What changed in this filing

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Item 1. Financial Statements

2021-08-04 compared with 2021-05-05 · 251 added, 101 removed, 1077 unchanged (25% of the section changed)

49 unchanged sentences

Three Months Ended

(unaudited) (unaudited)

June 30, Six Months Ended

2021 2020 2021 2020

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

INTEREST INCOME:

42 unchanged sentences

Three Months Ended

March 31, 2021, and 2020

June 30, 2021, and 2020

(Dollar amounts in thousands, except per share data)

4 unchanged sentences

Income/(Loss) Treasury

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

Net income — — 11,924 — — 11,924

Other comprehensive income (loss) — — — 3,514 — 3,514

Omnibus Equity Incentive Plan 1 205 — — — 206

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, April 1, 2021 $ 2,008 $ 141,024 $ 533,980 $ ( 832 ) $ ( 78,068 ) $ 598,112

Net income — — 16,614 — — 16,614

Other comprehensive income (loss) — — — 2,244 — 2,244

Omnibus Equity Incentive Plan — 216 — — — 216

Treasury shares purchased (497,000 shares) — — — — (22,024) (22,024)

Cash dividends, $.53 per share — — (6,999) — — (6,999)

Balance, June 30, 2021 $ 2,008 $ 141,240 $ 543,595 $ 1,412 $ ( 100,092 ) $ 588,163

See accompanying notes.

FIRST FINANCIAL CORPORATION

CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY

Six Months Ended

June 30, 2021, and 2020

(Dollar amounts in thousands, except per share data)

Stock Additional

Capital Retained

Earnings Accumulated

Comprehensive

Income/(Loss) Treasury

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

3 unchanged sentences

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

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

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

3 unchanged sentences

Treasury shares purchased (531,441 shares) — — — — ( 23,390 ) ( 23,390 )

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

See accompanying notes.

Cash dividends, $.53 per share — — ( 6,999 ) — — ( 6,999 )

Balance, June 30, 2021 $ 2,008 $ 141,240 $ 543,595 $ 1,412 $ ( 100,092 ) $ 588,163

FIRST FINANCIAL CORPORATION

1 unchanged sentence

(Dollar amounts in thousands, except per share data)

Three Months Ended

Six Months Ended

CASH FLOWS FROM OPERATING ACTIVITIES:

15 unchanged sentences

Loans made to customers, net of repayment 43,118 ( 119,340 )

Redemption of restricted stock — 200

Purchase of restricted stock ( 13 ) ( 6 )

Purchase of bank owned life insurance (10,000) —

Proceeds from sales of other real estate owned 69 357

16 unchanged sentences

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

The accompanying June 30, 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.

19 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.

The date was subsequently extended to December 31, 2021.

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.

7 unchanged sentences

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.

Beginning in the fourth quarter 2020, the allowance for credit loss and related provision were 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 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.

For the six months ended 2021 and 2020, 21,159 and 19,688 shares were awarded, respectively.

shares had a grant date value of $ 885 thousand and $ 837 thousand for 2021 and 2020, vest over three years, and their grant is not subject to future performance measures.

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

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.

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

Allowance for Credit Losses:

March 31, 2021

June 30, 2021

(Dollar amounts in thousands) Commercial Residential Consumer Unallocated Total

5 unchanged sentences

Allowance for Credit Losses:

March 31, 2020

June 30, 2020

(Dollar amounts in thousands) Commercial Residential Consumer Unallocated Total

4 unchanged sentences

Ending Balance $ 10,149 $ 1,876 $ 10,054 $ 1,206 $ 23,285

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

Allowance for Credit Losses:

June 30, 2021

(Dollar amounts in thousands) Commercial Residential Consumer Unallocated Total

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

Provision for credit losses ( 1,536 ) ( 1,190 ) 768 214 ( 1,744 )

Loans charged -off ( 299 ) ( 431 ) ( 2,759 ) — ( 3,489 )

Recoveries 627 316 1,970 — 2,913

Ending Balance $ 15,693 $ 17,837 $ 10,988 $ 214 $ 44,732

Allowance for Credit Losses:

June 30, 2020

(Dollar amounts in thousands) Commercial Residential Consumer Unallocated Total

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

Provision for credit losses 1,333 778 3,730 ( 186 ) 5,655

Loans charged -off ( 674 ) ( 423 ) ( 3,347 ) — ( 4,444 )

Recoveries 545 219 1,367 — 2,131

Ending Balance $ 10,149 $ 1,876 $ 10,054 $ 1,206 $ 23,285

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

Three Months Ended

March 31, 2020

June 30, 2020 Six Months Ended

June 30, 2020

Recorded Interest

Income Cash Basis

Interest Income Average

Recorded Interest

Income Cash Basis

Interest Income

(Dollar amounts in thousands) Investment Recognized Recognized

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

With no related allowance recorded:

26 unchanged sentences

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

March 31, 2021

June 30, 2021

90 Days Still Nonaccrual

30 unchanged sentences

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

March 31, 2021

June 30, 2021

Collateral Type

30 unchanged sentences

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

March 31, 2021

June 30, 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 months ended March 31, 2021 and 2020, the terms of certain loans were modified as troubled debt restructurings (TDRs).

During the three and six months ended June 30, 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

April 1, $ — $ 3,888 $ 576 $ 4,464

Added — 113 74 187

Charged Off — ( 27 ) ( 32 ) ( 59 )

Payments — ( 70 ) ( 62 ) ( 132 )

June 30, $ — $ 3,904 $ 556 $ 4,460

(Dollar amounts in thousands) Commercial Residential Consumer Total

January 1, $ — $ 3,589 $ 617 $ 4,206

2 unchanged sentences

Payments — ( 149 ) ( 108 ) ( 257 )

March 31, $ — $ 3,888 $ 576 $ 4,464

June 30, $ — $ 3,904 $ 556 $ 4,460

(Dollar amounts in thousands) Commercial Residential Consumer Total

April 1, 4 3,438 714 4,156

Added — 63 41 104

Charged Off — — ( 15 ) ( 15 )

Payments ( 4 ) ( 270 ) ( 72 ) ( 346 )

June 30, — 3,231 668 3,899

(Dollar amounts in thousands) Commercial Residential Consumer Total

January 1, 11 3,485 698 4,194

2 unchanged sentences

Payments ( 11 ) ( 371 ) ( 115 ) ( 497 )

March 31, 4 3,438 714 4,156

June 30, — 3,231 668 3,899

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 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.

Troubled debt restructurings during the three months ended June 30, 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 June 30, 2021 and 2020.

The Corporation has not committed to lend additional amounts as of June 30, 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 June 30, 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”).

1 unchanged sentence

(2) executed on a loan that was not more than 30 days past due as of December 31, 2019;

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.

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.

1 unchanged sentence

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

As of June 30, 2021, 1,454 loans totaling $285 million were modified, related to COVID-19, that were not considered troubled debt restructurings.

1,147 loans totaling $222 million have resumed normal scheduled payments.

19 unchanged sentences

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

March 31, 2021

June 30, 2021

Term Loans at Amortized Cost Basis by Origination Year Revolving

90 unchanged sentences

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

June 30, 2021

Term Loans at Amortized Cost Basis by Origination Year Revolving

47 unchanged sentences

All securities are classified as available-for-sale.

March 31, 2021

June 30, 2021

(Dollar amounts in thousands) Amortized

25 unchanged sentences

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

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.

Contractual maturities of debt securities at June 30, 2021 were as follows.

Available-for-Sale

8 unchanged sentences

TOTAL $ 1,187,676 $ 1,219,625

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.

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 March 31, 2021 and December 31, 2020.

March 31, 2021

There were $ 258 thousand and $263 thousand in gross gains and zero and $157 thousand in losses from investment sales/calls realized by the Corporation for the three and six months ended June 30, 2021.

For the three and six months ended June 30, 2020 there were $ 34 thousand and $278 thousand in gross gains and $3 thousand and $53 thousand in losses on sales/calls of investment securities.

June 30, 2021

Less Than 12 Months More Than 12 Months Total

6 unchanged sentences

Municipal taxable 8,132 (142) — — 8,132 (142)

Treasury 207 — — — 207 —

Total temporarily impaired securities $ 401,837 $ ( 5,398 ) $ 4,000 $ ( 4 ) $ 405,837 $ ( 5,402 )

5 unchanged sentences

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

Mortgage Backed Securities - Commercial — — — — — —

Collateralized mortgage obligations 12,282 ( 108 ) 3,767 ( 49 ) 16,049 ( 157 )

8 unchanged sentences

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.

Gross unrealized losses on investment securities were $5.4 million as of June 30, 2021 and $440 thousand as of December 31, 2020.

Management believes 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.

Based upon our review of the issuers, we do not believe these investments to be other than temporarily impaired.

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.

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,

The table below presents a rollforward of the credit losses recognized in earnings for the three and six month periods ended June 30, 2021 and 2020:

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

(Dollar amounts in thousands) 2021 2020 2021 2020

21 unchanged sentences

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

March 31, 2021

June 30, 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 months ended March 31, 2021 and the year ended December 31, 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 six months ended June 30, 2021 and the year ended December 31, 2020.

Fair Value Measurements Using Significant Unobservable Inputs (Level 3)

Three Months Ended March 31, 2021

Three Months Ended June 30, 2021

(Dollar amounts in thousands) State and

7 unchanged sentences

Settlements — — —

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

Ending balance, June 30 $ 1,895 $ 3,265 $ 5,160

Six Months Ended June 30, 2021

(Dollar amounts in thousands) State and

obligations Collateralized

obligations Total

Beginning balance, January 1 $ 1,895 $ 3,136 $ 5,031

Total realized/unrealized gains or losses

Included in earnings — — —

Included in other comprehensive income — 129 129

Transfers — — —

Settlements — — —

Ending balance, June 30 $ 1,895 $ 3,265 $ 5,160

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 March 31, 2021.

The following table presents quantitative information about recurring and non-recurring Level 3 fair value measurements at June 30, 2021.

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

23 unchanged sentences

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

The following tables presents collateral dependent loans measured at fair value on a non-recurring basis, as of June 30, 2021 and December 31, 2020, which are all considered Level 3.

June 30, 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 March 31, 2021 and December 31, 2020, are shown below.

The carrying amounts and estimated fair value of financial instruments at June 30, 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.

3 unchanged sentences

Loan fair value estimates represent an exit price.

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

Fair values 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.

March 31, 2021

June 30, 2021

Carrying Fair Value

25 unchanged sentences

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

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

(Dollar amounts in thousands) June 30, 2021 December 31, 2020

Federal Funds Purchased $ 5,775 $ 6,500

8 unchanged sentences

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

March 31, 2021

June 30, 2021

Repurchase Agreements Remaining Contractual Maturity of the Agreements

6 unchanged sentences

Components of Net Periodic Benefit Cost

Three Months Ended March 31,

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

(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 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.

Contributions of $ 574 thousand have been made to the Pension Plan thus far in 2021.

Contributions of $ 111 thousand have been made through the first six 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 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.

In the first six months of 2021 and 2020 there has been $ 1.4 million and $ 870 thousand of expense accrued for potential contributions to these alternative retirement benefit options.

New accounting standards

11 unchanged sentences

and enacts changes in tax laws in interim periods.

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

The guidance 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.

12 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 March 31, 2021 and 2020.

The following table presents the Corporation's sources of Non-Interest Income for the three and six months ended June 30, 2021 and 2020.

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

Three Months Ended March 31,

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

(Dollar amounts in thousands) 2021 2020 2021 2020

4 unchanged sentences

Net gains on sales of loans (a)

1,450 1,205 2,843 1,903

Loan servicing fees (a)

788 327 1,141 652

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

258 31 106 225

Other service charges and fees (a)

406 498 822 890

586 495 886 1,117

Total non-interest income $ 10,931 $ 8,776 $ 20,225 $ 17,871

(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 March 31, 2021 and March 31, 2020, totaling zero and $(6) thousand, respectively, 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 June 30, 2021 and June 30, 2020, totaling $16 thousand and $(2) thousand, respectively, and for the six months ended for the same periods, totaling $16 thousand and $(8) thousand,

which is within the scope of ASC 606;

the remaining balance is outside the scope of ASC 606.

20 unchanged sentences

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 months ended March 31, 2021 and 2020.

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, 2021 and 2020.

gains and 2021

1 unchanged sentence

(Dollar amounts in thousands) Securities plans Total

Beginning balance, April 1, $ 23,094 $ ( 23,926 ) $ ( 832 )

Change in other comprehensive income (loss) before reclassification 1,965 — 1,965

Amounts reclassified from accumulated other comprehensive income ( 193 ) 472 279

Net current period other comprehensive income (loss) 1,772 472 2,244

Ending balance, June 30, $ 24,866 $ ( 23,454 ) $ 1,412

gains and 2021

for-sale Retirement

(Dollar amounts in thousands) Securities plans Total

Beginning balance, January 1, $ 34,162 $ ( 24,398 ) $ 9,764

2 unchanged sentences

Net current period other comprehensive income (loss) (9,296) 944 (8,352)

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

Ending balance, June 30, $ 24,866 $ ( 23,454 ) $ 1,412

gains and 2020

1 unchanged sentence

(Dollar amounts in thousands) Securities plans Total

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

Change in other comprehensive income (loss) before reclassification 3,153 — 3,153

Amounts reclassified from accumulated other comprehensive income ( 23 ) 384 361

Net current period other comprehensive income (loss) 3,130 384 3,514

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

gains and 2020

for-sale Retirement

(Dollar amounts in thousands) Securities plans Total

Beginning balance, January 1, $ 14,893 $ ( 22,394 ) $ ( 7,501 )

2 unchanged sentences

Net current period other comprehensive income (loss) 16,228 788 17,016

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

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

Period Balance

16 unchanged sentences

TOTAL $ 9,764 $ ( 8,352 ) $ 1,412

Three Months Ended March 31, 2021

Period Balance

(Dollar amounts in thousands) 4/1/2020 Change 6/30/2020

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

without other than temporary impairment $ 25,566 $ 3,347 $ 28,913

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

with other than temporary impairment 2,425 ( 217 ) 2,208

Total unrealized gain (loss) on securities available-for-sale $ 27,991 $ 3,130 $ 31,121

Unrealized loss on retirement plans ( 21,990 ) 384 ( 21,606 )

TOTAL $ 6,001 $ 3,514 $ 9,515

Period Balance

(Dollar amounts in thousands) 1/1/2020 Change 6/30/2020

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

without other than temporary impairment $ 12,178 $ 16,735 $ 28,913

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

with other than temporary impairment 2,715 ( 507 ) 2,208

Total unrealized income (loss) on securities available-for-sale $ 14,893 $ 16,228 $ 31,121

Unrealized gain (loss) on retirement plans ( 22,394 ) 788 ( 21,606 )

TOTAL $ ( 7,501 ) $ 17,016 $ 9,515

Three Months Ended June 30, 2021

Details about accumulated Amount reclassified from Affected line item in

11 unchanged sentences

(see Footnote 6 for additional details).

Three Months Ended March 31, 2020

Six Months Ended June 30, 2021

Details about accumulated Amount reclassified from Affected line item in

9 unchanged sentences

Total reclassifications for the period $ ( 865 ) Net of tax

Three Months Ended June 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 $ 31 Net securities gains (losses)

on available-for-sale ( 8 ) Income tax expense

securities $ 23 Net of tax

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

retirement plan items 108 Income tax expense

$ ( 384 ) Net of tax

Total reclassifications for the period $ ( 361 ) Net of tax

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

(see Footnote 6 for additional details).

Six Months Ended June 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 $ 225 Net securities gains (losses)

on available-for-sale ( 56 ) Income tax expense

securities $ 169 Net of tax

Amortization of $ ( 984 ) (a) Salary and benefits

retirement plan items 196 Income tax expense

$ ( 788 ) Net of tax

Total reclassifications for the period $ ( 619 ) Net of tax

The Corporation leases certain branches under operating 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.

At June 30, 2021, the Corporation had lease liabilities totaling $4,933,000 and right-of-use assets totaling $4,926,000 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 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%.

At June 30, 2021, the weighted average remaining lease term for operating leases was 10.3 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.

3 unchanged sentences

As this rate is rarely determinable, the Corporation utilizes its incremental borrowing rate at lease inception, on a collateralized basis, over a similar term.

For operating leases existing prior to January 1, 2019, the rate for the remaining lease term as of January 1, 2019 was used.

The following table represents lease costs and other lease information.

1 unchanged sentence

Lease costs were as follows:

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

(Dollar amounts in thousands) Six Months Ended June 30, 2021

Operating lease cost $ 439

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 March 31, 2021 were as follows:

(Dollar amounts in thousands) March 31, 2021

Twelve Months Ended March 31,

Future minimum payments for operating leases with initial or remaining terms of one year or more as of June 30, 2021 were as follows:

(Dollar amounts in thousands) June 30, 2021

Twelve Months Ended June 30,

Thereafter 2,288

36 unchanged sentences

Summary of Operating Results

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.

Net income for the three months ended June 30, 2021 was $16.6 million, compared to $11.9 million for the same period in 2020.

Basic earnings per share increased to $1.24 for the second quarter of 2021 compared to $0.87 for the same period in 2020.

Return on Assets and Return on Equity were 1.40% and 11.06% respectively, for the three months ended June 30, 2021 compared to 1.10% and 8.06% for the three months ended June 30, 2020.

Net income for the six months ended June 30, 2021 was $29.5 million, compared to $24.1 million for the same period in 2020.

Basic earnings per share increased to $2.19 for the first six months of 2021 compared to $1.76 for the same period in 2020.

Return on Assets and Return on Equity were 1.26% and 9.82% respectively, for the six months ended June 30, 2021, compared to 1.16% and 8.30% for the six months ended June 30, 2020.

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

The spread of COVID-19 has caused economic and social disruption resulting in unprecedented uncertainty, volatility and disruption in financial markets, and has placed significant health, economic and other major pressures throughout the communities we serve, the United States and globally.

While some industries have been impacted more severely than others, all businesses have been impacted to some degree.

While some industries have been impacted more severely

than others, all businesses have been impacted to some degree.

This disruption has resulted in the shuttering of businesses across the country, significant job loss, material decreases in oil and gas prices and in business valuations, changes in consumer behavior related to pandemic fears, and aggressive measures by the federal government.

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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 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.

Net interest income decreased $267 thousand in the three months ended June 30, 2021 to $35.6 million from $35.9 million in the same period in 2020.

The net interest margin for the three months ended June 30, 2021 is 3.23% compared to 3.97% for the same period in 2020, a 18.64% decrease.

Net interest income decreased $1.7 million in the six months ended June 30, 2021 to $70.5 million from $72.2 million in the same period in 2020.

The net interest margin for the six months ended June 30, 2021 is 3.25% compared to 4.05% for the same period in 2020.

Interest rates dropped significantly from 2020 to 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 March 31, 2021 was $9.3 million compared to $9.1 million for the same period of 2020.

Non-interest income for the three months ended June 30, 2021 was $10.9 million compared to $8.8 million for the same period of 2020.

Non-interest income for the six months ended June 30, 2021 was $20.2 million compared to $17.9 million for the same period in 2020.

The increase in service charges and fees from 2020 to 2021 is primarily due to increases in debit card fee income.

Non-Interest Expenses

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.

The Corporation’s non-interest expense for the quarter ended June 30, 2021 was $28.0 million compared to $26.9 million for the same period in 2020.

The Corporation's non-interest expense for the six months ended June 30, 2021 increased $1.2 million to $55.6 million compared to 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.

The Corporation’s provision for credit losses decreased to $(2.2) million for the second quarter of 2021 as compared to $3.0 million for the same period in 2020.

Net recoveries for the second quarter of 2021 were $152 thousand compared to net charge offs of $743 thousand for the same period of 2020.

The provision for loan losses decreased $7.4 million to $(1.7) million for the six months ended June 30, 2021 compared to $5.7 million for the same period in 2020.

Net charge offs for the first six months of 2021 decreased $1.7 million to $576 thousand compared to the same period in 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.

In 2020 the provision was adjusted to add in a component for potential losses due to COVID-19.

In 2021 those potential losses have not been realized, and the economy has shown improvements which allowed for the decrease in provision.

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 three months of 2021 was 20.10% compared to 19.87% for the same period in 2020.

The Corporation’s effective income tax rate for the first six months of 2021 was 20.02% compared to 19.71% 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 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-performing loans decreased to $20.0 million at June 30, 2021 compared to $21.9 million at December 31, 2020.

Nonperforming loans decreased 12.9% compared to $23.0 million as of June 30, 2020.

A summary of non-performing loans at June 30, 2021 and December 31, 2020 follows:

June 30, 2021 December 31, 2020

Non-accrual loans $ 14,356 $ 15,367

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

March 31, 2021 December 31, 2020

June 30, 2021 December 31, 2020

Non-accrual loans

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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.

The date was subsequently extended to December 31, 2021.

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

As of June 30, 2021, 1,454 loans totaling $285 million were modified, related to COVID-19, that were not considered troubled debt restructurings.

1,147 loans totaling $222 million have resumed normal scheduled payments.

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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 March 31, 2021.

The table below shows the Corporation’s estimated sensitivity profile as of June 30, 2021.

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

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The Corporation has $13.1 million of investments that mature throughout the next 12 months.

The Corporation also anticipates $117.6 million of principal payments from mortgage-backed securities.

The Corporation also anticipates $154.2 million of principal payments from mortgage-backed and other securities.

Given the current rate environment, the Corporation anticipates $21.8 million in securities to be called within the next 12 months.

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Financial Condition

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 4.21% to $44.20 at March 31, 2021 from $42.42 at March 31, 2020.

Comparing the first six months of 2021 to the same period in 2020, loans, net of deferred loan costs, have decreased $208 million to $2.6 billion.

Deposits increased 11.7% to $3.99 billion at June 30, 2021 compared to June 30, 2020.

Shareholders' equity decreased 0.36% or $2.1 million.

This financial performance increased book value per share 4.73% to $45.08 at June 30, 2021 from $43.04 at June 30, 2020.

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

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

Through June 30, 2021, we processed approximately $253 million of approved PPP loans.

Capital Adequacy

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Currently the Corporation exceeds all of these minimums.

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

June 30, 2021 December 31, 2020 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