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Item 8. Financial Statements and Supplementary Data

2025-03-05 compared with 2024-03-11 · 111 added, 69 removed, 1538 unchanged (10% of the section changed)

13 unchanged sentences

Crowe LLP (PCAOB ID:

173 ) , independent registered public accounting firm, has audited the Corporation’s internal control over financial reporting as of December 31, 2023 and has issued a report dated March 11, 2024.

173 ) , an independent registered public accounting firm, has audited the Corporation’s internal control over financial reporting as of December 31, 2024 and has issued a report dated March 5, 2025.

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

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Economic indicators that are used in determining the economic forecast factors include unemployment rate, gross domestic product, housing starts and interest rates.

The allowance for credit losses on loans was identified by us as a critical audit matter because of the extent of auditor judgment applied and significant audit effort to evaluate the significant subjective and complex judgments made by management throughout the determination process.

Auditing the allowance for credit losses on loans was identified by us as a critical audit matter because of the extent of auditor judgment applied and significant audit effort to evaluate the significant subjective and complex judgments made by management.

The principal considerations resulting in our determination included the following:

● Significant auditor judgment and effort were used in evaluating the qualitative factors used in the calculation.

● Significant auditor judgment in evaluating the selection and application of the reasonable and supportable forecast of economic variables.

● Significant audit effort to test the relevance and reliability of the critical data used in the methodology.

● Significant auditor judgment and effort were used in evaluating the qualitative factors applied in the calculation, including significant audit effort involved in testing the relevance and reliability of the critical data used in the qualitative methodology.

● Significant auditor judgment was used in evaluating the selection and application of the reasonable and supp ortable forecast of economic variables.

The primary procedures performed to address this critical audit matter included:

● Testing the effectiveness of management’s internal controls over the Company’s significant model assumptions and judgments, loan segmentation, reasonable and supportable forecasts, qualitative factor adjustments, relevance and reliability of data used in the model, charge-off approval, information systems and model validation

● Testing the effectiveness of controls over the Company’s preparation and review of the allowance for credit loss calculation, including data used as the basis for adjustments related to the qualitative factors, the development and reasonableness of qualitative factors and mathematical accuracy and appropriateness of the overall calculation

● Testing the effectiveness of internal controls over:

- the Company’s preparation and review of the allowance for credit loss calculation, including the development and reasonableness of qualitative factors, data used as the basis for adjustments related to the qualitative factors, and the mathematical accuracy and appropriateness of the overall calculation.

- the Company’s review of significant model assumptions and judgments, including selection and application of reasonable and supportable forecast of economic conditions into the calculation.

● Testing management’s process for developing the qualitative factors, including assessing relevance and reliability of data used to develop factors, evaluating the significant assumptions for reasonableness, and testing mathematical accuracy and appropriateness of the application of qualitative factors.

● Evaluating management’s judgments in the selection and application of reasonable and supportable forecast of economic variables.

● Testing management’s process for developing the qualitative factors and assessing reasonableness, relevance and reliability of data used to develop factors, including evaluating their judgments and assumptions for reasonableness.

● Assessing the independent model validation received over the calculation with a focus on assessments over qualitative factors.

/s/ Crowe LLP

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Balance, December 31, 2023

Cumulative change in accounting principle ASU 2023-02

Other comprehensive income (loss)

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Net change in federal funds sold

Purchase of bank owned life insurance

Redemption of restricted stock

Purchase of restricted stock

Cash received (disbursed) from acquisitions

Cash received (disbursed) from acquisitions, net

Proceeds from sales of other real estate owned

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( 1,607,254 )

( 1,981,000 )

NET CASH FROM FINANCING ACTIVITIES

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The Corporation’s primary source of revenue is derived from loans to customers and investment activities.

The Corporation operates 70 branches in west-central Indiana, east-central Illinois, western Kentucky, and central Tennessee.

The Corporation operates 83 branches in west-central Indiana, east-central Illinois, western Kentucky, central and eastern Tennessee, and northern Georgia.

First Financial Bank is the largest bank in Vigo County.

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one in Warren County, Kentucky;

one in Bradley County, Tennessee;

three in Cheatham County, Tennessee;

and three in Montgomery County, Tennessee.

There are six loan production offices, one in Allen County, Indiana;

two in Hamilton County, Tennessee;

one in Meigs County, Tennessee;

three in Montgomery County, Tennessee;

one in Polk County, Tennessee;

three in Rhea County, Tennessee;

two in Roane County, Tennessee;

one in Catoosa County, Georgia;

and two in Walker County, Georgia.

There are seven loan production offices, one in Allen County, Indiana;

one in Hamilton County, Indiana;

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one in Vanderburgh County, Indiana;

one in Hamilton County, Tennessee;

one in Rutherford County, Tennessee;

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Concentration of Credit Risk:

Most of the Corporation’s business activity is with customers located within west-central Indiana, east-central Illinois, western Kentucky, and middle and western Tennessee.

Most of the Corporation’s business activity is with customers located within west-central Indiana, east-central Illinois, western Kentucky, middle and eastern Tennessee, and northern Georgia.

Therefore, the Corporation’s exposure to credit risk is significantly affected by changes in the economy of this area.

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Commercial real estate loans may be adversely affected by factors in the local market, the regional economy, or industry specific factors.

In addition, Commercial Construction loans are a specific type of commercial real estate loan which inherently carry more risk than loans for completed projects.

In addition, Commercial Construction loans are a specific type of commercial real estate loan

which inherently carry more risk than loans for completed projects.

Since these types of loans are underwritten utilizing estimated costs, feasibility studies, and estimated absorption rates, the underlying value of the project may change based upon the inaccuracy of these projections.

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If a loan is individually evaluated, a portion of the allowance is allocated so that the loan is reported at the fair value of collateral, adjusted for selling costs, if repayment is expected solely from the collateral.

The pooled component covers pools of loans that share similar risk characteristics, and is based on historical

loss experienced since 2008.

The pooled component covers pools of loans that share similar risk characteristics, and is based on historical loss experienced since 2008.

This historical loss experience is supplemented with other current factors based on the risks present for each portfolio segment.

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Both cash and stock dividends are reported as income.

Segment Reporting:

The Corporation operates as a single segment entity for financial reporting purposes and has adopted ASU 2023-07, Segment Reporting , for the year ended December 31, 2024.

The Company has determined that its current operating model is structured whereby banking locations and divisions serve a similar base of commercial and retail customers for which the Corporation provides similar products and services managed through similar processes and technology platforms.

The Chief Financial Officer (“CFO”) serves as the Corporation’s chief operating decision maker (“CODM”).

The CODM allocates resources and assesses performance of the Corporation based on the consolidated performance, excluding all significant intercompany balances and transactions of the Corporation and its wholly owned subsidiary, the banking segment, and does not significantly utilize disaggregated segment financial information for decision making and resource allocation.

The CODM assesses performance for the banking segment and decides how to allocate resources based on net income as reported on the consolidated statement of income as consolidated net income.

Accordingly, all of the Corporation’s operations are considered by management to be aggregated in one reportable operating segment, the banking segment.

All categories of interest expense and non-interest expense as disclosed on the Corporation’s consolidated statements of income are considered significant to the banking segment.

The Corporation has reviewed the requirements of ASU 2023-07 and has determined that no additional segment disclosures are required, specifically as a result of the following:

● the Corporation does not use the tracked performance on the disaggregated segment level for decision-making or resource allocation purposes,

● no significant segment-specific expenses or performance metrics are used internally for decision-making or resource allocation purposes, and

● the level of financial consolidation presented in these financial statements aligns with the CODM’s internal reporting and decision-making process

Based on this assessment the Corporation financial statement disclosures fully comply with ASC 2023-07, and no additional qualitative segment disclosures are necessary.

Servicing Rights:

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Changes in assumptions or market conditions could significantly affect the estimates.

Operating Segment:

While the Corporation’s chief decision-makers monitor the revenue streams of the various products and services, the operating results of significant segments are similar and operations are managed and financial performance is evaluated on a corporate-wide basis.

Accordingly, all of the Corporation’s financial service operations are considered by management to be aggregated in one reportable operating segment, which is banking.

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.

Recently Issued Not Yet Effective Accounting Pronouncements:

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

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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 on 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 Update (ASU) No.

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Early 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.

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

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

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

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

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.

1 unchanged sentence

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.

The Corporation adopted ASU 2023-07 on January 1, 2024 for fiscal year activity and will apply ASU 2023-07 in interim periods within fiscal years beginning January 1, 2025.

For additional information relating to the adoption of the amendments, see Note 1, under Segment Reporting.

Recently Issued Not Yet Effective Accounting Pronouncements:

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

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(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.

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

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

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

In November 2024, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) No.

2024-03, “Income Statement – Reporting Comprehensive Income – Expense Disaggregation Disclosures (Subtopic 220-40):

Disaggregation of Income Statement Expenses.” This update is intended to provide investors more detailed disclosures around specific types of expenses.

This ASU requires certain details for expenses presented on the face of the consolidated statements of income as well as selling expenses to be presented in the notes to the financial statements.

This update is effective for fiscal years beginning after December 15, 2026, and interim periods within fiscal years beginning after December 15, 2027, with early adoption permitted.

The disclosure updates are required to be applied prospectively with the option for retrospective application.

The Corporation is assessing ASU 2024-03 and i ts effect on its consolidated financial statements and related disclosures .

FAIR VALUES OF FINANCIAL INSTRUMENTS:

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Other real estate owned is valued at Level 3.

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

Other real estate owned at December 31, 2024 with a value of $ 523 thousand was reduced by zero for fair value adjustment.

At December 31, 2024, other real estate owned was comprised of $ 433 thousand from commercial loans and $ 90 thousand from residential loans.

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The table below presents a rollforward of the credit losses recognized in earnings for the years presented:

Three Months Ended December 31,

Year Ended December 31,

(Dollar amounts in thousands)

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ACQUISITIONS:

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.

On July 1, 2024, the Corporation completed its acquisition of SimplyBank.

Therefore, the results of SimplyBank have been included in the results of operations beginning on July 1, 2024.

Upon the terms and subject to the conditions set forth in the Merger Agreement, at the effective time of the Interim Merger (the “Effective Time”), other than dissenting shares, each share of SimplyBank Common Stock issued and outstanding immediately prior to the Effective Time, was converted into the right to receive $ 718.38 per share in cash.

The aggregate value of the transaction was approximately $ 73.4 million.

Acquisition-related costs of $ 1.7 million are included in the Corporation’s income statement for the year ended December 31, 2024.

Goodwill of $ 13.0 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 goodwill value is subject to change pending receipt of the final valuation.

The goodwill for SimplyBank is deductible for income tax purposes as the transaction was accounted for as a taxable acquisition.

The following table summarizes the consideration paid and the amounts of the assets acquired and liabilities assumed recognized at the acquisition date.

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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.

As such, these receivables were not considered impaired at the acquisition date and were not subject to guidance relating to purchase credit deteriorated loans, which have shown evidence of credit deterioration since origination.

The fair value of purchased financial assets with credit deterioration was $ 1.7 million on the date of acquisition.

The gross contractual amounts receivable relating to the purchased financial assets with credit deterioration was $ 4.7 million.

The Corporation estimates, on the date of acquisition, that $ 3.0 million of the contractual cash flows specific to the purchased financial assets with credit deterioration will not be collected.

The following table presents supplemental pro forma information as if the acquisition had occurred at the beginning of 2023.

5 unchanged sentences

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.

ALLOWANCE FOR CREDIT LOSSES:

4 unchanged sentences

Beginning balance

PCD ACL on acquired loans

Provision for credit losses

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Beginning balance

PCD ACL on acquired loans

Provision for credit losses

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All loans and leases that have been modified during the twelve months ended December 31, 2024 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 twelve months ended Decemer 31, 2023.

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

Interest Rate

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Special Mention