What changed in this filing

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Item 1. Financial Statements

2023-11-08 compared with 2023-08-02 · 148 added, 132 removed, 971 unchanged (22% of the section changed)

3 unchanged sentences

(Dollar amounts in thousands, except per share data)

September 30,

Cash and due from banks

20 unchanged sentences

Common stock, $ 0.125 stated value per share;

Authorized shares - 40,000,000 Issued shares- 16,137,220 in 2023 and 16,114,992 in 2022 Outstanding shares - 11,982,985 in 2023 and 12,051,964 in 2022

Authorized shares - 40,000,000 ;

Issued shares- 16,137,220 in 2023 and 16,114,992 in 2022;

Outstanding shares - 11,754,528 in 2023 and 12,051,964 in 2022

Additional paid-in capital

9 unchanged sentences

Three Months Ended

Six Months Ended

Nine Months Ended

September 30,

INTEREST INCOME:

36 unchanged sentences

Three Months Ended

June 30, 2023, and 2022

September 30, 2023, and 2022

(Dollar amounts in thousands, except per share data)

1 unchanged sentence

Income/(Loss)

Balance, April 1, 2022

Balance, July 1, 2022

Other comprehensive income (loss)

1 unchanged sentence

Treasury shares purchased ( 9,125 shares)

Cash dividends, $ .54 per share

Balance, June 30, 2022

Balance, April 1, 2023

Balance, September 30, 2022

Balance, July 1, 2023

Other comprehensive income (loss)

1 unchanged sentence

Treasury shares purchased ( 228,457 shares)

Cash dividends, $ .54 per share

Balance, June 30, 2023

Balance, September 30, 2023

See accompanying notes.

1 unchanged sentence

CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY

Six Months Ended

June 30, 2023, and 2022

Nine Months Ended

September 30, 2023, and 2022

(Dollar amounts in thousands, except per share data)

6 unchanged sentences

Cash dividends, $ .54 per share

Balance, June 30, 2022

Balance, September 30, 2022

Balance, January 1, 2023

3 unchanged sentences

Cash dividends, $ .54 per share

Balance, June 30, 2023

Balance, September 30, 2023

FIRST FINANCIAL CORPORATION

1 unchanged sentence

(Dollar amounts in thousands, except per share data)

Six Months Ended

Nine Months Ended

September 30,

CASH FLOWS FROM OPERATING ACTIVITIES:

11 unchanged sentences

Purchases of securities available-for-sale

Proceeds from loans sold previously classified as portfolio loans

Loans made to customers, net of repayment

12 unchanged sentences

Maturities of other borrowings

( 1,355,000 )

NET CASH FROM FINANCING ACTIVITIES

5 unchanged sentences

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

The accompanying June 30, 2023 and 2022 consolidated financial statements are unaudited.

The accompanying September 30, 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 six months ended 2023 and 2022, 22,228 and 18,679 shares were awarded, respectively.

For the nine 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.

22 unchanged sentences

Allowance for Credit Losses

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

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:

June 30, 2023

September 30, 2023

(Dollar amounts in thousands)

4 unchanged sentences

Allowance for Credit Losses:

June 30, 2022

September 30, 2022

(Dollar amounts in thousands)

3 unchanged sentences

Ending Balance

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

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

Allowance for Credit Losses:

June 30, 2023

September 30, 2023

(Dollar amounts in thousands)

4 unchanged sentences

Allowance for Credit Losses:

June 30, 2022

September 30, 2022

(Dollar amounts in thousands)

4 unchanged sentences

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

June 30, 2023

September 30, 2023

90 Days Still

18 unchanged sentences

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

June 30, 2023

September 30, 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.

June 30, 2023

September 30, 2023

(Dollar amounts in thousands)

18 unchanged sentences

or a permanent reduction of the recorded investment in the loan.

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

During the six months ended June 30, 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 six months ended June 30, 2023 and were modified in the twelve months prior to that default to borrowers experiencing financial difficulty.

The following table presents the amortized cost of loans and leases at September 30, 2023 that were both experiencing financial difficulty and modified during the nine months ended September 30, 2023, by class and by type of modification.

The percentage of the amortized cost of loans and leases that were modified to borrowers in financial distress as compared to the amortized cost of each class of financial receivable is also presented below.

Extension and

Interest Rate

(Dollar amounts in thousands)

Motor Vehicle

The Company closely monitors the performance of loans and leases that have been modified to borrowers experiencing financial difficulty to understand the effectiveness of its modification efforts.

All loans and leases that have been modified during the nine months ended September 30, 2023 are in a current status of repayment.

The following table presents the financial effect of loan and lease modifications presented above to borrowers experiencing financial difficulty for the nine months ended September 30, 2023.

Interest Rate

(Dollar amounts in thousands)

Motor Vehicle

There were no modified loans that had a payment default during the nine months ended September 30, 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.

Upon the Corporation’s determination that a modified loan has subsequently been deemed uncollectible, the loan is written off.

Therefore, the amortized cost basis of the loan is reduced by the uncollectible amount and the allowance for credit losses is adjusted by the same amount.

Credit Quality Indicators:

16 unchanged sentences

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

June 30, 2023

September 30, 2023

Term Loans at Amortized Cost Basis by Origination Year

32 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:

June 30, 2023

September 30, 2023

Term Loans at Amortized Cost Basis by Origination Year

31 unchanged sentences

All securities are classified as available-for-sale.

June 30, 2023

September 30, 2023

(Dollar amounts in thousands)

15 unchanged sentences

Collateralized debt obligations

Contractual maturities of debt securities at June 30, 2023 were as follows.

Contractual maturities of debt securities at September 30, 2023 were as follows.

Available-for-Sale

5 unchanged sentences

Mortgage-backed securities and collateralized mortgage obligations

There were zero in gross gains and zero in losses from investment sales/calls realized by the Corporation for the three and six months ended June 30, 2023.

For the three and six months ended June 30, 2022 there were zero and $ 5 thousand in gross gains and zero in losses on sales/calls of investment securities.

The following tables show the securities’ gross unrealized losses and fair value, aggregated by investment category and length of time that individual securities have been in continuous unrealized loss position, at June 30, 2023 and December 31, 2022.

June 30, 2023

There were zero in gross gains and zero in losses from investment sales/calls realized by the Corporation for the three and nine months ended September 30, 2023.

For the three and nine months ended September 30, 2022 there were zero and $ 5 thousand in gross gains and zero in losses on sales/calls of investment securities.

September 30, 2023

Less Than 12 Months

25 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 $ 173.8 million as of June 30, 2023 and $ 172.1 million as of December 31, 2022.

Gross unrealized losses on investment securities were $ 218.7 million as of September 30, 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.

1 unchanged sentence

Secondarily, the Corporation invests in municipal securities issued by state and local governments.

Of these, the majority are either insured or contain state enhancements.

Of these, almost half are either insured or contain state enhancements.

On the remaining, credit is monitored by the investment committee.

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 six month periods ended June 30, 2023 and 2022:

Three Months Ended June 30,

Six Months Ended June 30,

The table below presents a rollforward of the credit losses recognized in earnings for the three and nine month periods ended September 30, 2023 and 2022:

Three Months Ended September 30,

Nine Months Ended September 30,

(Dollar amounts in thousands)

11 unchanged sentences

For those securities that cannot be priced using quoted market prices or observable inputs a Level 3 valuation is determined.

These securities are primarily trust preferred securities, which are priced using Level 3 due to current market illiquidity and certain investments in state and municipal securities.

The fair value of the trust preferred securities is obtained from a third party provider without adjustment.

As described previously, management obtains values from other pricing sources to validate the Standard & Poors pricing that they currently utilize.

These securities are primarily trust preferred securities and investments in state and municipal securities.

The fair value of state and municipal obligations are derived by comparing the securities to current market rates plus an appropriate credit spread to determine an estimated value.

5 unchanged sentences

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

June 30, 2023

September 30, 2023

Fair Value Measurements Using

24 unchanged sentences

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 six months ended June 30, 2023 and the year ended December 31, 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, 2023 and the year ended December 31, 2022.

Fair Value Measurements Using Significant Unobservable Inputs (Level 3)

Three Months Ended

June 30, 2023

September 30, 2023

Collateralized

1 unchanged sentence

debt obligations

Beginning balance, April 1

Beginning balance, July 1

Total realized/unrealized gains or losses

1 unchanged sentence

Included in other comprehensive income

Ending balance, June 30

Ending balance, September 30

Fair Value Measurements Using Significant Unobservable Inputs (Level 3)

Six Months Ended

June 30, 2023

Nine Months Ended

September 30, 2023

Collateralized

5 unchanged sentences

Included in other comprehensive income

Ending balance, June 30

Ending balance, September 30

Fair Value Measurements Using Significant Unobservable Inputs (Level 3)

8 unchanged sentences

Ending balance, December 31

The following table presents quantitative information about recurring and non-recurring Level 3 fair value measurements at June 30, 2023.

The following table presents quantitative information about recurring and non-recurring Level 3 fair value measurements at September 30, 2023.

(Dollar amounts in thousands)

42 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 June 30, 2023 and December 31, 2022, are shown below.

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

June 30, 2023

September 30, 2023

(Dollar amounts in thousands)

26 unchanged sentences

(Dollar amounts in thousands)

June 30, 2023

September 30, 2023

December 31, 2022

8 unchanged sentences

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

June 30, 2023

September 30, 2023

Repurchase Agreements

10 unchanged sentences

Other borrowings:

Other borrowings at June 30, 2023 and December 31, 2022 are summarized as follows:

Other borrowings at September 30, 2023 and December 31, 2022 are summarized as follows:

(Dollar amounts in thousands)

June 30, 2023

September 30, 2023

December 31, 2022

1 unchanged sentence

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

Twelve Months Ended June 30,

At June 30, 2023 and December 31, 2022, other borrowings are summarized as follows:

Twelve Months Ended September 30,

At September 30, 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 $ 134.6 million of advances from the FHLB at June 30, 2023, and $ 9.6 million of advances at December 31, 2022.

There are $ 84.6 million of advances from the FHLB at September 30, 2023, and $ 9.6 million of advances at December 31, 2022.

FHLB advances are, generally due in full at maturity.

1 unchanged sentence

Components of Net Periodic Benefit Cost

Three Months Ended June 30,

Six Months Ended June 30,

Three Months Ended September 30,

Nine Months Ended September 30,

Post-Retirement

13 unchanged sentences

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

Contributions of $ 110 thousand have been made through the first six months of 2023 for the Post Retirement Health Benefits plan.

Contributions of $ 163 thousand have been made through the first nine 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 six months of 2023 and 2022 there has been $ 1.3 million and $ 849 thousand of expense accrued for potential contributions to these alternative retirement benefit options.

In the first nine months of 2023 and 2022 there has been $ 1.9 million and $ 1.7 million 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 six months ended June 30, 2023 and 2022.

The following table presents the Corporation’s sources of Non-Interest Income for the three and nine months ended September 30, 2023 and 2022.

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

Three Months Ended June 30,

Six Months Ended June 30,

Three Months Ended September 30,

Nine Months Ended September 30,

(Dollar amounts in thousands)

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 June 30, 2023 and June 30, 2022, totaling $( 37 ) thousand and $ 17 thousand, respectively, and for the six months ended for the same periods, totaling $( 31 ) thousand and $ 85 thousand, which is within the scope of ASC 606;

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

the remaining balance is outside the scope of ASC 606.

21 unchanged sentences

Accumulated Other Comprehensive Income

The following tables summarize the changes, net of tax, within each classification of accumulated other comprehensive income/(loss) for the three and six months ended June 30, 2023 and 2022.

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, 2023 and 2022.

(Losses) on available-

(Dollar amounts in thousands)

Beginning balance, April 1,

Beginning balance, July 1,

Change in other comprehensive income (loss) before reclassification

1 unchanged sentence

Net current period other comprehensive income (loss)

Ending balance, June 30,

Ending balance, September 30,

(Losses) on available-

4 unchanged sentences

Net current period other comprehensive income (loss)

Ending balance, June 30,

Ending balance, September 30,

(Losses) on available-

(Dollar amounts in thousands)

Beginning balance, April 1,

Beginning balance, July 1,

Change in other comprehensive income (loss) before reclassification

1 unchanged sentence

Net current period other comprehensive income (loss)

Ending balance, June 30,

Ending balance, September 30,

(Losses) on available-

4 unchanged sentences

Net current period other comprehensive income (loss)

Ending balance, June 30,

Ending balance, September 30,

Current Period

22 unchanged sentences

Unrealized gain (loss) on retirement plans

Three Months Ended June 30, 2023

Three Months Ended September 30, 2023

Details about accumulated

19 unchanged sentences

(see Footnote 7 for additional details).

Six Months Ended June 30, 2023

Nine Months Ended September 30, 2023

Details about accumulated

19 unchanged sentences

(see Footnote 7 for additional details).

Three Months Ended June 30, 2022

Three Months Ended September 30, 2022

Details about accumulated

19 unchanged sentences

(see Footnote 7 for additional details).

Six Months Ended June 30, 2022

Nine Months Ended September 30, 2022

Details about accumulated

20 unchanged sentences

The Corporation leases certain branches under operating leases.

At June 30, 2023, the Corporation had lease liabilities totaling $ 5,781,000 and right-of-use assets totaling $ 5,728,000 related to these leases.

At September 30, 2023, the Corporation had lease liabilities totaling $ 5,657,000 and right-of-use assets totaling $ 5,599,000 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 June 30, 2023, the weighted average remaining lease term for operating leases was 9.1 years and the weighted average discount rate used in the measurement of operating lease liabilities was 2.29 %.

At September 30, 2023, the weighted average remaining lease term for operating leases was 9.2 years and the weighted average discount rate used in the measurement of operating lease liabilities was 2.16 %.

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.

6 unchanged sentences

Lease costs were as follows:

Six Months Ended

Nine Months Ended

(Dollar amounts in thousands)

June 30, 2023

September 30, 2023

Operating lease cost

5 unchanged sentences

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 June 30, 2023 were as follows:

Future minimum payments for operating leases with initial or remaining terms of one year or more as of September 30, 2023 were as follows:

(Dollar amounts in thousands)

June 30, 2023

Twelve Months Ended June 30,

September 30, 2023

Twelve Months Ended September 30,

Total Future Minimum Lease Payments

58 unchanged sentences

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

The ACL and allowance for unfunded commitments were $39.9 million and $2.0 million, respectively at June 30, 2023, compared to $39.8 million and $2.1 million, respectively at December 31, 2022.

The qualitative amount of the reserve increased $93 thousand to $11.1 million.

The quantitative amount is $28.3 million at June 30, 2023, compared to $28.6 million at December 31, 2022.

The ACL and allowance for unfunded commitments were $39.0 million and $2.0 million, respectively at September 30, 2023, compared to $39.8 million and $2.1 million, respectively at December 31, 2022.

The qualitative amount of the reserve decreased $109 thousand to $11.0 million.

The quantitative amount is $27.6 million at September 30, 2023, compared to $28.6 million at December 31, 2022.

There was a decrease of $100 thousand in the allowance for unfunded commitments.

4 unchanged sentences

Summary of Operating Results

Net income for the three months ended June 30, 2023 was $16.0 million, compared to $15.6 million for the same period in 2022.

Basic earnings per share increased to $1.33 for the second quarter of 2023 compared to $1.27 for the same period in 2022.

Return on average assets and return on average equity were 1.34% and 12.75% respectively, for the three months ended June 30, 2023 compared to 1.24% and 12.64% for the three months ended June 30, 2022.

Net income for the six months ended June 30, 2023 was $32.0 million, compared to $36.5 million for the same period in 2022.

Basic earnings per share decreased to $2.66 for the first six months of 2023 compared to $2.95 for the same period in 2022.

Return on average assets and return on average equity were 1.33% and 12.92% respectively, for the six months ended June 30, 2023, compared to 1.43% and 13.80% for the six months ended June 30, 2022.

Net income for the three months ended September 30, 2023 was $16.3 million, compared to $18.1 million for the same period in 2022.

Basic earnings per share decreased to $1.37 for the third quarter of 2023 compared to $1.50 for the same period in 2022.

Return on average assets and return on average equity were 1.35% and 13.19% respectively, for the three months ended September 30, 2023 compared to 1.43% and 15.00% for the three months ended September 30, 2022.

Net income for the nine months ended September 30, 2023 was $48.3 million, compared to $54.6 million for the same period in 2022.

Basic earnings per share decreased to $4.02 for the first nine months of 2023 compared to $4.45 for the same period in 2022.

Return on average assets and return on average equity were 1.33% and 12.98% respectively, for the nine months ended September 30, 2023, compared to 1.43% and 14.14% for the nine months ended September 30, 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 28.3% of assets at June 30, 2023.

● Liquidity remains strong, with cash and available for sale securities representing approximately 27.2% of assets at September 30, 2023.

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

3 unchanged sentences

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 0.33% of total assets as of June 30, 2023 and net charge-offs of 0.23% 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.

● Asset quality remains solid, with a non-performing asset ratio of 0.33% of total assets as of September 30, 2023 and net charge-offs of 0.24% 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.

7 unchanged sentences

The Corporation’s primary source of earnings is net interest income, which is the difference between the interest earned on loans and other investments and the interest paid for deposits and other sources of funds.

Net interest income increased $1.7 million in the three months ended June 30, 2023 to $42.2 million from $40.5 million in the same period in 2022.

The net interest margin for the three months ended June 30, 2023 is 3.81% compared to 3.46% for the same period in 2022, a 9.94% increase.

Net interest income increased $8.2 million in the six months ended June 30, 2023 to $86.5 million from $78.3 million in the same period in 2022.

The net interest margin for the six months ended June 30, 2023 is 3.88% compared to 3.31% for the same period in 2022.

The increase in yields on net loans and leases of 116 basis points is the primary contributor to the improved yield on average earning assets for the six months ended June 30, 2023, compared to the six months ended June 30, 2022, which was due to market conditions as a result of Federal Reserve interest rate increases.

Comparing the six months ended June 30, 2023 to the six months ended June 30, 2022, the effective rate paid on average interest-bearing deposits increased 103 basis points, due to rate competition in the market.

Net interest income decreased $2.0 million in the three months ended September 30, 2023 to $41.2 million from $43.1 million in the same period in 2022.

The net interest margin for the three months ended September 30, 2023 is 3.74% compared to 3.71% for the same period in 2022, a 0.69% increase.

Net interest income increased $6.3 million in the nine months ended September 30, 2023 to $127.7 million from $121.4 million in the same period in 2022.

The net interest margin for the nine months ended September 30, 2023 is 3.83% compared to 3.44% for the same period in 2022.

The increase in yields on net loans and leases of 111 basis points is the primary contributor to the improved yield on average earning assets for the nine months ended September 30, 2023, compared to the nine months ended September 30, 2022, which was due to market conditions as a result of Federal Reserve interest rate increases.

Comparing the nine months ended September 30, 2023 to the nine months ended September 30, 2022, the effective rate paid on average interest-bearing deposits increased 109 basis points, due to rate competition in the market.

For the same period discussed above, interest paid on other borrowings increased 253 basis points due to higher borrowing rates.

Non-Interest Income

Non-interest income for the three months ended June 30, 2023 was $10.5 million compared to $10.3 million for the same period of 2022.

Non-interest income for the six months ended June 30, 2023 was $19.8 million compared to $24.0 million for the same period in 2022.

Non-interest income for the three months ended September 30, 2023 was $11.6 million compared to $12.1 million for the same period of 2022.

Non-interest income for the nine months ended September 30, 2023 was $31.5 million compared to $36.1 million for the same period in 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.

1 unchanged sentence

Non-Interest Expenses

The Corporation’s non-interest expense for the quarter ended June 30, 2023 was $31.3 million compared to $30.7 million for the same period in 2022.

The Corporation’s non-interest expense for the six months ended June 30, 2023 increased $1.6 million to $63.7 million compared to the same period in 2022.

The Corporation’s non-interest expense for the quarter ended September 30, 2023 was $32.3 million compared to $31.5 million for the same period in 2022.

The Corporation’s non-interest expense for the nine months ended September 30, 2023 increased $2.4 million to $95.9 million compared to the same period in 2022.

Allowance for Credit Losses

The Corporation’s provision for credit losses increased to $1.8 million for the second quarter of 2023 as compared to provision of $750 thousand for the same period in 2022.

Net charge-offs for the second quarter of 2023 were $1.5 million compared to net recoveries of $202 thousand for the same period of 2022.

The provision for credit losses increased $9.4 million to $3.6 million for the six months ended June 30, 2023, compared to negative provision of $5.8 million for the same period in 2022.

Net charge-offs for the first six months of 2023 increased $2.4 million to $3.5 million compared to the same period in 2022.

The Corporation’s provision for credit losses increased to $1.2 million for the third quarter of 2023 as compared to provision of $1.1 million for the same period in 2022.

Net charge-offs for the third quarter of 2023 were $2.1 million compared to net charge-offs of $3.0 million for the same period of 2022.

The provision for credit losses increased $9.6 million to $4.8 million for the nine months ended September 30, 2023, compared to negative provision of $4.8 million for the same period in 2022.

Net charge-offs for the first nine months of 2023 increased $1.5 million to $5.5 million compared to the same period in 2022.

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

11 unchanged sentences

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.

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

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

Income Tax Expense

The Corporation’s effective income tax rate for the first six months of 2023 was 18.21% compared to 20.69% for the same period in 2022.

Pretax income for the first six months in 2022 was significantly higher than pretax income for first six months in 2023.

The Corporation’s effective income tax rate for the first nine months of 2023 was 17.37% compared to 20.61% for the same period in 2022.

Pretax income for the first nine months in 2022 was significantly higher than pretax income for first nine months in 2023.

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

1 unchanged sentence

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 increased to $13.3 million at June 30, 2023 compared to $12.7 million at December 31, 2022.

Nonperforming loans increased 42.0% compared to $9.4 million as of June 30, 2022.

A summary of non-performing loans at June 30, 2023 and December 31, 2022 follows:

June 30, 2023

Non-performing loans decreased to $12.6 million at September 30, 2023 compared to $12.7 million at December 31, 2022.

Nonperforming loans increased 21.8% compared to $10.3 million as of September 30, 2022.

A summary of non-performing loans at September 30, 2023 and December 31, 2022 follows:

September 30, 2023

December 31, 2022

3 unchanged sentences

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

June 30, 2023

September 30, 2023

December 31, 2022

26 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 June 30, 2023.

The table below shows the Corporation’s estimated sensitivity profile as of September 30, 2023.

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

Given a 100 basis point increase in rates, net interest income would decrease 2.11% over the next 12 months and decrease 1.27% over the following 12 months.

Given a 100 basis point decrease in rates, net interest income would decrease 1.34% over the next 12 months and decrease 4.81% over the following 12 months.

Given a 100 basis point increase in rates, net interest income would decrease 1.31% over the next 12 months and increase 1.49% over the following 12 months.

Given a 100 basis point decrease in rates, net interest income would increase 0.01% over the next 12 months and decrease 2.85% over the following 12 months.

These estimates assume all rate changes occur overnight and management takes no action as a result of this change.

11 unchanged sentences

Financial Condition

Comparing the first six months of 2023 to year-ended December 31, 2022, loans net of deferred loan costs, have increased $67 million to $3.1 billion.

Deposits decreased 7.00% to $4.1 billion at June 30, 2023 compared to December 31, 2022.

Comparing the first nine months of 2023 to year-ended December 31, 2022, loans net of deferred loan costs, have increased $50 million to $3.1 billion.

Deposits decreased 7.50% to $4.0 billion at September 30, 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.

Other borrowings increased $125 million to $134.6 million at June 30, 2023 compared to December 31, 2022.

Shareholders’ equity increased 4.54% or $21.6 million.

This financial performance increased book value per share 5.15% to $41.47 at June 30, 2023 from $39.44 at December 31, 2022.

Other borrowings increased $75 million to $84.6 million at September 30, 2023 compared to December 31, 2022.

Shareholders’ equity decreased 1.08% or $5.1 million.

This financial performance increased book value per share 1.42% to $40.00 at September 30, 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 loss decreased $1.3 million primarily due to the market value of the securities portfolio, which reflected the increase in securities pricing.

Accumulated other comprehensive loss decreased $36.1 million primarily due to the market value of the securities portfolio, which reflected the decrease in securities pricing.

Capital Adequacy

19 unchanged sentences

Currently the Corporation exceeds all of these minimums.

June 30, 2023

September 30, 2023

December 31, 2022

9 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