FIRST FINANCIAL CORP IN

Previous wording

The ACL and allowance for unfunded commitments were $39.8 million and $2.0 million, respectively at December 31, 2023, compared to $39.8 million and $2.1 million, respectively at December 31, 2022. The qualitative amount of the reserve decreased $44 thousand to $11.0 million. The quantitative amount is $28.4 million at December 31, 2023, compared to $28.6 million at December 31, 2022. There was a $100 thousand decrease in the allowance for unfunded commitments. See additional discussion of ACL in the Allowance for Credit Losses section below.

Current wording

The ACL and allowance for unfunded commitments were $46.7 million and $2.1 million, respectively at December 31, 2024, compared to $39.8 million and $2.0 million, respectively at December 31, 2023. The qualitative amount of the reserve increased $1.9 million to $12.8 million. The quantitative amount is $33.6 million at December 31, 2024, compared to $28.4 million at December 31, 2023. There was a $100 thousand increase in the allowance for unfunded commitments. The Corporation recorded $5.5 million in Day 2 provision on non-PCD loans acquired from SimplyBank. Additionally, the increase in allowance was related to one previously identified credit,

Previous wording

Net income for 2023 was $60.7 million, or $5.08 per share versus $71.1 million, or $5.82 per share for 2022. The decrease in 2023 net income is primarily due to increased provision for credit losses, as well as decreased non-interest income and increased non-interest expenses, as described in those respective sections in the following pages. Return on average assets at December 31, 2023 decreased 10.64% to 1.26% compared to 1.41% at December 31, 2022.

Current wording

Net income for 2024 was $47.3 million, or $4.00 per share versus $60.7 million, or $5.08 per share for 2023. The decrease in 2024 net income is primarily due to increased provision for credit losses associated with the acquisition of SimplyBank, as well as non-interest expenses, which included increased operating expenses, as a result of the acquisition and expenses associated with the acquisition, as described in those respective sections in the following pages. Return on average assets at December 31, 2024 decreased 26.98% to 0.92% compared to 1.26% at December 31, 2023.

Previous wording

The principal source of the Corporation’s earnings is net interest income, which represents the difference between interest earned on loans and investments and the interest cost associated with deposits and other sources of funding. Net interest income increased in 2023 to $167.3 million compared to $165.0 million in 2022. Total average interest earning assets decreased to $4.56 billion in 2023 from $4.80 billion in 2022. The tax-equivalent yield on these assets increased to 5.12% in 2023 from 3.92% in 2022. Total average interest-bearing liabilities decreased to $3.50 billion in 2023 from $3.61 billion in 2022. The average cost of these interest-bearing liabilities increased to 1.74% in 2023 from 0.51% in 2022.

Current wording

The principal source of the Corporation’s earnings is net interest income, which represents the difference between interest earned on loans and investments and the interest cost associated with deposits and other sources of funding. Net interest income increased in 2024 to $175.0 million compared to $167.3 million in 2023. Total average interest earning assets increased to $4.87 billion in 2024 from $4.56 billion in 2023. The tax-equivalent yield on these assets increased to 5.55% in 2024 from 5.12% in 2023. Total average interest-

Previous wording

The net interest margin increased from 3.54% in 2022 to 3.78% in 2023. Earning asset yields increased 120 basis points while the rate on interest-bearing liabilities increased by 123 basis points.

Current wording

The net interest margin decreased from 3.78% in 2023 to 3.71% in 2024. Earning asset yields increased 43 basis points while the rate on interest-bearing liabilities increased by 54 basis points.

Previous wording

The provision for credit losses charged to expense is based upon current expected loss and the results of a detailed analysis estimating an appropriate and adequate allowance for credit losses. The analysis is governed byAccounting Standards Codification (ASC 326), implemented in 2020, which used an economic forecast that included the impact of the COVID-19 pandemic. For the year ended December 31, 2023, the provision for credit losses was $7.3 million, an increase of $9.3 million, or 460%, compared to 2022. The negative provision for the first quarter of 2022 was the result of several factors. The first was the annual model recalibration. Each year, in the first quarter, management reviews each model variable to determine if adjustments are necessary to improve the model’s predictability. In the first quarter 2022 the delay periods were shortened to pick up more recent losses. Also, the qualitative factor maximum scorecard ranges for certain cohorts were reduced, which reduced the reserve. Secondly, management removed two qualitative factors that were deemed no longer applicable. The first was related to acquisition uncertainty, which management believes to have seasoned adequately that it was no longer warranted. The second was related to the CECL model and the related uncertainty. The uncertainty surrounded the newness of the model and potential regulatory scrutiny. Following two exam cycles, management elected to remove the factor. Also, during the quarter, historical loss rates continued to decline, which lowers the required reserve. The historical loss rate declined in most segments. 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.

Current wording

The provision for credit losses charged to expense is based upon current expected loss and the results of a detailed analysis estimating an appropriate and adequate allowance for credit losses. The analysis is governed byAccounting Standards Codification (ASC 326), implemented in 2020, which used an economic forecast that included the impact of the COVID-19 pandemic. For the year ended December 31, 2024, the provision for credit losses was $16.2 million, an increase of $8.9 million, or 122%, compared to 2023. The Corporation recorded $5.5 million in Day 2 provision on non-PCD loans acquired from SimplyBank. Additionally, the increase in provision as well as charge-offs were related to one previously identified credit, reflecting further deterioration in collateral values in the year. No further losses are expected on this credit. 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.

Previous wording

Non-interest expenses increased to $130.2 million in 2023 from $126.0 million in 2022. The increase in non-interest expenses is consistent with the rate of increases in prior years and considered normal with the growth of our business.

Current wording

Non-interest expenses increased to $144.4 million in 2024 from $130.2 million in 2023. The increase in non-interest expenses is primarily due to $1.7 million of expenses associated with the acquisition, as well as increases in operating expenses as a result of the acquisition.

Previous wording

Net income for 2022 was $71.1 million, or $5.82 per share versus $53.0 million, or $4.02 per share for 2021. The increase in 2022 net income is primarily due to increased interest rates and growth in earning assets.

Current wording

Net income for 2023 was $60.7 million, or $5.08 per share versus $71.1 million, or $5.82 per share for 2022. The decrease in 2023 net income is primarily due to increased provision for credit losses, as well as decreased non-interest income and increased non-interest expenses.

Previous wording

Net interest income increased $21.6 million in 2022 compared to 2021. The provision for credit losses decreased $4.5 million from $2.5 million in 2021 to a negative provision of $2.0 million in 2022.

Current wording

Net interest income increased $2.3 million in 2023 compared to 2022. The provision for credit losses increased $9.3 million from a negative provision of $2.0 million in 2022 to a provision of $7.3 million in 2023.

Previous wording

Non-interest income increased $4.6 million and non-interest expenses increased $8.6 million. The change in non-interest income from 2021 to 2022 was primarily driven by a $4.0 million legal settlement received in February 2022, and a $2.5 million bank owned life insurance mortality payment. The Corporation does not expect these items to reoccur. The year-over-year changes in non-interest expenses are, in part, impacted by the acquisition of Hancock Bancorp in the fourth quarter of 2021.

Current wording

Non-interest income decreased $4.0 million and non-interest expenses increased $4.2 million. The change in non-interest income from 2022 to 2023 was primarily driven by a $4.0 million legal settlement received in February 2022, and a $2.5 million bank owned life insurance mortality payment. The Corporation does not expect these items to reoccur. The year-over-year changes in non-interest expenses are consistent with the rate of increases in prior years and considered normal with the growth of our business.

Previous wording

The Corporation’s federal income tax provision was $11.8 million in 2023 compared to $16.7 million in 2022. The overall effective tax rate in 2023 of 16.3% decreased as compared to a 2022 effective rate of 19.0%. The decrease in effective tax rate is due to a $1 million increase in tax credit investments, as well as an increase in tax exempt interest income.

Current wording

The provision for income taxes decreased $4.8 million from 2022 to 2023 and the effective tax rate decreased to 16.3% in 2023 from 19.0% in 2022. The decrease in income tax expense is due to a $1 million increase in tax credit investments, as well as increase in tax exempt interest income.

Previous wording

The Corporation’s total assets decreased 2.8% or $138.1 million at December 31, 2023, from a year earlier. Available-for-sale securities decreased $71.3 million at December 31, 2023, from the previous year. Loans, net increased by $100.4 million to $3.13 billion. Deposits decreased $278.8 million while borrowings increased by $95.3 million. Total shareholders’ equity increased $52.7 million to $528.0 million at December 31, 2023. Accumulated other comprehensive income increased $12.9 million primarily due to the market value of the securities portfolio, which reflected a slight increase in securities pricing. In 2023 dividends declared by the Corporation totaled $0.99 per share. There were also 40,496 shares from the treasury with a value of $1.52 million that were contributed to the ESOP plan in 2023 compared to 29,966 shares with a value of $1.45 million in 2022.

Current wording

The Corporation’s total assets increased 14.6% or $709.2 million at December 31, 2024, from a year earlier. Available-for-sale securities decreased $63.1 million at December 31, 2024, from the previous year. Loans, net increased by $662.4 million to $3.79 billion. Deposits increased $628.8 million while borrowings increased by $39.4 million. Total shareholders’ equity increased $21.1 million to $549.0 million at December 31, 2024. Accumulated other comprehensive income decreased $5.2 million primarily due to the market value of the securities portfolio, which reflected a decrease in securities pricing. In 2024 dividends declared by the Corporation totaled $1.86 per share. There were also 34,235 shares from the treasury with a value of $1.67 million that were contributed to the ESOP plan in 2024 compared to 40,496 shares with a value of $1.52 million in 2023.

Previous wording

market, the Corporation shifted away from purchases to replace maturities in 2023. The average life of the portfolio decreased from 6.9 years in 2022 to 6.5 years in 2023. The portfolio structure will continue to provide cash flows to be reinvested during 2024.

Current wording

The Corporation’s investment strategy seeks to maximize income from the investment portfolio while using it as a risk management tool and ensuring safety of principal and capital. During 2024 the portfolio’s balance decreased by 5.0%. Given the performance of the market, the Corporation shifted away from purchases to replace maturities in 2024. The average life of the portfolio decreased from 6.5 years in 2023 to 6.4 years in 2024. The portfolio structure will continue to provide cash flows to be reinvested during 2024.

Previous wording

Net unrealized gain/loss on available for sale securities increased $14.8 million from a net unrealized loss of $168.2 million in 2022 to a net unrealized loss of $153.4 million in 2023. The Corporation does not expect realized losses, as there is no intent to sell at a loss.

Current wording

Net unrealized gain/loss on available for sale securities decreased $12.4 million from a net unrealized loss of $153.4 million in 2023 to a net unrealized loss of $165.8 million in 2024. The Corporation does not expect realized losses, as there is no intent to sell at a loss.

Previous wording

Commercial Real Estate represents $1.3 million of total exposure as of December 31, 2023, and is within regulatory guidance. This exposure is well diversified by geography, real estate type, and industry designation. During the underwriting process, Commercial Real Estate is stressed using a combination of several risk variables, such as interest rate change, cap rate changes, revenue and expense variances, and term changes. Periodic review of this exposure is performed to identify and monitor any potential weaknesses within a specific credit.

Current wording

Commercial Real Estate represents $1.8 billion of total exposure as of December 31, 2024, and is within regulatory guidance. This exposure is well diversified by geography, real estate type, and industry designation. During the underwriting process, Commercial Real Estate is stressed using a combination of several risk variables, such as interest rate change, cap rate changes, revenue and expense variances, and term changes. Periodic review of this exposure is performed to identify and monitor any potential weaknesses within a specific credit.

Previous wording

The analysis of the allowance for credit losses includes the allocation of specific amounts of the allowance to individually evaluated loans, generally based on an analysis of the collateral securing those loans. Portions of the allowance are also allocated to loan portfolios, based upon a variety of factors including historical loss experience, trends in the type and volume of the loan portfolios, trends in delinquent and non-performing loans, and economic trends affecting our market, including current conditions and reasonable and supportable forecasts about the future. These components are added together and compared to the balance of our allowance at the evaluation date. The allowance for credit losses as a percentage of total loans decreased to 1.26% at year-end 2023 compared to 1.30% at year-end 2022. 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. Non-performing loans of $24.6 million at December 31, 2023 increased from $9.6 million at December 31, 2022. The increase in nonperforming loans is due to a commercial relationship that was downgraded.

Current wording

The analysis of the allowance for credit losses includes the allocation of specific amounts of the allowance to individually evaluated loans, generally based on an analysis of the collateral securing those loans. Portions of the allowance are also allocated to loan portfolios, based upon a variety of factors including historical loss experience, trends in the type and volume of the loan portfolios, trends in delinquent and non-performing loans, and economic trends affecting our market, including current conditions and reasonable and supportable forecasts about the future. These components are added together and compared to the balance of our allowance at the evaluation date. The allowance for credit losses as a percentage of total loans decreased to 1.22% at year-end 2024 compared to 1.26% at year-end 2023. Based on management’s analysis of the current portfolio, an evaluation that includes consideration of changes in CECL model assumptions of credit quality, economic conditions, and loan composition, management believes the allowance is adequate. Non-performing loans of $13.3 million at December 31, 2024 decreased from $24.6 million at December 31, 2023. The decrease in nonperforming loans is due to a commercial relationship that was downgraded in 2023. That relationship was subsequently charged off in 2024, thus reducing the balance of non-performing loans.

Previous wording

The ratio of the allowance for loan losses as a percentage of nonperforming loans was 161.9% at December 31, 2023, compared to 414.4% in 2022. In the footnotes to the financial statements the amount reported for nonperforming loans is the recorded investment which includes accrued interest receivable. The following loan categories comprise significant components of the nonperforming loans at December 31, 2023 and 2022:

Current wording

The ratio of the allowance for loan losses as a percentage of nonperforming loans was 351.4% at December 31, 2024, compared to 161.9% in 2023. In the footnotes to the financial statements the amount reported for nonperforming loans is the recorded investment which includes accrued interest receivable. The following loan categories comprise significant components of the nonperforming loans at December 31, 2024 and 2023:

Previous wording

The Corporation estimates that uninsured deposits (1) totaled $938.9 million, or 23% of total deposits, at December 31, 2023, compared to $1.27 billion, or 29%, at December 31, 2022. The maturities of certificates of deposit of more than $100 thousand outstanding at December 31, 2023, are summarized as follows:

Current wording

The Corporation estimates that uninsured deposits (1) totaled $980.5 million, or 21% of total deposits, at December 31, 2024, compared to $938.9 million, or 23%, at December 31, 2023. The maturities of certificates of deposit of more than $100 thousand outstanding at December 31, 2024, are summarized as follows:

Previous wording

Advances from the Federal Home Loan Bank increased to $108.6 million in 2023 compared to $9.6 million in 2022. The Asset/Liability Committee reviews these funding sources and considers the related strategies on a monthly basis. See Interest Rate Sensitivity and Liquidity below for more information.

Current wording

Advances from the Federal Home Loan Bank decreased to $7.3 million in 2024 compared to $108.6 million in 2023. First Financial Corporation borrowed $25 million on a note payable in June 2024 for the acquisition of SimplyBank. On December 31, 2024, the balance on the note was $20.8 million. The Asset/Liability Committee reviews these funding sources and considers the related strategies on a monthly basis. See Interest Rate Sensitivity and Liquidity below for more information.

Previous wording

First Financial Corporation’s objective continues to be to maintain adequate capital to merit the confidence of its customers and shareholders. To warrant this confidence, the Corporation’s management maintains a capital position which they believe is sufficient to absorb unforeseen financial shocks without unnecessarily restricting dividends to its shareholders. The Corporation’s dividend payout ratio for 2023 and 2022 was 19.4% and 21.7%, respectively. The Corporation expects to continue its policy of paying regular cash dividends, subject to future earnings and regulatory restrictions and capital requirements.

Current wording

First Financial Corporation’s objective continues to be to maintain adequate capital to merit the confidence of its customers and shareholders. To warrant this confidence, the Corporation’s management maintains a capital position which they believe is sufficient to absorb unforeseen financial shocks without unnecessarily restricting dividends to its shareholders. The Corporation’s dividend payout ratio for 2024 and 2023 was 46.5% and 19.4%, respectively. The Corporation expects to continue its policy of paying regular cash dividends, subject to future earnings and regulatory restrictions and capital requirements.

Previous wording

The table below shows the Corporation’s estimated sensitivity profile as of December 31, 2023. 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 1.28% over the next 12 months and increase 1.33% over the following 12 months. Given a 100 basis point decrease in rates, net interest income would increase 0.74% over the next 12 months and decrease 2.08% over the following 12 months. These estimates assume all rate changes occur overnight and management takes no action as a result of this change.

Current wording

The table below shows the Corporation’s estimated sensitivity profile as of December 31, 2024. The change in interest rates assumes a parallel shift in interest rates of 100, 200, and 300 basis points. Given a 100 basis point increase in rates, net interest income would decrease 1.51% over the next 12 months and increase 0.94% over the following 12 months. Given a 100 basis point decrease in rates, net interest income would increase 4.07% over the next 12 months and increase 0.68% over the following 12 months. These estimates assume all rate changes occur overnight and management takes no action as a result of this change.

Previous wording

Liquidity Risk Liquidity is measured by the bank’s ability to raise funds to meet the obligations of its customers, including deposit withdrawals and credit needs. This is accomplished primarily by maintaining sufficient liquid assets in the form of investment securities and core deposits. The Corporation has $12.4 million of investments that mature throughout the coming 12 months. The Corporation also anticipates $109.9 million of principal payments from mortgage-backed securities. Given the current rate environment, the Corporation anticipates $13.0 million in securities to be called within the next 12 months. The Corporation also has $197.7 million of unused borrowing capacity available with the Federal Home Loan Bank of Indianapolis, $237.5 million available with the Federal Reserve Bank, and $125 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.

Current wording

Liquidity Risk Liquidity is measured by the bank’s ability to raise funds to meet the obligations of its customers, including deposit withdrawals and credit needs. This is accomplished primarily by maintaining sufficient liquid assets in the form of investment securities and core deposits. The Corporation has $13.0 million of investments that mature throughout the coming 12 months. The Corporation also anticipates $112.8 million of principal payments from mortgage-backed securities. Given the current rate environment, the Corporation anticipates $31.1 million in securities to be called within the next 12 months. The Corporation also has $388.5 million of unused borrowing capacity available with the Federal Home Loan Bank of Indianapolis, $295.1 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.