Table of Contents
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, 2025
☐
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)
Indiana
35-1546989
(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 class
Trading Symbol
Name of each exchange on which registered
Common Stock, par value $0.125 per share
THFF
The 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 ☑ 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 ☑ 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 filer
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 ☑.
As of May 1, 2025, the registrant had outstanding 11,850,645 shares of common stock, without par value.
INDEX
Page No.
PART I. Financial Information
Item 1. Financial Statements:
Consolidated Balance Sheets
3
Consolidated Statements of Income and Comprehensive Income (Loss)
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
34
Item 3. Quantitative and Qualitative Disclosures about Market Risk
Item 4. Controls and Procedures
40
PART II. Other Information:
Item 1. Legal Proceedings
41
Item 1A. Risk Factors
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
Item 3. Defaults upon Senior Securities
Item 4. Mine Safety Disclosures
Item 5. Other Information
Item 6. Exhibits
42
Signatures
43
2
Part I – Financial Information
Item 1.Financial Statements
CONSOLIDATED BALANCE SHEETS
(Dollar amounts in thousands, except per share data)
March 31,
December 31,
2025
2024
(unaudited)
ASSETS
Cash and due from banks
$
86,211
93,526
Federal funds sold
427
820
Securities available-for-sale
1,182,495
1,195,990
Loans:
Commercial
2,208,426
2,196,351
Residential
966,521
967,386
Consumer
673,751
668,058
3,848,698
3,831,795
(Less) plus:
Net deferred loan (fees)/costs
5,322
5,346
Allowance for credit losses
(46,835)
(46,732)
3,807,185
3,790,409
Restricted stock
17,528
17,555
Accrued interest receivable
25,556
26,934
Premises and equipment, net
80,317
81,508
Bank-owned life insurance
129,410
128,766
Goodwill
100,026
Other intangible assets
20,045
21,545
Other real estate owned
560
523
Other assets
99,334
102,746
TOTAL ASSETS
5,549,094
5,560,348
LIABILITIES AND SHAREHOLDERS’ EQUITY
Deposits:
Non-interest-bearing
856,063
859,014
Interest-bearing:
Certificates of deposit exceeding the FDIC insurance limits
145,609
144,982
Other interest-bearing deposits
3,638,331
3,714,918
4,640,003
4,718,914
Short-term borrowings
137,609
187,057
Other borrowings
124,898
28,120
Other liabilities
74,639
77,216
TOTAL LIABILITIES
4,977,149
5,011,307
Shareholders’ equity
Common stock, $0.125 stated value per share; Authorized shares - 40,000,000; Issued shares-16,190,157 in 2025 and 16,165,023 in 2024; Outstanding shares - 11,850,645 in 2025 and 11,842,539 in 2024
2,019
2,018
Additional paid-in capital
146,159
145,927
Retained earnings
699,729
687,366
Accumulated other comprehensive loss
(121,182)
(132,285)
Less: Treasury shares at cost - 4,339,512 in 2025 and 4,322,484 in 2024
(154,780)
(153,985)
TOTAL SHAREHOLDERS’ EQUITY
571,945
549,041
TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY
See accompanying notes.
CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME (LOSS)
Three Months Ended
INTEREST INCOME:
Loans, including related fees
63,612
50,052
Securities:
Taxable
6,002
5,931
Tax-exempt
2,604
2,603
Other
814
817
TOTAL INTEREST INCOME
73,032
59,403
INTEREST EXPENSE:
Deposits
18,199
17,731
1,693
976
1,165
1,776
TOTAL INTEREST EXPENSE
21,057
20,483
NET INTEREST INCOME
51,975
38,920
Provision for credit losses
1,950
1,800
NET INTEREST INCOME AFTER PROVISION
FOR CREDIT LOSSES
50,025
37,120
NON-INTEREST INCOME:
Trust and financial services
1,393
1,333
Service charges and fees on deposit accounts
7,585
6,708
Other service charges and fees
316
223
Interchange income
214
179
Loan servicing fees
165
269
Gain on sales of mortgage loans
225
176
613
543
TOTAL NON-INTEREST INCOME
10,511
9,431
NON-INTEREST EXPENSE:
Salaries and employee benefits
19,248
17,330
Occupancy expense
2,676
2,359
Equipment expense
4,505
4,144
FDIC Expense
750
662
9,580
8,927
TOTAL NON-INTEREST EXPENSE
36,759
33,422
INCOME BEFORE INCOME TAXES
23,777
13,129
Provision for income taxes
5,371
2,205
NET INCOME
18,406
10,924
OTHER COMPREHENSIVE INCOME (LOSS)
Change in unrealized gains/(losses) on securities, net of reclassifications and taxes
11,100
(11,096)
Change in funded status of post retirement benefits, net of taxes
73
COMPREHENSIVE INCOME (LOSS)
29,509
(99)
PER SHARE DATA
Basic and Diluted Earnings per Share
1.55
0.93
Weighted average number of shares outstanding (in thousands)
11,842
11,803
CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY
March 31, 2025, and 2024
(Unaudited)
Accumulated
Common
Additional
Retained
Comprehensive
Treasury
Stock
Capital
Earnings
Income/(Loss)
Total
Balance, January 1, 2024
2,014
144,152
663,726
(127,087)
(154,829)
527,976
Cumulative change in accounting principle ASU 2023-02
—
(1,659)
Net income
Other comprehensive income (loss)
(11,023)
Omnibus Equity Incentive Plan
1
239
240
Treasury shares purchased (8,734 shares)
(376)
Cash dividends, $.45 per share
(5,316)
Balance, March 31, 2024
2,015
144,391
667,675
(138,110)
(155,205)
520,766
Balance, January 1, 2025
11,103
232
233
Treasury shares purchased (17,028 shares)
(795)
Cash dividends, $.51 per share
(6,043)
Balance, March 31, 2025
CONSOLIDATED STATEMENTS OF CASH FLOWS
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income
Adjustments to reconcile net income to net cash provided by operating activities:
Net amortization of premiums and discounts on investments
1,050
1,204
Depreciation and amortization
3,257
1,655
Restricted stock compensation
Gain on sale of mortgage loans
(225)
(176)
(Gain) Loss on sale of other real estate
(2)
(7)
Other, net
(3,612)
(3,204)
NET CASH FROM OPERATING ACTIVITIES
12,436
CASH FLOWS FROM INVESTING ACTIVITIES:
Calls, maturities and principal reductions on securities available-for-sale
26,968
25,187
Purchases of securities available-for-sale
(4)
Loans made to customers, net of repayment
(16,795)
(25,567)
Net change in federal funds sold
393
282
Redemption of restricted stock
48
Purchase of restricted stock
(21)
Proceeds from sales of other real estate owned
70
Additions to premises and equipment
(566)
(964)
NET CASH FROM INVESTING ACTIVITIES
10,029
(1,003)
CASH FLOWS FROM FINANCING ACTIVITIES:
Net change in deposits
(78,863)
15,067
Net change in short-term borrowings
(49,448)
21,652
Dividends paid
(6,032)
(5,304)
Purchase of treasury stock
Proceeds from other borrowings
350,000
750,000
Maturities of other borrowings
(253,263)
(800,000)
NET CASH FROM FINANCING ACTIVITIES
(38,401)
(18,961)
NET CHANGE IN CASH AND CASH EQUIVALENTS
(7,315)
(7,528)
CASH AND DUE FROM BANKS, BEGINNING OF PERIOD
76,759
CASH AND DUE FROM BANKS, END OF PERIOD
69,231
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The accompanying March 31, 2025 and 2024 consolidated financial statements are unaudited. The December 31, 2024 consolidated financial statements are as reported in the First Financial Corporation (the “Corporation”) 2024 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, 2024.
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.
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 2025 and 2024, 25,134 and 27,803 shares were awarded, respectively. These shares had a grant date value of $1.2 million and $1.0 million for 2025 and 2024, 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.
On July 1, 2024, the Corporation completed its acquisition of SimplyBank. Therefore, the results of SimplyBank have been included in the results of operations beginning on July 1, 2024. See footnote 12, Acquisitions, for more information.
2. New accounting standards
Accounting Pronouncements Adopted:
In March 2023, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) No. 2023-02 “Investments Equity Method and Joint Ventures (Topic 323): Accounting for Investments in Tax Credit Structures Using the Proportional Amortization Method.” These amendments allow reporting entities to elect to account for qualifying tax equity investments using the proportional amortization method, regardless of the program giving rise to the related income tax credits. This guidance is effective for public business entities for fiscal years including interim periods within those fiscal years, beginning after December 15, 2023. Early adoption is permitted in any interim period. The Corporation adopted ASU 2023-02 on January 1, 2024 on a modified retrospective basis. As a result of the adoption, other assets increased $19 million, other liabilities increased $21 million, and retained earnings decreased $1.7 million.
In November 2023, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) No. 2023-07 “Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures.” These amendments require, among other things, that a public entity that has a single reportable segment provide all the disclosures required by the amendments in this ASU and all existing segment disclosures in Topic 208. The ASU is effective for fiscal years beginning after December 15, 2023, and interim periods within fiscal years beginning after December 15, 2024. Early adoption is permitted. The Corporation adopted ASU 2023-07 on January 1, 2024 for fiscal year activity and will apply ASU 2023-07 in interim periods within fiscal years beginning January 1, 2025.
In December 2023, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) No. 2023-09 “Income Taxes (Topic 740): Improvements to Income Tax Disclosures.” Among other things, these amendments require that public business entities on an annual basis (1) disclose specific categories in the rate reconciliation and (2) provide additional information for reconciling items that meet a quantitative threshold (if the effect of those reconciling items is equal to or greater than five percent of the amount computed by multiplying pretax income (loss) by the applicable statutory income tax rate.) The amendments also require that all entities disclose on an annual basis the following information about income taxes paid: (1) the amount of income taxes paid (net of refunds received) disaggregated by federal, state, and foreign taxes and (2) the amount of income taxes paid (net of refunds received)
disaggregated by individual jurisdictions in which income taxes paid (net of refunds received) is equal to or greater than five percent of total income taxes paid (net of refunds received.) This guidance is effective for public business entities for annual periods beginning after December 15, 2024. Early adoption is permitted for annual financial statements that have not yet been issued or made available for issuance. The amendments should be applied on a prospective basis although retrospective application is permitted. The Corporation adopted ASU 2023-09 January 1, 2025, and will provide the required disclosures in the Corporation’s 2025 filings.
Recent Accounting Pronouncements:
In November 2024, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) No. 2024-03, “Income Statement – Reporting Comprehensive Income – Expense Disaggregation Disclosures (Subtopic 220-40): Disaggregation of Income Statement Expenses.” This update is intended to provide investors more detailed disclosures around specific types of expenses. This ASU requires certain details for expenses presented on the face of the consolidated statements of income as well as selling expenses to be presented in the notes to the financial statements. This update is effective for fiscal years beginning after December 15, 2026, and interim periods within fiscal years beginning after December 15, 2027, with early adoption permitted. The disclosure updates are required to be applied prospectively with the option for retrospective application. The Corporation is assessing ASU 2024-03 and its effect on its consolidated financial statements and related disclosures.
8
3. 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, 2025
(Dollar amounts in thousands)
Unallocated
Beginning balance
16,963
17,470
12,046
253
46,732
775
(540)
1,959
(244)
Loans charged-off
(490)
(108)
(2,643)
(3,241)
Recoveries
277
143
974
1,394
Ending Balance
17,525
16,965
12,336
9
46,835
March 31, 2024
13,264
14,327
11,797
379
39,767
271
(173)
1,767
(65)
(231)
(14)
(2,947)
(3,192)
275
93
1,302
1,670
13,579
14,233
11,919
314
40,045
The tables below present the recorded investment in non-performing loans by class of loans.
Loans Past
Nonaccrual
Due Over
With No
90 Days Still
Allowance
Accruing
For Credit Loss
Commercial & Industrial
38
1,954
Farmland
594
611
Non Farm, Non Residential
61
1,131
700
Agriculture
638
618
All Other Commercial
219
157
First Liens
57
1,087
332
Home Equity
433
105
Junior Liens
87
110
Multifamily
481
284
222
All Other Residential
55
31
Motor Vehicle
2,569
All Other Consumer
TOTAL
1,157
9,060
2,671
December 31, 2024
2,092
1,047
806
1,733
897
644
623
1,181
1,116
459
1,464
694
822
107
243
85
27
321
291
103
46
2,364
368
1,888
11,479
4,434
10
The following tables present the amortized cost basis of collateral dependent loans by class of loans:
Collateral Type
Real Estate
5,963
801
3,816
5,359
6,581
5,978
996
4,111
7,216
6,601
11
The following tables presents the aging of the recorded investment in loans by past due category and class of loans.
90 Days
30-59 Days
60-89 Days
and Greater
Past Due
Current
2,104
62
109
2,275
581,747
584,022
153
128,788
128,941
844
452
1,357
835,402
836,759
37
675
131,197
131,872
652
72
724
539,094
539,818
3,664
661
266
4,591
445,033
449,624
1,008
289
477
1,774
89,661
91,435
424
145
726
64,980
65,706
118
388
987
315,691
316,678
212
216
46,250
46,466
7,131
1,452
689
9,272
637,500
646,772
410
56
49
515
29,451
29,966
16,604
3,730
2,931
23,265
3,844,794
3,868,059
746
768
208
1,722
571,244
572,966
598
1,404
131,582
132,986
1,619
811,252
812,871
642
148,647
149,289
1,297
152
1,449
540,948
542,397
4,304
1,361
1,224
6,889
444,792
451,681
639
906
1,702
88,137
89,839
356
101
290
747
64,154
64,901
529
74
345
948
318,763
319,711
25
108
133
44,477
44,610
10,176
1,435
808
12,419
627,119
639,538
555
122
123
800
30,843
31,643
20,844
4,170
5,460
30,474
3,821,958
3,852,432
12
Loan Modifications Made to Borrowers Experiencing Financial Difficulty:
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.
The following table presents the amortized cost of loans and leases at March 31, 2025 that were both experiencing financial difficulty and modified during the twelve months ended March 31, 2025, by class and by type of modification. The percentage of the amortized cost of loans and leases that were modified to borrowers in financial distress as compared to the amortized cost of each class of financial receivable is also presented below.
Combination
Term
Extension and
Extension
Class of
Principal
Payment
Interest Rate
Financing
Forgiveness
Delay
Reduction
Receivable
0.09
%
90
83
68
0.04
0.01
The Corporation has no commitments to lend additional amounts to the borrowers included in the table above.
The Corporation closely monitors the performance of loans and leases that have been modified to borrowers experiencing financial difficulty to understand the effectiveness of its modification efforts. The following table presents the performance of such loans that have been modified in the last twelve months:
30 - 59
60 - 89
Greater Than
Days
89 Days
The following table presents the financial effect of loan and lease modifications presented above to borrowers experiencing financial difficulty for the twelve months ended March 31, 2025.
Weighted-
Average
1.38
44
2.58
18
2.01
17
13
The following table presents the amortized cost basis of loans that had a payment default during the twelve months ended March 31, 2025 and were modified in the twelve months prior to that default to borrowers experiencing financial difficulty. A loan is considered to be in payment default once it is 30 days contractually past due under the modified terms.
Upon the Corporation’s determination that a modified loan has subsequently been deemed uncollectible, the loan is written off. Therefore, the amortized cost basis of the loan is reduced by the uncollectible amount and the allowance for credit losses is adjusted by the same amount.
Credit Quality Indicators:
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 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.
14
The following tables present the commercial loan portfolio by risk category. These balances do not include accrued interest:
Term Loans at Amortized Cost Basis by Origination Year
Revolving
2023
2022
2021
Prior
Loans
Commercial and Industrial
Pass
28,460
83,723
37,917
104,630
78,006
120,185
91,972
544,893
Special Mention
300
334
692
6,262
3,874
1,987
13,449
Substandard
714
3,457
329
1,395
5,843
8,077
19,815
Doubtful
Not Rated
367
1,448
754
634
254
172
3,629
Subtotal
28,827
86,185
42,462
106,285
85,917
130,074
102,036
581,786
Current period gross charge-offs
-
52
19
139
244
3,331
11,097
18,118
14,872
18,058
56,641
583
122,700
1,151
701
816
2,668
487
16
1,081
1,584
12,248
19,306
18,074
58,549
126,963
32,748
157,638
87,031
159,298
164,898
191,366
15,365
808,344
875
12,787
1,068
248
14,978
2,564
2,722
4,809
10,095
715
162,737
180,407
197,958
15,613
834,132
3,170
11,496
7,251
7,638
4,123
21,127
56,453
111,258
188
310
977
196
1,978
3,109
6,758
866
102
80
5,502
3,639
10,189
23
66
3,358
12,683
7,353
8,714
4,342
28,620
63,201
128,271
Other Commercial
18,161
74,484
60,287
94,237
114,701
164,447
9,513
535,830
30
740
770
24
411
435
94,261
114,731
165,837
537,274
194
Multifamily >5 Residential
3,978
78,598
67,084
57,987
37,588
48,011
1,976
295,222
12,425
6,526
18,951
423
664
70,634
38,011
55,201
315,482
89,848
417,036
277,688
438,662
417,374
601,777
175,862
2,418,247
1,761
1,035
14,969
19,275
15,002
5,344
57,574
1,580
4,046
3,195
4,133
17,474
11,716
42,144
1,459
677
1,986
5,943
90,403
421,836
283,523
457,503
441,482
636,239
192,922
2,523,908
15
2020
92,372
38,454
104,695
76,691
35,180
90,984
85,448
523,824
354
137
870
9,953
1,052
1,078
16,375
4,464
3,461
1,478
374
10,244
5,904
26,158
2,041
924
735
353
75
4,281
99,231
42,976
106,533
88,475
38,638
102,355
92,430
570,638
1,982
4,716
54
96
6,848
12,676
19,782
15,526
20,086
7,565
51,413
494
127,542
35
237
1,292
1,564
15,561
20,323
53,533
129,934
145,512
85,201
162,233
167,505
40,094
164,625
19,286
784,456
12,976
13,494
636
50
2,596
2,736
5,602
11,722
658
720
146,148
85,358
165,240
183,217
40,854
170,289
810,392
12,492
7,810
9,281
4,815
4,824
20,925
81,991
142,138
84
1,353
1,750
3,192
649
12,504
9,392
4,838
4,842
22,927
83,741
146,054
53
61,991
56,715
99,257
112,668
93,030
102,823
10,435
536,919
758
940
21
1,201
26
420
455
100,223
93,060
104,241
539,333
889
100
989
78,426
65,289
58,565
42,191
22,950
26,018
4,662
298,101
12,538
342
6,259
19,139
249
653
1,077
71,328
42,615
23,292
32,954
318,566
403,469
273,251
449,557
423,956
203,643
456,788
202,316
2,412,980
13,903
22,929
3,278
10,239
2,828
53,775
5,100
3,511
4,029
4,451
497
18,051
41,543
2,053
788
833
1,221
6,619
410,976
277,930
468,277
452,136
208,251
486,299
211,048
2,514,917
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 and loans past due 90 days or more and still accruing interest are considered to be nonperforming for purposes of credit quality evaluation. The following table presents the other loan portfolio based on the credit risk profile of loans that are performing and loans that are nonperforming. These balances do not include accrued interest:
Performing
8,836
64,486
47,361
88,407
66,599
168,965
2,214
446,868
Non-performing
1,286
1,334
66,647
170,251
448,202
142
913
134
659
337
1,309
87,090
90,584
116
318
514
697
1,425
87,408
91,098
22
2,713
17,156
11,590
6,017
13,306
2,744
65,323
39
115
192
11,629
6,055
13,421
65,515
Other Residential
1,315
22,285
10,945
5,214
4,089
2,102
202
46,152
4,151
2,113
46,225
75,412
230,436
166,998
121,868
29,941
16,721
641,386
296
457
1,110
366
311
2,540
230,732
167,455
122,978
30,307
17,032
643,926
358
574
1,158
218
2,426
Other Consumer
2,216
10,126
5,389
2,730
1,870
1,474
5,692
29,497
36
86
97
67
327
10,162
5,475
2,827
1,937
1,500
5,707
29,824
51
45
59
217
90,634
345,402
242,417
230,675
108,853
203,877
97,952
1,319,810
582
1,245
1,865
333
4,980
Total other loans
345,734
242,999
231,920
109,476
205,742
98,285
1,324,790
64,953
47,930
89,205
69,090
37,658
136,805
2,279
447,920
180
113
2,312
69,270
37,771
138,824
450,232
221
966
562
1,017
1,149
84,723
88,591
907
1,058
181
1,257
85,443
89,498
28
16,989
12,371
12,590
6,431
5,200
9,229
1,578
64,388
60
146
324
12,410
12,631
6,469
5,260
9,375
64,712
17,542
13,123
6,960
4,392
628
1,559
44,257
121
4,472
633
1,595
44,378
247,368
187,134
139,251
37,043
20,130
3,290
634,227
144
346
1,112
398
286
2,345
247,512
187,480
140,363
37,441
20,416
3,349
636,572
478
2,692
4,839
1,751
587
10,444
11,580
6,883
3,270
2,161
1,094
576
5,501
31,065
32
92
155
421
11,612
6,975
3,425
2,236
1,118
579
5,541
31,486
197
182
612
359,398
268,003
252,293
119,148
64,853
152,608
94,145
1,310,448
1,349
771
526
2,371
760
6,430
359,574
268,480
253,642
119,919
65,379
154,979
94,905
1,316,878
4. Securities
The amortized cost and fair value of the Corporation’s investments are shown below. All securities are classified as available-for-sale.
Amortized
Unrealized
Cost
Gains
Losses
Fair Value
U.S. Government agencies
88,079
(10,184)
77,899
Mortgage Backed Securities - residential
614,621
132
(78,911)
535,842
Mortgage Backed Securities - commercial
14,136
(415)
13,722
Collateralized mortgage obligations
184,919
(25,651)
159,296
State and municipal obligations
390,864
186
(34,596)
356,454
Municipal taxable
41,159
29
(4,808)
36,380
Collateralized debt obligations
2,902
1,333,778
3,282
(154,565)
90,649
(11,670)
78,982
Mortgage Backed Securities-residential
630,556
(89,251)
541,320
Mortgage Backed Securities-commercial
14,182
(523)
13,661
190,552
(27,555)
163,026
394,696
171
(34,539)
360,328
41,162
(5,396)
35,777
2,896
1,361,797
3,127
(168,934)
Contractual maturities of debt securities at March 31, 2025 were as follows.
Available-for-Sale
Fair
Value
Due in one year or less
10,832
10,694
Due after one but within five years
42,015
40,930
Due after five but within ten years
124,757
121,091
Due after ten years
342,498
300,920
520,102
473,635
Mortgage-backed securities and collateralized mortgage obligations
813,676
708,860
There were no gross gains and losses from investment sales/calls realized by the Corporation for the three months ended March 31, 2025. Additionally, there were no gross gains and losses from investment sales/calls realized by the Corporation for the three months ended March 31, 2024.
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, 2025 and December 31, 2024.
Less Than 12 Months
More Than 12 Months
3,238
(73)
73,657
(10,111)
76,895
Mortgage Backed Securities - Residential
34,339
(574)
476,849
(78,337)
511,188
Mortgage Backed Securities - Commercial
6,979
(125)
5,439
(290)
12,418
154,849
70,922
(854)
242,937
(33,742)
313,859
(1)
32,483
(4,807)
33,297
U.S. Treasury
Total temporarily impaired securities
116,292
(1,627)
986,214
(152,938)
1,102,506
3,696
(107)
74,636
(11,563)
78,332
51,996
(1,113)
481,270
(88,138)
533,266
6,937
(161)
5,388
(362)
12,325
158,244
158,329
89,321
(953)
232,247
(33,586)
321,568
1,587
(20)
31,918
(5,376)
33,505
153,622
(2,354)
983,703
(166,580)
1,137,325
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 $154.6 million as of March 31, 2025 and $168.93 million as of December 31, 2024. 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. The portfolio contains primarily government agency, agency backed mortgage backed securities (“MBS”), and collateralized mortgage obligations (“CMO”), which are issued by government sponsored enterprises and are backed by the full faith and credit of the United States government. Secondarily, the Corporation invests in municipal securities issued by state and local governments. Of these, almost half are either insured or contain state enhancements. On the remaining, credit is monitored by the investment committee. 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.
20
The table below presents a rollforward of the credit losses recognized in earnings for the three month period ended March 31, 2025 and 2024:
Three Months Ended March 31,
2,974
Reductions for securities called during the period
Ending balance
5. Qualified Affordable Housing Project Investments
The Corporation invests in qualified affordable housing projects. The balance of investment for qualified housing projects was $26.4 million at March 31, 2025 and $27.2 million at December 31, 2024. These balances are reflected in the other assets line on the consolidated balance sheets. Total unfunded commitments related to the investments in qualified affordable housing projects totaled $15.0 million at March 31, 2025 and $17.7 million at December 31, 2024. The Corporation expects to fulfill these commitments by the end of December 31, 2037.
The Corporation recognized amortization expense of $16 thousand during the three months ended March 31, 2025, and $195 thousand during the three months ended March 31, 2024, which was included within other noninterest expense on the consolidated statements of income. The Corporation recognized amortization expense of $720 thousand during the three months ended March 31, 2025, which was included within income tax expense on the consolidated statements of income. Additionally, the Corporation recognized tax credits and other benefits from its investment in affordable housing tax credits of $914 thousand during the three months ended March 31, 2025, and $363 thousand during the three months ended March 31, 2024.
6. 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 and investments in state and municipal securities. The fair value of state and municipal obligations are derived by comparing the securities to current market rates plus an appropriate credit spread to determine an estimated value. 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).
Fair Value Measurements Using
Significant Unobservable Inputs (Level 3)
Level 1
Level 2
Level 3
State and municipal
1,179,593
Derivative Assets
2,946
Derivative Liabilities
(2,946)
359,523
805
1,192,289
3,701
3,060
(3,060)
There were no transfers between Level 1 and Level 2 during 2025 and 2024.
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, 2025 and the year ended December 31, 2024.
Fair Value Measurements Using Significant Unobservable Inputs (Level 3)
State and
municipal
Collateralized
obligations
debt obligations
Beginning balance, January 1
Total realized/unrealized gains or losses
Included in earnings
Included in other comprehensive income
Transfers
Settlements
(805)
Ending balance, March 31
Year Ended
1,180
3,002
4,182
(106)
Purchases
(375)
Ending balance, December 31
Other real estate owned is valued at Level 3. Other real estate owned at March 31, 2025 with a value of $560 thousand was reduced by zero for fair value adjustment. At March 31, 2025 other real estate owned was comprised of $405 thousand from commercial loans and $155 thousand from residential loans. Other real estate owned at December 31, 2024 with a value of $523 thousand was reduced by zero for fair value adjustment. At December 31, 2024 other real estate owned was comprised of $433 thousand from commercial loans and $90 thousand from residential loans.
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 30% to 100% with an average discount of 70%. Values for non-real estate collateral, such as business equipment, are based on appraisals performed by qualified licensed appraisers or the customers financial statements. Values for non real estate collateral use much higher discounts than real estate collateral. Other real estate and individually evaluated loans carried at fair value are primarily comprised of smaller balance properties.
The following table presents quantitative information about recurring and non-recurring Level 3 fair value measurements at March 31, 2025.
Valuation Technique(s)
Unobservable Input(s)
Range
Discounted cash flow
Discount rate
6.29
Collateral dependent loans
2,590
Discount rate for age of appraisal and market conditions
30.00%-100.00
The following table presents quantitative information about recurring and non-recurring Level 3 fair value measurements at December 31, 2024.
4.24%-4.44
6.62
3,099
20.00%-100.00
The carrying amounts and estimated fair value of financial instruments at March 31, 2025 and December 31, 2024, 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.
Carrying
31,843
54,368
n/a
Loans, net
3,727,796
6,497
19,059
(4,640,003)
(4,634,010)
(137,609)
(124,898)
Accrued interest payable
(3,378)
35,889
57,637
3,717,843
6,543
20,391
(4,718,914)
(4,723,356)
(187,057)
(28,120)
(29,693)
(3,799)
7. Borrowings
Short-term borrowings:
Period–end short-term borrowings were comprised of the following:
Federal Funds Purchased
102,125
154,250
Repurchase Agreements
35,484
32,807
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:
Remaining Contractual Maturity of the Agreements
Overnight
Greater
and
Up to 30
30 - 90
than 90
continuous
days
Mortgage Backed Securities - Residential and CollateralizedMortgage Obligations
30,729
585
1,842
2,328
24,380
552
5,150
2,725
Other borrowings:
Other borrowings at March 31, 2025 and December 31, 2024 are summarized as follows:
FHLB advances
106,148
7,287
Notes payable
18,750
20,833
The aggregate minimum annual retirements of other borrowings are as follows:
Twelve Months Ended March 31,
2026
105,092
2027
2028
19,806
2029
2030
Thereafter
At March 31, 2025 and December 31, 2024, other borrowings are summarized as follows: The Corporation’s subsidiary bank is a member of the Federal Home Loan Bank (FHLB) and accordingly are permitted to obtain advances. There are $106.1 million of advances from the FHLB at March 31, 2025, and $7.3 million of advances at December 31, 2024. FHLB advances are, generally due in full at maturity. They are secured by eligible securities and a blanket pledge on real estate loan collateral. In addition the Corporation secured a note payable to a commercial bank in the second quarter 2024. The balance at March 31, 2025 is $18.8 million.
8. Components of Net Periodic Benefit Cost
Post-Retirement
Pension Benefits
Health Benefits
Service cost
141
Interest cost
1,016
947
Expected return on plan assets
(1,094)
(1,051)
Net amortization of prior service cost
Net amortization of net (gain) loss
(39)
Net Periodic Benefit Cost
Employer Contributions
First Financial Corporation previously disclosed in its financial statements for the year ended December 31, 2024 that it expected to contribute $570 thousand and $563 thousand respectively to its Pension Plan and ESOP and $243 thousand to the Post Retirement Health Benefits Plan in 2025. Contributions of $357 thousand have been made to the Pension Plan thus far in 2025. Contributions of $80 thousand have been made through the first three months of 2025 for the Post Retirement Health Benefits plan. No contributions have been made in 2025 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 2025 and 2024 there has been $847 thousand and $744 thousand of expense accrued for potential contributions to these alternative retirement benefit options.
9. 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, 2025 and 2024. Items outside the scope of ASC 606 are noted as such.
Non-interest income
Service charges on deposits and debit card fee income
Net gains on sales of loans (a)
Loan servicing fees (a)
Other service charges and fees (a)
Other (b)
Total non-interest income
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.
Trust and financial services: 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.
10. Accumulated Other Comprehensive Income (Loss)
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, 2025 and 2024.
gains and
(Losses) on available-
for-sale
Retirement
Securities
plans
Beginning balance, January 1,
(127,807)
(4,478)
Change in other comprehensive income (loss) before reclassification
Amounts reclassified from accumulated other comprehensive income
Net current period other comprehensive income (loss)
Ending balance, March 31,
(116,707)
(4,475)
(118,000)
(9,087)
(129,096)
(9,014)
Balance at
Current Period
1/1/2025
Change
3/31/2025
Unrealized gains (losses) on securities available-for-sale without other than temporary impairment
(129,979)
11,096
(118,883)
Unrealized gains (losses) on securities available-for-sale with other than temporary impairment
2,172
2,176
Total unrealized gain (loss) on securities available-for-sale
Unrealized gain (loss) on retirement plans
1/1/2024
3/31/2024
(120,252)
(11,010)
(131,262)
2,252
(86)
2,166
Total unrealized income (loss) on securities available-for-sale
Three Months Ended March 31, 2025
Details about accumulated
Amount reclassified from
Affected line item in
other comprehensive
accumulated other
the statement where
income components
comprehensive income
net income is presented
(in thousands)
Unrealized gains and losses
Net securities gains (losses)
on available-for-sale
Income tax expense
securities
Net of tax
Amortization of
(a)
Salary and benefits
retirement plan items
(3)
Total reclassifications for the period
Three Months Ended March 31, 2024
(97)
11. Leases
The Corporation leases certain branches under operating leases. At March 31, 2025, the Corporation had lease liabilities totaling $7,590,000 and right-of-use assets totaling $7,471,000 related to these leases. At December 31, 2024, the Corporation had lease liabilities totaling $7,829,000 and right-of-use assets totaling $7,725,000 related to these leases. Lease liabilities and right-of-use assets are reflected in other liabilities and other assets, respectively. At March 31, 2025, the weighted average remaining lease term for operating leases was 10.8 years and the weighted average discount rate used in the measurement of operating lease liabilities was 3.22%.
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:
Operating lease cost
362
Short-term lease cost
Variable lease cost
Total lease cost
395
Other information:
Cash paid for amounts included in the measurement of operating lease liabilities
307
Right-of-use assets obtained in exchange for new operating lease liabilities
Future minimum payments for operating leases with initial or remaining terms of one year or more as of March 31, 2025 were as follows:
1,187
1,128
1,125
668
4,510
Total Future Minimum Lease Payments
9,525
Amounts Representing Interest
(1,936)
Present Value of Net Future Minimum Lease Payments
7,589
12. Acquisitions
On July 1, 2024, the Corporation completed its acquisition of SimplyBank. Therefore, the results of SimplyBank have been included in the results of operations beginning on July 1, 2024. Upon the terms and subject to the conditions set forth in the Merger Agreement, at the effective time of the Interim Merger (the “Effective Time”), other than dissenting shares, each share of SimplyBank Common Stock issued and outstanding immediately prior to the Effective Time, was converted into the right to receive $718.38 per share in cash. The aggregate value of the transaction was approximately $73.4 million. Acquisition-related costs of $1.7 million were included in the Corporation’s income statement for the year-to-date period ended December 31, 2024.
Goodwill of $13.0 million arising from the acquisition consisted largely of synergies and the cost savings resulting from the combining of the operations of the companies. The goodwill value is subject to change pending receipt of the final valuation. The goodwill for SimplyBank is deductible for income tax purposes as the transaction was accounted for as a taxable acquisition. The following table summarizes the consideration paid and the amounts of the assets acquired and liabilities assumed recognized at the acquisition date.
Measurement
As Initially
Period
Reported
Adjustments
As Adjusted
Consideration
Cash consideration
73,400
Fair value of total consideration transferred
Assets acquired
Cash
101,553
Investment securities available-for-sale
77,350
Bank owned life insurance
12,816
Federal Home Loan Bank stock
467,997
(2,731)
465,266
Premises and equipment
14,231
Core deposit intangibles
19,788
6,184
Total assets acquired
700,645
697,914
Liabilities assumed
622,937
1,719
12,899
Total liabilities assumed
637,555
Net identifiable assets
63,090
60,359
10,310
2,731
13,041
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 deteriorated loans, which have shown evidence of credit deterioration since origination.
The fair value of purchased financial assets with credit deterioration was $1.7 million on the date of acquisition. The gross contractual amounts receivable relating to the purchased financial assets with credit deterioration was $4.7 million. The Corporation estimates, on the date of acquisition, that $3.0 million of the contractual cash flows specific to the purchased financial assets with credit deterioration will not be collected.
The following table presents supplemental pro forma information as if the acquisition had occurred at the beginning of 2023. The unaudited pro forma information includes adjustments for interest income on loans and securities acquired, interest expense on deposits acquired, and the related income tax effects. The pro forma financial information is not necessarily indicative of the results of operations that would have occurred had the transactions been effected on the assumed dates.
Year Ended December 31,
Net interest income
188,441
196,646
36,425
70,586
Basic and diluted earnings per share
3.08
5.91
33
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 2024 in the 10-K filed for the fiscal year ended December 31, 2024.
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. 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, 2024, 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 2024 Form 10-K.
Allowance for credit losses. The allowance for credit losses (ACL) represents management’s estimate of expected losses inherent within the existing loan portfolio. The allowance for credit losses is increased by the provision for credit losses charged to expense and reduced by loans charged off, net of recoveries. The allowance for credit losses is determined based on management’s assessment of several factors: reviews and evaluations of specific loans, changes in the nature and volume of the loan portfolio, current economic conditions, nonperforming loans, determination of acquired loans as purchase credit deteriorated, and reasonable and supportable forecasts. Loans are individually evaluated when they do not share risk characteristics with other loans in the respective pool. Loans evaluated individually are excluded from the collective evaluation. Management elected the collateral dependent practical expedient upon adoption of ASC 326. Expected credit losses on individually evaluated loans are based on the fair value of the collateral at the reporting date, adjusted for selling costs as appropriate.
Management utilizes a cohort methodology to determine the allowance for credit losses. This method identifies and captures the balance of a pool of loans with similar risk characteristics, as of a particular point in time to form a cohort, then tracks the respective losses generated by that cohort of loans over their remaining life. The cohorts track loan balances and historical loss experience since 2008, and management extends the look back period each quarter to capture all available data points in the historical loss rate calculation. The quantitative component of the ACL involves assumptions that require a significant level of estimation; these include historical losses as a predictor of future performance, appropriateness of selected delay periods, and the reasonableness of the portfolio segmentation.
A historical data set is expected to provide the best indication of future credit performance. Delay periods represent the amount of time it takes a cohort of loans to become seasoned, or incur sufficient attrition through pay downs, renewals, or charge-offs. Portfolio segmentation relates to the pooling of loans with similar risk characteristics, such as industry types, collateral, and consumer purpose.
On an annual basis, in the first quarter, management performs a recalibration of the delay periods and portfolio segmentation to determine whether they are reasonable and appropriate based on the information available at that time.
Management considers qualitative adjustments to expected credit loss estimates for information not already captured in the loss estimation process. Where past performance may not be representative of future losses, loss rates are adjusted for qualitative and economic forecast factors. Management uses the peak three consecutive quarter net charge off rate to capture maximum potential volatility over the reasonable and supportable forecast period. Historical losses utilized in setting the qualitative factor ranges are anchored to 2008 and may be supplemented by peer information when needed. The qualitative factor ranges are recalibrated annually to capture recent behavior that is indicative of the credit profile of the current portfolio.
Qualitative factors include items, such as changes in lending policies or procedures, asset specific risks, and economic uncertainty in forward-looking forecasts. Economic indicators utilized in forecasting include unemployment rate, gross domestic product, housing starts, and interest rates. Management uses a two-year reasonable and supportable period across all loan segments to forecast economic conditions. Management believes the two-year time horizon aligns with available industry guidance and various forecasting sources. Economic forecast adjustments are overlaid onto historical loss rates. As such, reversion from forecast rates to historical loss rates is immediate.
The ACL and allowance for unfunded commitments were $46.8 million and $2.1 million, respectively at March 31, 2025, compared to $46.7 million and $2.1 million, respectively at December 31, 2024. The qualitative amount of the reserve increased $363 thousand to $13.2 million. The quantitative amount is $33.6 million at March 31, 2025, compared to $33.6 million at December 31, 2024. There was no change in the allowance for unfunded commitments. See additional discussion of ACL in the Allowance for Credit Losses section below.
Based on management’s analysis of the current portfolio, management believes the allowance is adequate. Changes in the financial condition of individual borrowers, economic conditions, historical loss experience, or the condition of the various markets in which collateral may be sold may affect the required level of the allowance for credit losses and the associated provision for credit losses. As management monitors these changes, as well as those factors discussed above, adjustments may be recorded to the allowance for credit losses and the associated provision for credit losses in the future.
Summary of Operating Results
Net income for the three months ended March 31, 2025 was $18.4 million, compared to $10.9 million for the same period in 2024. Basic earnings per share increased to $1.55 for the first quarter of 2025 compared to $0.93 for the same period in 2024. Return on average assets and return on average equity were 1.34% and 13.04% respectively, for the three months ended March 31, 2025 compared to 0.91% and 8.36% for the three months ended March 31, 2024.
In light of events in the banking sector, including bank failures, continuing interest rate activity and recessionary concerns, the Corporation has proactively positioned the balance sheet to mitigate the risks affecting the Corporation and the overall banking industry in order to serve its clients and communities.
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 $13.1 million in the three months ended March 31, 2025 to $52.0 million from $38.9 million in the same period in 2024. The net interest margin for the three months ended March 31, 2025 is 4.11% compared to 3.53% for the same period in 2024, a 16.44% increase.
The increase in yields on net loans and leases of 32 basis points is the primary contributor to the improved yield on average earning assets for the three months ended March 31, 2025, compared to the three months ended March 31, 2024. Comparing the three months ended March 31, 2025 to the three months ended March 31, 2024, the effective rate paid on average interest-bearing deposits decreased 23 basis points. For the same period discussed above, interest paid on other borrowings decreased 20 basis points.
Non-Interest Income
Non-interest income for the three months ended March 31, 2025 was $10.5 million compared to $9.4 million for the same period in 2024.
Non-Interest Expenses
The Corporation’s non-interest expense for the quarter ended March 31, 2025 was $36.8 million compared to $33.4 million for the same period in 2023. This includes an overall increase in operating expenses as a result of the acquisition.
Allowance for Credit Losses
The Corporation’s provision for credit losses for the three months ended March 31, 2025, was $2.0 million, compared to provision of $1.8 million for the same period of 2024. Net charge-offs for the first quarter of 2025 were $1.8 million compared to net charge-offs of $1.5 million for the same period of 2024. Based on management’s analysis of the current portfolio, an evaluation that includes consideration of changes in CECL model assumptions of credit quality, economic conditions, and loan composition, management believes the allowance is adequate. In the first three months of 2025, no significant changes were made.
Income Tax Expense
The Corporation’s effective income tax rate for the first three months of 2025 was 22.59% compared to 16.79% for the same period in 2024. Pretax income for the first three months in 2025 was significantly higher than pretax income for first three months in 2024. Since our permanent differences remained similar, income was the driving factor for the increase in effective tax rate.
Non-performing Loans
Non-performing loans consist of (1) non-accrual loans on which the ultimate collectability of the full amount of interest is uncertain, and (2) loans past due ninety days or more as to principal or interest. Non-performing loans decreased to $10.2 million at March 31, 2025 compared to $13.3 million at December 31, 2024. Nonperforming loans decreased 58.0% compared to $24.3 million as of March 31, 2024.
A summary of non-performing loans at March 31, 2025 and December 31, 2024 follows:
(000's)
Non-accrual loans
Accruing loans past due over 90 days
1,109
1,821
10,169
13,300
Ratio of the allowance for credit losses as a percentage of non-performing loans
460.6
351.4
The following loan categories comprise significant components of the nonperforming non-restructured loans:
Commercial loans
4,536
6,697
Residential loans
1,641
2,050
Consumer loans
2,883
2,732
Past due 90 days or more
1,013
1,778
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 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, 2025. The change in interest rates assumes a parallel shift in interest rates of 100, 200, and 300 basis points. Given a 100 basis point increase in rates, net interest income would decrease 1.41% over the next 12 months and increase 1.22% over the following 12 months. Given a 100 basis point decrease in rates, net interest income would increase 4.92% over the next 12 months and increase 1.67% 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 Point
Percentage Change in Net Interest Income
Interest Rate Change
12 months
24 months
36 months
Down 300
4.90
(6.19)
(16.25)
Down 200
5.80
(0.94)
(7.79)
Down 100
4.92
1.67
(1.81)
Up 100
(1.41)
1.22
4.34
Up 200
(5.65)
(0.45)
5.79
Up 300
(8.53)
(0.75)
8.67
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 $15.1 million of investments that mature throughout the next 12 months. The Corporation also anticipates $114.2 million of principal payments from mortgage-backed and other securities. Given the current rate environment, the Corporation anticipates $35.8 million in securities to be called within the next 12 months. The Corporation also has $224.7 million of unused borrowing capacity available with the Federal Home Loan Bank of Indianapolis, $361.0 million available with the Federal Reserve Bank, and $90 million of available fed funds lines with correspondent banks. With these sources of funds, the Corporation currently anticipates adequate liquidity to meet the expected obligations of its customers.
Financial Condition
Comparing the first three months of 2025 to year-ended December 31, 2024, loans net of deferred loan costs, have increased $17 million to $3.9 billion. Deposits decreased 1.7% to $4.6 billion at March 31, 2025 compared to December 31, 2024. Other borrowings increased $96.8 million to $124.9 million at March 31, 2025 compared to December 31, 2024. Shareholders’ equity increased 4.17% or $22.9 million. This financial performance increased book value per share 4.10% to $48.26 at March 31, 2025 from $46.36 at December 31, 2024. Book value per share is calculated by dividing the total shareholders’ equity by the number of shares outstanding. Accumulated other comprehensive loss increased $11.1 million primarily due to the market value of the securities portfolio, which reflected the increase in securities pricing.
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.
To Be Well Capitalized
Common equity tier 1 capital
Corporation
12.70
12.43
N/A
First Financial Bank
12.95
12.76
6.50
Total risk-based capital
13.74
13.46
14.00
13.81
10.00
Tier I risk-based capital
8.00
Tier I leverage capital
10.63
10.38
10.43
10.26
5.00
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, 2025, 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, 2025 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, 2025 that has materially affected, or is reasonably likely to materially affect, the Corporation's internal control over financial reporting.
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 2024 Form 10-K filed for December 31, 2024.
ITEM 2.Unregistered Sales of Equity Securities and Use of Proceeds.
The Corporation periodically acquires shares of its common stock directly from shareholders in individually negotiated transactions. On April 21, 2022 First Financial Corporation issued a press release announcing that its Board of Directors has authorized a stock repurchase program pursuant to which up to 10% of the Corporations outstanding shares of common stock, or approximately 1,243,531 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
(b)
Purchased As Part Of
Maximum
Total Number Of
Average Price
Publicly Announced Plans
Number of Shares That May Yet
Shares Purchased
Paid Per Share
Or Programs *
Be Purchased *
January 1-31, 2025
February 1-28, 2025
March 1-31, 2025
518,860
ITEM 3.Defaults upon Senior Securities.
Not applicable.
ITEM 4.Mine Safety Disclosures
ITEM 5.Other Information.
During the three months ended March 31, 2025, there were no Rule 10b5-1 plans or non-Rule 10b5-1 trading arrangements adopted, modified or terminated by any director or officer of the Corporation.
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.
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.
10.5*
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.
10.6*
2005 Executives Deferred Compensation Plan, incorporated by reference to Exhibit 10.5 of the Corporation’s Form 8-K filed on September 4, 2007.
10.7*
2005 Executives Supplemental Retirement Plan, incorporated by reference to Exhibit 10.6 of the Corporation’s Form 8-K filed on September 4, 2007.
10.9*
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.
10.10*
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.
10.11*
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.
10.12*
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.
10.13*
Employment Agreement for Norman D. Lowery, effective July 1, 2024, incorporated by reference to Exhibit 10.1 of the Corporation’s Form 8-K filed August 7, 2024.
10.14*
Employment Agreement for Rodger A. McHargue, effective July 1, 2024, incorporated by reference to Exhibit 10.2 of the Corporation’s Form 8-K filed August 7, 2024.
10.15*
Employment Agreement for Stephen P. Panagouleas, effective July 1, 2024, incorporated by reference to Exhibit 10.3 of the Corporation’s Form 8-K filed August 7, 2024.
10.16*
Employment Agreement for Mark A. Franklin, effective July 1, 2024, incorporated by reference to Exhibit 10.4 of the Corporation’s Form 8-K filed August 7, 2024.
31.1
Sarbanes-Oxley Act 302 Certification for Quarterly Report on Form 10-Q for the quarter ended March 31, 2025 by Principal Executive Officer, dated May 7,2025.
31.2
Sarbanes-Oxley Act 302 Certification for Quarterly Report on Form 10-Q for the quarter ended March 31, 2025 by Principal Financial Officer, dated May 7, 2025.
32.1
Certification, dated May 7, 2025, 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 31,2025.
101.1
Financial statements from the Quarterly Report on Form 10-Q of the Corporation for the quarter ended March 31, 2025, 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.
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.
(Registrant)
Date: May 7, 2025
By /s/ Norman D. Lowery
Norman D. Lowery, President, CEO & Director
(Principal Executive Officer)
By /s/ Rodger A. McHargue
Rodger A. McHargue, Treasurer and CFO
(Principal Financial Officer)