832 ) $ ( 78,068 ) $ 598,112

See accompanying notes.

FIRST FINANCIAL CORPORATION

1 unchanged sentence

(Dollar amounts in thousands, except per share data)

Nine Months Ended

September 30,

Three Months Ended

CASH FLOWS FROM OPERATING ACTIVITIES:

2 unchanged sentences

Net amortization (accretion) of premiums and discounts on investments 2,015 1,462

Provision for loan losses 10,080 3,200

Provision for credit losses 452 2,690

Securities (gains) losses 152 ( 194 )

10 unchanged sentences

Loans made to customers, net of repayment ( 35,178 ) 33,764

Redemption of restricted stock 400 1,228

Purchase of restricted stock ( 13 ) ( 6 )

Payments to acquire business — ( 12,629 )

Proceeds from sales of other real estate owned 36 44

16 unchanged sentences

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

The accompanying March 31, 2021 and 2020 consolidated financial statements are unaudited.

The December 31, 2020 consolidated financial statements are as reported in the First Financial Corporation (the “Corporation”) 2020 annual report.

22 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.

The extent to which the COVID-19 pandemic impacts the Corporation’s business, liquidity, asset valuations, results of operations, and financial condition, as well as its regulatory capital and liquidity ratios, will depend on future developments, which are highly uncertain, including the scope and duration of the pandemic and actions taken by governmental authorities and other third parties in response to the pandemic.

Moreover, the effects of the COVID-19 pandemic may have a material adverse effect on all or a combination of valuation impairments on the Corporation's intangible assets, investments, loans, or deferred tax assets.

The CARES Act included an option for entities to delay the implementation of ASU 2016-13, Financial Instruments - Credit Losses (Topic 326):

Measurement of Credit Losses on Financial Instruments, ("CECL") until the earlier of the termination date of the National emergency declaration by the President or December 31, 2020.

The Corporation adopted ASU 2016-13 on December 31, 2020 with an effective date of January 1, 2020.

In the first three quarters of 2020 the provision was calculated using the incurred loss basis.

Beginning in the fourth quarter 2020, the provision was calculated using CECL.

The Omnibus Equity Incentive Plan is a long-term incentive plan that was designed to align the interests of participants with the interests of shareholders.

2 unchanged sentences

These shares vest over 3 years in increments of 33 %, 33 %, and 34 % respectively.

For the three months ended 2020 and 2019, 19,688 and 19,783 shares were awarded, respectively.

These shares had a grant date value of $ 837 thousand and $ 841 thousand for 2020 and 2019, vest over three years, and their grant is not subject to future performance measures.

For the three months ended 2021 and 2020, zero and 19,688 shares were awarded, respectively.

These shares had a grant date value of zero and $ 837 thousand for 2021 and 2020, vest over three years, and their grant is not subject

to future performance measures.

The award granted in 2021 was awarded in April 2021.

Outstanding shares are increased at the award date for the total shares awarded.

Allowance for Loan Losses

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:

September 30, 2020

(Dollar amounts in thousands) Commercial Residential Consumer Unallocated Total

Beginning balance $ 10,149 $ 1,876 $ 10,054 $ 1,206 $ 23,285

Provision for loan losses 1,992 17 1,695 721 4,425

Loans charged -off ( 160 ) ( 296 ) ( 1,542 ) — ( 1,998 )

Recoveries 147 185 916 — 1,248

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

Allowance for Loan Losses:

September 30, 2019

(Dollar amounts in thousands) Commercial Residential Consumer Unallocated Total

Beginning balance $ 9,481 $ 1,323 $ 7,744 $ 1,702 $ 20,250

Provision for loan losses 163 ( 10 ) 1,691 ( 344 ) 1,500

Loans charged -off ( 864 ) ( 256 ) ( 2,082 ) — ( 3,202 )

Recoveries 226 266 759 — 1,251

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 nine months ended September 30.

Allowance for Loan Losses:

September 30, 2020

Allowance for Credit Losses

The following table presents the activity of the allowance for credit losses by portfolio segment for the three months ended March 31.

Allowance for Credit Losses:

March 31, 2021

(Dollar amounts in thousands) Commercial Residential Consumer Unallocated Total

Beginning balance $ 16,901 $ 19,142 $ 11,009 $ — $ 47,052

Provision for loan losses 3,325 795 5,425 535 10,080

Provision for credit losses ( 478 ) ( 262 ) 1,028 164 452

Loans charged-off ( 186 ) ( 188 ) ( 1,964 ) — ( 2,338 )

1 unchanged sentence

Ending Balance $ 16,715 $ 18,839 $ 11,058 $ 164 $ 46,776

Allowance for Loan Losses:

September 30, 2019

Allowance for Credit Losses:

March 31, 2020

(Dollar amounts in thousands) Commercial Residential Consumer Unallocated Total

Beginning balance $ 8,945 $ 1,302 $ 8,304 $ 1,392 $ 19,943

Provision for loan losses 5 145 3,486 ( 436 ) 3,200

Provision for credit losses 520 251 1,780 139 2,690

Loans charged-off ( 533 ) ( 257 ) ( 2,114 ) — ( 2,904 )

1 unchanged sentence

Ending Balance $ 9,323 $ 1,452 $ 8,757 $ 1,531 $ 21,063

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

Individually evaluated for impairment $ 1,685 $ — $ — $ — $ 1,685

Collectively evaluated for impairment 10,443 1,782 11,123 1,927 25,275

Acquired with deteriorated credit quality — — — — —

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

September 30, 2020

(Dollar amounts in thousands) Commercial Residential Consumer Total

Individually evaluated for impairment $ 9,366 $ 4,925 $ — $ 14,291

Collectively evaluated for impairment 1,653,380 623,349 470,546 2,747,275

Acquired with deteriorated credit quality 4,371 — — 4,371

Ending Balance $ 1,667,117 $ 628,274 $ 470,546 $ 2,765,937

Allowance for Loan Losses:

December 31, 2019

(Dollar amounts in thousands) Commercial Residential Consumer Unallocated Total

Individually evaluated for impairment $ 48 $ — $ — $ — $ 48

Collectively evaluated for impairment 8,897 1,302 8,304 1,392 19,895

Acquired with deteriorated credit quality — — — — —

Ending Balance $ 8,945 $ 1,302 $ 8,304 $ 1,392 $ 19,943

Loans December 31, 2019

(Dollar amounts in thousands) Commercial Residential Consumer Total

Individually evaluated for impairment $ 3,161 $ 3,952 $ — $ 7,113

Collectively evaluated for impairment 1,584,169 680,069 387,655 2,651,893

Acquired with deteriorated credit quality 7,436 — — 7,436

Ending Balance $ 1,594,766 $ 684,021 $ 387,655 $ 2,666,442

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

September 30, 2020

Principal Recorded Allowance

Losses Average

Recorded Interest

Income Cash Basis

(Dollar amounts in thousands) Balance Investment Allocated Investment Recognized Recognized

With no related allowance recorded:

Commercial & Industrial $ 1,458 $ 929 $ — $ 1,048 $ — $ —

Farmland — — — 1,161 — —

Non Farm, Non Residential 3,359 3,359 — 2,596 — —

Agriculture — — — — — —

All Other Commercial 24 24 — 26 — —

First Liens 3,545 3,545 — 3,609 — —

Home Equity — — — — — —

Junior Liens — — — — — —

Multifamily — — — — — —

All Other Residential — — — — — —

Motor Vehicle — — — — — —

All Other Consumer — — — — — —

With an allowance recorded:

Commercial & Industrial 3,749 3,749 1,054 1,140 — —

Farmland — — — — — —

Non Farm, Non Residential 171 171 — 86 — —

Agriculture 380 380 380 95 — —

All Other Commercial 754 754 251 377 — —

First Liens — — — — — —

Home Equity — — — — — —

Junior Liens — — — — — —

Multifamily 1,380 1,380 — 673 — —

All Other Residential — — — — — —

Motor Vehicle — — — — — —

All Other Consumer — — — — — —

TOTAL $ 14,820 $ 14,291 $ 1,685 $ 10,811 $ — $ —

December 31, 2019

Principal Recorded Allowance

Losses Average

Recorded Interest

Income Cash Basis

(Dollar amounts in thousands) Balance Investment Allocated Investment Recognized Recognized

With no related allowance recorded:

Commercial & Industrial $ 1,519 $ 989 $ — $ 848 $ — $ —

Farmland 1,997 1,997 — 1,999 — —

Non Farm, Non Residential — — — — — —

Agriculture — — — — — —

All Other Commercial 27 27 — 461 — —

First Liens 3,952 3,952 — 4,055 — —

Home Equity — — — — — —

Junior Liens — — — — — —

Multifamily — — — — — —

All Other Residential — — — — — —

Motor Vehicle — — — — — —

All Other Consumer — — — — — —

With an allowance recorded:

Commercial & Industrial 148 148 48 1,108 — —

Farmland — — — 84 — —

Non Farm, Non Residential — — — — —

Agriculture — — — 138 — —

All Other Commercial — — — — — —

First Liens — — — — — —

Home Equity — — — — — —

Junior Liens — — — — — —

Multifamily — — — — — —

All Other Residential — — — — — —

Motor Vehicle — — — — — —

All Other Consumer — — — — — —

TOTAL $ 7,643 $ 7,113 $ 48 $ 8,693 $ — $ —

The following table presents loans individually evaluated for impairment by class of loans.

Three Months Ended

September 30, 2020 Nine Months Ended

September 30, 2020

Recorded Interest

Income Cash Basis

Interest Income Average

March 31, 2020

Recorded Interest

1 unchanged sentence

Interest Income

(Dollar amounts in thousands) Investment Recognized Recognized Investment Recognized Recognized

(Dollar amounts in thousands) Investment Recognized Recognized

With no related allowance recorded:

25 unchanged sentences

TOTAL $ 8,424 $ — $ —

Three Months Ended

September 30, 2019 Nine Months Ended

September 30, 2019

Recorded Interest

Income Cash Basis

Interest Income Average

Recorded Interest

Income Cash Basis

Interest Income

(Dollar amounts in thousands) Investment Recognized Recognized Investment Recognized Recognized

With no related allowance recorded:

The tables below present the recorded investment in non-performing loans by class of loans.

March 31, 2021

90 Days Still Nonaccrual

(Dollar amounts in thousands) Accruing Nonaccrual For Credit Loss

Commercial & Industrial $ — $ 4,443 $ 1,047

10 unchanged sentences

All Other Consumer 14 497 —

With an allowance recorded:

TOTAL $ 2,091 $ 14,545 $ 4,373

December 31, 2020

90 Days Still Nonaccrual

(Dollar amounts in thousands) Accruing Nonaccrual For Credit Loss

Commercial & Industrial $ — $ 4,838 $ 1,080

11 unchanged sentences

TOTAL $ 2,458 $ 15,367 $ 4,457

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

September 30, 2020

90 Days Still Troubled

Debt Restructured Nonaccrual Excluding

(Dollar amounts in thousands) Accruing Accruing Nonaccrual TDR

The following tables present the amortized cost basis of collateral dependent loans by class of loans:

March 31, 2021

Collateral Type

(Dollar amounts in thousands) Real Estate Other

Commercial & Industrial $ 3,230 $ 1,527

12 unchanged sentences

December 31, 2020

90 Days Still Troubled

Debt Restructured Nonaccrual Excluding

(Dollar amounts in thousands) Accruing Accruing Nonaccrual TDR

Collateral Type

(Dollar amounts in thousands) Real Estate Other

Commercial & Industrial $ 3,293 $ 2,221

11 unchanged sentences

Total $ 14,896 $ 2,844

Non-performing loans include both smaller balance homogeneous loans that are collectively evaluated for impairment and individually classified impaired loans.

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

September 30, 2020

March 31, 2021

30-59 Days 60-89 Days Greater

31 unchanged sentences

TOTAL $ 14,216 $ 4,102 $ 7,408 $ 25,726 $ 2,592,827 $ 2,618,553

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

During the three months ended March 31, 2021 and 2020, 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

July 1, $ — $ 3,231 $ 668 $ 3,899

Added — 313 81 394

Charged Off — — ( 30 ) ( 30 )

Payments — ( 112 ) ( 54 ) ( 166 )

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

(Dollar amounts in thousands) Commercial Residential Consumer Total

January1, $ — $ 3,589 $ 617 $ 4,206

2 unchanged sentences

Payments — ( 79 ) ( 46 ) ( 125 )

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

(Dollar amounts in thousands) Commercial Residential Consumer Total

July 1, 127 3,797 617 4,541

Added — — 73 73

Charged Off — — ( 35 ) ( 35 )

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

September 30, 17 3,497 613 4,127

March 31, $ — $ 3,888 $ 576 $ 4,464

(Dollar amounts in thousands) Commercial Residential Consumer Total

3 unchanged sentences

Payments ( 7 ) ( 101 ) ( 43 ) ( 151 )

September 30, 17 3,497 613 4,127

March 31, 4 3,438 714 4,156

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 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.

Troubled debt restructurings during the three months ended March 31, 2021 and 2020 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 March 31, 2021 and 2020.

The Corporation has not committed to lend additional amounts as of March 31, 2021 and 2020 to customers with outstanding loans that are classified as troubled debt restructurings.

None of the charge-offs during the three and six months ended March 31, 2021 and 2020 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”).

2 unchanged sentences

and (3) executed between March 1, 2020, and the earlier of (A) 60 days after the date of termination of the National Emergency or (B) December 31, 2020.

In response to this section of the CARES Act, the federal banking agencies

issued a revised interagency statement on April 7, 2020 that, in consultation with the Financial Accounting Standards Board, confirmed that for loans not subject to section 4013, short-term modifications made on a good faith basis in response to COVID-19 to borrowers who were current prior to any relief are not troubled debt restructurings under ASC Subtopic 310-40.

In response to this section of the CARES Act, the federal banking agencies issued a revised interagency statement on April 7, 2020 that, in consultation with the Financial Accounting Standards Board, confirmed that for loans not subject to section 4013, short-term modifications made on a good faith basis in response to COVID-19 to borrowers who were current prior to any relief are not troubled debt restructurings under ASC Subtopic 310-40.

This includes short-term (e.g., up to six months) modifications such as payment deferrals, fee waivers, extensions of repayment terms, or delays in payment that are insignificant.

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

As of March 31, 2021, 1,569 loans totaling $294 million were modified, related to COVID-19, that were not considered troubled debt restructurings.

1,212 loans totaling $215 million have resumed normal scheduled payments.

18 unchanged sentences

Loans included in homogeneous pools, such as residential or consumer may be classified as substandard due to 90+ days delinquency, non-accrual status, bankruptcy, or loan restructuring.

Loans not meeting the criteria above that are analyzed individually as part of the above described process are considered to be pass rated loans.

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 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

Mention Substandard Doubtful Not Rated Total

Commercial & Industrial $ 683,490 $ 17,129 $ 17,801 $ — $ 9,623 $ 728,043

Farmland 109,589 4,318 7,139 — 199 121,245

Non Farm, Non Residential 318,566 24,066 11,154 — 781 354,567

Agriculture 117,125 9,956 16,083 — 74 143,238

All Other Commercial 306,147 2,987 812 — 44 309,990

First Liens 86,007 1,065 8,724 — 237,296 333,092

Home Equity 2,451 — 151 — 60,510 63,112

Junior Liens 2,102 46 400 — 52,279 54,827

Multifamily 159,318 105 1,380 — — 160,803

All Other Residential 1,406 — 62 — 13,139 14,607

Motor Vehicle 331 — 602 — 436,639 437,572

All Other Consumer 175 — 23 — 30,914 31,112

TOTAL $ 1,786,707 $ 59,672 $ 64,331 $ — $ 841,498 $ 2,752,208

The following tables present the commercial loan portfolio by risk category:

March 31, 2021

Term Loans at Amortized Cost Basis by Origination Year Revolving

2021 2020 2019 2018 2017 Prior Loans Total

Commercial and Industrial Pass $104,837 $109,143 $83,173 $53,023 $37,391 $108,574 $146,899 $643,040

Special Mention 3,659 2,021 1,215 9,659 223 5,553 7,886 $30,216

Substandard 1,949 629 301 4,035 1,007 5,810 2,422 $16,153

Doubtful — — — — — — — $0

Not Rated 478 2,422 1,393 1,099 447 934 — $6,773

Subtotal $110,923 $114,215 $86,082 $67,816 $39,068 $120,871 $157,207 $696,182

Farmland Pass $2,846 $10,477 $12,152 $11,723 $9,011 $50,528 $1,287 $98,024

Special Mention — — 947 — 226 3,454 — $4,627

Substandard 3,455 1,697 2,303 — 694 2,446 — $10,595

Doubtful — — — — — — — $0

Not Rated — — — — — — — $0

Subtotal $6,301 $12,174 $15,402 $11,723 $9,931 $56,428 $1,287 $113,246

Non Farm, Non Residential Pass $22,066 $39,647 $30,719 $36,813 $61,209 $117,690 $5,456 $313,600

Special Mention — — 989 — 301 12,669 — $13,959

Substandard — — 1,172 — 4,262 14,122 — $19,556

Doubtful — — — — — — — $0

Not Rated — — — — — 558 — $558

Subtotal $22,066 $39,647 $32,880 $36,813 $65,772 $145,039 $5,456 $347,673

Agriculture Pass $1,097 $12,033 $11,280 $3,182 $5,261 $19,662 $39,771 $92,286

Special Mention — 179 1,483 1,203 649 3,063 5,085 $11,662

Substandard — — 408 3 13 2,494 3,156 $6,074

Doubtful — — — — — — — $0

Not Rated — — 198 83 6 — — $287

Subtotal $1,097 $12,212 $13,369 $4,471 $5,929 $25,219 $48,012 $110,309

Other Commercial Pass $10,262 $48,893 $51,429 $37,387 $58,717 $87,250 $6,381 $300,319

Special Mention — — — — 6 2,748 — $2,754

Substandard — — — — 23 550 — $573

Doubtful — — — — — — — $0

Not Rated — — — 48 38 — — $86

Subtotal $10,262 $48,893 $51,429 $37,435 $58,784 $90,548 $6,381 $303,732

Multifamily >5 Residential Pass $1,302 $47,900 $9,564 $36,134 $19,483 $22,151 $1,248 $137,782

Special Mention — — — — — 10,646 — $10,646

Substandard — — — 1,380 — — — $1,380

Doubtful — — — — — — — $0

Not Rated — — — — — — — $0

Subtotal $1,302 $47,900 $9,564 $37,514 $19,483 $32,797 $1,248 $149,808

Total Pass $142,410 $268,093 $198,317 $178,262 $191,072 $405,855 $201,042 $1,585,051

Special Mention 3,659 2,200 4,634 10,862 1,405 38,133 12,971 $73,864

Substandard 5,404 2,326 4,184 5,418 5,999 25,422 5,578 $54,331

Doubtful — — — — — — — $0

Not Rated 478 2,422 1,591 1,230 491 1,492 — $7,704

Total commercial loans $151,951 $275,041 $208,726 $195,772 $198,967 $470,902 $219,591 $1,720,950

December 31, 2020

(Dollar amounts in thousands) Pass Special

Mention Substandard Doubtful Not Rated Total

Commercial & Industrial $ 549,341 $ 19,253 $ 26,349 $ 5 $ 2,761 $ 597,709

Farmland 119,858 8,673 8,644 — 100 137,275

Non Farm, Non Residential 381,404 4,424 12,269 — 3,678 401,775

Agriculture 127,144 4,507 27,490 — 985 160,126

All Other Commercial 283,266 3,141 1,120 — 35 287,562

First Liens 174,338 926 4,382 — 204,266 383,912

Home Equity 18,417 — 134 11 52,280 70,842

Junior Liens 2,839 64 178 76 51,817 54,974

Multifamily 146,497 112 1,315 — 19 147,943

All Other Residential 12,624 — 205 — 11,577 24,406

Motor Vehicle 2,880 — 538 — 350,780 354,198

All Other Consumer 3,155 — 38 — 28,615 31,808

TOTAL $ 1,821,763 $ 41,100 $ 82,662 $ 92 $ 706,913 $ 2,652,530

Term Loans at Amortized Cost Basis by Origination Year Revolving

2020 2019 2018 2017 2016 Prior Loans Total

Commercial and Industrial Pass $159,494 $77,253 $64,298 $41,806 $20,564 $103,598 $91,615 $558,628

Special Mention 4,848 1,331 4,427 216 1,278 4,566 3,695 $20,361

Substandard 3,780 323 4,187 1,148 3,543 2,565 3,124 $18,670

Doubtful — — — — — — — $0

Not Rated 2,618 1,772 1,446 580 105 2,255 — $8,776

Subtotal $170,740 $80,679 $74,358 $43,750 $25,490 $112,984 $98,434 $606,435

Farmland Pass $10,010 $12,775 $12,149 $10,089 $15,863 $40,338 $1,386 $102,610

Special Mention 988 947 — 230 1,900 2,656 — $6,721

Substandard 1,718 2,303 — 716 1,628 826 — $7,191

Doubtful — — — — — — — $0

Not Rated — — — — — — — $0

Subtotal $12,716 $16,025 $12,149 $11,035 $19,391 $43,820 $1,386 $116,522

Non Farm, Non Residential Pass $39,914 $33,261 $38,111 $63,371 $49,511 $83,052 $4,092 $311,312

Special Mention — 998 — 305 9,982 6,811 — $18,096

Substandard — 1,188 — 4,310 7,484 7,028 — $20,010

Doubtful — — — — — — — $0

Not Rated — — — — — 682 — $682

Subtotal $39,914 $35,447 $38,111 $67,986 $66,977 $97,573 $4,092 $350,100

Agriculture Pass $13,336 $8,330 $3,485 $5,329 $3,732 $16,792 $67,052 $118,056

Special Mention — 1,483 1,203 664 5 428 7,611 $11,394

Substandard — 3,834 18 223 2,435 1,988 5,926 $14,424

Doubtful — — — — — — — $0

Not Rated 159 216 110 6 13 — — $504

Subtotal $13,495 $13,863 $4,816 $6,222 $6,185 $19,208 $80,589 $144,378

Other Commercial Pass $44,673 $57,200 $41,470 $61,442 $40,196 $50,325 $5,162 $300,468

Special Mention — — — 7 — 2,786 — $2,793

Substandard — — — 24 528 24 — $576

Doubtful — — — — — — — $0

Not Rated — 3 52 39 345 — — $439

Subtotal $44,673 $57,203 $41,522 $61,512 $41,069 $53,135 $5,162 $304,276

Multifamily >5 Residential Pass $44,599 $9,892 $36,563 $19,749 $4,676 $21,704 $1,293 $138,476

Special Mention — — — — 102 10,662 — $10,764

Substandard — — 1,380 — — — — $1,380

Doubtful — — — — — — — $0

Not Rated — — — — — — — $0

Subtotal $44,599 $9,892 $37,943 $19,749 $4,778 $32,366 $1,293 $150,620

Total Pass $312,026 $198,711 $196,076 $201,786 $134,542 $315,809 $170,600 $1,529,550

Special Mention 5,836 4,759 5,630 1,422 13,267 27,909 11,306 $70,129

Substandard 5,498 7,648 5,585 6,421 15,618 12,431 9,050 $62,251

Doubtful — — — — — — — $0

Not Rated 2,777 1,991 1,608 625 463 2,937 — $10,401

Total commercial loans $326,137 $213,109 $208,899 $210,254 $163,890 $359,086 $190,956 $1,672,331

The Corporation evaluates the credit quality of its other loan portfolios, which includes residential real estate, consumer and lease financing loans, based primarily on the aging status of the loan and payment activity.

Accordingly, loans on non-accrual status, loans past due 90 days or more and still accruing interest, and loans modified under troubled debt restructurings are considered to be nonperforming for purposes of credit quality evaluation.

The following table presents the balance of our other loan portfolio based on the credit risk profile of loans that are performing and loans that are nonperforming:

March 31, 2021

Term Loans at Amortized Cost Basis by Origination Year Revolving

2021 2020 2019 2018 2017 Prior Loans Total

First Liens Performing $23,110 $43,222 $26,178 $29,181 $30,991 $155,216 $3,272 $311,170

Non-performing — — — 119 339 3,173 — $3,631

Subtotal $23,110 $43,222 $26,178 $29,300 $31,330 $158,389 $3,272 $314,801

Home Equity Performing $410 $1,289 $135 $64 $87 $1,462 $55,485 $58,932

Non-performing — — — — — 69 5 $74

Subtotal $410 $1,289 $135 $64 $87 $1,531 $55,490 $59,006

Junior Liens Performing $3,146 $12,684 $11,470 $10,079 $5,545 $7,959 $1,175 $52,058

Non-performing — — 50 56 205 76 — $387

Subtotal $3,146 $12,684 $11,520 $10,135 $5,750 $8,035 $1,175 $52,445

Other Residential Performing $1,482 $9,033 $1,907 $1,339 $288 $1,118 $681 $15,848

Non-performing — — 61 48 — 36 — $145

Subtotal $1,482 $9,033 $1,968 $1,387 $288 $1,154 $681 $15,993

Motor Vehicle Performing $52,166 $225,686 $98,375 $42,753 $19,802 $8,064 $— $446,846

Non-performing — 94 261 171 86 39 — $651

Subtotal $52,166 $225,780 $98,636 $42,924 $19,888 $8,103 $— $447,497

Other Consumer Performing $3,178 $13,359 $5,840 $1,964 $554 $1,297 $3,427 $29,619

Non-performing 14 212 156 102 21 5 7 $517

Subtotal $3,192 $13,571 $5,996 $2,066 $575 $1,302 $3,434 $30,136

Total Performing $83,492 $305,273 $143,905 $85,380 $57,267 $175,116 $64,040 $914,473

Non-performing 14 306 528 496 651 3,398 12 $5,405

Total other loans $83,506 $305,579 $144,433 $85,876 $57,918 $178,514 $64,052 $919,878

December 31, 2020

Term Loans at Amortized Cost Basis by Origination Year Revolving

2020 2019 2018 2017 2016 Prior Loans Total

First Liens Performing $47,875 $33,737 $31,634 $36,426 $30,419 $135,456 $3,235 $318,782

Non-performing — 40 95 343 107 4,062 — $4,647

Subtotal $47,875 $33,777 $31,729 $36,769 $30,526 $139,518 $3,235 $323,429

Home Equity Performing $854 $135 $644 $20 $— $1,525 $57,334 $60,512

Non-performing — — 1 — — 91 24 $116

Subtotal $854 $135 $645 $20 $— $1,616 $57,358 $60,628

Junior Liens Performing $13,125 $12,742 $11,139 $6,214 $3,948 $5,099 $1,333 $53,600

Non-performing — 129 48 198 9 66 — $450

Subtotal $13,125 $12,871 $11,187 $6,412 $3,957 $5,165 $1,333 $54,050

Other Residential Performing $9,773 $2,775 $1,372 $292 $178 $733 $651 $15,774

Non-performing — 62 50 — — 39 — $151

Subtotal $9,773 $2,837 $1,422 $292 $178 $772 $651 $15,925

Motor Vehicle Performing $245,839 $113,293 $51,649 $24,786 $10,026 $1,600 $— $447,193

Non-performing 318 355 257 127 36 11 — $1,104

Subtotal $246,157 $113,648 $51,906 $24,913 $10,062 $1,611 $— $448,297

Other Consumer Performing $15,298 $7,328 $2,622 $724 $854 $703 $3,352 $30,881

Non-performing 231 200 92 22 — 8 19 $572

Subtotal $15,529 $7,528 $2,714 $746 $854 $711 $3,371 $31,453

Total Performing $332,764 $170,010 $99,060 $68,462 $45,425 $145,116 $65,905 $926,742

Non-performing 549 786 543 690 152 4,277 43 $7,040

Total other loans $333,313 $170,796 $99,603 $69,152 $45,577 $149,393 $65,948 $933,782

The amortized cost and fair value of the Corporation’s investments are shown below.

All securities are classified as available-for-sale.

September 30, 2020

March 31, 2021

(Dollar amounts in thousands) Amortized

25 unchanged sentences

TOTAL $ 977,830 $ 43,354 $ ( 440 ) $ 1,020,744

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

Contractual maturities of debt securities at March 31, 2021 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 $ 1,068,032 $ 1,097,093

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.

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 September 30, 2020 and December 31, 2019.

September 30, 2020

There were $ 5 thousand in gross gains and $157 thousand in losses from investment sales/calls realized by the Corporation for the three months ended March 31, 2021.

For the three months ended March 31, 2020 there were $ 244 thousand in gross gains and $50 thousand in losses on sales/calls of investment securities.

March 31, 2021

Less Than 12 Months More Than 12 Months Total

11 unchanged sentences

(Dollar amounts in thousands) Fair Value Losses Fair Value Losses Fair Value Losses

US Government agencies $ 29,183 $ ( 150 ) $ — $ — $ 29,183 $ ( 150 )

Government agencies $ — $ — $ 944 $ ( 1 ) $ 944 $ ( 1 )

Mortgage Backed Securities - Residential $ 76,962 $ ( 279 ) $ — $ — $ 76,962 $ ( 279 )

2 unchanged sentences

State and municipal obligations 747 ( 3 ) — — 747 ( 3 )

Treasury 250 — — — 250 —

Total temporarily impaired securities $ 90,241 $ ( 390 ) $ 4,711 $ ( 50 ) $ 94,952 $ ( 440 )

Management evaluates securities for other-than-temporary impairment (“OTTI”) at least on a quarterly basis, and more frequently when economic or market conditions warrant such an evaluation.

The investment securities portfolio is evaluated for OTTI by segregating the portfolio into two general segments and applying the appropriate OTTI model.

Investment securities are generally evaluated for OTTI under FASB ASC 320, Investments - Debt and Equity Securities .

However, certain purchased beneficial interests, including non-agency mortgage-backed securities, asset-backed securities, and collateralized debt obligations, that had credit ratings at the time of purchase of below AA are evaluated using the model outlined in FASB ASC 325-40, Beneficial Interests in Securitized Financial Assets.

When OTTI occurs under either model, the amount of the OTTI recognized in earnings depends on whether an entity intends to sell the security or it is more likely than not it will be required to sell the security before recovery of its amortized cost basis, less any current-period credit loss.

If an entity intends to sell or it is more likely than not it will be required to sell the security before recovery of its amortized cost basis, less any current-period credit loss, the OTTI shall be recognized in earnings equal to the entire difference between the investment’s amortized cost basis and its fair value at the balance sheet date.

If an entity does not intend to sell the security and it is not more likely than not that the entity will be required to sell the security before recovery of its amortized cost basis less any current-period loss, the OTTI shall be separated into the amount representing the credit loss and the amount related to all other factors.

The amount of the total OTTI related to the credit loss is determined based on the present value of cash flows expected to be collected and is recognized in earnings.

The amount of the total OTTI related to other factors is recognized in other comprehensive income, net of applicable taxes.

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 $ 592 thousand as of September 30, 2020 and $1.8 million as of December 31, 2019.

Management evaluates securities for impairment related to credit losses at least on a quarterly basis, and more frequently when economic or market conditions warrant such an evaluation.

The investment securities portfolio is evaluated for impairment related to credit losses by segregating the portfolio into two general segments.

In evaluating for impairment, management considers the reason for the decline, the extent of the decline, the duration of the decline and whether the Corporation intends to sell a security or is more likely than not to be required to sell a security before recovery of its amortized cost.

If an entity intends to sell or it is more likely than not it will be required to sell the security before recovery of its amortized cost basis, the security's amortized cost is written down to fair value through income.

If an entity does not intend to sell the security and it is not more likely than not that the entity will be required to sell the security before recovery of its amortized cost basis less any current-period loss, a credit loss exists and an allowance for credit losses is recorded, limited to the amount that the fair value of the security is less than its amortized cost basis.

Any impairment that has not been recorded through an allowance for credit losses is recognized in other comprehensive income, net of applicable taxes.

Gross unrealized losses on investment securities were $6.7 million as of March 31, 2021 and $440 thousand as of December 31, 2020.

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.

1 unchanged sentence

Management does not intend to sell these securities and it is not more likely than not that we will be required to sell them before their anticipated recovery.

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 and nine month periods ended September 30, 2020 and 2019:

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

The table below presents a rollforward of the credit losses recognized in earnings for the three month periods ended March 31, 2021 and 2020:

Three Months Ended March 31,

(Dollar amounts in thousands) 2021 2020

Beginning balance $ 2,974 $ 2,974

Increases to the amount related to the credit

Loss for which other-than-temporary was previously recognized — — — —

Reductions for increases in cash flows collected — — — —

Reductions for securities called during the period — —

19 unchanged sentences

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

September 30, 2020

March 31, 2021

Fair Value Measurements Using Significant

28 unchanged sentences

There were no transfers between Level 1 and Level 2 during 2021 and 2020.

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.

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 months ended March 31, 2021 and the year ended December 31, 2020.

Fair Value Measurements Using Significant Unobservable Inputs (Level 3)

Three Months Ended September 30, 2020

(Dollar amounts in thousands) State and

obligations Collateralized

obligations Total

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

Total realized/unrealized gains or losses

Included in earnings — — —

Included in other comprehensive income — 91 91

Transfers — — —

Settlements — — —

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

Nine Months Ended September 30, 2020

Three Months Ended March 31, 2021

(Dollar amounts in thousands) State and

7 unchanged sentences

Settlements — — —

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

Ending balance, March 31 $ 1,895 $ 3,328 $ 5,223

Fair Value Measurements Using Significant Unobservable Inputs (Level 3)

10 unchanged sentences

Ending balance, December 31 $ 1,895 $ 3,136 $ 5,031

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

The following table presents quantitative information about recurring and non-recurring Level 3 fair value measurements at March 31, 2021.

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

1 unchanged sentence

Probability of default 3.41%-4.44%

Other real estate $ 3,465 Sales comparison/income approach Discount rate for age of appraisal and market conditions 5.00%-20.00%

Impaired Loans $ 4,749 Sales comparison/income approach Discount rate for age of appraisal and market conditions 0.00%-50.00%

Collateral dependent loans $ 6,063 Discounted collateral Discount rate for age of appraisal and market conditions 0.00%-50.00%

The following table presents quantitative information about recurring and non-recurring Level 3 fair value measurements at December 31, 2020.

2 unchanged sentences

Probability of default 3.41%-4.44%

Other real estate $ 3,625 Sales comparison/income approach Discount rate for age of appraisal and market conditions 5.00%-20.00%

Impaired Loans 100 Sales comparison/income approach Discount rate for age of appraisal and market conditions 0.00%-50.00%

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 $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 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.

At December 31, 2019 other real estate owned was comprised of $ 3.5 million from commercial loans and $ 142 thousand from residential loans.

Collateral dependent loans 6,581 Discounted collateral Discount rate for age of appraisal and market conditions 0.00%-50.00%

Fair value is measured based on the value of the collateral securing those loans, and is determined using several methods.

13 unchanged sentences

Values for non real estate collateral use much higher discounts than real estate collateral.

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 September 30, 2020 and December 31, 2019, which are all considered Level 3.

September 30, 2020

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

The following tables presents collateral dependent loans measured at fair value on a non-recurring basis, as of March 31, 2021 and December 31, 2020, which are all considered Level 3.

March 31, 2021

(Dollar amounts in thousands) Carrying

31 unchanged sentences

TOTAL $ 11,367 $ 4,786 $ 6,581

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

The carrying amounts and estimated fair value of financial instruments at March 31, 2021 and December 31, 2020, 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.

Security fair values were described previously.

For fixed-rate, non-impaired loans or deposits, variable rate loans or deposits with infrequent repricing or repricing limits, and for longer-term borrowings, fair value is based on discounted cash flows using current market rates applied to the estimated life and considering credit risk.

The valuation of impaired loans was described previously.

For fixed-rate, collectively evaluated loans or deposits, variable rate loans or deposits with infrequent repricing or repricing limits, and for longer-term borrowings, fair value is based on discounted cash flows using current market rates applied to the estimated life and considering credit risk.

The valuation of individually evaluated loans was described previously.

Loan fair value estimates represent an exit price.

Fair values of loans held for sale are based on market bids on the loans or similar loans.

of loans held for sale are based on market bids on the loans or similar loans.

It was not practicable to determine the fair value of Federal Home Loan Bank stock due to restrictions placed on its transferability.

1 unchanged sentence

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

September 30, 2020

March 31, 2021

Carrying Fair Value

25 unchanged sentences

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

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

(Dollar amounts in thousands) March 31, 2021 December 31, 2020

Federal Funds Purchased $ 1,250 $ 6,500

8 unchanged sentences

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

September 30, 2020

March 31, 2021

Repurchase Agreements Remaining Contractual Maturity of the Agreements

6 unchanged sentences

Components of Net Periodic Benefit Cost

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

Three Months Ended March 31,

(Dollar amounts in thousands) Pension Benefits Post-Retirement

Health Benefits Pension Benefits Post-Retirement

Health Benefits

8 unchanged sentences

First Financial Corporation previously disclosed in its financial statements for the year ended December 31, 2020 that it expected to contribute $ 2.3 million and $ 715 thousand respectively to its Pension Plan and ESOP and $ 240 thousand to the Post Retirement Health Benefits Plan in 2021.

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

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

Contributions of zero have been made to the Pension Plan thus far in 2021.

Contributions of $ 56 thousand have been made through the first three months of 2021 for the Post Retirement Health Benefits plan.

No contributions have been made in 2021 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 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.

In the first three months of 2021 and 2020 there has been $ 552 thousand and $ 412 thousand of expense accrued for potential contributions to these alternative retirement benefit options.

New accounting standards

Accounting Pronouncements Adopted:

In January 2017, the FASB issued ASU No.

2017-04, Simplifying the Test for Goodwill Impairment.

The guidance removes Step 2 of the goodwill impairment test, which requires a hypothetical purchase price allocation.

Goodwill impairment will now be the amount by which a reporting unit’s carrying value exceeds its fair value, not to exceed the carrying amount of goodwill.

All other goodwill impairment guidance will remain largely unchanged.

2017-04 is effective for interim and annual reporting periods beginning after December 15, 2019, applied prospectively.

Early adoption is permitted for any impairment tests performed after January 1, 2017.

The Corporation adopted ASU 2017-04 on January 1, 2020.

There was not a significant impact to accounting and disclosures.

In August 2018, the FASB issued ASU No.

2018-13, Disclosure Framework - Changes to the Disclosure Requirements for Fair Value Measurement.

This ASU eliminates, adds and modifies certain disclosure requirements for fair value measurements.

Among the changes, entities will no longer be required to disclose the amount of and reasons for transfers between Level 1 and Level 2 of the fair value hierarchy, but will be required to disclose the range and weighted average used to develop significant unobservable inputs for Level 3 fair value measurements.

2018-13 is effective for interim and annual reporting periods beginning after December 15, 2019;

early adoption is permitted.

The Corporation adopted ASU 2018-13 on January 1, 2020.

2018-13 only revises disclosure requirements, it did not have a material impact on the Corporation’s financial statements.

In September 2018, the FASB issued ASU No.

2018-15, Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That Is a Service Contract.

This ASU requires an entity in a cloud computing arrangement (i.e., hosting arrangement) that is a service contract to follow the internal-use software guidance in ASC 350-40 to determine which implementation costs to capitalize as assets or expense as incurred.

Capitalized implementation costs should be presented in the same line item on the balance sheet as amounts prepaid for the hosted service, if any (generally as an “other asset”).

The capitalized costs will be amortized over the term of the hosting arrangement, with the amortization expense being presented in the same income statement line item as the fees paid for the hosted service.

ASU 2018-15 is effective for interim and annual reporting periods beginning after December 15, 2019;

early adoption is permitted.

The Corporation adopted ASU 2018-15 on January 1, 2020.

ASU 2018-15 did not have a material impact on the Corporation’s financial statements.

Recent Accounting Pronouncements:

In June 2016 ASU 2016-13, Financial Instruments - Credit Losses (Topic 326):

Measurement of Credit Losses on Financial Instruments (ASU 2016-13), was issued and requires entities to use a current expected credit loss ("CECL") model which is a new impairment model based on expected losses rather than incurred losses.

Under this model an entity would recognize an impairment allowance equal to its current estimate of all contractual cash flows that the entity does not expect to collect from financial assets measured at amortized cost.

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.

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.

The new allowance model implemented by the Corporation estimates credit losses over the expected life of the portfolio and includes a qualitative framework to account for the drivers of losses that are not captured by the quantitative model.

The results continue to be utilized to refine our models and estimation techniques.

Documentation of new methodologies and internal controls that will be implemented as part of CECL as well as model validation is also being finalized.

While the committee continues to analyze and modify calculations, the Corporation currently expects the adoption of ASU 2016-13 will result in an increase in allowance for loan losses amount at January 1, 2020 in the range of $15 million to $25 million.

The allowance for credit losses also increased due to the requirement to record an allowance on acquired loan portfolios, previously recorded at fair value.

Once finalized, the cumulative effect adjustment, as a result of the adoption of this guidance, was originally to be recorded on January 1, 2020, net of tax, as an adjustment to retained earnings.

This estimate is subject to change as key assumptions are refined and model validations are finalized.

On March 27, 2020, the Coronavirus Aid, Relief, and Economic Security Act (CARES Act) was signed by the President of the United States that included an option for entities to delay the implementation of ASU 2016-13 until the earlier of the termination date of the national emergency declaration by the President or December 31, 2020.

Due to the uncertainty on the economy and unemployment from COVID-19, the Corporation has determined to delay its implementation of ASU 2016-13 and has calculated and recorded its provision for loan losses under the incurred loss model that existed prior to ASU 2016-13.

In August 2018, the FASB issued ASU No.

2018-14, Disclosure Framework - Changes to the Disclosure Requirements for Defined Benefit Plans.

This ASU makes minor changes to the disclosure requirements for employers that sponsor defined benefit pension and/or other postretirement benefit plans.

ASU 2018-14 is effective for fiscal years ending after December 15, 2020;

early adoption is permitted.

As ASU 2018-14 only revises disclosure requirements, it will not have a material impact on the Corporation’s financial statements.

In December 2019, the FASB issued ASU 2019-12 “Income Taxes (Topic 740):

9 unchanged sentences

and enacts changes in tax laws in interim periods.

The guidance is effective for public business entities for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2020.

is effective for public business entities for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2020.

Early adoption is permitted.

The Corporation is assessing ASU 2019-12 and its impact on its accounting and disclosure.

The Corporation adopted ASU 2019-12 on January 1, 2021.

ASU 2019-12 did not have a material impact on the Corporation's financial statements.

Recent Accounting Pronouncements:

In March 2020, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) No.

2020-04 “Reference Rate Reform (Topic 848):

Facilitation of the Effects of Reference Rate Reform on Financial Reporting.” These amendments provide temporary optional guidance to ease the potential burden in accounting for reference rate reform.

The ASU provides optional expedients and exceptions for applying generally accepted accounting principles to contract modifications and hedging relationships, subject to meeting certain criteria, that reference LIBOR or another reference rate expected to be discontinued.

It is intended to help stakeholders during the global market-wide reference rate transition period.

In January 2021, the FASB issued ASU 2021-01 which clarifies that certain optional expedients and exceptions in Topic 848 for contract modifications and hedge accounting apply to derivatives that are affected by the discounting transition.

The guidance is effective for all entities as of March 12, 2020 through December 31, 2022.

The Corporation is evaluating the impacts of this ASU and has not yet determined whether LIBOR transition and this ASU will have material effects on the Corporation's business operations and consolidated financial statements.

Revenue from Contracts with Customers

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 and nine months ended September 30, 2020 and 2019.

The following table presents the Corporation's sources of Non-Interest Income for the three months ended March 31, 2021 and 2020.

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

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

Three Months Ended March 31,

(Dollar amounts in thousands) 2021 2020

4 unchanged sentences

Net gains on sales of loans (a)

2,910 865 4,813 1,781

Loan servicing fees (a)

539 541 1,191 1,238

Net gains/(losses) on sales of securities (a)

Other service charges and fees (a)

449 531 1,339 1,486

1,026 808 2,143 3,058

Total non-interest income $ 9,294 $ 9,095

(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 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;

(b) The Other category includes gains/(losses) on the sale of OREO for the three months ended March 31, 2021 and March 31, 2020, totaling zero and $(6) thousand, respectively, which is within the scope of ASC 606;

the remaining balance is outside the scope of ASC 606.

19 unchanged sentences

In determining the gain or loss on the sale, the Corporation adjusts the transaction price and related gain (loss) on sale if a significant financing component is present.

On July 27, 2019, the Corporation completed its acquisition of HopFed Bancorp, Inc.

and its banking subsidiary, Heritage Bank.

Therefore, the results of HopFed have been included in the results of operations beginning on July 27, 2019.

Pursuant to the terms of the merger agreement, each issued and outstanding share of HopFed common stock, $0.01 par value per share, was converted into the right to receive, at the stockholder's election, either (or a combination of) 0.444 shares of Corporation common stock, without par value, or $21.00 in cash, subject to proration provisions specified in the merger agreement that provide for an aggregate split of 50% of shares of HopFed Common Stock being exchanged for Corporation Common Stock and 50% for cash, with cash to be paid in lieu of fractional shares.

Each outstanding share of Corporation common stock remained outstanding and was unaffected by the merger.

Acquisition-related costs of $3.3 million are included in the Corporation's income statement for the year ended December 31, 2019.

Goodwill of $44.2 million arising from the acquisition consisted largely of synergies and the cost savings resulting from the combining of the operations of the companies.

The goodwill is not deductible for income tax purposes as the transaction was accounted for as a tax-free exchange.

The following table summarizes the consideration paid and the amounts of the assets acquired and liabilities assumed recognized at the acquisition date.

(Dollar amounts in thousands) As Initially Reported Measurement Period Adjustments As Adjusted

Consideration

Cash consideration $ 67,348 $ — $ 67,348

Stock consideration 61,878 — 61,878

Fair value of total consideration transferred $ 129,226 $ — $ 129,226

Assets acquired

Cash $ 34,518 $ 34,518

Investment securities available-for-sale 174,851 174,851

Bank owned life insurance 10,693 10,693

Federal Home Loan Bank stock 4,428 4,428

Loans 657,179 1,719 658,898

Premises and equipment 25,316 (6,494) 18,822

Core deposit intangibles 10,369 10,369

Other real estate owned 3,364 3,364

Other assets 6,596 1,600 8,196

Total assets acquired 927,314 (3,175) 924,139

Liabilities assumed

Deposits 735,526 735,526

FHLB advances 20,775 20,775

Other borrowings 75,783 75,783

Other liabilities 7,066 7,066

Total liabilities assumed 839,150 — 839,150

Net identifiable assets 88,164 (3,175) 84,989

Goodwill $ 41,062 $ 3,175 $ 44,237

The fair value of net assets acquired includes fair value adjustments to certain receivables that were not considered impaired as of the acquisition date.

The fair value adjustments were determined using discounted contractual cash flows.

However, the Corporation believes that all contractual cash flows related to these financial instruments will be collected.

As such, these receivables were not considered impaired at the acquisition date and were not subject to guidance relating to purchase credit impaired loans, which have shown evidence of credit deterioration since origination.

The following table presents supplemental pro forma information as if the acquisition had occurred at the beginning of 2018.

The unaudited pro forma information includes adjustments for interest income on loans and securities acquired, interest expense on deposits acquired, and the related income tax effects.

The pro forma financial information is not necessarily indicative of the results of operations that would have occurred had the transactions been effected on the assumed dates.

Year ended December 31,

(Dollar amounts in thousands, except per share data) 2019 2018

Net interest income $ 147,581 $ 145,136

Net income $ 51,088 $ 52,252

Basic and diluted earnings per share $ 3.97 $ 4.26

FASB ASC 310-30, Loans and Debt Securities Acquired with Deteriorated Credit Quality, applies to a loan with evidence of deterioration of credit quality since origination, acquired by completion of a transfer for which it is probable, at acquisition, that the investor will be unable to collect all contractually required payments receivable.

FASB ASC 310-30 prohibits carrying over or creating an allowance for loan losses upon initial recognition.

Purchase credit impaired loans purchased during the year ended December 31, 2019, for which it was probable at acquisition that all contractually required payments would not be collected are as follows:

(Dollar amount in thousands) As Initially Reported Measurement Period Adjustments As Adjusted

Contractually required payments receivable of loans purchased during the year:

Commercial $ 16,530 $ (3,523) $ 13,007

Consumer 391 (296) 95

$ 16,921 $ (3,819) $ 13,102

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 September 30, 2020 and 2019 are shown in the following tables:

(Dollar amounts in thousands) Commercial Consumer Total

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

Discount accretion — — —

Disposals ( 469 ) — ( 469 )

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

Discount accretion — — —

Disposals ( 2,902 ) — ( 2,902 )

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

(Dollar amounts in thousands) Commercial Consumer Total

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

Loans added 8,610 260 8,870

Discount accretion — — —

Disposals ( 35 ) — ( 35 )

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, 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 nine months ended September 30, 2020 and 2019.

gains and 2020

for-sale Retirement

(Dollar amounts in thousands) Securities plans Total

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

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

Amounts reclassified from accumulated other comprehensive income ( 4 ) 383 379

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

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

The following tables summarize the changes, net of tax, within each classification of accumulated other comprehensive income/(loss) for the three months ended March 31, 2021 and 2020.

gains and 2021

4 unchanged sentences

Amounts reclassified from accumulated other comprehensive income 114 472 586

Net current period other comprehensive loss — — —

Net current period other comprehensive income (loss) ( 11,068 ) 472 ( 10,596 )

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

gains and 2019

for-sale Retirement

(Dollar amounts in thousands) Securities plans Total

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

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

Amounts reclassified from accumulated other comprehensive income ( 4 ) 303 299

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

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

Ending balance, March 31, $ 23,094 $ ( 23,926 ) $ ( 832 )

gains and 2020

5 unchanged sentences

Net current period other comprehensive income (loss) 13,098 404 13,502

ASU 2018-02 adjustment — — —

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

Ending balance, March 31, $ 27,991 $ ( 21,990 ) $ 6,001

Period Balance

16 unchanged sentences

TOTAL $ ( 7,501 ) $ 13,502 $ 6,001

Period Balance

(Dollar amounts in thousands) 7/1/2019 Change 9/30/2019

Unrealized gains (losses) on securities available-for-sale

without other than temporary impairment $ 9,998 $ 3,888 $ 13,886

Unrealized gains (losses) on securities available-for-sale

with other than temporary impairment 2,462 236 2,698

Total unrealized gain (loss) on securities available-for-sale $ 12,460 $ 4,124 $ 16,584

Unrealized loss on retirement plans ( 16,742 ) 303 ( 16,439 )

TOTAL $ ( 4,282 ) $ 4,427 $ 145

Period Balance

(Dollar amounts in thousands) 1/1/2019 Change 9/30/2019

Unrealized gains (losses) on securities available-for-sale

without other than temporary impairment $ ( 8,446 ) $ 22,332 $ 13,886

Unrealized gains (losses) on securities available-for-sale

with other than temporary impairment 2,341 357 2,698

Total unrealized income (loss) on securities available-for-sale $ ( 6,105 ) $ 22,689 $ 16,584

Unrealized gain (loss) on retirement plans ( 17,349 ) 910 ( 16,439 )

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

Three Months Ended September 30, 2020

Details about accumulated Amount reclassified from Affected line item in

other comprehensive accumulated other the statement where

income components comprehensive income net income is presented

(in thousands)

Unrealized gains and losses $ 5 Net securities gains (losses)

on available-for-sale ( 1 ) Income tax expense

securities $ 4 Net of tax

Amortization of $ ( 492 ) (a) Salary and benefits

retirement plan items 109 Income tax expense

$ ( 383 ) Net of tax

Total reclassifications for the period $ ( 379 ) Net of tax

(a) Included in the computation of net periodic benefit cost.

(see Footnote 6 for additional details).

Nine Months Ended September 30, 2020

Details about accumulated Amount reclassified from Affected line item in

other comprehensive accumulated other the statement where

income components comprehensive income net income is presented

(in thousands)

Unrealized gains and losses $ 230 Net securities gains (losses)

on available-for-sale ( 57 ) Income tax expense

securities $ 173 Net of tax

Amortization of $ ( 1,476 ) (a) Salary and benefits

retirement plan items 305 Income tax expense

$ ( 1,171 ) Net of tax

Total reclassifications for the period $ ( 998 ) Net of tax

(a) Included in the computation of net periodic benefit cost.

(see Footnote 6 for additional details).

Three Months Ended September 30, 2019

Three Months Ended March 31, 2021

Details about accumulated Amount reclassified from Affected line item in

11 unchanged sentences

(see Footnote 6 for additional details).

Nine Months Ended September 30, 2019

Three Months Ended March 31, 2020

Details about accumulated Amount reclassified from Affected line item in

12 unchanged sentences

The Corporation leases certain branches under operating 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.

At March 31, 2021, the Corporation had lease liabilities totaling $5,098,000 and right-of-use assets totaling $5,092,000 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 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%.

For the three months ended March 31, 2021, the weighted average remaining lease term for operating leases was 10.4 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) Nine Months Ended September 30, 2020

(Dollar amounts in thousands) Three Months Ended March 31, 2021

Operating lease cost $ 200

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 September 30, 2020 were as follows:

(Dollar amounts in thousands) September 30, 2020

Twelve Months Ended September 30,

Future minimum payments for operating leases with initial or remaining terms of one year or more as of March 31, 2021 were as follows:

(Dollar amounts in thousands) March 31, 2021

Twelve Months Ended March 31,

Thereafter 2,400

23 unchanged sentences

changes in asset quality, including increases in default rates on loans and higher levels of nonperforming loans and loan charge-offs generally, and specifically resulting from the economic dislocation caused by the COVID-19 pandemic;

inaccuracy of the assumptions and estimates that the management of our Corporation makes in establishing reserves for probable loan losses and other estimates generally, and specifically as a result of the effect of the COVID-19 pandemic;

inaccuracy of the assumptions and estimates that the management of our Corporation makes in establishing reserves for probable credit losses and other estimates generally, and specifically as a result of the effect of the COVID-19 pandemic;

and an increase in the rate of personal or commercial customers' bankruptcies generally, and specifically as a result of the COVID-19 pandemic.

7 unchanged sentences

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 loan losses and the valuation of goodwill and valuing investment securities.

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 2020 Form 10-K.

Summary of Operating Results

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.

Total assets acquired were $927 million, including $657 million in loans.

The acquisition also included $736 millions for deposits.

Net income for the three months ended March 31, 2021 was $12.9 million, compared to $12.2 million for the same period in 2020.

Basic earnings per share increased to $0.95 for the first quarter of 2021 compared to $0.89 for the same period in 2020.

Return on Assets and Return on Equity were 1.12% and 8.58% respectively, for the three months ended March 31, 2021 compared to 1.21% and 8.55% for the three months ended March 31, 2020.

In March 2020, the outbreak of the Coronavirus Disease 2019 (COVID-19) was recognized as a pandemic by the World Health Organization.

13 unchanged sentences

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

Net interest income decreased $1.4 million in the three months ended March 31, 2021 to $34.9 million from $36.4 million in the same period in 2020.

The net interest margin for the three months ended March 31, 2021 is 3.27% compared to 4.13% for the same period in 2020, a 20.82% decrease.

Interest rates dropped significantly from first quarter 2020 to first quarter 2021, due to federal rate adjustments in response to the COVID-19 pandemic.

Also, as a result of the pandemic, cash on hand increased significantly, which yields at a much lower rate.

Non-Interest Income

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 income for the three months ended March 31, 2021 was $9.3 million compared to $9.1 million for the same period of 2020.

Non-Interest Expenses

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 $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 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.

The Corporation’s non-interest expense for the quarter ended March 31, 2021 was $27.6 million compared to $27.6 million for the same period in 2020.

Allowance for Credit Losses

The Corporation’s provision for credit losses decreased to $452 thousand for the first quarter of 2021 as compared to $2.7 million for the same period in 2020.

Net charge offs for the first quarter of 2021 were $728 thousand compared to $1.6 million for the same period of 2020.

In the first three quarters of 2020 the provision was calculated using the incurred loss basis.

Beginning in the fourth quarter 2020, the provision was calculated using CECL.

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.

Income Tax Expense

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.

The Corporation’s effective income tax rate for the first three months of 2021 was 20.10% compared to 19.87% for the same period in 2020.

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 $23.7 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-performing loans decreased to $21.0 million at March 31, 2021 compared to $21.9 million at December 31, 2020.

Nonperforming loans increased 19.4% compared to $17.6 million as of March 31, 2020.

A summary of non-performing loans at March 31, 2021 and December 31, 2020 follows:

March 31, 2021 December 31, 2020

Non-accrual loans $ 14,545 $ 15,367

3 unchanged sentences

$ 21,010 $ 21,897

Ratio of the allowance for loan losses

Ratio of the allowance for credit losses

as a percentage of non-performing loans 222.6 % 214.9 %

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

September 30, 2020 December 31, 2019

March 31, 2021 December 31, 2020

Non-accrual loans

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

As of March 31, 2021, 1,569 loans totaling $294 million were modified, related to COVID-19, that were not considered troubled debt restructurings.

1,212 loans totaling $215 million have resumed normal scheduled payments.

21 unchanged sentences

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 September 30, 2020.

The table below shows the Corporation’s estimated sensitivity profile as of March 31, 2021.

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

17 unchanged sentences

Financial Condition

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.

Comparing the first three months of 2021 to the same period in 2020, loans, net of deferred loan costs, have increased $24 million to $2.7 billion.

Deposits increased 18.7% to $3.91 billion at March 31, 2021 compared to March 31, 2020.

Shareholders' equity increased 2.8% or $16.3 million.

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

This financial performance increased book value per share 4.21% to $44.20 at March 31, 2021 from $42.42 at March 31, 2020.

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

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

Total assets acquired were $927 million, including $675 million in loans.

The acquisition also included $736 million in deposits.

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 2020.

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

Goodwill is reviewed for impairment annually.

If there are changes or events that indicate the asset may be impaired, goodwill is reviewed for impairment on an interim basis.

The pandemic created an event that requires that the Corporation review goodwill for impairment.

The market value of the Corporation's stock experienced declines similar to other financial institutions.

We have not seen a significant impact on loans, deposits, or operating performance as a result of the pandemic.

Deposits and loans have both increased.

Loan modifications to date are at similar levels experienced by other financial institutions.

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 September 30, 2020.

Through March 31, 2021, we processed approximately $242 million of approved PPP loans.

Capital Adequacy

19 unchanged sentences

Currently the Corporation exceeds all of these minimums.

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

March 31, 2021 December 31, 2020 To Be Well Capitalized

Common equity tier 1 capital

11 unchanged sentences

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