. FORM 10-Q SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 QUARTERLY REPORT UNDER SECTION 13 OR 15 (D) OF THE SECURITIES EXCHANGE ACT OF 1934 FIRST FINANCIAL CORPORATION MARCH 31, 1995 SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 QUARTERLY REPORT UNDER SECTION 13 OR 15 (D) OF THE SECURITIES EXCHANGE ACT OF 1934 For Quarter Ended March 31, 1995 Commission File Number 0-16759 FIRST FINANCIAL CORPORATION (Exact name of registrant as specified in its charter) INDIANA 35-1546989 (State or other jurisdiction (I.R.S. Employer incorporation or organization) Identification No.) One First Financial Plaza, Terre Haute, IN 47807 (Address of principal executive office) (Zip Code) (812)-238-6000 (Registrant's telephone number, including area code) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No . As of March 31, 1995 were outstanding 5,496,593 shares without par value, of the registrant. 1 FIRST FINANCIAL CORPORATION FORM 10-Q INDEX Page No. PART I. Financial Information Item 1. Financial Statements: Consolidated Statements of Condition............................3 Consolidated Statements of Income...............................4 Consolidated Statements of Cash Flows...........................5 Notes to Consolidated Financial Statements......................6 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations.............7 PART II. Other Information: Item 4. Submission of Matters to a Vote of Security Holders..........................................9 Signatures...........................................................10 2 FIRST FINANCIAL CORPORATION CONSOLIDATED STATEMENTS OF CONDITION March 31, December 31, 1995 1994 (Dollar amounts in thousands) Cash and due from banks $48,473 $51,947 Federal funds sold and securities purchased under agreements to resell 2,000 23,725 Investments: Held to Maturity ( market value of $179,496 and $168,879, respectively) 180,933 174,646 Available-For-Sale 221,428 178,272 Loans: Commercial, financial and agricultural 163,334 163,268 Real estate - construction 20,525 20,446 Real estate - mortgage 430,460 424,427 Installment 189,409 185,533 Lease financing 4,914 5,259 808,642 798,933 Less: Unearned income 1,600 1,882 Allowance for possible loan losses 9,875 9,649 797,167 787,402 Accrued interest receivable 9,492 9,704 Premises and equipment 20,166 20,011 Other assets 12,755 14,132 TOTAL ASSETS $1,292,414 $1,259,839 LIABILITIES AND SHAREHOLDERS' EQUITY Deposit: Noninterest-bearing $122,986 $125,106 Interest-bearing: Certificates of deposit of $100,000 or more 112,446 109,306 Other interest-bearing deposits 789,267 758,954 1,024,699 993,366 Short-term borrowings: Federal funds purchased and securities sold under agreements to repurchase 62,901 66,685 Treasury tax and loan open-end note 2,739 5,406 Advances from Federal Home Loan Bank 51,127 46,272 116,767 118,363 Other liabilities 10,342 9,919 Long-term debt 6,662 7,470 Long-term advances from Federal Home Loan Bank 17,075 18,168 TOTAL LIABILITIES 1,175,545 1,147,286 Shareholders' equity: Common stock, $.125 stated value per share; authorized 10,000,000 shares; issued 5,541,354 shares for 1995 and 1994, including 693 693 treasury shares of 44,766 for 1995 and 19,600 for 1994 Additional capital 25,498 25,498 Retained earnings 92,119 89,399 Unrealized gains(losses) on AFS securities, net of tax -36 -2,429 Less treasury shares, at cost -1,405 -608 TOTAL SHAREHOLDERS' EQUITY 116,869 112,553 TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $1,292,414 $1,259,839 The accompanying notes are an integral part of the consolidated financial statements. 3 FIRST FINANCIAL CORPORATION CONSOLIDATED STATEMENTS OF INCOME Three Months Ended March 31, 1995 1994 (Amounts in thousands, except per share data) INTEREST INCOME: Loans $17,010 $14,754 Investment securities: Taxable 4,466 3,838 Tax-exempt 1,760 1,591 6,226 5,429 Other interest income 191 84 TOTAL INTEREST INCOME 23,427 20,267 INTEREST EXPENSE Deposits 9,932 7,723 Other 1,900 1,192 TOTAL INTEREST EXPENSE 11,832 8,915 NET INTEREST INCOME 11,595 11,352 Provision for possible loan losses 540 963 NET INTEREST INCOME AFTER PROVISION FOR POSSIBLE LOAN LOSSES 11,055 10,389 OTHER INCOME Trust department income 315 271 Service charges on deposit accounts 289 300 Other service charges and fees 778 636 Investment securities gains (losses) 6 71 Other 291 318 1,679 1,596 OTHER EXPENSES Salaries and employee benefits 4,328 4,319 Occupancy expense 633 469 Equipment expense 496 496 Data processing expense 535 486 FDIC insurance expense 543 546 Other 2,453 2,267 8,988 8,583 INCOME BEFORE INCOME TAXES 3,746 3,402 Income Tax Expense 1,026 892 NET INCOME 2,720 2,510 EARNINGS PER SHARE $0.49 $0.45 Weighted average number of shares outstanding 5,512 5,541 The accompanying notes are an integral part of the consolidated financial statements. 4 FIRST FINANCIAL CORPORATION CONSOLIDATED STATEMENTS OF CASH FLOWS Three Months Ended March 31, 1995 1994 CASH FLOWS FROM OPERATING ACTIVITIES: Net income $2,720 $2,510 Adjustment to reconcile net income to net cash provided by operating activities: Provision for possible loan losses 540 963 Provision for depreciation and amortization 595 949 Net decrease in accrued interest receivable 212 957 Other, net 1,351 1,314 NET CASH PROVIDED BY OPERATING ACTIVITIES 5,418 6,693 CASH FLOWS FROM INVESTING ACTIVITIES: Net increase (decrease) from purchases and maturities of interest-bearing deposits with financial institutions 0 577 Sales and maturities of investment securities 0 95,611 Maturities of held-to-maturity securities 13,345 0 Sales and maturities of available-for-sale securities 2,976 0 Purchases of investment securities 0 -80,083 Purchases of investment securities: Held-to-maturity security -10,632 0 Available-for-sale security -50,766 0 Loans made to customers, net of repayments -10,414 4,553 Net decrease in federal funds sold 21,725 1,739 Additions to premises and equipment -619 -529 NET CASH PROVIDED (USED) BY INVESTING ACTIVITIES -34,385 21,868 CASH FLOWS FROM FINANCING ACTIVITIES: Net increase from sales and redemptions of certificates of deposit 73,572 16,821 Net decrease in other deposits -42,239 -20,074 Net decrease in short-term borrowings - 1,597 -12,730 Cash dividends -1,546 -1,469 Purchase of treasury stock -797 0 Net decrease from long-term debt -1,897 -5,315 Repayments of long-term debt -3 -43 NET CASH PROVIDED (USED) BY FINANCING ACTIVITIES 25,493 -22,810 NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS -3,474 5,751 CASH AND CASH EQUIVALENTS, BEGINNING OF QUARTER 51,947 43,460 CASH AND CASH EQUIVALENTS, END OF QUARTER $48,473 $49,211 SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION: Cash paid during the quarter for interest $ 9,810 $8,454 Income taxes paid $900 $70 The accompanying notes are an integral part of the consolidated financial statements. 5 FIRST FINANCIAL CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 1. Accounting Policies The accompanying March 31, 1995 and 1994 consolidated financial statements are unaudited. The December 31, 1994, consolidated statement of condition amounts are as reported in the Corporation's 1994 annual report. The significant accounting policies followed by First Financial Corporation and its subsidiaries for interim financial reporting are consistent with the accounting policies followed for annual financial reporting. All adjustments which are in the opinion of management necessary for a fair statement of the results for the periods reported have been included in the accompanying consolidated financial statements and are of a normal recurring nature. Effective January 1, 1995, the Corporation adopted Statement of Financial Accounting Standard (SFAS) No. 114, "Accounting by creditors for Impairment of a Loan" which had no material effect on the Corporation's consolidated financial statements. 6 FIRST FINANCIAL CORPORATION ITEM 2. Management's Discussion and Analysis of Financial Condition and Results of Operations The purpose of the review is to point out key factors in First Financial's recent performance, compared with earlier periods. The review should be read in conjunction with the financial statements beginning on Page 3 of this report. All figures are for the consolidated entities. It is presumed the readers of these financial statements and the following narrative have previously read the Corporation's annual report for 1994. Earnings Analysis Summary of Operating Results Net income for current quarter of $2,720,000 represents a $210,000 increase or 8.4% from the $2,510,000 reported for the same quarter of 1994. Earnings per share increased to $.49 from $.45 for the same period of 1994. Net Interest Income First Financial Corporation's primary source of earnings is net interest income, which is the difference between the interest earned on loans and other investments and the interest incurred for deposits and other sources of funds. Although net interest income increased $243,000 or 2.1% as compared to the same period of 1994, the spread in interest rates decreased from 4.26% in 1994 to 4.17% in 1995. This decrease was caused by a higher cost paid for interest bearing-liabilities as the result of more competition for funds. Other Income Other income for the three month period ending March 31, 1995, as compared to the same period of 1994 increased $83,000 or 5%. Contributing to the increase were the moderate increase of trust department income of $44,000 or 16.2% and other service charges and fees of $142,000 or 22.3%. These increases were offset by lower security gains of $6,000 for the first quarter of 1995 as compared to the gains of $71,000 for the same period of 1994. Other Expenses For the first three months of 1995, other expenses increased 4.7% or $405,000. Most of the components of other expenses increased moderately for the first quarter as compared to the same period of 1994 due primarily to the Corporation's overall growth. 7 Analysis of Financial Condition The Corporation's provision for possible loan losses totaled $540,000 in the first three months of 1995 compared to $963,000 in the same period a year earlier. The current quarter's provision reflects a general improvement in the quality of the loan portfolio. At March 31, 1995, the allowance for possible loan losses was 1.22% of total loans, net of unearned income. This compares to an allowance of 1.21% at December 31, 1994. Net chargeoffs for the first three months of 1995 were $311,000 compared to $1,023,000 for 1994. The ratio of net chargeoffs to average loans outstanding for the last five years ended December 31, 1994, is .26%. With this experience and based on management's review of the portfolio, management believes the allowance of $9,875,000 is adequate. Liquidity and Interest Rate Sensitivity The Corporation's objective in liquidity management is to manage the assets and liabilities to meet the needs of borrowers while allowing for the possibility of deposit withdrawals. Part of the strategy in maintaining a satisfactory level of liquidity is to structure a maturity schedule for the investment and loan portfolios that will allow for fluctuations in the availability of funds. Within the next twelve months $107,417,000 of investments will mature, which represents 26.5% of the investment portfolio. Investments with maturities of one to five years comprise an additional 50.2% of the investment portfolio. The investment maturities along with the normal run-off of loans coupled with a large supply of unpledged securities for repurchase agreements, federal funds purchased, additional negotiable certificates of deposits, and other available borrowings affords the Corporation flexibility in funding loan growth and meeting other market opportunities as they present themselves. During the next twelve months the Corporation will either reprice or mature a total of $420,971,000 of assets. In this same period a total of $513,361,000 of liabilities will either be repriced or mature. Thus, the ratio of rate sensitive assets to rate sensitive liabilities as measured on a static basis, is 0.82% as March 31, 1995. The Corporation will continue to monitor this relationship to determine if it is appropriate in maintaining a satisfactory level of net interest margin, while also considering interest rate sensitivity. Capital Adequacy As of March 31, 1995, the Corporation's leverage ratio was 9.10% which compared 9.30% at December 31, 1994. At March 31, 1995, the Corporation's tier II capital ratio was 15.29% compared to 15.30% at December 31, 1994. 8 FIRST FINANCIAL CORPORATION PART II OTHER INFORMATION ITEM 4. Submission of Matters to a Vote of Security Holders (a) The Annual meeting of the shareholders of the Corporation was held on April 19, 1995. (b) The following were elected Directors of the Corporation: Walter A. Bledsoe, B. Guille Cox, Jr., Thomas T. Dinkel, Welby M. Frantz, Anton Hulman George, Mari Hulman George, Gregory L. Gibson, Max Gibson, Norman L. Lowery, William Niemeyer, Patrick O'Leary, John W. Ragle, Chapman J. Root II, Donald E. Smith, and Virginia Smith. (c) The shareholders unanimously approved the annual report of the Corporation and unanimously approved the actions of the Directors and Officers of the Corporation for the fiscal year ended December 31, 1994. No other information is required to be filed under Part II of this form. 9 FIRST FINANCIAL CORPORATION FORM 10-Q SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. FIRST FINANCIAL CORPORATION (Registrant) Date: May 10, 1995 By (Signature) Donald E. Smith, President Date: May 10, 1995 By (Signature) John W. Perry, Secretary Date: May 10, 1995 By (Signature) Michael A. Carty, Treasurer 10