
PART I. Financial Information Item 1. Financial Statements This section presents the unaudited consolidated financial statements for First Financial Corporation as of September 30, 2021, including balance sheets, income statements, and cash flows, with key highlights of asset growth, increased net income, and reduced credit loss allowance Consolidated Financial Statements The consolidated financial statements show growth in total assets to $4.80 billion as of September 30, 2021, from $4.56 billion at year-end 2020, driven by increases in cash and securities, with net income rising to $45.6 million from $38.1 million year-over-year Consolidated Balance Sheet Highlights (in thousands) | Account | September 30, 2021 | December 31, 2020 | | :--- | :--- | :--- | | Total Assets | $4,801,093 | $4,557,544 | | Cash and due from banks | $758,120 | $657,470 | | Securities available-for-sale | $1,270,820 | $1,020,744 | | Loans, net | $2,436,948 | $2,563,242 | | Total Liabilities | $4,206,158 | $3,960,552 | | Deposits | $4,028,636 | $3,755,945 | | Total Shareholders' Equity | $594,935 | $596,992 | Consolidated Income Statement Highlights (in thousands, except per share data) | Metric | Nine Months Ended Sep 30, 2021 | Nine Months Ended Sep 30, 2020 | | :--- | :--- | :--- | | Net Interest Income | $106,569 | $108,776 | | Provision for credit losses | $(3,244) | $10,080 | | Net Income | $45,589 | $38,105 | | Basic and Diluted EPS | $3.42 | $2.78 | Consolidated Cash Flow Highlights (Nine Months Ended, in thousands) | Cash Flow Category | September 30, 2021 | September 30, 2020 | | :--- | :--- | :--- | | Net Cash from Operating Activities | $42,908 | $52,793 | | Net Cash from Investing Activities | $(155,551) | $(100,531) | | Net Cash from Financing Activities | $213,293 | $308,752 | | Net Change in Cash | $100,650 | $261,014 | Notes to Consolidated Financial Statements The notes detail the Corporation's accounting policies, credit loss allowance, and securities portfolio, with the allowance for credit losses decreasing to $43.0 million due to a negative provision, and the securities portfolio growing to $1.27 billion, alongside a disclosed acquisition of Hancock Bancorp, Inc. for $31.35 million Allowance for Credit Losses Activity (Nine Months Ended, in thousands) | Description | September 30, 2021 | September 30, 2020 | | :--- | :--- | :--- | | Beginning Balance | $47,052 | $19,943 | | Provision for credit losses | $(3,244) | $10,080 | | Net Charge-offs | $(846) | $(3,063) | | Ending Balance | $42,962 | $26,960 | - From the inception of the CARES Act through September 30, 2021, the Corporation modified 1,332 loans totaling $268 million related to COVID-19 that were not considered troubled debt restructurings, with 1,053 loans totaling $224 million having resumed normal scheduled payments47 - On August 10, 2021, the Corporation entered into an agreement to acquire Hancock Bancorp, Inc. for an aggregate value of $31.35 million in cash103104 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses the Corporation's financial performance, highlighting a 15.0% increase in net income for Q3 2021 year-over-year, driven by a significant decrease in the provision for credit losses, alongside strategic initiatives and a strong capital position Key Performance Metrics | Metric | Nine Months Ended Sep 30, 2021 | Nine Months Ended Sep 30, 2020 | | :--- | :--- | :--- | | Net Income | $45.6 million | $38.1 million | | Basic EPS | $3.42 | $2.78 | | Return on Assets (ROA) | 1.28% | 1.20% | | Return on Equity (ROE) | 10.10% | 8.62% | - Net interest margin for the nine months ended September 30, 2021, decreased to 3.24% from 4.03% in the prior year period, primarily due to significant drops in interest rates and a substantial increase in lower-yielding cash on hand118 - The provision for credit losses decreased by $13.3 million to a negative $3.2 million for the first nine months of 2021, compared to a $10.1 million provision in the same period of 2020, attributed to unrealized potential losses from COVID-19 and an improving economy121 - The Corporation announced plans to close and consolidate nine branches over the next two quarters, which is projected to save approximately $2.3 million per year in operating expenses starting in Q1 2022116 Item 3. Quantitative and Qualitative Disclosures about Market Risk The Corporation identifies interest rate risk as its most significant market risk, managed by its Asset Liability Committee, with simulation modeling projecting a 100 basis point increase in rates to increase net interest income by 5.66% over 12 months, while a 100 basis point decrease would lower it by 6.21% Estimated Net Interest Income Sensitivity (as of Sep 30, 2021) | Interest Rate Change (Basis Points) | Percentage Change in NII (12 months) | | :--- | :--- | | Down 100 | -6.21% | | Up 100 | +5.66% | | Up 200 | +7.17% | - The Corporation's primary sources of liquidity are deposits, loan repayments, and repayments of investment securities, with $17.5 million of investments maturing and anticipating $176.3 million in principal payments from mortgage-backed securities within the next 12 months, along with unused borrowing capacity131 Item 4. Controls and Procedures Management, including the CEO and CFO, evaluated the Corporation's disclosure controls and procedures and concluded they were effective as of September 30, 2021, with no material changes in internal control over financial reporting during the quarter - Based on an evaluation as of September 30, 2021, the principal executive officer and principal financial officer concluded that the Corporation's disclosure controls and procedures were effective140 PART II. Other Information Item 1. Legal Proceedings The Corporation reports no material pending legal proceedings, other than routine litigation incidental to its business - There are no material pending legal proceedings to which the Corporation or its subsidiaries is a party, other than routine litigation incidental to the business142 Item 1A. Risk Factors There have been no material changes in risk factors from those disclosed in the Corporation's 2020 Form 10-K - No material changes have occurred in the risk factors from those disclosed in the Corporation's Form 10-K for the year ended December 31, 2020143 Item 2. Unregistered Sales of Equity Securities and Use of Proceeds On July 21, 2021, the Board of Directors authorized a stock repurchase program for up to 5% of outstanding common stock (approximately 652,411 shares), with the Corporation repurchasing 176,293 shares at an average price of $39.87 per share during the third quarter of 2021 Equity Securities Purchases (Q3 2021) | Period | Total Shares Purchased | Average Price Paid Per Share | Shares Purchased as Part of Program | Maximum Shares Remaining for Purchase | | :--- | :--- | :--- | :--- | :--- | | Sep 1-30, 2021 | 176,293 | $39.87 | 176,293 | 476,118 | | Total | 176,293 | $39.87 | 176,293 | 476,118 | Item 6. Exhibits This section lists all exhibits filed with the Form 10-Q, including corporate governance documents, employment agreements for key executives, and certifications required by the Sarbanes-Oxley Act - Exhibits filed with the report include Sarbanes-Oxley Act certifications by the Principal Executive Officer and Principal Financial Officer, and various employment agreements151