Active Indiana bank buyer heads to Illinois for latest deal

Terre Haute, Indiana-based First Financial Corp. should add liquidity and bolster market share in central Illinois with its most recent acquisition.

Based on second-quarter totals, First Financial's acquisition of Decatur, Illinois-based First Illinois Corp., the parent of Hickory Point Bank and Trust, should bring its loan-to-deposit ratio to just below 90%, Raymond James analyst Ken Kohut said. First Financial's loan-to-deposit ratio reached 92.4% in the second quarter after rising eight straight periods.

"Having this excess liquidity, once they get this deal done, will give them a little bit more dry powder to continue to grow their loan portfolio organically," Kohut said in an interview.

First Financial also expects the transaction, slated to close in the fourth quarter, to lower its cost of deposits. Hickory Point's cost of deposits was 1.27% as of June 30, and on a pro forma basis, that would bring First Financial's cost of deposits down to 1.44% from 1.46%, according to a First Financial investor presentation.

However, based on recent totals, the acquisition would hurt First Financial's return on average assets (ROAA), even though Hickory Point has been boosting its ROAA. Hickory Point's ROAA ranged from 1.00% to 1.35% over the last six quarters after ranging from 0.79% to 0.84% for the full years from 2021 through 2024.

Even with the increase, the ROAA is below the levels First Financial has been recording of late. First Financial reported an ROAA of 1.48% in the second quarter, and its ROAA has not dipped below 1.34% since the start of 2025. The recent results are an improvement, as First Financial's ROAA did not surpass 1% for the first three quarters of 2024.

"They've really improved the profitability profile, which has kind of helped the valuation lately," KBW analyst Damon DelMonte said in an interview.

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From the start of 2026 through Aug. 27, First Financial's stock price rose about 33%, giving the company greater financial flexibility to execute acquisitions. Its stock price to tangible book value (TBV) was 1.69x, according to S&P Global Market Intelligence data as of Aug. 27.

On the First Illinois deal, the pay-to-trade ratio, which measures the price paid for a target bank relative to the acquiring bank's stock price, was roughly 80%, as the transaction was valued at 1.35x price to TBV, according to the First Financial investor presentation.

First Financial has been an active buyer, announcing five acquisitions since 2019. Based on both the deal value of $111.45 million and the acquired assets of $717.52 million, the First Illinois deal would rank as the second-largest acquisition for First Financial, which finished the second quarter with $6.18 billion in assets.

DelMonte said he doubts First Financial would pursue another acquisition before closing the First Illinois deal, but he could see the company pursuing a deal in 2027.

"Their markets are kind of loaded with a lot of smaller community banks that could look to partner up with somebody else," DelMonte said. "I wouldn't be surprised if they were to remain active in the M&A game while the opportunities are there right now."

In its prior deals, First Financial purchased two Tennessee-based banks and two Kentucky-based banks. The company closed its $24.8 million acquisition of Lebanon, Tennessee-based CedarStone Financial Inc. in March, and its $73.4 million acquisition of Dayton, Tennessee-based Simply Bank in July 2024. Ahead of those acquisitions, First Financial closed its $31.4 million acquisition of Hawesville, Kentucky-based Hancock Bancorp Inc. in 2021 and its $133.3 million deal for Hopkinsville, Kentucky-based HopFed Bancorp Inc. in 2019.

First Financial has said it is open to deals across its footprint, but Raymond James' Kohut noted that its preferred acquisition strategy has been to go toward the southeast, which provides more favorable demographics.

"If you look at their historical footprint in that Illinois-Indiana corridor, the more rural footprint that they had, they really were not getting a whole lot of growth in that area," Kohut said. "And going down southeast kind of really improved their growth profile."

The company changed its approach with its most recent deal. Hickory Point's deposits are largely from the Decatur, Illinois, metropolitan statistical area (MSA), which accounted for $492.9 million of the company's $636.8 million in deposits as of June 30, 2025, according to Federal Deposit Insurance Corp. data cited in the investor presentation. The bank also has a presence in the Illinois MSAs of Champaign-Urbana and Springfield.

Hickory Point's total assets fell by more than 5% in both 2024 and 2025. Prior to that, it had been growing fairly steadily after initially shrinking following its 2011 sale to First Illinois by Archer Daniels Midland Co., a global food-processing and commodities-trading company.

Now, the bank finds itself a suitable target for First Financial.

"It kind of checks the boxes of what their track record is for doing deals," DelMonte said about First Financial. "They generally find smaller community banks that are both a strategic fit for them and then have a nice financial impact as well."