First Financial Corporation (THFF) — Q1 2021 Form 10-Q
Reporting period: Three months ended March 31, 2021. First Financial is a banking company reporting one segment. Amounts below are in U.S. dollars; financial statement amounts have been converted from thousands to millions where applicable.
Financial results and condition
| Metric | Q1 2021 / March 31, 2021 | Comparable period / prior date |
|---|---|---|
| Net income; diluted EPS | $12.9 million; $0.95 | Q1 2020: $12.2 million; $0.89 |
| Net interest income | $34.9 million | Q1 2020: $36.4 million |
| Net interest margin | 3.27% | Q1 2020: 4.13% |
| Non-interest income / expense | $9.3 million / $27.6 million | Q1 2020: $9.1 million / $27.6 million |
| Provision for credit losses | $0.45 million | Q1 2020: $2.69 million |
| Total assets | $4.68 billion | December 31, 2020: $4.56 billion |
| Loans, net of allowance | $2.60 billion | December 31, 2020: $2.56 billion |
| Deposits | $3.91 billion | December 31, 2020: $3.76 billion; up 18.7% year over year |
| Short-term and other borrowings | $98.8 million and $5.9 million | December 31, 2020: $116.1 million and $5.9 million |
| Shareholders’ equity | $598.1 million | December 31, 2020: $597.0 million |
Net income rose approximately 5.7% and EPS approximately 6.7% year over year. Return on assets was 1.12% versus 1.21%; return on equity was 8.58% versus 8.55%. Management attributed the lower net interest income and margin primarily to lower interest rates and increased cash balances earning lower yields.
Cash flow: Operating activities provided $15.2 million, investing activities used $129.5 million, and financing activities provided $123.7 million. Cash and due from banks ended the quarter at $666.8 million. Investing outflows chiefly reflected $172.8 million of securities purchases, partly offset by maturities and principal repayments. Financing included $149.5 million of net deposit growth and $7.2 million of dividends paid.
Capital and liquidity: Corporation ratios were 16.17% common equity Tier 1, 17.42% total risk-based capital, and 11.34% Tier 1 leverage; the filing states the Corporation exceeded applicable minimum capital requirements. Management expected adequate liquidity, citing deposits, loan and securities repayments, and unused borrowing capacity. It anticipated $12.0 million of securities maturities, $117.6 million of mortgage-backed security principal payments, and $21.4 million of calls over the next 12 months.
Material changes and credit quality
- Net interest margin contracted 86 basis points year over year. Interest income fell to $37.4 million from $41.4 million, while interest expense declined to $2.4 million from $5.1 million.
- Non-performing loans were $21.0 million, down from $21.9 million at year-end 2020 but up 19.4% from March 31, 2020. The allowance for credit losses was $46.8 million, or 222.6% of non-performing loans. Net charge-offs were $0.73 million, versus $1.6 million a year earlier.
- COVID-related payment relief covered 1,569 loans totaling $294 million that were not classified as troubled debt restructurings. Of these, 1,212 loans totaling $215 million had resumed scheduled payments; 357 remained under relief plans.
- Accumulated other comprehensive income shifted to a loss of $0.8 million from income of $9.8 million at year-end, primarily reflecting securities valuation movements. Gross unrealized securities losses were $6.7 million versus $0.4 million at year-end; management attributed most to interest-rate-related market adjustments rather than issuer credit deterioration and said it did not expect to sell the securities before recovery.
- The company had processed approximately $242 million of approved Paycheck Protection Program loans through March 31, 2021. It repurchased 26,300 shares during the quarter; the remaining authorization was 497,000 shares at quarter-end.
Outlook, risks, and other disclosures
The filing provides no specific earnings or revenue guidance. Management noted that COVID-19’s effects on economic conditions, borrowers, asset quality, valuations, results, and regulatory capital and liquidity remain uncertain. Other cited risks include interest-rate and market changes, competition, regulation, litigation, borrower bankruptcies, and the accuracy of credit-loss and other estimates.
Management’s interest-rate sensitivity table estimates that a parallel 100-basis-point increase would raise net interest income by 5.28% over 12 months, while a 100-basis-point decrease would reduce it by 5.73%; the filing cautions that these simulations rely on assumptions and assume no management response. Disclosure controls were deemed effective, and no material change in internal control over financial reporting was reported. No material pending legal proceedings or material changes to previously disclosed risk factors were reported.
Important facts for investors to verify
- Whether lower net interest margin and elevated cash balances continue to pressure earnings as rates and deposit levels change.
- Whether COVID-affected borrowers remaining under payment relief resume normal payments, and how loan delinquencies, non-performing loans, charge-offs, and the CECL allowance evolve.
- Whether securities valuation losses and AOCI recover, and whether any securities must be sold before their expected recovery.
- Whether deposit growth and the stated borrowing capacity remain adequate to fund liquidity needs and loan demand.
- How PPP loan forgiveness and repayment affect loan balances and future interest income; the filing gives cumulative approved PPP originations but no Q1-specific forgiveness total.