What changed in this filing

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Item 1. Financial Statements

2022-05-04 compared with 2021-11-03 · 187 added, 381 removed, 966 unchanged (37% of the section changed)

3 unchanged sentences

(Dollar amounts in thousands, except per share data)

September 30,

2022 December 31,

44 unchanged sentences

Three Months Ended

September 30, Nine Months Ended

September 30,

2021 2020 2021 2020

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

(unaudited) (unaudited)

INTEREST INCOME:

18 unchanged sentences

Securities gains (losses), net 5 ( 152 )

Interchange income 118 84

Loan servicing fees 359 353

Gain on sales of mortgage loans 662 1,393

22 unchanged sentences

Three Months Ended

September 30, 2021, and 2020

(Dollar amounts in thousands, except per share data)

Stock Additional

Capital Retained

Earnings Accumulated

Comprehensive

Income/(Loss) Treasury

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 (loss) — — — 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

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

Net income — — 16,098 — — 16,098

Other comprehensive income (loss) — — — ( 2,514 ) — ( 2,514 )

Omnibus Equity Incentive Plan 1 216 — — — 217

Treasury shares purchased (176,293 shares) — — — — (7,029) (7,029)

Balance, September 30, 2021 $ 2,009 $ 141,456 $ 559,693 $ ( 1,102 ) $ ( 107,121 ) $ 594,935

See accompanying notes.

FIRST FINANCIAL CORPORATION

CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY

Nine Months Ended

September 30, 2021, and 2020

March 31, 2022, and 2021

(Dollar amounts in thousands, except per share data)

9 unchanged sentences

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

Balance, January 1, 2022 $ 2,009 $ 141,979 $ 559,139 $ ( 2,426 ) $ ( 118,125 ) $ 582,576

3 unchanged sentences

Treasury shares purchased (213,263 shares) — — — — (9,664) (9,664)

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

Balance, September 30, 2021 $ 2,009 $ 141,456 $ 559,693 $ ( 1,102 ) $ ( 107,121 ) $ 594,935

Balance, March 31, 2022 $ 2,010 $ 142,185 $ 580,063 $ ( 71,025 ) $ ( 127,789 ) $ 525,444

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:

17 unchanged sentences

Purchase of restricted stock ( 952 ) ( 13 )

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

Proceeds from sales of other real estate owned 67 36

6 unchanged sentences

Maturities of other borrowings ( 22 ) —

Proceeds from other borrowings — 16,700

Purchase of treasury stock ( 9,664 ) ( 1,366 )

7 unchanged sentences

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

The accompanying September 30, 2021 and 2020 consolidated financial statements are unaudited.

The accompanying March 31, 2022 and 2021 consolidated financial statements are unaudited.

The December 31, 2021 consolidated financial statements are as reported in the First Financial Corporation (the “Corporation”) 2021 annual report.

8 unchanged sentences

On March 27, 2020, the Coronavirus Aid, Relief, and Economic Security Act (CARES Act) was signed into law.

It contains substantial tax and spending provisions intended to address the impact of the COVID-19 pandemic.

The goal of the CARES Act is to prevent a severe economic downturn through various measures, including direct financial aid to American families and economic stimulus to significantly impacted industry sectors.

The CARES Act also includes a range of other provisions designed to support the U.S.

It contained substantial tax and spending provisions intended to address the impact of the COVID-19 pandemic.

The goal of the CARES Act was to prevent a severe economic downturn through various measures, including direct financial aid to American families and economic stimulus to significantly impacted industry sectors.

The CARES Act also included a range of other provisions designed to support the U.S.

economy and mitigate the impact of COVID-19 on financial institutions and their customers, including through the authorization of various programs and measures that the U.S.

Department of the Treasury, the Small Business Administration, the Federal Reserve Board, and other federal banking agencies may or are required to implement.

Further, in response to the COVID-19 outbreak, the Federal Reserve Board has implemented or announced a number of facilities to provide emergency liquidity to various segments of the U.S.

Department of the Treasury, the Small Business Administration, the Federal Reserve Board, and other federal banking agencies implemented.

Further, in response to the COVID-19 outbreak, the Federal Reserve Board implemented or announced a number of facilities to provide emergency liquidity to various segments of the U.S.

economy and financial market.

7 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 allowance for credit loss and related provision were calculated using CECL.

Recent declines in COVID-19 cases have resulted in most businesses reopening to capacity and a declining unemployment rate.

Some supply chain issues persist contributing to inflation.

COVID-19 continues to impact the Corporation's customers and still may result in adverse conditions on the Corporation's loans and investments.

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 nine 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.

For the three months ended 2022 and 2021, 18,679 and 21,159 shares were awarded, respectively.

These shares had a grant date value of $ 847 thousand and $ 885 thousand for 2022 and 2021, 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 September 30.

Allowance for Credit Losses:

September 30, 2021

(Dollar amounts in thousands) Commercial Residential Consumer Unallocated Total

Beginning balance $ 15,693 $ 17,837 $ 10,988 $ 214 $ 44,732

Provision for credit losses ( 531 ) ( 1,387 ) 173 245 ( 1,500 )

Loans charged-off ( 313 ) ( 61 ) ( 1,240 ) — ( 1,614 )

Recoveries 182 130 1,032 — 1,344

Ending Balance $ 15,031 $ 16,519 $ 10,953 $ 459 $ 42,962

Allowance for Credit 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 credit 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

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

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:

September 30, 2021

March 31, 2022

(Dollar amounts in thousands) Commercial Residential Consumer Unallocated Total

5 unchanged sentences

Allowance for Credit Losses:

September 30, 2020

March 31, 2021

(Dollar amounts in thousands) Commercial Residential Consumer Unallocated Total

4 unchanged sentences

Ending Balance $ 13,739 $ 18,839 $ 11,058 $ 164 $ 43,800

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

Recorded Interest

Income Cash Basis

Interest Income

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

With no related allowance recorded:

Commercial & Industrial $ 1,026 $ — $ — $ 1,048 $ — $ —

Farmland 662 — — 1,161 — —

Non Farm, Non Residential 3,436 — — 2,596 — —

Agriculture — — — — — —

All Other Commercial 25 — — 26 — —

First Liens 3,452 — — 3,609 — —

Home Equity — — — — — —

Junior Liens — — — — — —

Multifamily — — — — — —

All Other Residential — — — — — —

Motor Vehicle — — — — — —

All Other Consumer — — — — — —

With an allowance recorded:

Commercial & Industrial 2,136 — — 1,140 — —

Farmland — — — — — —

Non Farm, Non Residential 171 — — 86 — —

Agriculture 190 — — 95 — —

All Other Commercial 754 — — 377 — —

First Liens — — — — — —

Home Equity — — — — — —

Junior Liens — — — — — —

Multifamily 1,346 — — 673 — —

All Other Residential — — — — — —

Motor Vehicle — — — — — —

All Other Consumer — — — — — —

TOTAL $ 13,198 $ — $ — $ 10,811 $ — $ —

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

September 30, 2021

March 31, 2022

90 Days Still Nonaccrual

30 unchanged sentences

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

September 30, 2021

March 31, 2022

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.

September 30, 2021

March 31, 2022

30-59 Days 60-89 Days 90 Days and Greater Total

29 unchanged sentences

TOTAL $ 15,178 $ 2,833 $ 3,479 $ 21,490 $ 2,802,479 $ 2,823,969

During the three and nine months ended September 30, 2021 and 2020, the terms of certain loans were modified as troubled debt restructurings (TDRs).

During the three months ended March 31, 2022 and 2021, 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, $ — $ 3,904 $ 556 $ 4,460

Added — — 172 172

Charged Off — — — —

Payments — ( 91 ) ( 52 ) ( 143 )

September 30, $ — $ 3,813 $ 676 $ 4,489

(Dollar amounts in thousands) Commercial Residential Consumer Total

January 1, $ 407 $ 3,686 $ 706 $ 4,799

2 unchanged sentences

Payments — ( 268 ) ( 84 ) ( 352 )

September 30, $ — $ 3,813 $ 676 $ 4,489

(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

March 31, $ 407 $ 3,445 $ 690 $ 4,542

(Dollar amounts in thousands) Commercial Residential Consumer Total

3 unchanged sentences

Payments — ( 79 ) ( 46 ) ( 125 )

September 30, — 3,432 665 4,097

March 31, — 3,888 576 4,464

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, 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 September 30, 2021 and 2020.

The Corporation has not committed to lend additional amounts as of September 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 nine months ended September 30, 2021 and 2020 were of restructurings that had occurred in the previous 12 months.

Troubled debt restructurings during the three months ended March 31, 2022 and 2021 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, 2022 and 2021.

The Corporation has not committed to lend additional amounts as of March 31, 2022 and 2021 to customers with outstanding loans that are classified as troubled debt restructurings.

None of the charge-offs during the three months ended March 31, 2022 and 2021 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.

From the inception of the CARES Act through September 30, 2021, 1,332 loans totaling $268 million were modified, related to COVID-19, that were not considered troubled debt restructurings.

From the inception of the CARES Act through March 31, 2022, 1,105 loans totaling $225 million were modified, related to COVID-19, that were not considered troubled debt restructurings.

863 loans totaling $183 million have resumed normal scheduled payments.

184 remaining loans are still under a debt relief plan, which include 9 commercial loans totaling $35 million that have been provided additional payment relief since the initial payment relief plan.

5 loans totaling $232 thousand are under the original payment relief plan.

1 loan totaling $16 thousand is under the original payment relief plan.

Credit Quality Indicators:

2 unchanged sentences

The Corporation analyzes loans individually by classifying the loans as to credit risk.

This analysis includes non-homogeneous loans, such as commercial loans, with an outstanding balance greater than $ 100 thousand.

This analysis includes non-homogeneous loans, such as commercial loans, with an outstanding balance

greater than $ 100 thousand.

Any consumer loans outstanding to a borrower who had commercial loans analyzed will be similarly risk rated.

11 unchanged sentences

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

September 30, 2021

March 31, 2022

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:

September 30, 2021

March 31, 2022

Term Loans at Amortized Cost Basis by Origination Year Revolving

47 unchanged sentences

All securities are classified as available-for-sale.

September 30, 2021

March 31, 2022

(Dollar amounts in thousands) Amortized

10 unchanged sentences

Collateralized debt obligations — 3,531 — 3,531

Other securities 3,735 — — 3,735

TOTAL $ 1,429,518 $ 9,546 $ ( 79,581 ) $ 1,359,483

12 unchanged sentences

Collateralized debt obligations — 3,359 — 3,359

Other securities 5,220 — — 5,220

TOTAL $ 1,344,790 $ 30,126 $ ( 10,182 ) $ 1,364,734

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

Contractual maturities of debt securities at March 31, 2022 were as follows.

Available-for-Sale

8 unchanged sentences

TOTAL $ 1,429,518 $ 1,359,483

There were $ 5 thousand and $268 thousand in gross gains and zero and $157 thousand in losses from investment sales/calls realized by the Corporation for the three and nine months ended September 30, 2021.

For the three and nine months ended September 30, 2020 there were $ 5 thousand and $283 thousand in gross gains and zero and $53 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, 2021 and December 31, 2020.

September 30, 2021

There were $ 5 thousand in gross gains and zero in losses from investment sales/calls realized by the Corporation for the three months ended March 31, 2022.

For the three months ended March 31, 2021 there were $ 5 thousand in gross gains and $157 thousand in losses on sales/calls of investment securities.

March 31, 2022

Less Than 12 Months More Than 12 Months Total

3 unchanged sentences

Mortgage Backed Securities - Residential 420,840 ( 27,386 ) 174,550 ( 17,676 ) 595,390 ( 45,062 )

Mortgage Backed Securities - Commercial 5,206 (54) — — 5,206 (54)

Collateralized mortgage obligations 158,532 ( 7,536 ) 21,506 ( 2,019 ) 180,038 ( 9,555 )

11 unchanged sentences

State and municipal obligations 54,040 ( 578 ) — — 54,040 ( 578 )

Municipal taxable 15,048 (195) 729 (20) 15,777 (215)

Treasury 204 ( 1 ) — — 204 ( 1 )

6 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 $7.1 million as of September 30, 2021 and $440 thousand as of December 31, 2020.

Gross unrealized losses on investment securities were $79.6 million as of March 31, 2022 and $10.2 million as of December 31, 2021.

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.

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.

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

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, 2022 and 2021:

Three Months Ended March 31,

(Dollar amounts in thousands) 2022 2021

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).

September 30, 2021

March 31, 2022

Fair Value Measurements Using Significant

9 unchanged sentences

Collateralized debt obligations — — 3,531 3,531

Other securities — 1,992 1,743 3,735

TOTAL $ — $ 1,352,664 $ 6,819 $ 1,359,483

13 unchanged sentences

Collateralized debt obligations — — 3,359 3,359

Other securities — 3,477 1,743 5,220

TOTAL $ — $ 1,357,737 $ 6,997 $ 1,364,734

2 unchanged sentences

There were no transfers between Level 1 and Level 2 during 2022 and 2021.

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, 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 months ended March 31, 2022 and the year ended December 31, 2021.

Fair Value Measurements Using Significant Unobservable Inputs (Level 3)

Three Months Ended September 30, 2021

(Dollar amounts in thousands) State and

obligations Collateralized

obligations Total

Beginning balance, July 1 $ 1,895 $ 3,265 $ 5,160

Total realized/unrealized gains or losses

Included in earnings — — —

Included in other comprehensive income — ( 21 ) ( 21 )

Transfers — — —

Settlements — — —

Ending balance, September 30 $ 1,895 $ 3,244 $ 5,139

Nine Months Ended September 30, 2021

Three Months Ended March 31, 2022

(Dollar amounts in thousands) State and

obligations Collateralized

obligations Total

obligations Other securities Total

Beginning balance, January 1 $ 1,895 $ 3,359 $ 1,743 $ 6,997

4 unchanged sentences

Settlements ( 350 ) — — ( 350 )

Ending balance, September 30 $ 1,895 $ 3,244 $ 5,139

Ending balance, March 31 $ 1,545 $ 3,531 $ 1,743 $ 6,819

Fair Value Measurements Using Significant Unobservable Inputs (Level 3)

2 unchanged sentences

obligations Collateralized

obligations Total

obligations Other securities Total

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

5 unchanged sentences

Ending balance, December 31 $ 1,895 $ 3,359 $ 1,743 $ 6,997

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

The following table presents quantitative information about recurring and non-recurring Level 3 fair value measurements at March 31, 2022.

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

State and municipal obligations $ 1,545 Discounted cash flow Discount rate 3.73%-4.44%

Probability of default 3.41%-4.44%

Collateral dependent loans $ 2,231 Discounted collateral Discount rate for age of appraisal and market conditions 0.00%-50.00%

Collateralized debt obligations $ 3,531 Discounted cash flow Discount rate 1.83%

Other securities $ 1,743 Discounted cash flow Discount rate 0.65%-1.40%

Collateral dependent loans $ 10,964 Discounted cash flow 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, 2021.

1 unchanged sentence

State and municipal obligations $ 1,895 Discounted cash flow Discount rate 3.41%-4.44%

Probability of default 3.41%-4.44%

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

Collateralized debt obligations $ 3,359 Discounted cash flow Discount rate 1.83%

Other securities $ 1,743 Discounted cash flow Discount rate 0.65%-1.40%

Collateral dependent loans 12,839 Discounted cash flow 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.

14 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 September 30, 2021 and December 31, 2020, which are all considered Level 3.

September 30, 2021

(Dollar amounts in thousands) Carrying

Value Allowance

Allocated Fair Value

Commercial & Industrial $ 3,297 $ 1,162 $ 2,135

Farmland — — —

Non Farm, Non Residential 3,079 3,058 21

Agriculture — — —

All Other Commercial 248 207 41

First Liens — — —

Home Equity — — —

Junior Liens — — —

Multifamily 205 171 34

All Other Residential — — —

Motor Vehicle — — —

All Other Consumer — — —

TOTAL $ 6,829 $ 4,598 $ 2,231

December 31, 2020

(Dollar amounts in thousands) Carrying

Value Allowance

Allocated Fair Value

Commercial & Industrial $ 4,435 $ 1,363 $ 3,072

Farmland 1,231 35 1,196

Non Farm, Non Residential 3,193 3,038 155

Agriculture 600 162 438

All Other Commercial 528 52 476

First Liens — — —

Home Equity — — —

Junior Liens — — —

Multifamily 1,380 136 1,244

All Other Residential — — —

Motor Vehicle — — —

All Other Consumer — — —

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

The carrying amounts and estimated fair value of financial instruments at September 30, 2021 and December 31, 2020, are shown below.

The carrying amounts and estimated fair value of financial instruments at March 31, 2022 and December 31, 2021, are shown below.

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

7 unchanged sentences

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

September 30, 2021

March 31, 2022

Carrying Fair Value

25 unchanged sentences

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

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

(Dollar amounts in thousands) March 31, 2022 December 31, 2021

Federal Funds Purchased $ 4,800 $ 3,275

8 unchanged sentences

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

September 30, 2021

March 31, 2022

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

7 unchanged sentences

Employer Contributions

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 $ 1.5 million have been made to the Pension Plan thus far in 2021.

Contributions of $ 167 thousand have been made through the first nine months of 2021 for the Post Retirement Health Benefits plan.

First Financial Corporation previously disclosed in its financial statements for the year ended December 31, 2021 that it expected to contribute $ 250 thousand and $ 703 thousand respectively to its Pension Plan and ESOP and $ 248 thousand to the Post Retirement Health Benefits Plan in 2022.

Contributions of $ 32 thousand have been made to the Pension Plan thus far in 2022.

Contributions of $ 57 thousand have been made through the first three months of 2022 for the Post Retirement Health Benefits plan.

No contributions have been made in 2022 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 2021 and 2020 there has been $ 2.3 million and $ 1.4 million of expense accrued for potential contributions to these alternative retirement benefit options.

In the first three months of 2022 and 2021 there has been $ 849 thousand and $ 552 thousand of expense accrued for potential contributions to these alternative retirement benefit options.

New accounting standards

Accounting Pronouncements Adopted:

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

Simplifying the Accounting for Income Taxes.” These amendments remove specific exceptions to the general principles in Topic 740 in GAAP.

It eliminates the need for an organization to analyze whether the following apply in a given period:

exception to the incremental approach for intraperiod tax allocation;

exceptions to accounting for basis differences where there are ownership changes in foreign investments;

and exception in interim period income tax accounting for year-to-date losses that exceed anticipated losses.

It also improves financial statement preparers’ application of income tax-related guidance and simplifies GAAP for:

franchise taxes that are partially based on income;

transactions with a government that result in a step up in the tax basis of goodwill;

separate financial statements of legal entities that are not subject to tax;

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.

Early adoption is permitted.

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:

6 unchanged sentences

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.

The Corporation has discontinued originating LIBOR based loans and has a plan in place to transition all LIBOR indexed loans to term SOFR.

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, 2021 and 2020.

The following table presents the Corporation's sources of Non-Interest Income for the three months ended March 31, 2022 and 2021.

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) 2022 2021

4 unchanged sentences

Net gains on sales of loans (a)

1,426 2,910 4,268 4,813

Loan servicing fees (a)

344 539 1,485 1,191

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

Other service charges and fees (a)

135 449 957 1,339

1,381 1,026 2,268 2,143

Total non-interest income $ 13,738 $ 9,294

(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, 2021 and September 30, 2020, totaling $(11) thousand and $5 thousand, respectively, and for the nine months ended for the same periods, totaling $16 thousand and $(3) 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, 2022 and March 31, 2021, totaling $68 thousand and zero , respectively, which is within the scope of ASC 606;

the remaining balance is outside the scope of ASC 606.

Service charges on deposits :

18 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 November 5, 2021, the Corporation completed its acquisition of Hancock Bancorp, Inc.

and its banking subsidiary, Hancock Bank and Trust Company.

Therefore, the results of Hancock Bancorp have been included in the results of operations beginning on November 5, 2021.

Pursuant to the terms of the merger agreement, each issued and outstanding share of Hancock Bancorp, Inc.

common stock, issued and outstanding, was converted into the right to receive $18.38 per share in cash.

The aggregate value of the transaction was $31.36 million.

Acquisition-related costs of $1.2 million are included in the Corporation's income statement for the year ended December 31, 2021.

Goodwill of $7.5 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) 2021

Consideration

Cash consideration $ 31,358

Fair value of total consideration transferred $ 31,358

Assets acquired

Investment securities available-for-sale 57,054

Federal funds sold 10,470

Bank owned life insurance 9,753

Federal Home Loan Bank stock 1,362

Loans 227,827

Premises and equipment 8,180

Core deposit intangibles 652

Other assets 4,567

Total assets acquired 322,911

Liabilities assumed

Deposits 286,098

FHLB advances 11,042

Other liabilities 1,956

Total liabilities assumed 299,096

Net identifiable assets 23,815

Goodwill $ 7,543

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 2020.

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) 2021 2020

Net interest income $ 150,806 $ 156,051

Net income $ 53,714 $ 55,958

Basic and diluted earnings per share $ 4.07 $ 4.08

The fair value of purchased financial assets with credit deterioration was $12.9 million on the date of acquisition.

The gross contractual amounts receivable relating to the purchased financial assets with credit deterioration was $18.3 million.

The Corporation estimates, on the date of acquisition, that $4.4 million of the contractual cash flows specific to the purchased financial assets with credit deterioration will not be collected.

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, 2021 and 2020.

gains and 2021

for-sale Retirement

(Dollar amounts in thousands) Securities plans Total

Beginning balance, July 1, $ 24,866 $ ( 23,454 ) $ 1,412

Change in other comprehensive income (loss) before reclassification ( 2,981 ) — ( 2,981 )

Amounts reclassified from accumulated other comprehensive income ( 4 ) 471 467

Net current period other comprehensive income (loss) ( 2,985 ) 471 ( 2,514 )

Ending balance, September 30, $ 21,881 $ ( 22,983 ) $ ( 1,102 )

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, 2022 and 2021.

gains and 2022

5 unchanged sentences

Net current period other comprehensive income (loss) ( 68,914 ) 315 ( 68,599 )

Ending balance, September 30, $ 21,881 $ ( 22,983 ) $ ( 1,102 )

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

Ending balance, March 31, $ ( 53,240 ) $ ( 17,785 ) $ ( 71,025 )

gains and 2021

5 unchanged sentences

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

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

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

Period Balance

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TOTAL $ 9,764 $ ( 10,596 ) $ ( 832 )

Period Balance

(Dollar amounts in thousands) 7/1/2020 Change 9/30/2020

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

without other than temporary impairment $ 28,913 $ 2,154 $ 31,067

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

with other than temporary impairment 2,208 69 2,277

Total unrealized gain (loss) on securities available-for-sale $ 31,121 $ 2,223 $ 33,344

Unrealized loss on retirement plans ( 21,606 ) 383 ( 21,223 )

TOTAL $ 9,515 $ 2,606 $ 12,121

Period Balance

(Dollar amounts in thousands) 1/1/2020 Change 9/30/2020

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

without other than temporary impairment $ 12,178 $ 18,889 $ 31,067

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

with other than temporary impairment 2,715 ( 438 ) 2,277

Total unrealized income (loss) on securities available-for-sale $ 14,893 $ 18,451 $ 33,344

Unrealized gain (loss) on retirement plans ( 22,394 ) 1,171 ( 21,223 )

TOTAL $ ( 7,501 ) $ 19,622 $ 12,121

Three Months Ended September 30, 2021

Three Months Ended March 31, 2022

Details about accumulated Amount reclassified from Affected line item in

11 unchanged sentences

(see Footnote 6 for additional details).

Nine Months Ended September 30, 2021

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 $ 111 Net securities gains (losses)

on available-for-sale ( 28 ) Income tax expense

securities $ 83 Net of tax

Amortization of $ ( 1,554 ) (a) Salary and benefits

retirement plan items 139 Income tax expense

$ ( 1,415 ) Net of tax

Total reclassifications for the period $ ( 1,332 ) Net of tax

Three Months Ended September 30, 2020

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, 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

The Corporation leases certain branches under operating leases.

At September 30, 2021, the Corporation had lease liabilities totaling $6,863,000 and right-of-use assets totaling $6,845,000 related to these leases.

At March 31, 2022, the Corporation had lease liabilities totaling $6,517,000 and right-of-use assets totaling $6,489,000 related to these leases.

At December 31, 2021, the Corporation had lease liabilities totaling $6,218,000 and right-of-use assets totaling $6,197,000 related to these leases.

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

At September 30, 2021, the weighted average remaining lease term for operating leases was 9.8 years and the weighted average discount rate used in the measurement of operating lease liabilities was 2.31%.

At March 31, 2022, the weighted average remaining lease term for operating leases was 10.0 years and the weighted average discount rate used in the measurement of operating lease liabilities was 2.20%.

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.

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Lease costs were as follows:

(Dollar amounts in thousands) Nine Months Ended September 30, 2021

(Dollar amounts in thousands) Three Months Ended March 31, 2022

Operating lease cost $ 274

5 unchanged sentences

Right-of-use assets obtained in exchange for new operating lease liabilities 9,811

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

(Dollar amounts in thousands) September 30, 2021

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, 2022 were as follows:

(Dollar amounts in thousands) March 31, 2022

Twelve Months Ended March 31,

Thereafter 3,133

2 unchanged sentences

Present Value of Net Future Minimum Lease Payments $ 6,512

Subsequent Events

On August 10, 2021, First Financial Corporation, an Indiana corporation ("FFC"), HB Subsidiary, Inc., a Kentucky corporation and wholly owned subsidiary of FFC ("Merger Sub"), and Hancock Bancorp, Inc., a Kentucky corporation ("HBI"), entered into an Agreement and Plan of Merger (the "Merger Agreement").

Pursuant to the terms of the Merger Agreement, Merger Sub will merge with and into HBI, with HBI as the surviving entity (the "Merger") under the name HB Subsidiary, Inc.

Immediately following the Merger, or simultaneously therewith, Hancock Bank and Trust Company, a Kentucky chartered commercial bank and wholly owned subsidiary of HBI ("Hancock Bank & Trust") will merge with and into First Financial Bank, N.A., a national banking association and wholly owned subsidiary of FFC ("First Financial Bank"), with First Financial Bank as the surviving entity (the "Bank Merger").

As soon as practicable following the Bank Merger, HB Subsidiary, Inc.

(f/k /a HBI) will merge with and into FFC, with FFC as the surviving corporation (the "Holdco Merger", and together with the Merger and the Bank Merger, the "Transactions").

Merger Consideration

Upon the terms and subject to the conditions set forth in the Merger Agreement, at the effective time of the Merger (the "Effective Time") other than dissenting shares, each share of HBI Common Stock issued and outstanding immediately prior to the Effective Time, except for certain shares held by HBI, will be converted into the right to receive $18.38 per share in cash.

The aggregate value of the transaction is $31.35 million..

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

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Critical Accounting Policies

Certain of the Corporation’s accounting policies are important to the portrayal of the Corporation’s financial condition and results of operations, since they require management to make difficult, complex or subjective judgments, some of which

may relate to matters that are inherently uncertain.

Estimates associated with these policies are susceptible to material changes as a result of changes in facts and circumstances.

3 unchanged sentences

Summary of Operating Results

Net income for the three months ended September 30, 2021 was $16.1 million, compared to $14.0 million for the same period in 2020.

Basic earnings per share increased to $1.24 for the third quarter of 2021 compared to $1.02 for the same period in 2020.

Return on Assets and Return on Equity were 1.34% and 10.75% respectively, for the three months ended September 30, 2021 compared to 1.28% and 9.29% for the three months ended September 30, 2020.

Net income for the nine months ended September 30, 2021 was $45.6 million, compared to $38.1 million for the same period in 2020.

Basic earnings per share increased to $3.42 for the first nine months of 2021 compared to $2.78 for the same period in 2020.

Return on Assets and Return on Equity were 1.28% and 10.10% respectively, for the nine months ended September 30, 2021, compared to 1.20% and 8.62% for the nine months ended September 30, 2020.

Net income for the three months ended March 31, 2022 was $20.9 million, compared to $12.9 million for the same period in 2021.

Basic earnings per share increased to $1.67 for the first quarter of 2022 compared to $0.95 for the same period in 2021.

Return on Assets and Return on Equity were 1.63% and 14.81% respectively, for the three months ended March 31, 2022 compared to 1.12% and 8.58% for the three months ended March 31, 2021.

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.

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.

On March 27, 2020, the Coronavirus Aid, Relief, and Economic Security Act (CARES Act) was signed into law.

It contains substantial tax and spending provisions intended to address the impact of the COVID-19 pandemic.

The CARES Act also includes a range of other provisions designed to support the U.S.

economy and mitigate the impact of COVID-19 on financial institutions and their customers, including through the authorization of various programs and measures that the U.S.

Department of the Treasury, the Small Business Administration, the Federal Reserve Board, and other federal banking agencies may or are required to implement.

Further, in response to the COVID-19 outbreak, the Federal Reserve Board has implemented or announced a number of facilities to provide emergency liquidity to various segments of the U.S.

economy and financial market.

Pursuant to the terms of the Merger Agreement, Merger Sub will merge with and into HBI, with HBI as the surviving entity (the "Merger") under the name HB Subsidiary, Inc.

As soon as practicable following the Bank Merger, HB Subsidiary, Inc.

(f/k /a HBI) will merge with and into FFC, with FFC as the surviving corporation (the "Holdco Merger", and together with the Merger and the Bank Merger, the "Transactions").

On September 27, 2021, First Financial Corporation issued a press release announcing that its Board of Directors has approved the merger of subsidiary, The Morris Plan Company of Terre Haute, into subsidiary, First Financial Bank N.A.

The merger will be effective on December 31, 2021, subject to regulatory approval.

The merger will result in increased efficiencies, which will be recognized beginning in the first quarter of 2022.

On September 30, 2021, First Financial Corporation issued a press release announcing plans to optimize its banking center network as part of a plan to improve operating efficiencies and accommodate changing customer preferences.

Subject to regulatory requirements, over the next two quarters the Corporation will close and consolidate nine of its eighty branches.

These consolidations are projected to save the Company approximately $2.3 million per year in operating expenses, commencing in the first quarter of 2022.

The spread of COVID-19 caused economic and social disruption resulting in unprecedented uncertainty.

Recent declines in COVID-19 cases have resulted in most businesses reopening to capacity and a declining unemployment rate.

Some supply chain issues persist contributing to inflation.

COVID-19 continues to impact the Corporation's customers and still may result in adverse conditions on the Corporation's loans and investments.

On November 5, 2021, the Corporation completed its acquisition of Hancock Bancorp, Inc.

and its banking subsidiary, Hancock Bank and Trust Company.

Therefore, the results of Hancock Bancorp have been included in the results of operations

beginning on November 5, 2021.

Pursuant to the terms of the merger agreement, each issued and outstanding share of Hancock Bancorp, Inc.

common stock, issued and outstanding, was converted into the right to receive $18.38 per share in cash.

The aggregate value of the transaction was $31.36 million.

Acquisition-related costs of $1.2 million are included in the Corporation's income statement for the year ended December 31, 2021.

On September 27, 2021, First Financial Corporation issued a press release announcing that its Board of Directors approved the merger of subsidiary, The Morris Plan Company of Terre Haute, into subsidiary, First Financial Bank N.A.

The merger was effective on February 21, 2022.

The merger resulted in increased efficiencies, which were recognized in the first quarter of 2022.

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

1 unchanged sentence

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 $503 thousand in the three months ended September 30, 2021 to $36.0 million from $36.5 million in the same period in 2020.

The net interest margin for the three months ended September 30, 2021 is 3.22% compared to 3.99% for the same period in 2020, a 19.30% decrease.

Net interest income decreased $2.2 million in the nine months ended September 30, 2021 to $106.6 million from $108.8 million in the same period in 2020.

The net interest margin for the nine months ended September 30, 2021 is 3.24% compared to 4.03% 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.

Net interest income increased $2.9 million in the three months ended March 31, 2022 to $37.8 million from $34.9 million in the same period in 2021.

The net interest margin for the three months ended March 31, 2022 is 3.16% compared to 3.27% for the same period in 2021, a 3.42% decrease.

Non-Interest Income

Non-interest income for the three months ended September 30, 2021 was $11.1 million compared to $11.7 million for the same period of 2020.

Non-interest income for the nine months ended September 30, 2021 was $31.3 million compared to $29.6 million for the same period in 2020.

The change in non-interest income from 2020 to 2021 was primarily driven by increases in other service charges and fees as a result of increased debit card fee income.

Non-interest income for the three months ended March 31, 2022 was $13.7 million compared to $9.3 million for the same period of 2021.

The change in non-interest income from 2021 to 2022 was primarily driven by a $4.0 million legal settlement received in the first quarter.

Non-Interest Expenses

The Corporation’s non-interest expense for the quarter ended September 30, 2021 was $28.5 million compared to $27.1 million for the same period in 2020.

The Corporation's non-interest expense for the nine months ended September 30, 2021 increased $2.5 million to $84.1 million compared to the same period in 2020.

The Corporation’s non-interest expense for the quarter ended March 31, 2022 was $31.3 million compared to $27.6 million for the same period in 2021.

The year-over-year change is, in part, impacted by the acquisition of Hancock Bancorp in the fourth quarter of 2021.

Allowance for Credit Losses

The Corporation’s provision for credit losses decreased to $(1.5) million for the third quarter of 2021 as compared to $4.4 million for the same period in 2020.

Net charge offs for the third quarter of 2021 were $270 thousand compared to $750 thousand for the same period of 2020.

The provision for loan losses decreased $13.3 million to $(3.2) million for the nine months ended September 30, 2021 compared to $10.1 million for the same period in 2020.

Net charge offs for the first nine months of 2021 decreased $2.2 million to $846 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 probable 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.

The Corporation’s provision for credit losses decreased to $(6.6) million for the first quarter of 2022 as compared to $452 thousand for the same period in 2021.

Net charge offs for the first quarter of 2022 were $1.2 million compared to $728 thousand for the same period of 2021.

The negative provision for the quarter was the result of several factors.

The first was the annual model recalibration in which delay periods are updated as well as the qualitative factor scorecard ranges.

Secondly, management removed two qualitative factors that are no longer applicable.

Lastly, loss rates continue to decline, lowering the required reserve.

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 2021 was 20.07% compared to 18.47% for the same period in 2020.

The Corporation’s effective income tax rate for the first three months of 2022 was 21.79% compared to 20.10% for the same period in 2021.

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 $19.5 million at September 30, 2021 compared to $21.9 million at December 31, 2020.

Nonperforming loans decreased 17.7% compared to $23.7 million as of September 30, 2020.

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

September 30, 2021 December 31, 2020

Non-performing loans decreased to $13.0 million at March 31, 2022 compared to $14.9 million at December 31, 2021.

Nonperforming loans decreased 38.3% compared to $21.0 million as of March 31, 2021.

A summary of non-performing loans at March 31, 2022 and December 31, 2021 follows:

March 31, 2022 December 31, 2021

Non-accrual loans $ 7,712 $ 9,590

6 unchanged sentences

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

September 30, 2021 December 31, 2020

March 31, 2022 December 31, 2021

Non-accrual loans

7 unchanged sentences

Consumer loans 356 91

$ 1,355 $ 2,324

6 unchanged sentences

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

From the inception of the CARES Act through September 30, 2021, 1,332 loans totaling $268 million were modified, related to COVID-19, that were not considered troubled debt restructurings.

From the inception of the CARES Act through March 31, 2022, 1,105 loans totaling $225 million were modified, related to COVID-19, that were not considered troubled debt restructurings.

863 loans totaling $183 million have resumed normal scheduled payments.

184 remaining loans are still under a debt relief plan, which include 9 commercial loans totaling $35 million that have been provided additional payment relief since the initial payment relief plan.

5 loans totaling $232 thousand are under the original payment relief plan.

1 loan totaling $16 thousand is under the original payment relief plan.

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

19 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, 2021.

The table below shows the Corporation’s estimated sensitivity profile as of March 31, 2022.

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 2021 to the same period in 2020, loans, net of deferred loan costs, have decreased $274 million to $2.5 billion.

Deposits increased 11.8% to $4.03 billion at September 30, 2021 compared to September 30, 2020.

Comparing the first three months of 2022 to the same period in 2021, loans, net of deferred loan costs, have increased $158 million to $2.8 billion.

Deposits increased 12.5% to $4.4 billion at March 31, 2022 compared to March 31, 2021.

Shareholders' equity decreased 12.15% or $72.7 million.

This financial performance increased book value per share 4.41% to $46.22 at September 30, 2021 from $44.27 at September 30, 2020.

This financial performance decreased book value per share 4.41% to $42.25 at March 31, 2022 from $44.20 at March 31, 2021.

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

Accumulated other comprehensive income decreased $68.6 million primarily due to the market value of the securities portfolio, which reflected the large decrease in securities pricing.

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

The carrying value of these loans is $41 million as of September 30, 2021.

Through March 31, 2022, we processed approximately $275 million of approved PPP loans.

The carrying value of these loans is $18 million as of March 31, 2022.

Capital Adequacy

19 unchanged sentences

Currently the Corporation exceeds all of these minimums.

September 30, 2021 December 31, 2020 To Be Well Capitalized

March 31, 2022 December 31, 2021 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