First Financial's Q1 Surge: Strong Net Interest Income Drives Profit Growth Amid Rising Costs

First Financial (NASDAQ: FFIN) kicked off 2025 with a robust earnings report, posting a 15% year-over-year jump in net income to $61.35 million in Q1. Earnings per share rose to $0.43, outpacing the $0.37 reported in Q1 2024. The gains were fueled by a combination of expanding net interest income, deposit-driven balance sheet growth, and disciplined cost management—even as expenses climbed to record levels.

The Net Interest Machine

The core of First Financial’s performance lies in its net interest income, which hit $118.79 million in Q1—up 2% from Q4 2024 and a staggering 18.5% higher than a year earlier. The net interest margin expanded to 3.74%, a 40-basis-point improvement from Q1 2024, reflecting the benefits of higher short-term rates and balance sheet growth. Average interest-earning assets swelled to $13.16 billion, a 6.4% annualized increase, driven by deposit inflows and loan growth.

Noninterest Income: Trust Fees Offset Mortgage Slump

Noninterest income grew 3% year-over-year to $30.23 million, with trust services leading the way. Trust fees rose 11% to $12.65 million as trust assets hit a record $10.86 billion, a sign that wealthy clients are sticking with the bank’s wealth management offerings. However, mortgage income dipped 10% to $2.83 million as origination volumes slowed in the quarter, a trend likely tied to higher mortgage rates.

The Elephant in the Room: Rising Expenses

Total noninterest expenses jumped 10% year-over-year to $70.34 million, with compensation costs soaring 15% to $42.14 million. The increase reflected merit-based pay hikes, profit-sharing accruals, and higher stock-based compensation—a direct result of the bank’s strong performance. Despite the costs, the efficiency ratio improved to 46.36%, down from 48.37% a year earlier, thanks to better cost management.

Balance Sheet Strength and Risks

Total assets hit $14.31 billion, a 6.3% annualized increase, with loans growing steadily to $7.95 billion. Deposits surged 12.1% annualized to $12.52 billion, a testament to First Financial’s ability to attract customer funds in a competitive environment.

However, risks lurk beneath the surface. Nonperforming assets rose to 0.78% of loans, up from 0.51% a year earlier, and classified loans jumped 22% to $245.6 million. While still manageable, these figures suggest some stress in the loan portfolio—perhaps tied to a weakening regional economy or specific sectors.

The Elephant in the Treasury: Unrealized Losses

The bank’s securities portfolio remains a ticking time bomb. The unrealized loss narrowed to $388.9 million from $424.3 million in Q4, but this remains a paper loss that could haunt earnings if rates reverse sharply.

Capital Ratios: Fortress Balance Sheet

First Financial’s capital ratios remain among the strongest in the industry, with a common equity Tier 1 ratio of 19.12%—more than double the regulatory minimum. Tangible book value per share rose to $9.55, up from $8.55 a year earlier, reflecting solid capital generation.

Conclusion: A Bank to Watch, But Not Without Caution

First Financial’s Q1 results underscore its position as a well-run regional bank, with earnings growth outpacing most peers. The 15% net income jump, disciplined deposit growth, and fortress capital ratios are all positives. The bank’s recognition as the 3rd best in the U.S. by Forbes adds credibility.

However, investors must weigh the positives against rising operational costs and emerging credit risks. The classified loan increase and nonperforming asset rise—albeit from a low base—are red flags that warrant monitoring.

The stock’s 9.5% year-to-date gain to $35.92 reflects this cautious optimism. With a price-to-tangible-book ratio of ~3.7x (well above the sector average of ~1.8x), investors are paying a premium for First Financial’s stability.

For now, the bank’s execution in net interest margin expansion and trust fee growth justify its position. But as interest rates stabilize and credit risks materialize, the next few quarters will test whether this outperformance can be sustained.