8-K: First Financial Corporation Announces Acquisition of Simply Bank, Expands Footprint in Southeastern Tennessee

First Financial Corporation is set to acquire Simply Bank in a $73.4 million all-cash deal, expanding its presence in the high-growth markets of Southeastern Tennessee and Northern Georgia.

Summary

• First Financial Corporation (THFF) announced the acquisition of Simply Bank for $73.4 million in cash.
• The acquisition is expected to close in the second quarter of 2024, pending regulatory and shareholder approvals.
• The deal will expand First Financial's footprint into Southeastern Tennessee and Northern Georgia, adding 13 branches.
• Simply Bank has approximately $658.5 million in deposits and serves markets with an average expected 5-year population growth of 3.8%, compared to the national average of 2.1%.
• The transaction is expected to be significantly accretive to earnings, with an estimated 30%+ accretion inclusive of fully-phased in cost savings.
• The tangible book value dilution earnback is estimated to be approximately 3.0 years.
• First Financial Corporation has $4.9 billion in assets as of December 31, 2023, and a diversified loan portfolio.
• The company has a history of strong capital ratios, with a Tier 1 Risk Based ratio of 14.75% and a Tier 1 Leverage ratio of 12.14% as of December 31, 2023.
• First Financial has a track record of share repurchases, with 724,671 shares purchased for $29,132,283 as of December 31, 2023, under the current program.
• The company's net interest income has grown at a 12.37% compound annual growth rate (CAGR) from 2017 to 2023.

Sentiment

Score: 8

Explanation: The document presents a positive outlook with a strategic acquisition that is expected to boost earnings and expand market presence. The company's strong financial metrics and growth history contribute to a favorable sentiment.

Positives

• The acquisition of Simply Bank is expected to significantly boost First Financial's earnings.
• The deal expands First Financial's footprint into high-growth markets.
• The company has a strong capital position with high Tier 1 capital ratios.
• First Financial has a history of consistent earnings and dividend growth.
• The company has a diversified loan portfolio across various sectors and geographies.
• The acquisition is expected to have a reasonable tangible book value dilution earnback period of approximately 3.0 years.
• The company has a strong core deposit franchise with a long average account tenure of 13.4 years.
• First Financial has a disciplined approach to expense management.
• The company has a track record of successful mergers and acquisitions.
• The company has an unblemished track record of delivering shareholder value.

Negatives

• The acquisition will result in a tangible book value dilution, although it is expected to be earned back in approximately 3.0 years.
• The company's non-performing assets have increased to $24.556 million as of 4Q23, representing 0.78% of total loans.
• The company's return on assets has fluctuated over the past few years, with a recent value of 1.26% in 2023.
• The cost of deposits has increased from 0.16% in 2016 to 0.54% in 3Q23 YTD.
• The company's efficiency ratio has fluctuated, with a recent value of 60.18% in 3Q23.

Risks

• The company is exposed to risks related to changes in interest rates, which could impact deposit costs and loan demand.
• There are risks associated with the integration of Simply Bank, including potential challenges in retaining key personnel and achieving cost savings.
• The company is subject to regulatory changes and compliance risks.
• Economic conditions and market changes could impact the company's financial performance.
• Changes in borrowers' credit risks and payment behaviors could affect loan losses.
• The company faces competition from other financial institutions.
• The company's uninsured deposits are estimated to be 41.3% of total deposits, which could pose a risk in the event of a financial crisis.

Future Outlook

The company expects significant earnings accretion from the Simply Bank acquisition, with a 30%+ estimated accretion inclusive of fully-phased in cost savings. The tangible book value dilution is expected to be earned back in approximately 3.0 years. The company aims to deploy its non-lending products across Simply Bank's current footprint and clientele.

Management Comments

• Norman D. Lowery, President and CEO, Rodger A. McHargue, Chief Financial Officer, and Steve Panagouleas, Central Credit Administration Manager, will participate in the Janney CEO Forum.
• Management anticipates retaining key personnel from Simply Bank in the pro forma company.

Industry Context

The acquisition reflects a trend of consolidation in the regional banking sector, as institutions seek to expand their market presence and improve profitability through scale. The move into Southeastern Tennessee and Northern Georgia aligns with a strategy of targeting higher-growth markets.

Comparison to Industry Standards

• First Financial's Tier 1 capital ratios of 14.75% (Risk Based) and 12.14% (Leverage) are generally strong compared to industry averages, indicating a solid capital base.
• The company's return on assets (ROAA) of 1.26% in 2023 is above the peer average of 0.94% in 3Q23, suggesting better profitability than its peers.
• The company's net interest margin (NIM) of 3.78% in 2023 is in line with industry averages, but the company has shown a strong growth in net interest income.
• The company's efficiency ratio of 60.18% in 3Q23 is slightly better than the peer average of 61.96%, indicating good cost management.
• The company's loan portfolio is diversified across commercial, consumer, and residential loans, which is a common practice among regional banks to mitigate risk.
• The company's cost of deposits has increased to 0.54% in 3Q23 YTD, which is a common trend in the current interest rate environment, but the company's deposit beta of 28.7% is relatively low, indicating a strong deposit base.

Stakeholder Impact

• Shareholders are expected to benefit from the increased earnings and growth potential resulting from the acquisition.
• Employees of both First Financial and Simply Bank may experience changes as the companies integrate.
• Customers of Simply Bank will become customers of First Financial Bank, N.A.
• The acquisition may impact suppliers and creditors of both companies.

Next Steps

• The company will seek shareholder and regulatory approvals for the Simply Bank acquisition.
• The company will work towards closing the acquisition in the second quarter of 2024.
• The company will integrate Simply Bank into First Financial Bank, N.A.
• The company will deploy its non-lending products across Simply Bank's current footprint and clientele.

Key Dates

Keywords

acquisition, bank, merger, financial services, regional banking, Tennessee, Georgia, earnings accretion, loan portfolio, deposits, capital ratios