First Financial Corporation — Q1 2024 Form 10-Q
Reporting period: Three months ended March 31, 2024; balance-sheet comparisons are to December 31, 2023. First Financial Corporation is a single-segment banking company. Financial amounts below are in millions unless otherwise noted.
Financial performance
| Metric | Q1 2024 | Q1 2023 or prior date |
|---|---|---|
| Interest income | $59.4 | $54.7 |
| Interest expense | $20.5 | $10.4 |
| Net interest income | $38.9 | $44.3 |
| Net interest margin | 3.53% | 3.96% |
| Provision for credit losses | $1.8 | $1.8 |
| Non-interest income | $9.4 | $9.4 |
| Non-interest expense | $33.4 | $32.3 |
| Net income | $10.9 | $16.0 |
| Basic and diluted EPS | $0.93 | $1.33 |
| Return on average assets / equity | 0.91% / 8.36% | 1.32% / 13.10% |
- Net income declined about 32% year over year. Net interest income fell $5.4 million as deposit and borrowing costs rose faster than asset yields. The effective rate paid on average interest-bearing deposits increased 101 basis points year over year; loan yields improved 49 basis points.
- Cash from operating activities was $12.4 million, versus $23.8 million a year earlier. Investing activities used $1.0 million, compared with $13.8 million used in Q1 2023. Financing activities used $19.0 million, including $50 million net repayment of other borrowings, while deposits increased $15.1 million. Cash and due from banks decreased $7.5 million to $69.2 million.
Financial condition, liquidity and capital
- Total assets were $4.85 billion, essentially unchanged from year-end. Net loans were $3.15 billion, up $23.9 million; deposits were $4.11 billion, up $15.0 million.
- Short-term borrowings rose to $88.9 million from $67.2 million; other borrowings, all FHLB advances, declined to $58.6 million from $108.6 million. Total liabilities were $4.33 billion and shareholders’ equity was $520.8 million, down $7.2 million. Book value per share declined 1.52% to $44.08.
- Management reported cash and available-for-sale securities equal to approximately 26.5% of assets and considered liquidity adequate. Reported unused borrowing capacity: $250.5 million at the FHLB, $212.8 million at the Federal Reserve and $125 million in correspondent-bank fed funds lines.
- Corporation capital ratios remained strong: common equity Tier 1 and Tier 1 risk-based capital were 14.69%, total risk-based capital 15.73%, and Tier 1 leverage 12.02%. The filing states the Corporation and its bank exceeded applicable well-capitalized standards.
Material changes, credit and market risks
- The allowance for credit losses was $40.0 million, versus $39.8 million at year-end; Q1 provision was $1.8 million. Net charge-offs were $1.5 million, compared with $2.0 million in Q1 2023. Management said the allowance was adequate.
- Non-performing loans were $24.3 million, slightly below year-end’s $24.6 million but approximately double the $12.1 million reported at March 31, 2023, primarily due to one commercial credit placed on non-accrual in Q4 2023. Non-performing assets were 0.56% of assets; the allowance equaled 165.1% of non-performing loans.
- Available-for-sale securities had fair value of $1.218 billion and gross unrealized losses of $171.5 million, up from $157.8 million at year-end. Management attributed the losses to higher market interest rates rather than issuer credit deterioration, and said it did not intend, and was not likely to be required, to sell the securities before recovery. Accumulated other comprehensive loss widened by $11.0 million during the quarter.
- Interest-rate sensitivity modeling estimated that a 100-basis-point rate increase would reduce net interest income 2.23% over the next 12 months, while a 100-basis-point decrease would increase it 5.71%. Management cautioned that these modeled scenarios assume immediate parallel rate changes and no management response.
Outlook, commentary and unusual items
- No specific earnings, revenue or margin guidance is provided. Management said the continuing impact of the 2023 banking-sector crisis and its further effect on operations and results for the rest of 2024 is uncertain. It cited interest rates, economic conditions, competition, regulation, litigation and credit losses among risks to forward-looking results.
- The filing describes an agreement announced in November 2023 for SimplyBank to merge into First Financial Bank through an interim merger structure. The provided filing text does not clearly state the transaction’s current status or expected closing date.
- Adoption of ASU 2023-02 on January 1, 2024 increased other assets by $19 million and other liabilities by $21 million, and reduced retained earnings by $1.7 million. Adoption of ASU 2022-03 had no financial-statement impact.
- The company reported no material change in risk factors from its 2023 Form 10-K, no material pending legal proceedings beyond routine litigation, and effective disclosure controls as of March 31, 2024.
Important facts for investors to verify
- Whether deposit pricing and funding costs stabilize, and whether net interest margin can recover from 3.53%.
- Credit trends behind the year-over-year increase in non-performing loans, including the large commercial non-accrual, and subsequent charge-offs or changes in the allowance.
- Realized liquidity and capital effects if securities with substantial unrealized losses must be sold, and any changes in available contingent borrowing capacity.
- The status, terms and expected timing of the SimplyBank transaction.
- Whether actual rate movements and balance-sheet behavior align with the filing’s interest-rate sensitivity assumptions.