Introduction

First Financial Corporation (NASDAQ:THFF) is a Midwest-based bank holding company with a storied history dating back to 1834. Headquartered in Terre Haute, Indiana, the company has established itself as a reliable financial services provider, weathering various economic cycles and adapting to the evolving banking landscape. With a focus on prudent risk management and a commitment to serving its local communities, First Financial Corporation has emerged as a resilient force in the regional banking sector.

Historical Background

First Financial Corporation was founded in 1984 as a holding company for First Financial Bank, which provides various banking products and services. The company's early focus was on growing its community banking footprint in Indiana. Over time, First Financial expanded through both organic growth and strategic acquisitions, allowing it to build a presence across the Midwest. Today, the company operates over 100 branches across Indiana, Illinois, Kentucky, and Tennessee, serving the banking needs of individuals and small-to-medium sized businesses in its local communities.

Throughout its history, First Financial has faced challenges common to community banks, such as navigating changes in the regulatory environment and adapting to advancements in financial technology. However, the company has maintained a disciplined, conservative approach to lending that has supported its strong credit quality and performance during previous economic downturns. This prudent mindset has allowed the bank to navigate various economic challenges, including the 2008 financial crisis, with relative ease.

Risk Management and Credit Quality

One of the key factors contributing to First Financial Corporation's longevity and stability is its conservative approach to risk management. The company has maintained a disciplined lending strategy, prioritizing credit quality over aggressive expansion. As of September 30, 2024, the company's non-performing asset ratio stood at a low 0.31%, underscoring its ability to manage credit risk effectively.

Financials

The company's financial performance has also been a testament to its resilience. For the nine months ended September 30, 2024, First Financial Corporation reported net income of $31.0 million, with a return on average assets of 0.82% and a return on average equity of 7.80%. While these figures represent a decline compared to the same period in the previous year, they nonetheless showcase the bank's capacity to generate consistent profitability, even in the face of challenging market conditions.

First Financial Corporation operates in a single reportable segment, banking. The company's primary source of earnings is net interest income, which is the difference between the interest earned on loans and investments and the interest paid on deposits and other sources of funds. Net interest income increased $6.0 million in the three months ended September 30, 2024 to $47.2 million from $41.2 million in the same period in 2023. The net interest margin for the three months ended September 30, 2024 was 3.78% compared to 3.74% for the same period in 2023.

Non-interest income for the three months ended September 30, 2024 was $11.2 million compared to $11.6 million for the same period in 2023. Key sources of non-interest income include trust and financial services fees, service charges and fees on deposit accounts, and gains on sales of mortgage loans.

Non-interest expenses for the quarter ended September 30, 2024 were $38.6 million compared to $32.3 million for the same period in 2023. The increase was partly due to $1.7 million in acquisition-related expenses.

The provision for credit losses for the three months ended September 30, 2024 was $9.4 million, compared to $1.2 million for the same period of 2023. The allowance for credit losses increased to $46.2 million at September 30, 2024 compared to $39.8 million at December 31, 2023.

For the most recent fiscal year (2023), First Financial Corporation reported revenue of $209.96 million, net income of $60.67 million, operating cash flow of $86.09 million, and free cash flow of $79.55 million. In the most recent quarter (Q3 2024), the company reported revenue of $58.39 million, net income of $8.74 million, operating cash flow of $23.30 million, and free cash flow of $24.60 million. Year-over-year revenue growth in Q3 2024 was 10.6%.

First Financial Corporation primarily operates in the United States, with no significant sales in other geographic markets.

Liquidity

The company's liquidity position remains strong, with cash and available-for-sale securities accounting for approximately 24.6% of total assets as of September 30, 2024. This ample liquidity buffer, coupled with the bank's access to contingent liquidity sources, such as the Federal Home Loan Bank and correspondent banks, underscores First Financial Corporation's ability to meet both short-term and long-term funding needs.

As of the most recent reporting period, First Financial Corporation had a debt-to-equity ratio of 0.20, cash reserves of $77.31 million, and a current ratio and quick ratio of 1.50. The company has $346.30 million of unused borrowing capacity available with the Federal Home Loan Bank of Indianapolis, $378.90 million available with the Federal Reserve Bank, and $125.00 million of available fed funds lines with correspondent banks.

Loans, net of deferred costs, increased $547 million to $3.70 billion at September 30, 2024 compared to December 31, 2023. Deposits increased $615 million to $4.72 billion at September 30, 2024 compared to December 31, 2023.

Capital Adequacy

In terms of capital adequacy, the company and its subsidiary bank maintain regulatory capital ratios well above the standards required to be considered "well-capitalized." As of September 30, 2024, the corporation's common equity tier 1 capital ratio stood at 12.31%, the tier 1 risk-based capital ratio was 12.31%, and the total risk-based capital ratio reached 13.34%. These robust capital levels provide a solid foundation for the bank's continued growth and ability to withstand potential economic challenges.

Recent Developments and Future Outlook

Despite the ongoing challenges facing the banking industry, such as the impact of the COVID-19 pandemic and the recent turmoil in the sector, First Financial Corporation has demonstrated its ability to adapt and overcome. The company's recent acquisition of SimplyBank, completed in July 2024, is a testament to its strategic vision and commitment to expanding its regional presence.

Looking ahead, the company's management team remains cautiously optimistic about the future. While the broader economic environment continues to present uncertainties, First Financial Corporation is well-positioned to navigate the challenges and capitalize on opportunities that may arise. The bank's conservative approach, coupled with its strong financial position and community-focused business model, have earned it the trust of its customers and shareholders alike.

It is worth noting that there are no major scandals, short seller reports, or CEO departures to report for First Financial Corporation, which speaks to the company's stability and consistent management approach.

Conclusion

In conclusion, First Financial Corporation's legacy as a steadfast Midwest banking institution is a testament to its ability to adapt and thrive in the face of adversity. With a focus on prudent risk management, consistent profitability, and a commitment to serving its local communities, the company has established itself as a reliable financial partner in the region. As it continues to navigate the evolving banking landscape, First Financial Corporation's resilience and dedication to its core values will undoubtedly play a crucial role in shaping its future success.