What changed in this filing

/stocks — the workspaceLOADING

Item 1. Financial Statements

2023-05-04 compared with 2022-11-02 · 162 added, 391 removed, 797 unchanged (41% of the section changed)

3 unchanged sentences

(Dollar amounts in thousands, except per share data)

September 30,

Cash and due from banks

23 unchanged sentences

Retained earnings

Accumulated other comprehensive income/(loss)

Accumulated other comprehensive loss

Treasury shares at cost- 4,071,332 in 2023 and 4,063,028 in 2022

3 unchanged sentences

FIRST FINANCIAL CORPORATION

CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME

CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME (LOSS)

(Dollar amounts in thousands, except per share data)

Three Months Ended

Nine Months Ended

September 30,

INTEREST INCOME:

13 unchanged sentences

Other service charges and fees

Securities gains (losses), net

Securities gains, net

Interchange income

20 unchanged sentences

Three Months Ended

September 30, 2022, and 2021

(Dollar amounts in thousands, except per share data)

Comprehensive

Income/(Loss)

Balance, July 1, 2021

Other comprehensive income (loss)

Omnibus Equity Incentive Plan

Treasury shares purchased ( 176,293 shares)

Balance, September 30, 2021

Balance, July 1, 2022

Other comprehensive income (loss)

Omnibus Equity Incentive Plan

Treasury shares purchased ( 9,125 shares)

Cash dividends, $ 0 per share

Balance, September 30, 2022

See accompanying notes.

FIRST FINANCIAL CORPORATION

CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY

Nine Months Ended

September 30, 2022, and 2021

March 31, 2023, and 2022

(Dollar amounts in thousands, except per share data)

5 unchanged sentences

Treasury shares purchased ( 213,263 shares)

Cash dividends, $ .53 per share

Balance, September 30, 2021

Balance, March 31, 2022

Balance, January 1, 2023

2 unchanged sentences

Treasury shares purchased ( 8,304 shares)

Cash dividends, $ .54 per share

Balance, September 30, 2022

Balance, March 31, 2023

See accompanying notes.

FIRST FINANCIAL CORPORATION

1 unchanged sentence

(Dollar amounts in thousands, except per share data)

Nine Months Ended

September 30,

Three Months Ended

CASH FLOWS FROM OPERATING ACTIVITIES:

2 unchanged sentences

Provision for credit losses

Securities (gains) losses

Gain on sales of mortgage loans

(Gain) Loss on sale of other real estate

Restricted stock compensation

Securities gains

Depreciation and amortization

Restricted stock compensation

Gain on sale of mortgage loans

(Gain) Loss on sale of other real estate

NET CASH FROM OPERATING ACTIVITIES

CASH FLOWS FROM INVESTING ACTIVITIES:

Proceeds from sales of securities available-for-sale

Calls, maturities and principal reductions on securities available-for-sale

Purchases of securities available-for-sale

Proceeds from loans held for sale previously classified as portfolio loans

Loans made to customers, net of repayment

Net change in federal funds sold

Redemption of restricted stock

Purchase of restricted stock

Purchase of bank owned life insurance

Proceeds from sales of other real estate owned

Net change in federal funds sold

Additions to premises and equipment

3 unchanged sentences

Net change in short-term borrowings

Maturities of other borrowings

Proceeds from other borrowings

Purchase of treasury stock

Dividends paid

Purchase of treasury stock

Proceeds from other borrowings

Maturities of other borrowings

NET CASH FROM FINANCING ACTIVITIES

5 unchanged sentences

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

The accompanying September 30, 2022 and 2021 consolidated financial statements are unaudited.

The accompanying March 31, 2023 and 2022 consolidated financial statements are unaudited.

The December 31, 2022 consolidated financial statements are as reported in the First Financial Corporation (the “Corporation”) 2022 annual report.

11 unchanged sentences

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

For the nine 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.

For the three months ended 2023 and 2022, 22,228 and 18,679 shares were awarded, respectively.

These shares had a grant date value of $ 1.0 million and $ 847 thousand for 2023 and 2022, 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, 2022

(Dollar amounts in thousands)

Beginning balance

Provision for credit losses

Loans charged-off

Ending Balance

New accounting standards

Accounting Pronouncements Adopted:

In March 2022, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) 2022-02, “Financial Instruments – Credit Losses (Topic 326), Troubled Debt Restructurings and Vintage Disclosures” (ASU 2022-02).

ASU 2022-02 eliminates the accounting guidance for troubled debt restructurings (TDRs) in ASC 310-40, “Receivables - Troubled Debt Restructurings by Creditors” for entities that have adopted the current expected credit loss (CECL) model introduced by ASU 2016-13, “Financial Instruments – Credit Losses (Topic 326):

Measurement of Credit Losses on Financial Instruments” (ASU 2016-13).

ASU 2022-02 also requires that public business entities disclose current-period gross charge-offs by year of origination for financing receivables and net investments in leases within the scope of Subtopic 326-20, “Financial Instruments—Credit Losses—Measured at Amortized Cost”.

ASU 2022-02 is effective for the Corporation for fiscal years beginning after December 15, 2022, including interim periods within those fiscal years, with early adoption permitted.

The Corporation adopted ASU 2022-02 on January 1, 2023, and has applied the disclosure changes in this document.

Allowance for Credit Losses for the additional disclosures.

Recent Accounting Pronouncements:

In June 2022, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) No.

2022-03 “Fair Value Measurements (Topic 820):

Fair Value Measurement of Equity Securities Subject to Contractual Sale Restrictions.” These amendments clarify that a contractual restriction on the sale of an equity security is not considered part of the unit of account of the equity security and, therefore, is not considered in measuring fair value.

ASU 2022-03 is effective for the Corporation for fiscal years beginning after December 15, 2023, including interim periods within those fiscal years, with early adoption is permitted.

The Corporation is evaluating the effect that ASU 2022-03 will have on its consolidated financial statements and related disclosures.

Allowance for Credit Losses

September 30, 2021

(Dollar amounts in thousands)

Beginning balance

Provision for credit losses

Loans charged-off

Ending Balance

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, 2022

March 31, 2023

(Dollar amounts in thousands)

4 unchanged sentences

Allowance for Credit Losses:

September 30, 2021

March 31, 2022

(Dollar amounts in thousands)

4 unchanged sentences

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

September 30, 2022

March 31, 2023

90 Days Still

18 unchanged sentences

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

September 30, 2022

March 31, 2023

Collateral Type

16 unchanged sentences

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

September 30, 2022

March 31, 2023

(Dollar amounts in thousands)

13 unchanged sentences

All Other Consumer

During the three and nine months ended September 30, 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)

Added/(Disposed)

September 30,

(Dollar amounts in thousands)

Added/(Disposed)

September 30,

(Dollar amounts in thousands)

September 30,

(Dollar amounts in thousands)

September 30,

Loan Modifications Made to Borrowers Experiencing Financial Difficulty:

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

3 unchanged sentences

No modification in 2023 or 2022 resulted in the permanent reduction of the recorded investment in the loan.

Modifications involving a reduction of the stated interest rate of the loan were for periods ranging from twelve months to five years .

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, 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 September 30, 2022 and 2021.

The Corporation has not committed to lend additional amounts as of September 30, 2022 and 2021 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, 2022 and 2021 were of restructurings that had occurred in the previous 12 months.

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

To be eligible under section 4013, a loan modification must have been (1) related to COVID-19;

(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.

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 were not troubled debt restructurings under ASC Subtopic 310-40.

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

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

From the inception of the CARES Act through December 31, 2021, 1,242 loans totaling $ 172 million were modified, related to COVID-19, that were not considered troubled debt restructurings.

1,076 loans totaling $ 168 million have resumed normal scheduled payments.

113 remaining loans are still under a debt relief plan, which include no commercial loans that have been provided additional payment relief since the initial payment relief plan.

During the three months ended March 31, 2023, the Corporation had no modified loans made to borrowers experiencing financial difficulty.

There were no modified loans that had a payment default during the three months ended March 31, 2023 and were modified in the twelve months prior to that default to borrowers experiencing financial difficulty.

A loan is considered to be in payment default once it is 30 days contractually past due under the modified terms.

Credit Quality Indicators:

16 unchanged sentences

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

September 30, 2022

March 31, 2023

Term Loans at Amortized Cost Basis by Origination Year

1 unchanged sentence

Special Mention

Current period gross charge-offs

Special Mention

Current period gross charge-offs

Non Farm, Non Residential

Special Mention

Current period gross charge-offs

Special Mention

Current period gross charge-offs

Other Commercial

Special Mention

Current period gross charge-offs

Multifamily >5 Residential

Special Mention

Current period gross charge-offs

Special Mention

Total commercial loans

December 31, 2022

11 unchanged sentences

Special Mention

Total commercial loans

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

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

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

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

September 30, 2022

March 31, 2023

Term Loans at Amortized Cost Basis by Origination Year

Non-performing

Current period gross charge-offs

Non-performing

Current period gross charge-offs

Non-performing

Current period gross charge-offs

Other Residential

Non-performing

Current period gross charge-offs

Motor Vehicle

Non-performing

Current period gross charge-offs

Other Consumer

Non-performing

Current period gross charge-offs

Non-performing

15 unchanged sentences

All securities are classified as available-for-sale.

September 30, 2022

March 31, 2023

(Dollar amounts in thousands)

6 unchanged sentences

Collateralized debt obligations

Other securities

December 31, 2022

7 unchanged sentences

Collateralized debt obligations

Other securities

Contractual maturities of debt securities at September 30, 2022 were as follows.

Contractual maturities of debt securities at March 31, 2023 were as follows.

Available-for-Sale

5 unchanged sentences

Mortgage-backed securities and collateralized mortgage obligations

There were zero and $ 5 thousand in gross gains and zero in losses from investment sales/calls realized by the Corporation for the three and nine months ended September 30, 2022.

For the three and nine months ended September 30, 2021 there were $ 5 thousand and $ 268 thousand in gross gains and zero and $ 157 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, 2022 and December 31, 2021.

September 30, 2022

There were zero in gross gains and zero in losses from investment sales/calls realized by the Corporation for the three months ended March 31, 2023.

For the three months ended March 31, 2022 there were $ 5 thousand in gross gains and zero in losses on sales/calls of investment securities.

March 31, 2023

Less Than 12 Months

14 unchanged sentences

Mortgage Backed Securities - Residential

Mortgage Backed Securities - Commercial

Collateralized mortgage obligations

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 $ 199.3 million as of September 30, 2022 and $ 10.2 million as of December 31, 2021.

Gross unrealized losses on investment securities were $ 154.3 million as of March 31, 2023 and $ 172.1 million as of December 31, 2022.

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.

5 unchanged sentences

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, 2022 and 2021:

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, 2023 and 2022:

Three Months Ended March 31,

(Dollar amounts in thousands)

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, 2022

March 31, 2023

Fair Value Measurements Using

8 unchanged sentences

Collateralized debt obligations

Other securities

Derivative Assets

11 unchanged sentences

Collateralized debt obligations

Other securities

Derivative Assets

1 unchanged sentence

There were no transfers between Level 1 and Level 2 during 2023 and 2022.

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, 2022 and the year ended December 31, 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 months ended March 31, 2023 and the year ended December 31, 2022.

Fair Value Measurements Using Significant Unobservable Inputs (Level 3)

Three Months Ended

September 30, 2022

Collateralized

(Dollar amounts in thousands)

debt obligations

Other securities

Beginning balance, July 1

Total realized/unrealized gains or losses

Included in earnings

Included in other comprehensive income

Ending balance, September 30

Nine Months Ended

September 30, 2022

March 31, 2023

Collateralized

1 unchanged sentence

debt obligations

Other securities

Beginning balance, January 1

2 unchanged sentences

Included in other comprehensive income

Ending balance, September 30

Ending balance, March 31

Fair Value Measurements Using Significant Unobservable Inputs (Level 3)

3 unchanged sentences

debt obligations

Other securities

Beginning balance, January 1

3 unchanged sentences

Ending balance, December 31

The following table presents quantitative information about recurring and non-recurring Level 3 fair value measurements at September 30, 2022.

The following table presents quantitative information about recurring and non-recurring Level 3 fair value measurements at March 31, 2023.

(Dollar amounts in thousands)

7 unchanged sentences

Discount rate

Other securities

Discounted cash flow

Discount rate

Collateral dependent loans

12 unchanged sentences

Discount rate

Other securities

Discounted cash flow

Discount rate

Collateral dependent loans

11 unchanged sentences

If an appraisal is not available, the fair value may be determined by using a cash flow analysis, a broker’s opinion of value, the net present value of future cash flows, or an observable market price from an active market.

Fair value of other real estate is based upon the current appraised values of the properties as determined by qualified licensed appraisers and the Company’s judgment of other relevant market conditions.

of other real estate is based upon the current appraised values of the properties as determined by qualified licensed appraisers and the Company’s judgment of other relevant market conditions.

Appraisals are obtained annually and reductions in value are recorded as a valuation through a charge to expense.

4 unchanged sentences

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

The carrying amounts and estimated fair value of financial instruments at September 30, 2022 and December 31, 2021, are shown below.

The carrying amounts and estimated fair value of financial instruments at March 31, 2023 and December 31, 2022, 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, 2022

March 31, 2023

(Dollar amounts in thousands)

26 unchanged sentences

(Dollar amounts in thousands)

September 30, 2022

March 31, 2023

December 31, 2022

8 unchanged sentences

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

September 30, 2022

March 31, 2023

Repurchase Agreements

9 unchanged sentences

Mortgage Obligations

Other borrowings:

Other borrowings at March 31, 2023 and December 31, 2022 are summarized as follows:

(Dollar amounts in thousands)

March 31, 2023

December 31, 2022

FHLB advances

The aggregate minimum annual retirements of other borrowings are as follows:

Twelve Months Ended March 31,

At March 31, 2023 and December 31, 2022, other borrowings are summarized as follows:

The Corporation’s subsidiary bank is a member of the Federal Home Loan Bank (FHLB) and accordingly are permitted to obtain advances.

There are $35.6 million of advances from the FHLB at March 31, 2023, and $9.6 million of advances at December 31, 2022.

FHLB advances are, generally due in full at maturity.

They are secured by eligible securities and a blanket pledge on real estate loan collateral.

Components of Net Periodic Benefit Cost

Three Months Ended September 30,

Nine Months Ended September 30,

Post-Retirement

Three Months Ended March 31,

Post-Retirement

1 unchanged sentence

Health Benefits

Pension Benefits

Health Benefits

(Dollar amounts in thousands)

5 unchanged sentences

Employer Contributions

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 $ 95 thousand have been made to the Pension Plan thus far in 2022.

Contributions of $ 171 thousand have been made through the first nine months of 2022 for the Post Retirement Health Benefits plan.

First Financial Corporation previously disclosed in its financial statements for the year ended December 31, 2022 that it expected to contribute zero and $ 642 thousand respectively to its Pension Plan and ESOP and $ 245 thousand to the Post Retirement Health Benefits Plan in 2023.

No contributions have been made to the Pension Plan thus far in 2023.

Contributions of $ 54 thousand have been made through the first three months of 2023 for the Post Retirement Health Benefits plan.

No contributions have been made in 2023 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 2022 and 2021 there has been $ 1.7 million and $ 2.3 million of expense accrued for potential contributions to these alternative retirement benefit options.

New accounting standards

Recent Accounting Pronouncements:

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

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

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

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

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

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

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

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

Measurement of Credit Losses on Financial Instruments” (ASU 2016-13).

ASU 2022-02 is effective for the Corporation for fiscal years beginning after December 15, 2022, including interim periods within those fiscal years, with early adoption permitted.

The Corporation is evaluating the effect that ASU 2022-02 will have on its consolidated financial statements and related disclosures.

In June 2022, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) No.

2022-03 “Fair Value Measurements (Topic 820):

ASU 2022-03 is effective for the Corporation for fiscal years beginning after December 15, 2023, including interim periods within those fiscal years, with early adoption is permitted.

The Corporation is evaluating the effect that ASU 2022-03 will have on its consolidated financial statements and related disclosures.

In the first three months of 2023 and 2022 there has been $608 thousand and $ 849 thousand of expense accrued for potential contributions to these alternative retirement benefit options.

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, 2022 and 2021.

The following table presents the Corporation’s sources of Non-Interest Income for the three months ended March 31, 2023 and 2022.

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)

9 unchanged sentences

(a) Not within the scope of ASC 606.

(b) The Other category includes gains/(losses) on the sale of OREO for the three months ended September 30, 2022 and September 30, 2021, totaling zero and $( 11 ) thousand, respectively, and for the nine months ended for the same periods, totaling $ 85 thousand and $ 5 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, 2023 and March 31, 2022, totaling $ 6 thousand and $ 68 thousand, respectively, which is within the scope of ASC 606;

the remaining balance is outside the scope of ASC 606.

20 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 $ 8.4 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)

Consideration

Cash consideration

Fair value of total consideration transferred

Assets acquired

Investment securities available-for-sale

Federal funds sold

Bank owned life insurance

Federal Home Loan Bank stock

Premises and equipment

Core deposit intangibles

Total assets acquired

Liabilities assumed

FHLB advances

Other liabilities

Total liabilities assumed

Net identifiable assets

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.

A goodwill adjustment was recorded in the second quarter 2022 of $ 850 thousand.

The deferred tax assets were adjusted for the acquisition based on the final short-period income tax return that was filed for Hancock Bancorp, Inc.

in the second quarter 2022.

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)

Net interest income

Basic and diluted earnings per share

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, 2022 and 2021.

(Losses) on available-

(Dollar amounts in thousands)

Beginning balance, July 1,

Change in other comprehensive income (loss) before reclassification

Amounts reclassified from accumulated other comprehensive income

Net current period other comprehensive income (loss)

Ending balance, September 30,

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, 2023 and 2022.

(Losses) on available-

4 unchanged sentences

Net current period other comprehensive income (loss)

Ending balance, September 30,

(Losses) on available-

(Dollar amounts in thousands)

Beginning balance, July 1,

Change in other comprehensive income (loss) before reclassification

Amounts reclassified from accumulated other comprehensive income

Net current period other comprehensive income (loss)

Ending balance, September 30,

Ending balance, March 31,

(Losses) on available-

4 unchanged sentences

Net current period other comprehensive income (loss)

Ending balance, September 30,

Current Period

(Dollar amounts in thousands)

Unrealized gains (losses) on securities available-for-sale without other than temporary impairment

Unrealized gains (losses) on securities available-for-sale with other than temporary impairment

Total unrealized loss on securities available-for-sale

Unrealized gain (loss) on retirement plans

Current Period

(Dollar amounts in thousands)

Unrealized gains (losses) on securities available-for-sale without other than temporary impairment

Unrealized gains (losses) on securities available-for-sale with other than temporary impairment

Total unrealized gain (loss) on securities available-for-sale

Unrealized loss on retirement plans

Ending balance, March 31,

Current Period

3 unchanged sentences

Total unrealized gain (loss) on securities available-for-sale

Unrealized loss on retirement plans

Unrealized gain (loss) on retirement plans

Current Period

4 unchanged sentences

Unrealized gain (loss) on retirement plans

Three Months Ended September 30, 2022

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

Net securities gains (losses)

on available-for-sale

Income tax expense

Amortization of

Salary and benefits

retirement plan items

Income tax expense

Total reclassifications for the period

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

(see Footnote 6 for additional details).

Nine Months Ended September 30, 2022

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

Net securities gains (losses)

on available-for-sale

Income tax expense

Amortization of

Salary and benefits

retirement plan items

Income tax expense

Total reclassifications for the period

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

(see Footnote 6 for additional details).

Three Months Ended September 30, 2021

Three Months Ended March 31, 2023

Details about accumulated

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(see Footnote 6 for additional details).

Nine Months Ended September 30, 2021

Three Months Ended March 31, 2022

Details about accumulated

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The Corporation leases certain branches under operating leases.

At September 30, 2022, the Corporation had lease liabilities totaling $ 6,095,000 and right-of-use assets totaling $ 6,056,000 related to these leases.

At March 31, 2023, the Corporation had lease liabilities totaling $ 5,672,000 and right-of-use assets totaling $ 5,623,000 related to these leases.

At December 31, 2022, the Corporation had lease liabilities totaling $ 5,885,000 and right-of-use assets totaling $ 5,840,000 related to these leases.

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

At September 30, 2022, the weighted average remaining lease term for operating leases was 9.7 years and the weighted average discount rate used in the measurement of operating lease liabilities was 2.19 %.

At March 31, 2023, the weighted average remaining lease term for operating leases was 9.4 years and the weighted average discount rate used in the measurement of operating lease liabilities was 2.18 %.

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:

Nine Months Ended

Three Months Ended

(Dollar amounts in thousands)

September 30, 2022

March 31, 2023

Operating lease cost

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

Future minimum payments for operating leases with initial or remaining terms of one year or more as of September 30, 2022 were as follows:

Future minimum payments for operating leases with initial or remaining terms of one year or more as of March 31, 2023 were as follows:

(Dollar amounts in thousands)

September 30, 2022

Twelve Months Ended September 30,

March 31, 2023

Twelve Months Ended March 31,

Total Future Minimum Lease Payments

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and changes in accounting policies or procedures as may be required by the Financial Accounting Standards Board or other regulatory agencies.

Risks related to COVID-19 include the disruption of local, regional, national and global economic activity caused by infectious disease outbreaks, including the recent outbreak of coronavirus, or COVID-19, and the significant impact that such outbreak has had and may have on our growth, operations, earnings and asset quality;

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

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

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

Additional information concerning factors that could cause actual results to differ materially from those expressed or implied in the forward-looking statements is available in the Corporation’s Form 10-K for the year ended December 31, 2022, and subsequent filings with the United States Securities and Exchange Commission (SEC).

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See further discussion of these critical accounting policies in the 2022 Form 10-K.

Since December 31, 2021, the critical accounting policy for determining the allowance for credit losses has been enhanced with the discussion below from December 31, 2021.

Allowance for credit losses.

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As such, reversion from forecast rates to historical loss rates is immediate.

The ACL and allowance for unfunded commitments were $39.5 million and $2.1 million, respectively at September 30, 2022, compared to $48.3 million and $3.0 million, respectively at December 31, 2021.

The $8.8 million decrease in the ACL was the result of several factors.

The first was the annual model recalibration.

Additionally, the qualitative factors were lower from the seasoning of the acquired loans, as well as lower qualitative factors, due to the sale of non farm non residential commercial loans in the third quarter.

Finally, the reserve was impacted by improved portfolio performance.

The qualitative amount of the reserve decreased $3.9 million to $10.4 million.

The quantitative amount is $28.9 million at September 30, 2022, compared to $33.6 million at December 31, 2021.

There was a $900 thousand decrease in the allowance for unfunded commitments.

The ACL and allowance for unfunded commitments were $39.6 million and $2.1 million, respectively at March 31, 2023, compared to $39.8 million and $2.1 million, respectively at December 31, 2022.

The qualitative amount of the reserve decreased $92 thousand to $10.9 million.

The quantitative amount is $28.4 million at March 31, 2023, compared to $28.6 million at December 31, 2022.

There was no change in the allowance for unfunded commitments.

See additional discussion of ACL in the Allowance for Credit Losses section below.

Based on management’s analysis of the current portfolio, management believes the allowance is adequate.Changes in the financial condition of individual borrowers, economic conditions, historical loss experience, or the condition of the various markets in which collateral may be sold may affect the required level of the allowance for credit losses and the associated provision for credit losses.

Based on management’s analysis of the current portfolio, management believes the allowance is adequate.

Changes in the financial condition of individual borrowers, economic conditions, historical loss experience, or the condition of the various markets in which collateral may be sold may affect the required level of the allowance for credit losses and the associated provision for credit losses.

As management monitors these changes, as well as those factors discussed above, adjustments may be recorded to the allowance for credit losses and the associated provision for credit losses in the future.

Summary of Operating Results

Net income for the three months ended September 30, 2022 was $18.1 million, compared to $16.1 million for the same period in 2021.

Basic earnings per share increased to $1.50 for the third quarter of 2022 compared to $1.24 for the same period in 2021.

Return on Assets and Return on Equity were 1.43% and 15.00% respectively, for the three months ended September 30, 2022 compared to 1.34% and 10.75% for the three months ended September 30, 2021.

Net income for the nine months ended September 30, 2022 was $54.6 million, compared to $45.6 million for the same period in 2021.

Basic earnings per share increased to $4.45 for the first nine months of 2022 compared to $3.42 for the same period in 2021.

Return on Assets and Return on Equity were 1.43% and 14.14% respectively, for the nine months ended September 30, 2022, compared to 1.28% and 10.10% for the nine months ended September 30, 2021.

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.

Net income for the three months ended March 31, 2023 was $16.0 million, compared to $20.9 million for the same period in 2022.

Basic earnings per share decreased to $1.33 for the first quarter of 2023 compared to $1.67 for the same period in 2022.

Return on Assets and Return on Equity were 1.32% and 13.10% respectively, for the three months ended March 31, 2023 compared to 1.63% and 14.81% for the three months ended March 31, 2022.

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

● Liquidity remains strong, with cash and available for sale securities representing approximately 29.5% of assets at March 31, 2023.

The Corporation maintains the ability to access considerable sources of contingent liquidity at the Federal Home Loan Bank and several correspondent banks.

Management considers the Corporation’s current liquidity position to be adequate to meet both short-term and long-term liquidity needs.

Refer to the section Liquidity Risk for additional information.

● Capital remains strong, with ratios of the Corporation, and its subsidiary bank, well above the standards to be considered well-capitalized under regulatory requirements.

Refer to the section Capital Adequacy , included elsewhere in this report for additional details.

● Asset quality remains solid, with a non-performing asset ratio of 0.31% of total assets as of March 31, 2023 and net charge-offs of 0.26% to average loans and leases, reflecting the Company's disciplined underwriting and conservative lending philosophy which has supported the Corporation’s strong credit performance during prior financial crises.

Refer to the section Non-Performing Loan for additional information.

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

On October 31, 2022, First Financial Corporation issued a press release announcing plans to optimize its banking center network as part of a plan to improve operating efficiencies and accommodate changing customer preferences.

Subject to regulatory requirements, over the next two quarters the Corporation will close and consolidated seven of its seventy-two branches.

These consolidations are projected to save the Corporation approximately $1.5 million per year in operating expenses, commencing in the first quarter of 2023.

Subject to regulatory requirements, the Corporation closed and consolidated seven of its seventy-two branches on January 31, 2023.

The buildings and land on the owned branches recorded impairment on December 31, 2022 for $1.3 million.

These consolidations are projected to save the Corporation approximately $1.5 million per year in operating expenses.

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

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 increased $7.1 million in the three months ended September 30, 2022 to $43.1 million from $36.0 million in the same period in 2021.

The net interest margin for the three months ended September 30, 2022 is 3.71% compared to 3.22% for the same period in 2021, a 15.37% increase.

Net interest income increased $14.8 million in the nine months ended September 30, 2022 to $121.4 million from $106.6 million in the same period in 2021.

The net interest margin for the nine months ended September 30, 2022 is 3.44% compared to 3.24% for the same period in 2021.

Interest rates increased significantly from 2021 to 2022, due to federal rate adjustments.

Net interest income increased $6.5 million in the three months ended March 31, 2023 to $44.3 million from $37.8 million in the same period in 2022.

The net interest margin for the three months ended March 31, 2023 is 3.96% compared to 3.16% for the same period in 2022, a 25.32% increase.

Interest rates increased significantly throughout 2022 and in the first quarter of 2023, due to federal rate adjustments.

Non-Interest Income

Non-interest income for the three months ended September 30, 2022 was $12.1 million compared to $11.1 million for the same period of 2021.

Non-interest income for the nine months ended September 30, 2022 was $36.1 million compared to $31.3 million for the same period in 2021.

Non-interest income for the three months ended March 31, 2023 was $9.4 million compared to $13.7 million for the same period of 2022.

The change in non-interest income from 2022 to 2023 was primarily driven by a $4.0 million legal settlement received in February, 2022.

The Corporation does not expect this income to reoccur.

In addition gains from the sale of mortgage loans declined $1.0 million for the three months ended September 30, 2022 compared to September 30, 2021, and $2.6 million for the nine months ended September 30, 2022 compared to September 30, 2021.

Non-Interest Expenses

The Corporation’s non-interest expense for the quarter ended September 30, 2022 was $31.5 million compared to $28.5 million for the same period in 2021.

The Corporation’s non-interest expense for the nine months ended September 30, 2022 increased $9.4 million to $93.5 million compared to the same period in 2021.

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

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

Allowance for Credit Losses

The Corporation’s provision for credit losses increased to $1.1 million for the third quarter of 2022 as compared to $(1.5) million for the same period in 2021.

Net charge-offs for the third quarter of 2022 were $3.0 million compared to $270 thousand for the same period of 2021.

In 2021 the potential losses from the original CECL calculation were not realized, and the economy had shown improvements which allowed for the decrease in provision.

The provision for loan losses decreased $1.5 million to $(4.8) million for the nine months ended September 30, 2022 compared to $(3.2) million for the same period in 2021.

Net charge offs for the first nine months of 2022 increased $3.2 million to $4.1 million compared to the same period in 2021.

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

The Corporation’s provision for credit losses increased to $1.8 million for the first quarter of 2023 as compared to negative provision of $6.6 million for the same period in 2022.

Net charge-offs for the first quarter of 2023 were $2.0 million compared to $1.2 million for the same period of 2022.

The negative provision for first quarter 2022 was the result of several factors.

The first was the annual model recalibration.

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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.

On July 12, 2022, the Corporation sold seven classified non farm non residential commercial loans, which were acquired in the two acquisitions in 2019 and 2021, with a total principal balance of $14.9 million.

The net recovery on the sale of $361 thousand includes the charge-off of the seven loans of $2,145 thousand, netted by the $2,072 thousand reserve on those loans, previously charged off in the period, and the $434 thousand unamortized discount remaining from the acquisitions.

As the related charge offs were previously reserved for and related to acquired loans, the increase in net charge offs for the quarter does not have a significant impact on the future expected losses.

In the first quarter 2023, no significant changes were made.

Income Tax Expense

The Corporation’s effective income tax rate for the first nine months of 2022 was 20.61% compared to 20.07% for the same period in 2021.

The Corporation’s effective income tax rate for the first three months of 2023 was 18.42% compared to 21.79% for the same period in 2022.

Pretax income for the first quarter 2022 was significantly higher than pretax income for first quarter 2023.

Since our permanent differences remained similar, income was the driving factor for the decrease in effective tax rate.

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 $14.3 million at September 30, 2022 compared to $14.9 million at December 31, 2021.

Nonperforming loans decreased 26.8% compared to $19.5 million as of September 30, 2021.

A summary of non-performing loans at September 30, 2022 and December 31, 2021 follows:

September 30, 2022

Non-performing loans consist of (1) non-accrual loans on which the ultimate collectability of the full amount of interest is uncertain, and (2) loans past due ninety days or more as to principal or interest.

Non-performing loans decreased to $12.1 million at March 31, 2023 compared to $12.7 million at December 31, 2022.

Nonperforming loans decreased 43.4% compared to $8.4 million as of March 31, 2022.

A summary of non-performing loans at March 31, 2023 and December 31, 2022 follows:

March 31, 2023

December 31, 2022

Non-accrual loans

Accruing restructured loans

Nonaccrual restructured loans

Accruing loans past due over 90 days

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

September 30, 2022

March 31, 2023

December 31, 2022

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Consumer loans

To be eligible under section 4013, a loan modification must have been (1) related to COVID-19;

(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.

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

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

From the inception of the CARES Act through December 31, 2021, 1,242 loans totaling $172 million were modified, related to COVID-19, that were not considered troubled debt restructurings.

1,189 loans totaling $195 million have resumed normal scheduled payments.

113 remaining loans are still under a debt relief plan, which include no commercial loans that have been provided additional payment relief since the initial payment relief plan.

Interest Rate Sensitivity and Liquidity

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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 September 30, 2022.

The table below shows the Corporation’s estimated sensitivity profile as of March 31, 2023.

The change in interest rates assumes a parallel shift in interest rates of 100, 200, and 300 basis points.

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Given the current rate environment, the Corporation anticipates $11.2 million in securities to be called within the next 12 months.

The Corporation also has unused borrowing capacity available with the Federal Home Loan Bank of Indianapolis and several correspondent banks.

The Corporation also has $93.8 million of unused borrowing capacity available with the Federal Home Loan Bank of Indianapolis, $118.5 million available with the Federal Reserve Bank, and $125 million of available fed funds lines with correspondent banks.

With these sources of funds, the Corporation currently anticipates adequate liquidity to meet the expected obligations of its customers.

Financial Condition

Comparing the first nine months of 2022 to year-ended December 31, 2021, loans net of deferred loan costs, have increased $155 million to $3.0 billion.

Deposits decreased 0.05% to $4.4 billion at September 30, 2022 compared to December 31, 2021.

Shareholders’ equity decreased 24.71% or $144.0 million.

This financial performance decreased book value per share 20.90% to $36.49 at September 30, 2022 from $46.13 at December 31, 2021.

Comparing the first nine months of 2022 to the same period in 2021, loans, net of deferred loan costs, have increased $491 million to $3.0 billion.

Deposits increased 9.4% to $4.4 billion at September 30, 2022 compared to September 30, 2021.

Shareholders’ equity decreased 26.27% or $156.3 million.

This financial performance decreased book value per share 21.06% to $36.49 at September 30, 2022 from $46.22 at September 30, 2021.

Comparing the first three months of 2023 to year-ended December 31, 2022, loans net of deferred loan costs, have increased $13 million to $3.1 billion.

Deposits decreased 4.66% to $4.2 billion at March 31, 2023 compared to December 31, 2022.

The decline was in part driven by a decline in interest bearing public funds checking, which historically declines in the first quarter each year, and a decline in institutional deposits as a result of a pricing decision.

Shareholders’ equity increased 6.36% or $30.2 million.

This financial performance increased book value per share 6.21% to $41.89 at March 31, 2023 from $39.44 at December 31, 2022.

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

Accumulated other comprehensive income decreased $164.9 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, 2022, we processed approximately $272 million of approved PPP loans.

The carrying value of these loans is $880 thousand as of September 30, 2022.

Accumulated other comprehensive income increased $14.4 million primarily due to the market value of the securities portfolio, which reflected the increase in securities pricing.

Capital Adequacy

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Currently the Corporation exceeds all of these minimums.

September 30, 2022

March 31, 2023

December 31, 2022

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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