What changed in this filing

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Item 1. Financial Statements

2024-05-08 compared with 2023-11-08 · 170 added, 285 removed, 834 unchanged (35% of the section changed)

3 unchanged sentences

(Dollar amounts in thousands, except per share data)

September 30,

Cash and due from banks

34 unchanged sentences

Three Months Ended

Nine Months Ended

September 30,

INTEREST INCOME:

13 unchanged sentences

Other service charges and fees

Securities gains, net

Interchange income

20 unchanged sentences

Three Months Ended

September 30, 2023, and 2022

(Dollar amounts in thousands, except per share data)

Comprehensive

Income/(Loss)

Balance, July 1, 2022

Other comprehensive income (loss)

Omnibus Equity Incentive Plan

Treasury shares purchased ( 9,125 shares)

Balance, September 30, 2022

Balance, July 1, 2023

Other comprehensive income (loss)

Omnibus Equity Incentive Plan

Treasury shares purchased ( 228,457 shares)

Balance, September 30, 2023

See accompanying notes.

FIRST FINANCIAL CORPORATION

CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY

Nine Months Ended

September 30, 2023, and 2022

March 31, 2024, and 2023

(Dollar amounts in thousands, except per share data)

5 unchanged sentences

Treasury shares purchased ( 8,304 shares)

Cash dividends, $ .54 per share

Balance, September 30, 2022

Balance, March 31, 2023

Balance, January 1, 2024

Cumulative change in accounting principle ASU 2023-02

Other comprehensive income (loss)

2 unchanged sentences

Cash dividends, $ .45 per share

Balance, September 30, 2023

Balance, March 31, 2024

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

Depreciation and amortization

6 unchanged sentences

Purchases of securities available-for-sale

Proceeds from loans sold 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

9 unchanged sentences

Maturities of other borrowings

( 1,355,000 )

NET CASH FROM FINANCING ACTIVITIES

5 unchanged sentences

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

The accompanying March 31, 2024 and 2023 consolidated financial statements are unaudited.

The December 31, 2023 consolidated financial statements are as reported in the First Financial Corporation (the “Corporation”) 2023 annual report.

11 unchanged sentences

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

For the three months ended 2024 and 2023, 27,803 and 22,228 shares were awarded, respectively.

These shares had a grant date value of $ 1.0 million and $ 1.0 million for 2024 and 2023, 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.

1 unchanged sentence

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.

2 unchanged sentences

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.

The Corporation adopted ASU 2022-03 January 1, 2024, and it had no impact on its consolidated financial statements and related disclosures.

In March 2023, the Financial Accounting Standards Board (FASB) issued Accounting Standards (ASU) No.

2 unchanged sentences

This guidance is effective for public business entities for fiscal years including interim periods within those fiscal years, beginning after December 15, 2023.

adoption is permitted in any interim period.

The Corporation is evaluating ASU 2023-02 and its effect on its consolidated financial statements and related disclosures .

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, 2023

(Dollar amounts in thousands)

Beginning balance

Provision for credit losses

Loans charged-off

Ending Balance

Early adoption is permitted in any interim period.

The Corporation adopted ASU 2023-02 January 1, 2024 on a modified retrospective basis.

As a result of the adoption, other assets was increased $ 19 million, other liabilities was increased $ 21 million, and retained earnings was decreased $ 1.7 million.

Recent Accounting Pronouncements:

In November 2023, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) 2023-07 “Segment Reporting (Topic 280):

Improvements to Reportable Segment Disclosures.” These amendments require, among other things, that a public entity that has a single reportable segment provide all the disclosures required by the amendments in this ASU and all existing segment disclosures in Topic 208.

The ASU is effective for fiscal years beginning after December 15, 2023, and interim periods within fiscal years beginning after December 15, 2024.

Early adoption is permitted.

A public entity should apply the amendments retrospectively to all periods presented in the financial statements.

The Corporation is assessing ASU 2023-07 and its effect on its consolidated financial statements and related disclosures.

In December 2023, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) No.

2023-09 “Income Taxes (Topic 740):

Improvements to Income Tax Disclosures.” Among other things, these amendments require that public business entities on an annual basis (1) disclose specific categories in the rate reconciliation and (2) provide additional information for reconciling items that meet a quantitative threshold (if the effect of those reconciling items is equal to or greater than five percent of the amount computed by multiplying pretax income (loss) by the applicable statutory income tax rate.) The amendments also require that all entities disclose on an annual basis the following information about income taxes paid:

(1) the amount of income taxes paid (net of refunds received) disaggregated by federal, state, and foreign taxes and (2) the amount of income taxes paid (net of refunds received) disaggregated by individual jurisdictions in which income taxes paid (net of refunds received) is equal to or greater than five percent of total income taxes paid (net of refunds received.) This guidance is effective for public business entities for annual periods beginning after December 15, 2024.

Early adoption is permitted for annual financial statements that have not yet been issued or made available for issuance.

The amendments should be applied on a prospective basis although retrospective application is permitted.

The Corporation is assessing ASU 2023-09 and its effect on its consolidated financial statements and related disclosures .

Allowance for Credit Losses

September 30, 2022

(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, 2023

March 31, 2024

(Dollar amounts in thousands)

4 unchanged sentences

Allowance for Credit Losses:

September 30, 2022

March 31, 2023

(Dollar amounts in thousands)

4 unchanged sentences

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

September 30, 2023

March 31, 2024

90 Days Still

18 unchanged sentences

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

September 30, 2023

March 31, 2024

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, 2023

March 31, 2024

(Dollar amounts in thousands)

18 unchanged sentences

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

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 following table presents the amortized cost of loans and leases at March 31, 2024 that were both experiencing financial difficulty and modified during the twelve months ended March 31, 2024, 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.

5 unchanged sentences

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.

The following table presents the performance of such loans that have been modified in the last twelve months:

March 31, 2024

(Dollar amounts in thousands)

Motor Vehicle

The following table presents the financial effect of loan and lease modifications presented above to borrowers experiencing financial difficulty for the twelve months ended March 31, 2024.

Interest Rate

1 unchanged sentence

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.

The following table presents the amortized cost basis of loans that had a payment default during the twelve months ended March 31, 2024 and were modified in the twelve months prior to that default to borrowers experiencing financial difficulty .

Interest Rate

(Dollar amounts in thousands)

Motor Vehicle

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

18 unchanged sentences

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

September 30, 2023

These balances do not include accrued interest:

March 31, 2024

Term Loans at Amortized Cost Basis by Origination Year

20 unchanged sentences

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

1 unchanged sentence

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, 2023

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

These balances do not include accrued interest:

March 31, 2024

Term Loans at Amortized Cost Basis by Origination Year

19 unchanged sentences

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

2 unchanged sentences

All securities are classified as available-for-sale.

September 30, 2023

March 31, 2024

(Dollar amounts in thousands)

15 unchanged sentences

Collateralized debt obligations

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

Contractual maturities of debt securities at March 31, 2024 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 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.

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, 2023 and December 31, 2022.

September 30, 2023

There were no gross gains and losses from investment sales/calls realized by the Corporation for the three months ended March 31, 2024.

For the three months ended March 31, 2023 there were no gross gains and losses on sales/calls of investment securities.

March 31, 2024

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 $ 218.7 million as of September 30, 2023 and $ 172.1 million as of December 31, 2022.

Gross unrealized losses on investment securities were $ 171.5 million as of March 31, 2024 and $ 157.8 million as of December 31, 2023.

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, 2023 and 2022:

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 period ended March 31, 2024 and 2023:

Three Months Ended March 31,

(Dollar amounts in thousands)

2 unchanged sentences

Ending balance

Qualified Affordable Housing Project Investments

The Corporation invests in qualified affordable housing projects.

The balance of investment for qualified housing projects was $ 29.7 million at March 31, 2024 and $ 7.8 million at December 31, 2023.

These balances are reflected in the other assets line on the consolidated balance sheets.

Total unfunded commitments related to the investments in qualified affordable housing projects totaled $ 23.1 million at March 31, 2024.

The Corporation expects to fulfill these commitments by the end of December 31, 2037.

The Corporation recognized amortization expense of $ 195 thousand during the three months ended March 31, 2024, and $195 thousand during the three months ended March 31, 2023, which was included within other noninterest expense on the consolidated statements of income.

Additionally, the Corporation recognized tax credits and other benefits form its investment in affordable housing tax credits of $ 363 thousand during the three months ended March 31, 2024, and $425 thousand during the three months ended March 31, 2023.

820-10 establishes a fair value hierarchy which requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value.

15 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, 2023

March 31, 2024

Fair Value Measurements Using

24 unchanged sentences

There were no transfers between Level 1 and Level 2 during 2024 and 2023.

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.

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, 2024 and the year ended December 31, 2023.

Fair Value Measurements Using Significant Unobservable Inputs (Level 3)

Three Months Ended

September 30, 2023

Collateralized

(Dollar amounts in thousands)

debt obligations

Beginning balance, July 1

Total realized/unrealized gains or losses

Included in earnings

Included in other comprehensive income

Ending balance, September 30

Fair Value Measurements Using Significant Unobservable Inputs (Level 3)

Nine Months Ended

September 30, 2023

March 31, 2024

Collateralized

5 unchanged sentences

Included in other comprehensive income

Ending balance, September 30

Ending balance, March 31

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 September 30, 2023.

Other real estate owned is valued at Level 3.

Other real estate owned at March 31, 2024 with a value of $ 167 thousand was reduced by $ 57 thousand for fair value adjustment.

At March 31, 2024 other real estate owned was comprised of $ 84 thousand from commercial loans and $ 83 thousand from residential loans.

Other real estate owned at December 31, 2023 with a value of $ 107 thousand was reduced by $ 57 thousand for fair value adjustment.

At December 31, 2023 other real estate owned was comprised of $ 26 thousand from commercial loans and $ 81 thousand from residential loans.

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

Generally the fair value of real estate is determined based on appraisals by qualified licensed appraisers.

Appraisals for real estate generally use three methods to derive value:

cost, sales or market comparison and income approach.

The cost method bases value on the cost to replace current property.

The market comparison evaluates the sales price of similar properties in the same market area.

The income approach considers net operating income generated by the property and the investor’s required return.

The final fair value is based on a reconciliation of these three approaches.

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.

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

The primary unobservable input used by management in estimating fair value are additional discounts to the appraised value to consider market conditions and the age of the appraisal, which are based on management’s past experience in resolving these types of properties.

These discounts range from 10 % to 100 % with an average discount of 39 %.

Values for non-real estate collateral, such as business equipment, are based on appraisals performed by qualified licensed appraisers or the customers financial statements.

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

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

The following table presents quantitative information about recurring and non-recurring Level 3 fair value measurements at March 31, 2024.

(Dollar amounts in thousands)

25 unchanged sentences

0.00 %- 100.00

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

Generally the fair value of real estate is determined based on appraisals by qualified licensed appraisers.

Appraisals for real estate generally use three methods to derive value:

cost, sales or market comparison and income approach.

The cost method bases value on the cost to replace current property.

The market comparison evaluates the sales price of similar properties in the same market area.

The income approach considers net operating income generated by the property and the investor’s required return.

The final fair value is based on a reconciliation of these three approaches.

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

The primary unobservable input used by management in estimating fair value are additional

discounts to the appraised value to consider market conditions and the age of the appraisal, which are based on management’s past experience in resolving these types of properties.

These discounts range from 0 % to 50 %.

Values for non-real estate collateral, such as business equipment, are based on appraisals performed by qualified licensed appraisers or the customers financial statements.

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

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, 2023 and December 31, 2022, are shown below.

The carrying amounts and estimated fair value of financial instruments at March 31, 2024 and December 31, 2023, 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, 2023

March 31, 2024

(Dollar amounts in thousands)

26 unchanged sentences

(Dollar amounts in thousands)

September 30, 2023

March 31, 2024

December 31, 2023

8 unchanged sentences

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

September 30, 2023

March 31, 2024

Repurchase Agreements

10 unchanged sentences

Other borrowings:

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

Other borrowings at March 31, 2024 and December 31, 2023 are summarized as follows:

(Dollar amounts in thousands)

September 30, 2023

March 31, 2024

December 31, 2023

1 unchanged sentence

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

Twelve Months Ended September 30,

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

Twelve Months Ended March 31,

At March 31, 2024 and December 31, 2023, 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 $ 84.6 million of advances from the FHLB at September 30, 2023, and $ 9.6 million of advances at December 31, 2022.

There are $ 58.6 million of advances from the FHLB at March 31, 2024, and $ 108.6 million of advances at December 31, 2023.

FHLB advances are, generally due in full at maturity.

1 unchanged sentence

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, 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.

First Financial Corporation previously disclosed in its financial statements for the year ended December 31, 2023 that it expected to contribute $ 3.9 million and $ 604 thousand respectively to its Pension Plan and ESOP and $ 249 thousand to the Post Retirement Health Benefits Plan in 2024.

No contributions have been made to the Pension Plan thus far in 2024.

Contributions of $ 163 thousand have been made through the first nine months of 2023 for the Post Retirement Health Benefits plan.

Contributions of $ 80 thousand have been made through the first three months of 2024 for the Post Retirement Health Benefits plan.

No contributions have been made in 2024 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 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.

In the first three months of 2024 and 2023 there has been $ 744 thousand and $ 608 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, 2023 and 2022.

The following table presents the Corporation’s sources of Non-Interest Income for the three months ended March 31, 2024 and 2023.

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)

5 unchanged sentences

Loan servicing fees (a)

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

Other service charges and fees (a)

1 unchanged sentence

(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, 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;

(b) The Other category includes gains/(losses) on the sale of OREO for the three months ended March 31, 2024 and March 31, 2023, totaling $ 7 thousand and $ 6 thousand, respectively, which is within the scope of ASC 606;

the remaining balance is outside the scope of ASC 606.

Service charges on deposits :

The Corporation earns fees from its deposit customers for transaction-based, account maintenance, and overdraft services.

Transaction-based fees, which include services such as ATM use fees, stop payment charges, statement rendering, and ACH fees, are recognized at the time the transaction is executed as that is the point in time the Corporation fulfills the customer’s request.

Transaction-based fees, which include services such as ATM use fees, stop payment charges, statement rendering,

and ACH fees, are recognized at the time the transaction is executed as that is the point in time the Corporation fulfills the customer’s request.

Account maintenance fees, which relate primarily to monthly maintenance, are earned over the course of a month, representing the period over which the Corporation satisfies the performance obligation.

16 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 nine months ended September 30, 2023 and 2022.

(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, 2024 and 2023.

(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

Ending balance, March 31,

Current Period

8 unchanged sentences

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

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 income (loss) on securities available-for-sale

Unrealized gain (loss) on retirement plans

Three Months Ended September 30, 2023

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 7 for additional details).

Nine Months Ended September 30, 2023

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 7 for additional details).

Three Months Ended September 30, 2022

Three Months Ended March 31, 2024

Details about accumulated

19 unchanged sentences

(see Footnote 7 for additional details).

Nine Months Ended September 30, 2022

Three Months Ended March 31, 2023

Details about accumulated

20 unchanged sentences

The Corporation leases certain branches under operating 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 March 31, 2024, the Corporation had lease liabilities totaling $ 5,676,000 and right-of-use assets totaling $ 5,608,000 related to these leases.

At December 31, 2023, the Corporation had lease liabilities totaling $ 5,456,000 and right-of-use assets totaling $ 5,392,000 related to these leases.

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

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 %.

At March 31, 2024, the weighted average remaining lease term for operating leases was 8.

7 years and the weighted average discount rate used in the measurement of operating lease liabilities was 2.29 %.

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, 2023

March 31, 2024

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, 2023 were as follows:

Future minimum payments for operating leases with initial or remaining terms of one year or more as of March 31, 2024 were as follows:

(Dollar amounts in thousands)

September 30, 2023

Twelve Months Ended September 30,

March 31, 2024

Twelve Months Ended March 31,

Total Future Minimum Lease Payments

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

The ACL and allowance for unfunded commitments were $39.0 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 ACL and allowance for unfunded commitments were $40.0 million and $2.0 million, respectively at March 31, 2024, compared to $39.8 million and $2.0 million, respectively at December 31, 2023.

The qualitative amount of the reserve decreased $638 thousand to $10.3 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.

The quantitative amount is $29.4 million at March 31, 2024, compared to $28.4 million at December 31, 2023.

There was no change in the allowance for unfunded commitments.

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

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Summary of Operating Results

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 27.2% of assets at September 30, 2023.

Net income for the three months ended March 31, 2024 was $10.9 million, compared to $16.0 million for the same period in 2023.

Basic earnings per share decreased to $0.93 for the first quarter of 2024 compared to $1.33 for the same period in 2023.

Return on average assets and return on average equity were 0.91% and 8.36% respectively, for the three months ended March 31, 2024 compared to 1.32% and 13.10% for the three months ended March 31, 2023.

In light of events in the banking sector, including bank failures, continuing interest rate activity 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 26.5% of assets at March 31, 2024.

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

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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 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.

● Asset quality remains solid, with a non-performing asset ratio of 0.56% of total assets as of March 31, 2024 and net charge-offs of 0.19% 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 2023 crisis and further extent on the Corporation’s operations and financial results for the remainder of 2024 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, the Corporation closed and consolidated seven of its seventy-two branches on January 31, 2023.

The buildings and land in the owned branches, that were closed, 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.

On November 13, 2023, First Financial Corporation, an Indiana corporation ("FFC"), First Financial Bank, National Association, a national banking association and wholly-owned subsidiary of FFC (“First Financial Bank”), and SimplyBank., a Tennessee-chartered commercial bank (“SimplyBank”), entered into an Agreement and Plan of Reorganization (the "Merger Agreement").

Pursuant to the terms of the Merger Agreement, FFC will form an interim national banking association as a wholly-owned subsidiary, which will merge with and into SimplyBank, with SimplyBank as the surviving entity (the "Interim Merger").

Immediately following the Interim Merger, SimplyBank will merge with and into First Financial Bank, with First Financial Bank as the surviving entity (the "Bank Merger," and together with the Interim Merger, the "Transactions").

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

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

Net interest income decreased $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.

Net interest income decreased $5.4 million in the three months ended March 31, 2024 to $38.9 million from $44.3 million in the same period in 2023.

The net interest margin for the three months ended March 31, 2024 is 3.53% compared to 3.96% for the same period in 2023, a 10.83% decrease.

The increase in yields on net loans and leases of 49 basis points is the primary contributor to the improved yield on average earning assets for the three months ended March 31, 2024, compared to the three months ended March 31, 2023, which was due to market conditions as a result of Federal Reserve interest rate increases.

Comparing the three months ended March 31, 2024 to the three months ended March 31, 2023, the effective rate paid on average interest-bearing deposits increased 101 basis points, due to rate competition in the market.

For the same period discussed above, interest paid on other borrowings increased 148 basis points due to higher borrowing rates.

Non-Interest Income

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.

The Corporation does not expect this income to reoccur.

Non-interest income for the three months ended March 31, 2024 was $9.4 million unchanged from the first quarter 2023.

Non-Interest Expenses

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.

The Corporation’s non-interest expense for the quarter ended March 31, 2024 was $33.4 million compared to $32.3 million for the same period in 2023.

Allowance for Credit Losses

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.

The first was the annual model recalibration.

Each year, in the first quarter, management reviews each model variable to determine if adjustments are necessary to improve the model’s predictability.

In the first quarter 2022 the delay periods were shortened to pick up more recent losses.

Also, the qualitative factor maximum scorecard ranges for certain cohorts were reduced, which reduced the reserve.

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

The first was related to an acquisition, which management believed to have seasoned adequately that it was no longer warranted.

The second was related to the CECL model and the related uncertainty.

The uncertainty surrounded the newness of the model and potential regulatory scrutiny.

Following two exam cycles, management elected to remove the factor.

Also, during the quarter, historical loss rates continued to decline, which lowers the required reserve.

The historical loss rate declined in most segments.

The Corporation’s provision for credit losses for the three months ended March 31, 2024, was $1.8 million, unchanged from the first quarter of 2023.

Net charge-offs for the first quarter of 2024 were $1.5 million compared to net charge-offs of $2.0 million for the same period of 2023.

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 third quarter 2023, no significant changes were made.

In the first quarter 2024, no significant changes were made.

Income Tax Expense

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.

The Corporation’s effective income tax rate for the first three months of 2024 was 16.79% compared to 18.42% for the same period in 2023.

Pretax income for the first three months in 2023 was significantly higher than pretax income for first three months in 2024.

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

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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 $12.6 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

Non-performing loans decreased to $24.3 million at March 31,

2024 compared to $24.6 million at December 31, 2023.

Nonperforming loans increased 100.8% compared to $12.1 million as of March 31, 2023, primarily driven by the addition of one credit placed on non-accrual in fourth quarter 2023.

A summary of non-performing loans at March 31, 2024 and December 31, 2023 follows:

March 31, 2024

December 31, 2023

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

September 30, 2023

March 31, 2024

December 31, 2023

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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, 2023.

The table below shows the Corporation’s estimated sensitivity profile as of March 31, 2024.

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 2.23% over the next 12 months and increase 0.31% 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.

Given a 100 basis point decrease in rates, net interest income would increase 5.71% over the next 12 months and increase 2.73% over the following 12 months.

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

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Financial Condition

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

Comparing the first three months of 2024 to year-ended December 31, 2023, loans net of deferred loan costs, have increased $24 million to $3.2 billion.

Deposits increased 0.37% to $4.1 billion at March 31, 2024 compared to December 31, 2023.

Other borrowings decreased $50 million to $58.6 million at March 31, 2024 compared to December 31, 2023.

Shareholders’ equity decreased 1.37% or $7.2 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.

This financial performance decreased book value per share 1.52% to $44.08 at March 31, 2024 from $44.76 at December 31, 2023.

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

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Currently the Corporation exceeds all of these minimums.

September 30, 2023

March 31, 2024

December 31, 2023

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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