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First Financial
THFF
#6401
Rank
C$1.03 B
Marketcap
๐Ÿ‡บ๐Ÿ‡ธ United States
Country
C$87.22
Share price
1.15%
Change (1 day)
26.96%
Change (1 year)
๐Ÿ’ณ Financial services
Categories
  1. First Financial
  2. Quarterly Reports (10-Q)
  3. Financial Year FY2022 Q1

First Financial - 10-Q quarterly report FY2022 Q1


Text size:
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
 
FORM 10-Q
 
☑ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For The Quarterly Period Ended March 31, 2022
 
☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from ____________ to ____________

Commission File Number 0-16759
 
FIRST FINANCIAL CORPORATION
(Exact name of registrant as specified in its charter) 
Indiana35-1546989
(State or other jurisdiction(I.R.S. Employer
incorporation or organization)Identification No.)
  
One First Financial Plaza, Terre Haute, IN
47807
(Address of principal executive office)(Zip Code)
  
(812)238-6000
(Registrant's telephone number, including area code)
 
Securities registered pursuant to Section 12(b) of the Act:
Title of each classTrading SymbolName of each exchange on which registered
Common Stock, par value $0.125 per shareTHFFThe NASDAQ Stock Market LLC

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes þ  No  ¨.
 
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes þ   No  ¨.
 
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer ¨Accelerated filerþ
Non-accelerated filer (Do not check if a smaller reporting company)¨Smaller reporting company☐
Emerging growth company☐
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 7(a)(2)(B) of the Securities Act.   ¨

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
Yes ☐ No þ.
 
As of May 2, 2022, the registrant had outstanding 12,421,849 shares of common stock, without par value. 

FIRST FINANCIAL CORPORATION
 
FORM 10-Q
 
INDEX 
 
 Page No.
 
  
Item 1. Financial Statements:
 
  
Consolidated Balance Sheets
3
  
Consolidated Statements of Income and Comprehensive Income
4
  
Consolidated Statements of Shareholders’ Equity
5
  
Consolidated Statements of Cash Flows
6
  
Notes to Consolidated Financial Statements
7
  
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
31
  
Item 3.  Quantitative and Qualitative Disclosures about Market Risk
34
  
Item 4.  Controls and Procedures
37
  
 
  
Item 1. Legal Proceedings
38
  
Item 1A. Risk Factors
38
  
Item 2.  Unregistered Sales of Equity Securities and Use of Proceeds
38
  
Item 3.  Defaults upon Senior Securities
38
  
Item 4.  Mine Safety Disclosures
38
  
Item 5.  Other Information
38
  
Item 6.  Exhibits
39
  
Signatures
40
 

2
Part I – Financial Information
Item 1.Financial Statements
FIRST FINANCIAL CORPORATION
CONSOLIDATED BALANCE SHEETS
(Dollar amounts in thousands, except per share data)
March 31,
2022		December 31,
2021
    (unaudited)
ASSETS  
Cash and due from banks$598,175 $682,807 
Federal funds sold736 308 
Securities available-for-sale1,359,483 1,364,734 
Loans:  
  Commercial1,701,507 1,674,066 
  Residential635,264 664,509 
  Consumer464,035 474,026 
 2,800,806 2,812,601 
(Less) plus:  
  Net deferred loan (fees)/costs3,844 3,294 
  Allowance for credit losses(40,516)(48,305)
 2,764,134 2,767,590 
Restricted stock15,547 16,200 
Accrued interest receivable15,633 16,946 
Premises and equipment, net69,978 69,522 
Bank-owned life insurance117,354 116,997 
Goodwill86,135 86,135 
Other intangible assets7,680 8,024 
Other real estate owned236 108 
Other assets63,497 45,728 
TOTAL ASSETS$5,098,588 $5,175,099 
LIABILITIES AND SHAREHOLDERS’ EQUITY  
Deposits:  
  Non-interest-bearing$893,375 $914,933 
  Interest-bearing:  
    Certificates of deposit exceeding the FDIC insurance limits62,899 74,015 
    Other interest-bearing deposits3,438,916 3,420,621 
 4,395,190 4,409,569 
Short-term borrowings96,672 93,374 
Other borrowings15,924 15,937 
Other liabilities65,358 73,643 
TOTAL LIABILITIES4,573,144 4,592,523 
Shareholders’ equity  
Common stock, $0.125 stated value per share;
Authorized shares-40,000,000
Issued shares-16,114,992 in 2022 and 16,096,313 in 2021
Outstanding shares-12,435,309 in 2022 and 12,629,893 in 20212,010 2,009 
Additional paid-in capital142,185 141,979 
Retained earnings580,063 559,139 
Accumulated other comprehensive income/(loss)(71,025)(2,426)
Less: Treasury shares at cost-3,679,683 in 2022 and 3,466,420 in 2021(127,789)(118,125)
TOTAL SHAREHOLDERS’ EQUITY525,444 582,576 
TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY$5,098,588 $5,175,099 
See accompanying notes. 
3
FIRST FINANCIAL CORPORATION
CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME
(Dollar amounts in thousands, except per share data) 
Three Months Ended
March 31,
 20222021
 (unaudited)(unaudited)
INTEREST INCOME:  
Loans, including related fees$32,357 $31,857 
Securities:  
Taxable4,583 3,079 
Tax-exempt2,348 2,074 
Other365 346 
TOTAL INTEREST INCOME39,653 37,356 
INTEREST EXPENSE:  
Deposits1,676 2,286 
Short-term borrowings82 98 
Other borrowings84 59 
TOTAL INTEREST EXPENSE1,842 2,443 
NET INTEREST INCOME37,811 34,913 
Provision for credit losses(6,550)452 
NET INTEREST INCOME AFTER PROVISION  
FOR CREDIT LOSSES44,361 34,461 
NON-INTEREST INCOME:  
Trust and financial services1,372 1,305 
Service charges and fees on deposit accounts6,654 5,594 
Other service charges and fees106 416 
Securities gains (losses), net5 (152)
Interchange income118 84 
Loan servicing fees359 353 
Gain on sales of mortgage loans662 1,393 
Other4,462 301 
TOTAL NON-INTEREST INCOME13,738 9,294 
NON-INTEREST EXPENSE:  
Salaries and employee benefits17,342 15,677 
Occupancy expense2,522 2,149 
Equipment expense2,907 2,578 
FDIC Expense428 298 
Other8,145 6,937 
TOTAL NON-INTEREST EXPENSE31,344 27,639 
INCOME BEFORE INCOME TAXES26,755 16,116 
Provision for income taxes5,831 3,239 
NET INCOME20,924 12,877 
OTHER COMPREHENSIVE INCOME (LOSS)  
Change in unrealized gains/(losses) on securities, net of reclassifications and taxes(68,914)(11,068)
Change in funded status of post retirement benefits, net of taxes315 472 
COMPREHENSIVE INCOME $(47,675)$2,281 
PER SHARE DATA  
Basic and Diluted Earnings per Share$1.67 $0.95 
Weighted average number of shares outstanding (in thousands)12,538 13,533 
See accompanying notes.
4
FIRST FINANCIAL CORPORATION
CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY
Three Months Ended
March 31, 2022, and 2021
(Dollar amounts in thousands, except per share data)
(Unaudited)
 
Common
Stock		Additional
Capital		Retained
Earnings		Accumulated
Other
Comprehensive
Income/(Loss)		Treasury
Stock		Total
Balance, January 1, 2021$2,007 $140,820 $521,103 $9,764 $(76,702)$596,992 
Net income— — 12,877 — — 12,877 
Other comprehensive income (loss)— — — (10,596)— (10,596)
Omnibus Equity Incentive Plan1 204 — — — 205 
Treasury shares purchased (34,441 shares)— — — — (1,366)(1,366)
Balance, March 31, 2021$2,008 $141,024 $533,980 $(832)$(78,068)$598,112 
Balance, January 1, 2022$2,009 $141,979 $559,139 $(2,426)$(118,125)$582,576 
Net income— — 20,924 — — 20,924 
Other comprehensive income (loss)— — — (68,599)— (68,599)
Omnibus Equity Incentive Plan1 206 — — — 207 
Treasury shares purchased (213,263 shares)— — — — (9,664)(9,664)
Balance, March 31, 2022$2,010 $142,185 $580,063 $(71,025)$(127,789)$525,444 
See accompanying notes.



























5
FIRST FINANCIAL CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollar amounts in thousands, except per share data)  
Three Months Ended
March 31,
 20222021
 (Unaudited)
CASH FLOWS FROM OPERATING ACTIVITIES:  
Net Income$20,924 $12,877 
Adjustments to reconcile net income to net cash provided by operating activities:  
Net amortization (accretion) of premiums and discounts on investments1,903 2,015 
Provision for credit losses(6,550)452 
Securities (gains) losses(5)152 
Gain on sales of mortgage loans(662)(1,393)
(Gain) Loss on sale of other real estate— 28 
Restricted stock compensation207 205 
Depreciation and amortization1,529 1,572 
Other, net3,199 (716)
NET CASH FROM OPERATING ACTIVITIES20,545 15,192 
CASH FLOWS FROM INVESTING ACTIVITIES:  
Proceeds from sales of securities available-for-sale— 4,913 
Calls, maturities and principal reductions on securities available-for-sale51,989 75,551 
Purchases of securities available-for-sale(138,610)(172,833)
Loans made to customers, net of repayment11,188 (35,178)
Redemption of restricted stock1,605 — 
Purchase of restricted stock(952)(13)
Proceeds from sales of other real estate owned67 36 
Net change in federal funds sold(428)(284)
Additions to premises and equipment(1,641)(1,660)
NET CASH FROM INVESTING ACTIVITIES(76,782)(129,468)
CASH FLOWS FROM FINANCING ACTIVITIES:  
Net change in deposits(14,055)149,486 
Net change in short-term borrowings3,298 (17,286)
Maturities of other borrowings(22)— 
Purchase of treasury stock(9,664)(1,366)
Dividends paid(7,952)(7,182)
NET CASH FROM FINANCING ACTIVITIES(28,395)123,652 
NET CHANGE IN CASH AND CASH EQUIVALENTS(84,632)9,376 
CASH AND DUE FROM BANKS, BEGINNING OF PERIOD682,807 657,470 
CASH AND DUE FROM BANKS, END OF PERIOD$598,175 $666,846 
See accompanying notes.

6
FIRST FINANCIAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 
The accompanying March 31, 2022 and 2021 consolidated financial statements are unaudited. The December 31, 2021 consolidated financial statements are as reported in the First Financial Corporation (the “Corporation”) 2021 annual report. The information presented does not include all information and footnotes required by U.S. generally accepted accounting principles for complete financial statements. The following notes should be read together with notes to the consolidated financial statements included in the 10-K filed with the Securities and Exchange Commission for the fiscal year ended December 31, 2021. 

1.Significant Accounting Policies
 
The significant accounting policies followed by the Corporation and its subsidiaries for interim financial reporting are consistent with the accounting policies followed for annual financial reporting. All adjustments which are, in the opinion of management, necessary for a fair statement of the results for the periods reported have been included in the accompanying consolidated financial statements and are of a normal recurring nature. The Corporation reports financial information for only one segment, banking. Some items in the prior year financials were reclassified to conform to the current presentation.

On March 27, 2020, the Coronavirus Aid, Relief, and Economic Security Act (CARES Act) was signed into law. It contained substantial tax and spending provisions intended to address the impact of the COVID-19 pandemic. The goal of the CARES Act was to prevent a severe economic downturn through various measures, including direct financial aid to American families and economic stimulus to significantly impacted industry sectors. The CARES Act also included a range of other provisions designed to support the U.S. economy and mitigate the impact of COVID-19 on financial institutions and their customers, including through the authorization of various programs and measures that the U.S. Department of the Treasury, the Small Business Administration, the Federal Reserve Board, and other federal banking agencies implemented. Further, in response to the COVID-19 outbreak, the Federal Reserve Board implemented or announced a number of facilities to provide emergency liquidity to various segments of the U.S. economy and financial market.

 The CARES Act includes a provision that permits a financial institution to elect to suspend temporarily troubled debt restructuring accounting under ASC Subtopic 310-40 in certain circumstances (“section 4013”). To be eligible under section 4013, a loan modification must be (1) related to COVID-19; (2) executed on a loan that was not more than 30 days past due as of December 31, 2019; and (3) executed between March 1, 2020, and the earlier of (A) 60 days after the date of termination of the National Emergency or (B) December 31, 2020. The date was subsequently extended to December 31, 2021. In response to this section of the CARES Act, the federal banking agencies issued a revised interagency statement on April 7, 2020 that, in consultation with the Financial Accounting Standards Board, confirmed that for loans not subject to section 4013, short-term modifications made on a good faith basis in response to COVID-19 to borrowers who were current prior to any relief are not troubled debt restructurings under ASC Subtopic 310-40. This includes short-term (e.g., up to six months) modifications such as payment deferrals, fee waivers, extensions of repayment terms, or delays in payment that are insignificant. Borrowers considered current are those that are less than 30 days past due on their contractual payments at the time a modification program is implemented.

Recent declines in COVID-19 cases have resulted in most businesses reopening to capacity and a declining unemployment rate. Some supply chain issues persist contributing to inflation. COVID-19 continues to impact the Corporation's customers and still may result in adverse conditions on the Corporation's loans and investments.

The Omnibus Equity Incentive Plan is a long-term incentive plan that was designed to align the interests of participants with the interests of shareholders. Under the plan, awards may be made based on certain performance measures. The grants are made in restricted stock units that are subject to a vesting schedule. These shares vest over 3 years in increments of 33%, 33%, and 34% respectively. For the three months ended 2022 and 2021, 18,679 and 21,159 shares were awarded, respectively. These shares had a grant date value of $847 thousand and $885 thousand for 2022 and 2021, vest over three years, and their grant is not subject to future performance measures. Outstanding shares are increased at the award date for the total shares awarded.

7

2.Allowance for Credit Losses

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:March 31, 2022
(Dollar amounts in thousands)CommercialResidentialConsumerUnallocatedTotal
Beginning balance$18,883 $18,316 $10,721 $385 $48,305 
Provision for credit losses(1,040)(5,144)(300)(66)(6,550)
Loans charged-off(883)(466)(1,905)— (3,254)
Recoveries340 529 1,146 — 2,015 
Ending Balance$17,300 $13,235 $9,662 $319 $40,516 
Allowance for Credit Losses:March 31, 2021
(Dollar amounts in thousands)CommercialResidentialConsumerUnallocatedTotal
Beginning balance$13,925 $19,142 $11,009 $— $44,076 
Provision for credit losses(478)(262)1,028 164 452 
Loans charged-off(186)(188)(1,964)— (2,338)
Recoveries478 147 985 — 1,610 
Ending Balance$13,739 $18,839 $11,058 $164 $43,800 





8
The tables below present the recorded investment in non-performing loans by class of loans.
 March 31, 2022
Loans Past
Due Over
90 Days Still		Nonaccrual
With No
Allowance
(Dollar amounts in thousands)AccruingNonaccrualFor Credit Loss
Commercial   
 Commercial & Industrial$4 $689 $352 
 Farmland— 15 — 
 Non Farm, Non Residential— 2,717 2,703 
 Agriculture— 84 — 
 All Other Commercial— 4 — 
Residential  
 First Liens279 2,036 18 
 Home Equity— 66 — 
 Junior Liens89 244 — 
 Multifamily— 211 — 
 All Other Residential— 101 — 
Consumer  
 Motor Vehicle362 863 — 
 All Other Consumer13 682 — 
TOTAL$747 $7,712 $3,073 


 December 31, 2021
Loans Past
Due Over
90 Days Still		Nonaccrual
With No
Allowance
(Dollar amounts in thousands)AccruingNonaccrualFor Credit Loss
Commercial   
 Commercial & Industrial$14 $1,950 $1,662 
 Farmland— 15 — 
 Non Farm, Non Residential— 2,911 2,898 
 Agriculture— 111 — 
 All Other Commercial— 4 — 
Residential  
 First Liens346 2,339 33 
 Home Equity— 84 — 
 Junior Liens89 294 — 
 Multifamily— 225 — 
 All Other Residential— 107 — 
Consumer  
 Motor Vehicle94 864 — 
 All Other Consumer— 686 — 
TOTAL$543 $9,590 $4,593 



9
The following tables present the amortized cost basis of collateral dependent loans by class of loans:

March 31, 2022
Collateral Type
(Dollar amounts in thousands)Real EstateOther
Commercial
Commercial & Industrial$6,008 $546 
Farmland3,650 
Non Farm, Non Residential13,796 
Agriculture— — 
All Other Commercial— — 
Residential
First Liens18 — 
Home Equity— — 
Junior Liens— — 
Multifamily920 — 
All Other Residential— — 
Consumer
Motor Vehicle— — 
All Other Consumer— — 
Total$24,392 $546 



December 31, 2021
Collateral Type
(Dollar amounts in thousands)Real EstateOther
Commercial
Commercial & Industrial$17,734 $720 
Farmland3,669 
Non Farm, Non Residential6,135 
Agriculture— — 
All Other Commercial— — 
Residential
First Liens33 — 
Home Equity— — 
Junior Liens— — 
Multifamily935 — 
All Other Residential— — 
Consumer
Motor Vehicle— — 
All Other Consumer— — 
Total$28,506 $720 





10
The following tables presents the aging of the recorded investment in loans by past due category and class of loans.  
March 31, 2022
30-59 Days60-89 Days90 Days and GreaterTotal
(Dollar amounts in thousands)Past DuePast DuePast DuePast DueCurrentTotal
Commercial      
 Commercial & Industrial$1,086 $382 $227 $1,695 $705,981 $707,676 
 Farmland94 205 — 299 134,430 134,729 
 Non Farm, Non Residential48 — — 48 386,785 386,833 
 Agriculture— — 49 49 114,251 114,300 
 All Other Commercial162 — — 162 364,273 364,435 
Residential      
 First Liens3,628 446 747 4,821 329,788 334,609 
 Home Equity233 57 38 328 60,287 60,615 
 Junior Liens301 110 200 611 51,008 51,619 
 Multifamily386 — — 386 161,473 161,859 
 All Other Residential93 — — 93 27,978 28,071 
Consumer      
 Motor Vehicle5,935 883 686 7,504 426,290 433,794 
 All Other Consumer178 50 17 245 31,875 32,120 
TOTAL$12,144 $2,133 $1,964 $16,241 $2,794,419 $2,810,660 
 
 December 31, 2021
30-59 Days60-89 Days90 Days and GreaterTotal
(Dollar amounts in thousands)Past DuePast DuePast DuePast DueCurrentTotal
Commercial      
 Commercial & Industrial$1,132 $388 $1,614 $3,134 $693,949 $697,083 
 Farmland57 — — 57 141,189 141,246 
 Non Farm, Non Residential62 — — 62 361,174 361,236 
 Agriculture90 42 89 221 141,682 141,903 
 All Other Commercial390 — — 390 340,076 340,466 
Residential      
 First Liens4,686 680 949 6,315 336,064 342,379 
 Home Equity131 24 58 213 62,085 62,298 
 Junior Liens179 120 283 582 50,048 50,630 
 Multifamily342 146 — 488 178,849 179,337 
 All Other Residential284 291 — 575 30,843 31,418 
Consumer      
 Motor Vehicle7,633 1,105 486 9,224 433,095 442,319 
 All Other Consumer192 37 — 229 33,425 33,654 
TOTAL$15,178 $2,833 $3,479 $21,490 $2,802,479 $2,823,969 
11
During the three months ended March 31, 2022 and 2021, the terms of certain loans were modified as troubled debt restructurings (TDRs). The following tables present the activity for TDRs.
2022
(Dollar amounts in thousands)CommercialResidentialConsumerTotal
January 1,$407 $3,686 $706 $4,799 
    Added— 27 68 95 
    Charged Off— — — — 
    Payments— (268)(84)(352)
March 31,$407 $3,445 $690 $4,542 
2021
(Dollar amounts in thousands)CommercialResidentialConsumerTotal
January 1,— 3,589 617 4,206 
    Added— 378 48 426 
    Charged Off— — (43)(43)
    Payments— (79)(46)(125)
March 31,— 3,888 576 4,464 
Modification of the terms of such loans typically include one or a combination of the following: a reduction of the stated interest rate of the loan; an extension of the maturity date at a stated rate of interest lower than the current market rate for new debt with similar risk; or a permanent reduction of the recorded investment in the loan. No modification in 2022 or 2021 resulted in the permanent reduction of the recorded investment in the loan. Modifications involving a reduction of the stated interest rate of the loan were for periods ranging from twelve months to five years. Modifications involving an extension of the maturity date were for periods ranging from twelve months to ten years. Troubled debt restructurings during the three months ended March 31, 2022 and 2021 did not result in any material charge-offs or additional provision expense.

The Corporation has no allocations of specific reserves to customers whose loan terms have been modified in troubled debt restructurings as of March 31, 2022 and 2021. The Corporation has not committed to lend additional amounts as of March 31, 2022 and 2021 to customers with outstanding loans that are classified as troubled debt restructurings. None of the charge-offs during the three months ended March 31, 2022 and 2021 were of restructurings that had occurred in the previous 12 months.

    The CARES Act includes a provision that permits a financial institution to elect to suspend temporarily troubled debt restructuring accounting under ASC Subtopic 310-40 in certain circumstances (“section 4013”). To be eligible under section 4013, a loan modification must be (1) related to COVID-19; (2) executed on a loan that was not more than 30 days past due as of December 31, 2019; and (3) executed between March 1, 2020, and the earlier of (A) 60 days after the date of termination of the National Emergency or (B) December 31, 2020. In response to this section of the CARES Act, the federal banking agencies issued a revised interagency statement on April 7, 2020 that, in consultation with the Financial Accounting Standards Board, confirmed that for loans not subject to section 4013, short-term modifications made on a good faith basis in response to COVID-19 to borrowers who were current prior to any relief are not troubled debt restructurings under ASC Subtopic 310-40. This includes short-term (e.g., up to six months) modifications such as payment deferrals, fee waivers, extensions of repayment terms, or delays in payment that are insignificant. Borrowers considered current are those that are less than 30 days past due on their contractual payments at the time a modification program is implemented. From the inception of the CARES Act through March 31, 2022, 1,105 loans totaling $225 million were modified, related to COVID-19, that were not considered troubled debt restructurings. 863 loans totaling $183 million have resumed normal scheduled payments. 184 remaining loans are still under a debt relief plan, which include 9 commercial loans totaling $35 million that have been provided additional payment relief since the initial payment relief plan. 1 loan totaling $16 thousand is under the original payment relief plan.

Credit Quality Indicators:
 
The Corporation categorizes loans into risk categories based on relevant information about the ability of borrowers to service their debt such as: current financial information, historical payment experience, credit documentation, public information, and current economic trends, among other factors. The Corporation analyzes loans individually by classifying the loans as to credit risk. This analysis includes non-homogeneous loans, such as commercial loans, with an outstanding balance
12
greater than $100 thousand. Any consumer loans outstanding to a borrower who had commercial loans analyzed will be similarly risk rated. This analysis is performed on a quarterly basis. The Corporation uses the following definitions for risk ratings:
 
Special Mention: Loans classified as special mention have a potential weakness that deserves management’s close attention. If left uncorrected, these potential weaknesses may result in deterioration of the repayment prospects for the loan or of the institution’s credit position at some future date.
 
Substandard: Loans classified as substandard are inadequately protected by the current net worth and debt service capacity of the borrower or of any pledged collateral. These loans have a well-defined weakness or weaknesses which have clearly jeopardized repayment of principal and interest as originally intended. They are characterized by the distinct possibility that the institution will sustain some future loss if the deficiencies are not corrected.
 
Doubtful: Loans classified as doubtful have all the weaknesses inherent in those graded substandard, with the added characteristic that the severity of the weaknesses makes collection or liquidation in full highly questionable or improbable based upon currently existing facts, conditions, and values.

Furthermore, non-homogeneous loans which were not individually analyzed, but are 90+ days past due or on non-accrual are classified as substandard. Loans included in homogeneous pools, such as residential or consumer may be classified as substandard due to 90+ days delinquency, non-accrual status, bankruptcy, or loan restructuring.
 

13
The following tables present the commercial loan portfolio by risk category:
March 31, 2022
Term Loans at Amortized Cost Basis by Origination YearRevolving
20222021202020192018PriorLoansTotal
Commercial
Commercial and IndustrialPass$54,640$142,201$67,137$76,940$34,752$127,934$146,245$649,849
Special Mention3,0984,6033561,7502,1924,576722$17,297
Substandard—3904535363,1876,45513,372$24,393
Doubtful—————5—$5
Not Rated9,7152,0021,288815362246—$14,428
Subtotal$67,453$149,196$69,234$80,041$40,493$139,216$160,339$705,972
FarmlandPass$3,965$24,146$11,567$11,594$11,783$56,064$1,253$120,372
Special Mention—3,3461,191914—3,496—$8,947
Substandard————4263,346—$3,772
Doubtful———————$0
Not Rated—————58—$58
Subtotal$3,965$27,492$12,758$12,508$12,209$62,964$1,253$133,149
Non Farm, Non ResidentialPass$29,516$86,348$32,771$22,486$32,792$144,708$10,382$359,003
Special Mention———1,0891803,876—$5,145
Substandard—1,766—5372,43416,835—$21,572
Doubtful———————$0
Not Rated—————425—$425
Subtotal$29,516$88,114$32,771$24,112$35,406$165,844$10,382$386,145
AgriculturePass$1,280$11,482$9,663$9,697$2,357$20,269$47,047$101,795
Special Mention———1,000—8036,495$8,298
Substandard89—10137—4491,593$2,278
Doubtful———————$0
Not Rated381059310135——$372
Subtotal$1,407$11,587$9,766$10,935$2,392$21,521$55,135$112,743
Other CommercialPass$12,561$93,145$75,132$21,401$36,150$114,794$3,028$356,211
Special Mention—————5,978—$5,978
Substandard—68—204689—$565
Doubtful———————$0
Not Rated—87——35622—$744
Subtotal$12,561$93,300$75,132$21,421$36,653$121,403$3,028$363,498
Residential
Multifamily >5 ResidentialPass$7,261$39,771$46,791$12,371$6,698$37,737$2,046$152,675
Special Mention—————6,478—$6,478
Substandard—————933—$933
Doubtful———————$0
Not Rated—1,143———272—$1,415
Subtotal$7,261$40,914$46,791$12,371$6,698$45,420$2,046$161,501
TotalPass$109,223$397,093$243,061$154,489$124,532$501,506$210,001$1,739,905
Special Mention3,0987,9491,5474,7532,37225,2077,217$52,143
Substandard892,2244631,2306,51528,02714,965$53,513
Doubtful—————5—$5
Not Rated9,7533,3371,3819164321,623—$17,442
Total commercial loans$122,163$410,603$246,452$161,388$133,851$556,368$232,183$1,863,008
14
December 31, 2021
Term Loans at Amortized Cost Basis by Origination YearRevolving
20212020201920182017PriorLoansTotal
Commercial
Commercial and IndustrialPass$163,588$71,271$80,668$40,441$37,739$113,887$111,594$619,188
Special Mention7,5613931,8415,3752634,5237,482$27,438
Substandard4,5218963485,1482,3257,9342,648$23,820
Doubtful———————$0
Not Rated21,1341,610959466189140—$24,498
Subtotal$196,804$74,170$83,816$51,430$40,516$126,484$121,724$694,944
FarmlandPass$25,673$12,060$13,111$13,246$11,049$49,158$1,418$125,715
Special Mention—1,191914—3423,247—$5,694
Substandard3,455444—3265582,876—$7,659
Doubtful———————$0
Not Rated———————$0
Subtotal$29,128$13,695$14,025$13,572$11,949$55,281$1,418$139,068
Non Farm, Non ResidentialPass$81,203$37,971$24,716$32,775$54,732$97,241$10,548$339,186
Special Mention——1,1031821,9481,996—$5,229
Substandard——910—1,44013,391—$15,741
Doubtful———————$0
Not Rated—————402—$402
Subtotal$81,203$37,971$26,729$32,957$58,120$113,030$10,548$360,558
AgriculturePass$14,426$10,386$10,135$2,585$4,932$15,755$68,937$127,156
Special Mention——1,000—5372715,257$7,065
Substandard—20216—464854,828$5,595
Doubtful———————$0
Not Rated110120131551——$417
Subtotal$14,536$10,526$11,482$2,640$5,516$16,511$79,022$140,233
Other CommercialPass$77,821$69,117$33,231$36,495$53,479$58,819$3,488$332,450
Special Mention—————6,106—$6,106
Substandard72—25475—9—$581
Doubtful———————$0
Not Rated89——37———$126
Subtotal$77,982$69,117$33,256$37,007$53,479$64,934$3,488$339,263
Residential
Multifamily >5 ResidentialPass$37,244$63,312$16,037$7,471$5,370$35,284$1,434$166,152
Special Mention—————10,282—$10,282
Substandard—————958—$958
Doubtful———————$0
Not Rated1,149———44384—$1,577
Subtotal$38,393$63,312$16,037$7,471$5,414$46,908$1,434$178,969
TotalPass$399,955$264,117$177,898$133,013$167,301$370,144$197,419$1,709,847
Special Mention7,5611,5844,8585,5573,09026,42512,739$61,814
Substandard8,0481,3601,4995,9494,36925,6537,476$54,354
Doubtful———————$0
Not Rated22,4821,7301,090558234926—$27,020
Total commercial loans$438,046$268,791$185,345$145,077$174,994$423,148$217,634$1,853,035

15
The Corporation evaluates the credit quality of its other loan portfolios, which includes residential real estate, consumer and lease financing loans, based primarily on the aging status of the loan and payment activity. Accordingly, loans on non-accrual status, loans past due 90 days or more and still accruing interest, and loans modified under troubled debt restructurings are considered to be nonperforming for purposes of credit quality evaluation. 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:
March 31, 2022
Term Loans at Amortized Cost Basis by Origination YearRevolving
20222021202020192018PriorLoansTotal
Residential
First LiensPerforming$14,671$82,001$46,694$20,505$22,331$142,807$2,432$331,441
Non-performing———34672,218—$2,319
Subtotal$14,671$82,001$46,694$20,539$22,398$145,025$2,432$333,760
Home EquityPerforming$1,191$481$65$128$711$1,311$56,549$60,436
Non-performing——24——42—$66
Subtotal$1,191$481$89$128$711$1,353$56,549$60,502
Junior LiensPerforming$4,469$12,836$9,292$7,590$7,049$8,828$1,115$51,179
Non-performing———25119186—$330
Subtotal$4,469$12,836$9,292$7,615$7,168$9,014$1,115$51,509
Other ResidentialPerforming$553$17,731$5,533$1,474$640$1,942$0$27,873
Non-performing———544124—$119
Subtotal$553$17,731$5,533$1,528$681$1,966$0$27,992
Consumer
Motor VehiclePerforming$48,190$170,684$134,583$50,638$18,668$8,085$—$430,848
Non-performing—2596131769153—$1,192
Subtotal$48,190$170,943$135,196$50,814$18,759$8,138$—$432,040
Other ConsumerPerforming$2,941$12,991$6,934$2,448$794$1,161$4,023$31,292
Non-performing213232208529205$703
Subtotal$2,962$13,314$7,154$2,533$823$1,181$4,028$31,995
TotalPerforming$72,015$296,724$203,101$82,783$50,193$164,134$64,119$933,069
Non-performing215828573743472,5435$4,729
Total other loans$72,036$297,306$203,958$83,157$50,540$166,677$64,124$937,798

16
December 31, 2021
Term Loans at Amortized Cost Basis by Origination YearRevolving
20212020201920182017PriorLoansTotal
Residential
First LiensPerforming$86,224$49,633$22,262$24,377$26,437$126,828$3,061$338,822
Non-performing——35691602,421—$2,685
Subtotal$86,224$49,633$22,297$24,446$26,597$129,249$3,061$341,507
Home EquityPerforming$757$9$152$719$62$1,332$59,059$62,090
Non-performing—25——357—$85
Subtotal$757$34$152$719$65$1,389$59,059$62,175
Junior LiensPerforming$13,255$10,189$8,124$7,888$4,158$5,554$968$50,136
Non-performing—6649711994—$380
Subtotal$13,255$10,195$8,188$7,985$4,277$5,648$968$50,516
Other ResidentialPerforming$20,218$6,665$1,697$662$883$1,092$0$31,217
Non-performing——5543—27—$125
Subtotal$20,218$6,665$1,752$705$883$1,119$0$31,342
Consumer
Motor VehiclePerforming$188,675$155,156$60,676$23,367$9,307$2,384$—$439,565
Non-performing1993731911094323—$938
Subtotal$188,874$155,529$60,867$23,476$9,350$2,407$—$440,503
Other ConsumerPerforming$14,924$8,225$3,119$948$304$1,121$4,194$32,835
Non-performing342181107351832$688
Subtotal$15,266$8,406$3,226$983$322$1,124$4,196$33,523
TotalPerforming$324,053$229,877$96,030$57,961$41,151$138,311$67,282$954,665
Non-performing5415854523533432,6252$4,901
Total other loans$324,594$230,462$96,482$58,314$41,494$140,936$67,284$959,566
 
17

3.Securities

The amortized cost and fair value of the Corporation’s investments are shown below. All securities are classified as available-for-sale.
March 31, 2022
(Dollar amounts in thousands)Amortized
Cost		Unrealized
Gains		Unrealized
Losses		Fair Value
U.S. Government agencies$116,581 $343 $(4,522)$112,402 
Mortgage Backed Securities - residential668,331 398 (45,062)623,667 
Mortgage Backed Securities - commercial11,490 8 (54)11,444 
Collateralized mortgage obligations211,507 24 (9,555)201,976 
State and municipal obligations377,351 5,208 (17,604)364,955 
Municipal taxable38,440 34 (2,777)35,697 
U.S. Treasury2,083 — (7)2,076 
Collateralized debt obligations— 3,531 — 3,531 
Other securities3,735 — — 3,735 
TOTAL$1,429,518 $9,546 $(79,581)$1,359,483 
December 31, 2021
(Dollar amounts in thousands)Amortized
Cost		Unrealized
Gains		Unrealized
Losses		Fair Value
U.S. Government agencies$118,176 $2,688 $(741)$120,123 
Mortgage Backed Securities-residential628,920 4,387 (6,879)626,428 
Mortgage Backed Securities-commercial15,480 191 — 15,671 
Collateralized mortgage obligations175,501 1,272 (1,768)175,005 
State and municipal obligations362,843 17,833 (578)380,098 
Municipal taxable38,445 396 (215)38,626 
U.S. Treasury205 — (1)204 
Collateralized debt obligations— 3,359 — 3,359 
Other securities5,220 — — 5,220 
TOTAL$1,344,790 $30,126 $(10,182)$1,364,734 
 
Contractual maturities of debt securities at March 31, 2022 were as follows.
 Available-for-Sale
 AmortizedFair
(Dollar amounts in thousands)CostValue
Due in one year or less$17,169 $17,253 
Due after one but within five years47,121 46,898 
Due after five but within ten years82,626 81,719 
Due after ten years391,274 376,526 
 538,190 522,396 
Mortgage-backed securities and collateralized mortgage obligations891,328 837,087 
TOTAL$1,429,518 $1,359,483 
 
There were $5 thousand in gross gains and zero in losses from investment sales/calls realized by the Corporation for the three months ended March 31, 2022. For the three months ended March 31, 2021 there were $5 thousand in gross gains and $157 thousand in losses on sales/calls of investment securities.
 
18
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 March 31, 2022 and December 31, 2021.
 March 31, 2022
 Less Than 12 MonthsMore Than 12 MonthsTotal
  Unrealized Unrealized Unrealized
(Dollar amounts in thousands)Fair ValueLossesFair ValueLossesFair ValueLosses
U.S. Government agencies$80,851 $(4,056)$4,387 $(466)$85,238 $(4,522)
Mortgage Backed Securities - Residential420,840 (27,386)174,550 (17,676)595,390 (45,062)
Mortgage Backed Securities - Commercial5,206 (54)— — 5,206 (54)
Collateralized mortgage obligations158,532 (7,536)21,506 (2,019)180,038 (9,555)
State and municipal obligations167,005 (16,557)5,557 (1,047)172,562 (17,604)
Municipal taxable31,454 (2,439)2,710 (338)34,164 (2,777)
U.S. Treasury2,076 (7)— — 2,076 (7)
Total temporarily impaired securities$865,964 $(58,035)$208,710 $(21,546)$1,074,674 $(79,581)
 
 December 31, 2021
 Less Than 12 MonthsMore Than 12 MonthsTotal
  Unrealized Unrealized Unrealized
(Dollar amounts in thousands)Fair ValueLossesFair ValueLossesFair ValueLosses
U.S. Government agencies$48,939 $(739)$146 $(2)$49,085 $(741)
Mortgage Backed Securities - Residential436,726 (5,281)60,807 (1,598)497,533 (6,879)
Collateralized mortgage obligations73,530 (1,327)12,505 (441)86,035 (1,768)
State and municipal obligations54,040 (578)— — 54,040 (578)
Municipal taxable15,048 (195)729 (20)15,777 (215)
U.S. Treasury204 (1)— — 204 (1)
Total temporarily impaired securities$628,487 $(8,121)$74,187 $(2,061)$702,674 $(10,182)
 
Management evaluates securities for impairment related to credit losses at least on a quarterly basis, and more frequently when economic or market conditions warrant such an evaluation. The investment securities portfolio is evaluated for impairment related to credit losses by segregating the portfolio into two general segments. 
 
In evaluating for impairment, management considers the reason for the decline, the extent of the decline, the duration of the decline and whether the Corporation intends to sell a security or is more likely than not to be required to sell a security before recovery of its amortized cost. If an entity intends to sell or it is more likely than not it will be required to sell the security before recovery of its amortized cost basis, the security's amortized cost is written down to fair value through income. If an entity does not intend to sell the security and it is not more likely than not that the entity will be required to sell the security before recovery of its amortized cost basis less any current-period loss, a credit loss exists and an allowance for credit losses is recorded, limited to the amount that the fair value of the security is less than its amortized cost basis. 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 $79.6 million as of March 31, 2022 and $10.2 million as of December 31, 2021. Management believes these losses represent negative adjustments to market value relative to the interest rate environment reflecting the increase in market rates and not losses related to the creditworthiness of the issuer. Based upon our review of the issuers, we do not believe these investments to be other than temporarily impaired. 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.

19

The table below presents a rollforward of the credit losses recognized in earnings for the three month periods ended March 31, 2022 and 2021:
Three Months Ended March 31,
(Dollar amounts in thousands)20222021
Beginning balance$2,974 $2,974 
Reductions for securities called during the period— — 
Ending balance$2,974 $2,974 
 

4.Fair Value

FASB ASC No. 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. The standard describes three levels of inputs that may be used to measure fair value:
     
    Level 1: Quoted prices (unadjusted) of identical assets or liabilities in active markets that the entity has the ability to access as of the measurement date.
    Level 2: Significant other observable inputs other than Level I prices such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data.
    Level 3: Significant unobservable inputs that reflect a reporting entity’s own assumptions about the assumptions that market participants would use in pricing an asset or liability.
 
The fair value of most securities available for sale is determined by obtaining quoted prices on nationally recognized securities exchanges (Level 1 inputs) or matrix pricing, which is a mathematical technique widely used in the industry to value debt securities without relying exclusively on quoted prices for the specific securities but rather by relying on the securities’ relationship to other benchmark quoted securities (Level 2 inputs).
 
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. 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. Illiquidity spreads are then considered. Credit reviews are performed on each of the issuers. The significant unobservable inputs used in the fair value measurement of the Corporation’s state and municipal obligations are credit spreads related to specific issuers. Significantly higher credit spread assumptions would result in significantly lower fair value measurement. Conversely, significantly lower credit spreads would result in a significantly higher fair value measurements.

The fair value of derivatives is based on valuation models using observable market data as of the measurement date (Level 2 inputs).
20
March 31, 2022
Fair Value Measurements Using Significant
Unobservable Inputs (Level 3)
(Dollar amounts in thousands)Level 1Level 2Level 3Total
U.S. Government agencies$— $112,402 $— $112,402 
Mortgage Backed Securities-residential— 623,667 — 623,667 
Mortgage Backed Securities-commercial— 11,444 — 11,444 
Collateralized mortgage obligations— 201,976 — 201,976 
State and municipal— 363,410 1,545 364,955 
Municipal taxable— 35,697 — 35,697 
U.S. Treasury— 2,076 — 2,076 
Collateralized debt obligations— — 3,531 3,531 
Other securities— 1,992 1,743 3,735 
TOTAL$— $1,352,664 $6,819 $1,359,483 
Derivative Assets 884   
Derivative Liabilities (884)  
December 31, 2021
Fair Value Measurements Using Significant
Unobservable Inputs (Level 3)
(Dollar amounts in thousands)Level 1Level 2Level 3Total
U.S. Government agencies$— $120,123 $— $120,123 
Mortgage Backed Securities-residential— 626,428 — 626,428 
Mortgage Backed Securities-commercial— 15,671 — 15,671 
Collateralized mortgage obligations— 175,005 — 175,005 
State and municipal— 378,203 1,895 380,098 
Municipal taxable— 38,626 — 38,626 
U.S. Treasury— 204 — 204 
Collateralized debt obligations— — 3,359 3,359 
Other securities— 3,477 1,743 5,220 
TOTAL$— $1,357,737 $6,997 $1,364,734 
Derivative Assets 1,030   
Derivative Liabilities (1,030)  
 
There were no transfers between Level 1 and Level 2 during 2022 and 2021.
 

21
The tables below presents a reconciliation and income statement classification of gains and losses for all assets measured at fair value on a recurring basis using significant unobservable inputs (Level 3) for the three months ended March 31, 2022 and the year ended December 31, 2021. 
Fair Value Measurements Using Significant Unobservable Inputs (Level 3)
Three Months Ended March 31, 2022
(Dollar amounts in thousands)State and
municipal
obligations		Collateralized
debt
obligations		Other securitiesTotal
Beginning balance, January 1$1,895 $3,359 $1,743 $6,997 
Total realized/unrealized gains or losses   
Included in earnings— — — — 
Included in other comprehensive income— 172 — 172 
Transfers— — — — 
Settlements(350)— — (350)
Ending balance, March 31$1,545 $3,531 $1,743 $6,819 
Fair Value Measurements Using Significant Unobservable Inputs (Level 3)
Year Ended December 31, 2021
(Dollar amounts in thousands)State and
municipal
obligations		Collateralized
debt
obligations		Other securitiesTotal
Beginning balance, January 1$1,895 $3,136 $— $5,031 
Total realized/unrealized gains or losses   
Included in earnings— — — — 
Included in other comprehensive income— 223 — 223 
Purchases— — 1,743 1,743 
Settlements— — — — 
Ending balance, December 31$1,895 $3,359 $1,743 $6,997 
  
    
The following table presents quantitative information about recurring and non-recurring Level 3 fair value measurements at March 31, 2022.
(Dollar amounts in thousands)Fair ValueValuation Technique(s)Unobservable Input(s)Range
State and municipal obligations$1,545 Discounted cash flowDiscount rate3.73%-4.44%
Collateralized debt obligations$3,531 Discounted cash flowDiscount rate1.83%
Other securities$1,743 Discounted cash flowDiscount rate0.65%-1.40%
Collateral dependent loans$10,964 Discounted cash flowDiscount rate for age of appraisal and market conditions0.00%-50.00%









22
The following table presents quantitative information about recurring and non-recurring Level 3 fair value measurements at December 31, 2021.
(Dollar amounts in thousands)Fair ValueValuation Technique(s)Unobservable Input(s)Range
State and municipal obligations$1,895 Discounted cash flowDiscount rate3.41%-4.44%
Collateralized debt obligations$3,359 Discounted cash flowDiscount rate1.83%
Other securities$1,743 Discounted cash flowDiscount rate0.65%-1.40%
Collateral dependent loans12,839 Discounted cash flowDiscount rate for age of appraisal and market conditions0.00%-50.00%

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. 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 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 March 31, 2022 and December 31, 2021, are shown below. Carrying amount is the estimated fair value for cash and due from banks, federal funds sold, short-term borrowings, accrued interest receivable and payable, demand deposits, short-term debt and variable-rate loans or deposits that reprice frequently and fully. Security fair values were described previously. For fixed-rate, collectively evaluated loans or deposits, variable rate loans or deposits with infrequent repricing or repricing limits, and for longer-term borrowings, fair value is based on discounted cash flows using current market rates applied to the estimated life and considering credit risk. The valuation of individually evaluated loans was described previously. Loan fair value estimates represent an exit price. Fair values of loans held for sale are based on market bids on the loans or similar loans. It was not practicable to determine the fair value of Federal Home Loan Bank stock due to restrictions placed on its transferability. Fair value of debt is based on current rates for similar financing. The fair value of off-balance sheet items is not considered material.

 March 31, 2022
 CarryingFair Value
(Dollar amounts in thousands)ValueLevel 1Level 2Level 3Total
Cash and due from banks$598,175 $25,661 $572,514 $— $598,175 
Federal funds sold736 — 736 — 736 
Securities available-for-sale1,359,483 — 1,352,664 6,819 1,359,483 
Restricted stock15,547 n/an/an/an/a
Loans, net2,764,134 — — 2,641,346 2,641,346 
Accrued interest receivable15,633 — 6,019 9,614 15,633 
Deposits(4,395,190)— (4,403,416)— (4,403,416)
Short-term borrowings(96,672)— (96,672)— (96,672)
Other borrowings(15,924)— (15,920)— (15,920)
Accrued interest payable(605)— (605)— (605)
23
 December 31, 2021
 CarryingFair Value
(Dollar amounts in thousands)ValueLevel 1Level 2Level 3Total
Cash and due from banks$682,807 $24,901 $657,906 $— $682,807 
Federal funds sold308 — 308 — 308 
Securities available-for-sale1,364,734 — 1,357,737 6,997 1,364,734 
Restricted stock16,200 n/an/an/an/a
Loans, net2,767,590 — — 2,682,257 2,682,257 
Accrued interest receivable16,946 — 4,709 12,237 16,946 
Deposits(4,409,569)— (4,418,117)— (4,418,117)
Short-term borrowings(93,374)— (93,374)— (93,374)
Other borrowings(15,937)— (16,483)— (16,483)
Accrued interest payable(687)— (687)— (687)
 
5.Short-Term Borrowings
 
Period–end short-term borrowings were comprised of the following:
 
(Dollar amounts in thousands)March 31, 2022December 31, 2021
Federal Funds Purchased$4,800 $3,275 
Repurchase Agreements91,872 90,099 
$96,672 $93,374 

The Corporation enters into sales of securities under agreements to repurchase. The amounts received under these agreements represent short-term borrowings and are reflected as a liability in the consolidated balance sheets. The securities underlying these agreements are included in investment securities in the consolidated balance sheets. The Corporation has no control over the market value of the securities, which fluctuates due to market conditions. However, the Corporation is obligated to promptly transfer additional securities if the market value of the securities falls below the repurchase agreement price. The Corporation manages this risk by maintaining an unpledged securities portfolio that it believes is sufficient to cover a decline in the market value of the securities sold under agreements to repurchase.

Collateral pledged to repurchase agreements by remaining maturity are as follows:
March 31, 2022
Repurchase AgreementsRemaining Contractual Maturity of the Agreements
(Dollar amounts in thousands)Overnight and continuousUp to 30 days30 - 90 daysGreater than 90 daysTotal
Mortgage Backed Securities - Residential and Collateralized Mortgage Obligations$86,007 $— $415 $5,450 $91,872 
December 31, 2021
Repurchase AgreementsRemaining Contractual Maturity of the Agreements
(Dollar amounts in thousands)Overnight and continuousUp to 30 days30 - 90 daysGreater than 90 daysTotal
Mortgage Backed Securities - Residential and Collateralized Mortgage Obligations$83,576 $— $5,816 $707 $90,099 


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6.Components of Net Periodic Benefit Cost
Three Months Ended March 31,
(Dollar amounts in thousands)Pension BenefitsPost-Retirement
Health Benefits
 2022202120222021
Service cost$297 $339 $8 $11 
Interest cost706 658 28 26 
Expected return on plan assets(1,227)(1,178)— — 
Net amortization of prior service cost— — — — 
Net amortization of net (gain) loss315 518 — — 
Net Periodic Benefit Cost$91 $337 $36 $37 
 
Employer Contributions
 
First Financial Corporation previously disclosed in its financial statements for the year ended December 31, 2021 that it expected to contribute $250 thousand and $703 thousand respectively to its Pension Plan and ESOP and $248 thousand to the Post Retirement Health Benefits Plan in 2022. Contributions of $32 thousand have been made to the Pension Plan thus far in 2022. Contributions of $57 thousand have been made through the first three months of 2022 for the Post Retirement Health Benefits plan. No contributions have been made in 2022 for the ESOP. The Pension plan was frozen for most employees at the end of 2012 and for those employees there will be discretionary contributions to the ESOP plan and a 401K plan in place of the former Pension benefit. In the first three months of 2022 and 2021 there has been $849 thousand and $552 thousand of expense accrued for potential contributions to these alternative retirement benefit options.
 

7.New accounting standards
 
Recent Accounting Pronouncements:

In March 2020, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) No. 2020-04 “Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting.” These amendments provide temporary optional guidance to ease the potential burden in accounting for reference rate reform. The ASU provides optional expedients and exceptions for applying generally accepted accounting principles to contract modifications and hedging relationships, subject to meeting certain criteria, that reference LIBOR or another reference rate expected to be discontinued. It is intended to help stakeholders during the global market-wide reference rate transition period. In January 2021, the FASB issued ASU 2021-01 which clarifies that certain optional expedients and exceptions in Topic 848 for contract modifications and hedge accounting apply to derivatives that are affected by the discounting transition. The guidance is effective for all entities as of March 12, 2020 through December 31, 2022. The Corporation has discontinued originating LIBOR based loans and has a plan in place to transition all LIBOR indexed loans to term SOFR.


25

8.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 months ended March 31, 2022 and 2021. Items outside the scope of ASC 606 are noted as such.
Three Months Ended March 31,
(Dollar amounts in thousands)20222021
Non-interest income
Service charges on deposits and debit card fee income$6,654 $5,594 
Asset management fees1,372 1,305 
Interchange income118 84 
Net gains on sales of loans (a)
662 1,393 
Loan servicing fees (a)
359 353 
Net gains/(losses) on sales of securities (a)
5 (152)
Other service charges and fees (a)
106 416 
Other (b)
4,462 
(c)
301 
     Total non-interest income$13,738 $9,294 
(a) Not within the scope of ASC 606.
(b) The Other category includes gains/(losses) on the sale of OREO for the three months ended March 31, 2022 and March 31, 2021, totaling $68 thousand and zero , respectively, which is within the scope of ASC 606; the remaining balance is outside the scope of ASC 606.
(c) Legal settlement totaling $4 million received in first quarter 2022.

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. 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. Overdraft fees are recognized at the point in time that the overdraft occurs. Service charges on deposits are withdrawn from the customer's account balance.

Asset management fees: The Corporation earns asset management fees from its contracts with trust customers to manage assets for investment, and/or to transact on their accounts. These fees are primarily earned over time as the Corporation provides the contracted monthly or quarterly services and are generally assessed based on a tiered scale of the market value of assets under management at month-end. Fees that are transaction based, including trade execution services, are recognized at the point in time that the transaction is executed, i.e. the trade date. Other related services provided and the fees the Corporation earns, which are based on a fixed fee schedule, are recognized when the services are rendered.

Interchange income: The Corporation earns interchange fees from debit and credit cardholder transactions conducted through the payment network. Interchange fees from cardholder transactions represent a percentage of the underlying transaction value and are recognized daily, concurrently with the transaction processing services provided to the cardholder.

Gains/Losses on sales of OREO: The Corporation records a gain or loss from the sale of OREO when control of the property transfers to the buyer, which generally occurs at the time of an executed deed. When the Corporation finances the sale of OREO to the buyer, the Corporation assesses whether the buyer is committed to perform their obligations under the contract and whether collectability of the transaction price is probable. Once these criteria are met, the OREO asset is derecognized and the gain or loss on sale is recorded upon the transfer of control of the property to the buyer. In determining the gain or loss on the sale, the Corporation adjusts the transaction price and related gain (loss) on sale if a significant financing component is present.

26

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

Goodwill of $7.5 million arising from the acquisition consisted largely of synergies and the cost savings resulting from the combining of the operations of the companies. The goodwill is not deductible for income tax purposes as the transaction was accounted for as a tax-free exchange. The following table summarizes the consideration paid and the amounts of the assets acquired and liabilities assumed recognized at the acquisition date.

(Dollar amounts in thousands)2021
Consideration
Cash consideration$31,358 
Fair value of total consideration transferred$31,358 
Assets acquired
Cash$3,046 
Investment securities available-for-sale57,054 
Federal funds sold10,470 
Bank owned life insurance9,753 
Federal Home Loan Bank stock1,362 
Loans227,827 
Premises and equipment8,180 
Core deposit intangibles652 
Other assets4,567 
    Total assets acquired322,911 
Liabilities assumed
Deposits286,098 
FHLB advances11,042 
Other liabilities1,956 
    Total liabilities assumed299,096 
Net identifiable assets23,815 
Goodwill$7,543 

The fair value of net assets acquired includes fair value adjustments to certain receivables that were not considered impaired as of the acquisition date. The fair value adjustments were determined using discounted contractual cash flows. However, the Corporation believes that all contractual cash flows related to these financial instruments will be collected. As such, these receivables were not considered impaired at the acquisition date and were not subject to guidance relating to purchase credit impaired loans, which have shown evidence of credit deterioration since origination.

The following table presents supplemental pro forma information as if the acquisition had occurred at the beginning of 2020. The unaudited pro forma information includes adjustments for interest income on loans and securities acquired, interest
27
expense on deposits acquired, and the related income tax effects. The pro forma financial information is not necessarily indicative of the results of operations that would have occurred had the transactions been effected on the assumed dates.
Year ended December 31,
(Dollar amounts in thousands, except per share data)20212020
Net interest income$150,806 $156,051 
Net income$53,714 $55,958 
Basic and diluted earnings per share$4.07 $4.08 

The fair value of purchased financial assets with credit deterioration was $12.9 million on the date of acquisition. The gross contractual amounts receivable relating to the purchased financial assets with credit deterioration was $18.3 million. The Corporation estimates, on the date of acquisition, that $4.4 million of the contractual cash flows specific to the purchased financial assets with credit deterioration will not be collected.


10.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 months ended March 31, 2022 and 2021. 
 Unrealized  
 gains and2022
(Losses) on
available-
for-sale		Retirement
(Dollar amounts in thousands)SecuritiesplansTotal
Beginning balance, January 1,$15,674 $(18,100)$(2,426)
Change in other comprehensive income (loss) before reclassification(68,910)— (68,910)
Amounts reclassified from accumulated other comprehensive income(4)315 311 
Net current period other comprehensive income (loss)(68,914)315 (68,599)
Ending balance, March 31,$(53,240)$(17,785)$(71,025)
 Unrealized  
 gains and2021
(Losses) on
available-
for-sale		Retirement
(Dollar amounts in thousands)SecuritiesplansTotal
Beginning balance, January 1,$34,162 $(24,398)$9,764 
Change in other comprehensive income (loss) before reclassification(11,182)— (11,182)
Amounts reclassified from accumulated other comprehensive income114 472 586 
Net current period other comprehensive income (loss)(11,068)472 (10,596)
Ending balance, March 31,$23,094 $(23,926)$(832)
28
Balance
at		Current
Period		Balance
at
(Dollar amounts in thousands)1/1/2022Change3/31/2022
Unrealized gains (losses) on securities available-for-sale   
without other than temporary impairment$13,155 $(69,043)$(55,888)
Unrealized gains (losses) on securities available-for-sale   
with other than temporary impairment2,519 129 2,648 
Total unrealized loss on securities available-for-sale$15,674 $(68,914)$(53,240)
Unrealized gain (loss) on retirement plans(18,100)315 (17,785)
TOTAL$(2,426)$(68,599)$(71,025)
Balance
at		Current
Period		Balance
at
(Dollar amounts in thousands)1/1/2021Change3/31/2021
Unrealized gains (losses) on securities available-for-sale   
without other than temporary impairment$31,810 $(11,212)$20,598 
Unrealized gains (losses) on securities available-for-sale   
with other than temporary impairment2,352 144 2,496 
Total unrealized gain (loss) on securities available-for-sale$34,162 $(11,068)$23,094 
Unrealized loss on retirement plans(24,398)472 (23,926)
TOTAL$9,764 $(10,596)$(832)

 Three Months Ended March 31, 2022 
Details about accumulatedAmount reclassified fromAffected line item in
other comprehensiveaccumulated otherthe statement where
income componentscomprehensive incomenet income is presented
 (in thousands) 
Unrealized gains and losses$5 Net securities gains (losses)
on available-for-sale(1)Income tax expense
securities$4 Net of tax
Amortization of$(420)(a) Salary and benefits
retirement plan items105 Income tax expense
 $(315)Net of tax
Total reclassifications for the period$(311)Net of tax
(a) Included in the computation of net periodic benefit cost. (see Footnote 6 for additional details).



29
 Three Months Ended March 31, 2021 
Details about accumulatedAmount reclassified fromAffected line item in
other comprehensiveaccumulated otherthe statement where
income componentscomprehensive incomenet income is presented
 (in thousands) 
Unrealized gains and losses$(152)Net securities gains (losses)
on available-for-sale38 Income tax expense
securities$(114)Net of tax
Amortization of$(518)(a) Salary and benefits
retirement plan items46 Income tax expense
 $(472)Net of tax
Total reclassifications for the period$(586)Net of tax
(a) Included in the computation of net periodic benefit cost. (see Footnote 6 for additional details). 

30
11.Leases

The Corporation leases certain branches under operating leases. At March 31, 2022, the Corporation had lease liabilities totaling $6,517,000 and right-of-use assets totaling $6,489,000 related to these leases. At December 31, 2021, the Corporation had lease liabilities totaling $6,218,000 and right-of-use assets totaling $6,197,000 related to these leases. Lease liabilities and right-of-use assets are reflected in other liabilities and other assets, respectively. At March 31, 2022, the weighted average remaining lease term for operating leases was 10.0 years and the weighted average discount rate used in the measurement of operating lease liabilities was 2.20%.

The calculated amount of the lease liabilities and right-of-use assets are impacted by the length of the lease term and the discount rate used to present value the minimum lease payments. The Corporation's lease agreements often include one or more options to renew at the Corporation's discretion. If at lease inception, the Corporation considers the exercising of a renewal option to be reasonably certain, the Corporation will include the extended term in the calculation of the lease liability and right-of-use asset. Regarding the discount rate, the new standard requires the use of the rate implicit in the lease whenever this rate is readily determinable. As this rate is rarely determinable, the Corporation utilizes its incremental borrowing rate at lease inception, on a collateralized basis, over a similar term.

The following table represents lease costs and other lease information. As the Corporation elected, not to separate lease and non-lease components and instead to account for them as a single lease component, the variable lease cost primarily represents variable payments such as common area maintenance and utilities.

Lease costs were as follows:
(Dollar amounts in thousands)Three Months Ended March 31, 2022
Operating lease cost$274 
Short-term lease cost57 
Variable lease cost4 
     Total lease cost$335 
Other information:
Cash paid for amounts included in the measurement of operating lease liabilities515 
Right-of-use assets obtained in exchange for new operating lease liabilities9,811 
 
Future minimum payments for operating leases with initial or remaining terms of one year or more as of March 31, 2022 were as follows:
(Dollar amounts in thousands)March 31, 2022
Twelve Months Ended March 31,
2023$974 
2024896 
2025837 
2026770 
2027698 
Thereafter3,133 
Total Future Minimum Lease Payments7,308 
Amounts Representing Interest(796)
Present Value of Net Future Minimum Lease Payments$6,512 






31
ITEMS 2. and 3. Management's Discussion and Analysis of Financial Condition and Results of Operations
and Quantitative and Qualitative Disclosures About Market Risk
 
The purpose of this discussion is to point out key factors in the Corporation’s recent performance compared with earlier periods. The discussion should be read in conjunction with the financial statements beginning on page three of this report. All figures are for the consolidated entities. It is presumed the readers of these financial statements and of the following narrative have previously read the Corporation’s financial statements for 2021 in the 10-K filed for the fiscal year ended December 31, 2021.
 
This Quarterly Report on Form 10-Q contains forward-looking statements. Forward-looking statements provide current expectations or forecasts of future events and are not guarantees of future performance, nor should they be relied upon as representing management’s views as of any subsequent date. The forward-looking statements are based on management’s expectations and are subject to a number of risks and uncertainties. Although management believes that the expectations reflected in such forward-looking statements are reasonable, actual results may differ materially from those expressed or implied in such statements. Risks and uncertainties that could cause actual results to differ materially include, without limitation, the Corporation’s ability to effectively execute its business plans; changes in general economic and financial market conditions; changes in interest rates; changes in the competitive environment; continuing consolidation in the financial services industry; new litigation or changes in existing litigation; losses, customer bankruptcy, claims and assessments; changes in banking regulations or other regulatory or legislative requirements affecting the Corporation’s business; and changes in accounting policies or procedures as may be required by the Financial Accounting Standards Board or other regulatory agencies. Risks related to COVID-19 include the disruption of local, regional, national and global economic activity caused by infectious disease outbreaks, including the recent outbreak of coronavirus, or COVID-19, and the significant impact that such outbreak has had and may have on our growth, operations, earnings and asset quality; changes in asset quality, including increases in default rates on loans and higher levels of nonperforming loans and loan charge-offs generally, and specifically resulting from the economic dislocation caused by the COVID-19 pandemic; inaccuracy of the assumptions and estimates that the management of our Corporation makes in establishing reserves for probable credit losses and other estimates generally, and specifically as a result of the effect of the COVID-19 pandemic; and an increase in the rate of personal or commercial customers' bankruptcies generally, and specifically as a result of the COVID-19 pandemic. Additional information concerning factors that could cause actual results to differ materially from those expressed or implied in the forward-looking statements is available in the Corporation’s Form 10-K for the year ended December 31, 2021, and subsequent filings with the United States Securities and Exchange Commission (SEC). Copies of these filings are available at no cost on the SEC’s Web site at www.sec.gov or on the Corporation’s Web site at www.first-online.com. Management may elect to update forward-looking statements at some future point; however, it specifically disclaims any obligation to do so.
 
Critical Accounting Policies
 
Certain of the Corporation’s accounting policies are important to the portrayal of the Corporation’s financial condition and results of operations, since they require management to make difficult, complex or subjective judgments, some of which may relate to matters that are inherently uncertain. Estimates associated with these policies are susceptible to material changes as a result of changes in facts and circumstances. Facts and circumstances which could affect these judgments include, without limitation, changes in interest rates, in the performance of the economy or in the financial condition of borrowers. Management believes that its critical accounting policies include determining the allowance for credit losses and the valuation of goodwill and valuing investment securities. See further discussion of these critical accounting policies in the 2021 Form 10-K.
 
Summary of Operating Results

Net income for the three months ended March 31, 2022 was $20.9 million, compared to $12.9 million for the same period in 2021. Basic earnings per share increased to $1.67 for the first quarter of 2022 compared to $0.95 for the same period in 2021. Return on Assets and Return on Equity were 1.63% and 14.81% respectively, for the three months ended March 31, 2022 compared to 1.12% and 8.58% for the three months ended March 31, 2021.

In March 2020, the outbreak of the Coronavirus Disease 2019 (COVID-19) was recognized as a pandemic by the World Health Organization. The spread of COVID-19 caused economic and social disruption resulting in unprecedented uncertainty. Recent declines in COVID-19 cases have resulted in most businesses reopening to capacity and a declining unemployment rate. Some supply chain issues persist contributing to inflation. COVID-19 continues to impact the Corporation's customers and still may result in adverse conditions on the Corporation's loans and investments.

On November 5, 2021, the Corporation completed its acquisition of Hancock Bancorp, Inc. and its banking subsidiary, Hancock Bank and Trust Company. Therefore, the results of Hancock Bancorp have been included in the results of operations
32
beginning on November 5, 2021. Pursuant to the terms of the merger agreement, each issued and outstanding share of Hancock Bancorp, Inc. common stock, issued and outstanding, was converted into the right to receive $18.38 per share in cash. The aggregate value of the transaction was $31.36 million. Acquisition-related costs of $1.2 million are included in the Corporation's income statement for the year ended December 31, 2021.

On September 27, 2021, First Financial Corporation issued a press release announcing that its Board of Directors approved the merger of subsidiary, The Morris Plan Company of Terre Haute, into subsidiary, First Financial Bank N.A. The merger was effective on February 21, 2022. The merger resulted in increased efficiencies, which were recognized in the first quarter of 2022.

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

Net Interest Income

 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 $2.9 million in the three months ended March 31, 2022 to $37.8 million from $34.9 million in the same period in 2021. The net interest margin for the three months ended March 31, 2022 is 3.16% compared to 3.27% for the same period in 2021, a 3.42% decrease.

Non-Interest Income

 Non-interest income for the three months ended March 31, 2022 was $13.7 million compared to $9.3 million for the same period of 2021. The change in non-interest income from 2021 to 2022 was primarily driven by a $4.0 million legal settlement received in the first quarter.

Non-Interest Expenses

    The Corporation’s non-interest expense for the quarter ended March 31, 2022 was $31.3 million compared to $27.6 million for the same period in 2021. The year-over-year change is, in part, impacted by the acquisition of Hancock Bancorp in the fourth quarter of 2021.

Allowance for Credit Losses

    The Corporation’s provision for credit losses decreased to $(6.6) million for the first quarter of 2022 as compared to $452 thousand for the same period in 2021. Net charge offs for the first quarter of 2022 were $1.2 million compared to $728 thousand for the same period of 2021. The negative provision for the quarter was the result of several factors. The first was the annual model recalibration in which delay periods are updated as well as the qualitative factor scorecard ranges. Secondly, management removed two qualitative factors that are no longer applicable. Lastly, loss rates continue to decline, lowering the required reserve. Based on management’s analysis of the current portfolio, an evaluation that includes consideration of changes in CECL model assumptions of credit quality, economic conditions, and loan composition, management believes the allowance is adequate.


Income Tax Expense

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

33
Non-performing Loans

    Non-performing loans consist of (1) non-accrual loans on which the ultimate collectability of the full amount of interest is uncertain, (2) loans which have been renegotiated to provide for a reduction or deferral of interest or principal because of a deterioration in the financial position of the borrower, and (3) loans past due ninety days or more as to principal or interest. Non-performing loans decreased to $13.0 million at March 31, 2022 compared to $14.9 million at December 31, 2021. Nonperforming loans decreased 38.3% compared to $21.0 million as of March 31, 2021. A summary of non-performing loans at March 31, 2022 and December 31, 2021 follows:
 (000's)
March 31, 2022December 31, 2021
Non-accrual loans$7,712 $9,590 
Accruing restructured loans3,723 3,897 
Nonaccrual restructured loans819 902 
Accruing loans past due over 90 days707 515 
 $12,961 $14,904 
Ratio of the allowance for credit losses  
as a percentage of non-performing loans312.6 %324.1 %

The following loan categories comprise significant components of the nonperforming non-restructured loans: 
 (000's)
March 31, 2022December 31, 2021
Non-accrual loans  
Commercial loans$3,509 $4,991 
Residential loans2,658 3,049 
Consumer loans1,545 1,550 
 $7,712 $9,590 
Past due 90 days or more  
Commercial loans$4 $14 
Residential loans347 410 
Consumer loans356 91 
 $707 $515 
The CARES Act includes a provision that permits a financial institution to elect to suspend temporarily troubled debt restructuring accounting under ASC Subtopic 310-40 in certain circumstances (“section 4013”). To be eligible under section 4013, a loan modification must be (1) related to COVID-19; (2) executed on a loan that was not more than 30 days past due as of December 31, 2019; and (3) executed between March 1, 2020, and the earlier of (A) 60 days after the date of termination of the National Emergency or (B) December 31, 2020. The date was subsequently extended to December 31, 2021. In response to this section of the CARES Act, the federal banking agencies issued a revised interagency statement on April 7, 2020 that, in consultation with the Financial Accounting Standards Board, confirmed that for loans not subject to section 4013, short-term modifications made on a good faith basis in response to COVID-19 to borrowers who were current prior to any relief are not troubled debt restructurings under ASC Subtopic 310-40. This includes short-term (e.g., up to six months) modifications such as payment deferrals, fee waivers, extensions of repayment terms, or delays in payment that are insignificant. Borrowers considered current are those that are less than 30 days past due on their contractual payments at the time a modification program is implemented. From the inception of the CARES Act through March 31, 2022, 1,105 loans totaling $225 million were modified, related to COVID-19, that were not considered troubled debt restructurings. 863 loans totaling $183 million have resumed normal scheduled payments. 184 remaining loans are still under a debt relief plan, which include 9 commercial loans totaling $35 million that have been provided additional payment relief since the initial payment relief plan. 1 loan totaling $16 thousand is under the original payment relief plan. On these modifications, we have granted payment deferrals, generally for up to three months.

Interest Rate Sensitivity and Liquidity 

First Financial Corporation has established risk measures, limits and policy guidelines for managing interest rate risk and liquidity. Responsibility for management of these functions resides with the Asset Liability Committee. The primary goal
34
of the Asset Liability Committee is to maximize net interest income within the interest rate risk limits approved by the Board of Directors.

Interest Rate Risk 

Management considers interest rate risk to be the Corporation’s most significant market risk. Interest rate risk is the exposure to changes in net interest income as a result of changes in interest rates. Consistency in the Corporation’s net interest income is largely dependent on the effective management of this risk.
 
The Asset Liability position is measured using sophisticated risk management tools, including earning simulation and market value of equity sensitivity analysis. These tools allow management to quantify and monitor both short-term and long-term exposure to interest rate risk. Simulation modeling measures the effects of changes in interest rates, changes in the shape of the yield curve and the effects of embedded options on net interest income. This measure projects earnings in the various environments over the next three years. It is important to note that measures of interest rate risk have limitations and are dependent on various assumptions. These assumptions are inherently uncertain and, as a result, the model cannot precisely predict the impact of interest rate fluctuations on net interest income. Actual results will differ from simulated results due to timing, frequency and amount of interest rate changes as well as overall market conditions. The Committee has performed a thorough analysis of these assumptions and believes them to be valid and theoretically sound. These assumptions are continuously monitored for behavioral changes.
 
The Corporation from time to time utilizes derivatives to manage interest rate risk. 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 March 31, 2022. The change in interest rates assumes a parallel shift in interest rates of 100 and 200 basis points. Given a 100 basis point increase in rates, net interest income would increase 5.53% over the next 12 months and increase 9.00% over the following 12 months. Given a 100 basis point decrease in rates, net interest income would decrease 7.81% over the next 12 months and decrease 15.26% over the following 12 months. These estimates assume all rate changes occur overnight and management takes no action as a result of this change. 
Basis PointPercentage Change in Net Interest Income
Interest Rate Change12 months24 months36 months
Down 100-7.81 -15.26 -19.66 
Up 1005.53 9.00 11.98 
Up 2007.36 13.83 19.82 
     Typical rate shock analysis does not reflect management’s ability to react and thereby reduce the effect of rate changes, and represents a worst-case scenario.

 Liquidity Risk

Liquidity represents an institution’s ability to provide funds to satisfy demands from depositors, borrowers, and other creditors by either converting assets into cash or accessing new or existing sources of incremental funds. Generally the Corporation relies on deposits, loan repayments and repayments of investment securities as its primary sources of funds. The Corporation has $27.7 million of investments that mature throughout the next 12 months. The Corporation also anticipates $131.2 million of principal payments from mortgage-backed and other securities. Given the current rate environment, the Corporation anticipates $21.3 million in securities to be called within the next 12 months. The Corporation also has unused borrowing capacity available with the Federal Home Loan Bank of Indianapolis and several correspondent banks. With these sources of funds, the Corporation currently anticipates adequate liquidity to meet the expected obligations of its customers.

Financial Condition 

Comparing the first three months of 2022 to the same period in 2021, loans, net of deferred loan costs, have increased $158 million to $2.8 billion. Deposits increased 12.5% to $4.4 billion at March 31, 2022 compared to March 31, 2021. Shareholders' equity decreased 12.15% or $72.7 million. This financial performance decreased book value per share 4.41% to $42.25 at March 31, 2022 from $44.20 at March 31, 2021. Book value per share is calculated by dividing the total shareholders' equity by the number of shares outstanding. Accumulated other comprehensive income decreased $68.6 million primarily due to the market value of the securities portfolio, which reflected the large decrease in securities pricing.
35

As a Small Business Administration lender, we were well positioned to assist business customers in accessing funds available through the Paycheck Protection Program (“PPP”) implemented in April 2020. Through March 31, 2022, we processed approximately $275 million of approved PPP loans. The carrying value of these loans is $18 million as of March 31, 2022.

 Capital Adequacy 

The Federal Reserve, OCC and Federal Deposit Insurance Corporation (collectively, joint agencies) establish regulatory capital guidelines for U.S. banking organizations. Regulatory capital guidelines require that capital be measured in relation to the credit and market risks of both on- and off-balance sheet items using various risk weights. On January 1, 2015, the Basel 3 rules became effective and include transition provisions through January 1, 2019. Under Basel 3, Total capital consists of two tiers of capital, Tier 1 and Tier 2. Tier 1 capital is further composed of Common equity tier 1 capital and additional tier 1 capital.
Common equity tier 1 capital primarily includes qualifying common shareholders’ equity, retained earnings and certain minority interests. Goodwill, disallowed intangible assets and certain disallowed deferred tax assets are excluded from Common equity tier 1 capital.
Additional tier 1 capital primarily includes qualifying non-cumulative preferred stock, trust preferred securities (Trust Securities) subject to phase-out and certain minority interests. Certain deferred tax assets are also excluded.
Tier 2 capital primarily consists of qualifying subordinated debt, a limited portion of the allowance for loan and lease losses, Trust Securities subject to phase-out and reserves for unfunded lending commitments. The Corporation’s Total capital is the sum of Tier 1 capital plus Tier 2 capital.
To meet adequately capitalized regulatory requirements, an institution must maintain a Tier 1 capital ratio of 8.50 percent and a Total capital ratio of 10.50 percent. A “well-capitalized” institution must generally maintain capital ratios 200 bps higher than the minimum guidelines. The risk-based capital rules have been further supplemented by a Tier 1 leverage ratio, defined as Tier 1 capital divided by quarterly average total assets, after certain adjustments. BHCs must have a minimum Tier 1 leverage ratio of at least 4.0 percent. National banks must maintain a Tier 1 leverage ratio of at least 5.0 percent to be classified as “well capitalized.” Failure to meet the capital requirements established by the joint agencies can lead to certain mandatory and discretionary actions by regulators that could have a material adverse effect on the Corporation’s financial position. Below are the capital ratios for the Corporation and lead bank. 
The fully phased in capital conservation buffer set the minimum ratios for common equity Tier 1 capital at 7%, the Tier 1 capital at 8.5% and the total capital at 10.5%. Currently the Corporation exceeds all of these minimums.
 March 31, 2022December 31, 2021To Be Well Capitalized
Common equity tier 1 capital
Corporation14.46 %14.37 %N/A
First Financial Bank13.72 %13.53 %6.50 %
Total risk-based capital   
Corporation15.63 %15.63 %N/A
First Financial Bank14.89 %14.78 %10.00 %
Tier I risk-based capital   
Corporation14.46 %14.37 %N/A
First Financial Bank13.72 %13.53 %8.00 %
Tier I leverage capital   
Corporation9.94 %9.83 %N/A
First Financial Bank9.40 %9.18 %5.00 %
36
ITEM 4.Controls and Procedures
 
First Financial Corporation’s management is responsible for establishing and maintaining effective disclosure controls and procedures, as defined under Rules 13a-15(e) and 15d-15(e) of the Securities Exchange Act of 1934. As of March 31, 2022, an evaluation was performed under the supervision and with the participation of management, including the principal executive officer and principal financial officer, of the effectiveness of the design and operation of the Corporation's disclosure controls and procedures. Based on that evaluation, management, including the principal executive officer and principal financial officer, concluded that the Corporation’s disclosure controls and procedures as of March 31, 2022 were effective in ensuring material information required to be disclosed in this Quarterly Report on Form 10-Q was recorded, processed, summarized, and reported on a timely basis. Additionally, there was no change in the Corporation's internal control over financial reporting that occurred during the quarter ended March 31, 2022 that has materially affected, or is reasonably likely to materially affect, the Corporation's internal control over financial reporting.

37
PART II – Other Information

ITEM 1.Legal Proceedings.
 
There are no material pending legal proceedings, other than routine litigation incidental to the business of the Corporation or its subsidiaries, to which the Corporation or any of the subsidiaries is a party to or of which any of their respective property is subject. Further, there is no material legal proceeding in which any director, officer, principal shareholder, or affiliate of the Corporation or any of its subsidiaries, or any associate of such director, officer, principal shareholder or affiliate is a party, or has a material interest, adverse to the Corporation or any of its subsidiaries.
 
ITEM 1A.Risk Factors.
 
There have been no material changes in the risk factors from those disclosed in the Corporation’s 2021 Form 10-K filed for December 31, 2021. 


ITEM 2.Unregistered Sales of Equity Securities and Use of Proceeds.
 
(a) None.
 
(b) Not applicable.
 
(c) Purchases of Equity Securities
 
The Corporation periodically acquires shares of its common stock directly from shareholders in individually negotiated transactions. On July 21, 2021 First Financial Corporation issued a press release announcing that its Board of Directors has authorized a stock repurchase program pursuant to which up to 5% of the Corporations outstanding shares of common stock, or approximately 652,411 shares may be repurchased.

Following is certain information regarding shares of common stock purchased by the Corporation during the quarter covered by this report.
(c)
Total Number Of Shares
Purchased As Part Of (c) Maximum
 (a) Total Number Of (b) Average PricePublicly Announced PlansNumber of Shares That May Yet
Shares PurchasedPaid Per ShareOr Programs *Be Purchased *
Januaryy 1-31, 2022— — ——
February 1-28, 2022169,335 45.17 169,33535,617
March 1-31, 202235,617 46.00 35,617—
Total204,952 45.31 204,952—
ITEM 3.Defaults upon Senior Securities.
 
Not applicable.

ITEM 4.Mine Safety Disclosures
 
Not applicable.

ITEM 5.Other Information.
 
Not applicable.
38
Table of Contents
ITEM 6.Exhibits.
Exhibit No.:Description of Exhibit:
3.1
Amended and Restated Articles of Incorporation of First Financial Corporation, incorporated by reference to Exhibit 3(i) of the Corporation’s Form 10-Q filed for the quarter ended September 30, 2002.
3.2
Amended and Restated Code of By-Laws of First Financial Corporation, incorporated by reference to Exhibit 3.2 of the Corporation’s Form 8-K filed on February 22, 2021.
3.3
Articles of Amendment to the Amended and Restated Articles of Incorporation of First Financial Corporation, incorporated by reference to Exhibit 3.1 of the Corporation’s Form 8-K filed on April 27, 2021.
Employment Agreement for Norman L. Lowery, dated and effective July 1, 2021, incorporated by reference to Exhibit 10.01 of the Corporation’s Form 8-K filed on July 1, 2021.
10.2*
2001 Long-Term Incentive Plan of First Financial Corporation, incorporated by reference to Exhibit 10.3 of the Corporation’s Form 10-Q filed for the quarter ended September 30, 2002.
2005 Long-Term Incentive Plan of First Financial Corporation, incorporated by reference to Exhibit 10.7 of the Corporation’s Form 8-K filed on September 4, 2007.
2005 Executives Deferred Compensation Plan, incorporated by reference to Exhibit 10.5 of the Corporation’s Form 8-K filed on September 4, 2007.
2005 Executives Supplemental Retirement Plan, incorporated by reference to Exhibit 10.6 of the Corporation’s Form 8-K filed on September 4, 2007.
First Financial Corporation 2010 Long-Term Incentive Compensation Plan incorporated by reference to Exhibit 10. 9 of the Corporation’s Form 10-K filed March 15, 2011.
First Financial Corporation 2011 Short-Term Incentive Compensation Plan incorporated by reference to Exhibit 10.10 of the Corporation’s Form 10-K filed March 15, 2011.
First Financial Corporation Amended and Restated 2011 Omnibus Equity Incentive Plan incorporated by reference to Exhibit 10.1 of the Corporation’s Form 8-K for the annual meeting filed on April 27, 2021.
Form of Restricted Stock Award Agreement under the First Financial Corporation 2011 Omnibus Equity Incentive Plan incorporated by reference to Exhibit 10.12 of the Corporation's Form 10-Q for the quarter ended March 31, 2012 filed on May 10, 2012.
Employment Agreement for Norman D. Lowery, effective July 1, 2021, incorporated by reference to Exhibit 10.1 of the Corporation’s Form 8-K filed July 1, 2021.
Employment Agreement for Rodger A. McHargue, effective July 1, 2021, incorporated by reference to Exhibit 10.2 of the Corporation’s Form 8-K filed July 1, 2021.
Employment Agreement for Steven H. Holliday, effective July 1, 2021, incorporated by reference to Exhibit 10.3 of the Corporation’s Form 8-K filed July 1, 2021.
31.1
Sarbanes-Oxley Act 302 Certification for Quarterly Report on Form 10-Q for the quarter ended March 31, 2022 by Principal Executive Officer, dated May 4, 2022.
31.2
Sarbanes-Oxley Act 302 Certification for Quarterly Report on Form 10-Q for the quarter ended March 31, 2022 by Principal Financial Officer, dated May 4, 2022.
32.1
Certification, dated May 4, 2022, of Principal Executive Officer and Principal Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2005 on Form 10-Q for the quarter ended March 31, 2022.
101.1Financial statements from the Quarterly Report on Form 10-Q of the Corporation for the quarter ended March 31, 2022, formatted in XBRL pursuant to Rule 405 : (i) Consolidated Balance Sheets, (ii) Consolidated Statements of Income and Comprehensive Income, (iii) Consolidated Statements of Cash Flows, (iv) Consolidated Statements of Shareholders’ Equity, and (v) Notes to Consolidated Financial Statements, as blocks of text and in detail**.
 
*Management contract or compensatory plan or arrangement.
 
**Furnished, not filed, for purposes of Sections 11 and 12 of the Securities Act of 1933 and Section 18 of the Securities Exchange Act of 1934.
39

SIGNATURES
 
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

 
 FIRST FINANCIAL CORPORATION
 (Registrant)
Date:May 4, 2022By     /s/ Norman L. Lowery
 Norman L. Lowery, Chairman, President and CEO
 (Principal Executive Officer)
Date:May 4, 2022By     /s/ Rodger A. McHargue
 Rodger A. McHargue, Treasurer and CFO
 (Principal Financial Officer)
40

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