First Financial Corporation (NASDAQ: THFF) — 2020 Form 10-K
Business context and reporting period. This is the annual report for the fiscal year ended December 31, 2020—not a standalone fourth-quarter filing. First Financial is a regional financial holding company operating 81 branches across Indiana, Illinois, Kentucky, and Tennessee, principally through its banking subsidiaries.
Key financial metrics
| Metric | 2020 | 2019 |
|---|---|---|
| Total interest and dividend income | $160.5 million | $149.1 million |
| Net interest income | $146.3 million | $131.7 million |
| Non-interest income | $42.5 million | $38.5 million |
| Provision for credit losses | $10.5 million | $4.7 million |
| Net income / diluted EPS | $53.8 million / $3.93 | $48.9 million / $3.80 |
| Net interest margin | 4.05% | 4.25% |
| Return on average assets | 1.25% | 1.42% |
| Cash from operating activities | $77.4 million | $49.9 million |
At year-end, total assets were $4.56 billion, deposits $3.76 billion, gross loans $2.61 billion, securities $1.02 billion, borrowings $121.9 million, and shareholders’ equity $597.0 million. Cash and due from banks totaled $657.5 million. The allowance for credit losses was $47.1 million, or 1.80% of loans, compared with $19.9 million, or 0.75%, in 2019.
Material changes and performance
- Net income rose 10.2%; management attributed the increase primarily to the full-year contribution from the 2019 HopFed acquisition. Average interest-earning assets also grew, while the net interest margin narrowed as asset yields fell more than funding costs.
- Non-interest income increased by $4.0 million, largely reflecting mortgage-loan sale gains, which rose to $6.6 million from $2.6 million. Non-interest expense rose by $8.4 million, mainly due to a full year of HopFed-related costs.
- Year-end assets increased 13.3%; deposits grew $480.6 million. Loans declined $46.4 million on the selected-data gross-loan basis, while securities increased $94.0 million.
- Net charge-offs declined to $3.5 million from $5.2 million, but nonperforming loans rose to $20.7 million from $15.3 million. Non-accrual loans increased to $15.4 million from $9.5 million.
- Cash and cash equivalents increased $530.0 million during the year, including $468.9 million of net cash from financing activities, primarily reflecting deposit growth. Investing activities used $16.2 million.
Outlook, risks, and unusual items
- COVID-19 and credit. Management expected the pandemic to continue affecting the business, customers, and results in 2021; the filing provides no quantified earnings or revenue guidance. At December 31, 1,545 COVID-related modified loans totaling $305 million were not classified as troubled debt restructurings; 1,184 remained under a relief plan.
- PPP. The company reported 1,734 approved PPP loans totaling $169.8 million and $2.4 million of net deferred origination fees. SBA guarantee eligibility, forgiveness, and servicing compliance remain relevant risks.
- CECL adoption. The company adopted the expected-credit-loss standard effective January 1, 2020. Adoption increased the loan allowance by $20.1 million and reduced retained earnings by $10.5 million; the 2020 provision was $10.5 million. The allowance estimate was a critical audit matter, though the auditor issued an unqualified opinion on the financial statements.
- Interest-rate exposure. Management’s modeled sensitivity showed net interest income increasing 5.38% over 12 months for a 100-basis-point rate increase and decreasing 4.70% for a 100-basis-point decrease. These estimates assume an immediate parallel shift and no management response.
- Capital and distributions. The Corporation reported a 16.15% CET1 ratio and 11.24% leverage ratio; the Bank reported 15.78% and 10.90%, respectively. Management said subsidiary banks were well capitalized. Regular dividends are expected to continue, subject to earnings, capital, and regulatory constraints.
- Other principal risks include geographic and commercial-loan concentration, liquidity and funding conditions, cybersecurity and vendor disruptions, regulation, and transition away from LIBOR. Commercial and commercial real-estate loans were approximately 58% of the loan portfolio.
- Goodwill was tested after pandemic-related market-value declines; management reported no impairment. The company disclosed no material pending legal proceedings beyond ordinary routine litigation.
Important facts for investors to verify
- Reconcile the reported 2020 dividend per share: the selected financial data and cash-flow disclosures show $1.04, while the statement of changes in equity reports $1.05 and quarterly declarations total $1.05.
- Review credit performance after year-end, including COVID-relief loan repayment status, delinquencies, nonperforming loans, charge-offs, and changes in the CECL allowance.
- Assess whether deposit growth and elevated cash balances persist, and how excess liquidity is deployed given lower asset yields and the reported margin decline.
- Confirm the effect of HopFed integration costs and acquisition-related earnings contributions in subsequent periods.
- Monitor regulatory capital, dividend capacity, and the company’s share-repurchase activity under the program authorized in October 2020.