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 June 30, 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 June 30, 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 June 30, 1995 were outstanding 5,771,347 shares without par value, of the registrant. 2 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 3 FIRST FINANCIAL CORPORATION CONSOLIDATED STATEMENTS OF CONDITION June 30, December 31, 1995 1994 (Dollar amounts in thousands) Cash and due from banks $48,628 $51,947 Federal funds sold and securities purchased under agreements to resell 5,855 23,725 Investments: Held to Maturity (market value of $177,716 and $168,879, respectively) 176,586 174,646 Available-For-Sale 206,608 178,272 Loans: Commercial, financial and agricultural 162,004 163,268 Real estate - construction 22,218 20,446 Real estate - mortgage 441,761 424,427 Installment 196,530 185,533 Lease financing 4,767 5,259 827,280 798,933 Less: Unearned income 1,437 1,882 Allowance for possible loan losses 10,401 9,649 815,442 787,402 Accrued interest receivable 9,991 9,704 Premises and equipment 20,744 20,011 Other assets 12,635 14,132 TOTAL ASSETS 1,296,489 1,259,839 LIABILITIES AND SHAREHOLDERS' EQUITY Deposit: Noninterest-bearing $119,107 $125,106 Interest-bearing: Certificates of deposit of $100,000 or more 97,514 109,306 Other interest-bearing deposits 820,973 758,954 1,037,594 993,366 Short-term borrowings: Federal funds purchased and securities sold under agreements to repurchase 54,073 66,685 Treasury tax and loan open-end note 9,600 5,406 Advances from Federal Home Loan Bank 41,197 46,272 104,870 118,363 Other liabilities 11,206 9,919 Long-term debt 6,659 7,470 Long-term advances from Federal Home Loan Bank 16,172 18,168 TOTAL LIABILITIES 1,176,501 1,147,286 Shareholders' equity: Common stock, $.125 stated value per share; authorized 10,000,000 shares; issued 5,815,857 shares for 1995 and 1994, including treasury 727 693 shares of 44,510 for 1995 and 19,600 for 1994. Additional capital 33,150 25,498 Retained earnings 85,794 89,399 Unrealized gains(losses) on AFS securities, net of tax 1,712 (2,429) Less treasury shares, at cost (1,395) (608) TOTAL SHAREHOLDERS' EQUITY 119,988 112,553 TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $1,296,489 $1,259,839 The accompanying notes are an integral part of the consolidated financial statements. 4 FIRST FINANCIAL CORPORATION CONSOLIDATED STATEMENTS OF INCOME Three Months Ended Six Months ended June 30, June 30, 1995 1994 1995 1994 (Amounts in thousands, except per share amounts) INTEREST INCOME: Loans $17,949 $15,196 $34,959 $29,950 Investment securities: Taxable 4,401 3,741 8,867 7,579 Tax-exempt 1,789 1,612 3,549 3,203 6,190 5,353 12,416 10,782 Other interest income 173 83 364 167 TOTAL INTEREST INCOME 24,312 20,632 47,739 40,899 INTEREST EXPENSE: Deposits 10,624 7,828 20,556 15,551 Other 1,691 1,163 3,591 2,355 TOTAL INTEREST EXPENSE 12,315 8,991 24,147 17,906 NET INTEREST INCOME 11,997 11,641 23,592 22,993 Provision for possible loan losses 540 430 1,080 1,393 NET INTEREST INCOME AFTER PROVISION FOR POSSIBLE LOAN LOSSES 11,457 11,211 22,512 21,600 OTHER INCOME Trust department income 361 322 676 593 Service charges on deposit accounts 301 300 590 600 Other service charges and fees 784 662 1,562 1,298 Investment securities gains (losses) (30) (53) (24) 18 Other 335 731 626 1,049 1,751 1,962 3,430 3,558 OTHER EXPENSES Salaries and employee benefits 4,532 4,378 8,860 8,697 Occupancy expense 646 652 1,279 1,121 Equipment expense 507 516 1,003 1,012 Data processing expense 489 467 1,024 953 FDIC insurance expense 544 548 1,087 1,094 Other 2,386 2,324 4,839 4,591 9,104 8,885 18,092 17,468 INCOME BEFORE INCOME TAXES 4,104 4,288 7,850 7,690 Income Tax Expense 1,117 1,167 2,143 2,059 NET INCOME $2,987 $3,121 $5,707 $5,631 EARNINGS PER SHARE: $0.52 $0.54 $0.99 $0.97 Weighted average number of shares outstanding 5,771 5,818 5,771 5,818 The accompanying notes are an integral part of the consolidated financial statements. 5 FIRST FINANCIAL CORPORATION CONSOLIDATED STATEMENTS OF CASH FLOWS Six Months Ended June 30, 1995 1994 CASH FLOWS FROM OPERATING ACTIVITIES: Net income $5,707 $5,631 Adjustment to reconcile net income to net cash provided by operating activities: Provision for possible loan losses 1,080 1,393 Provision for depreciation and amortization 1,169 1,180 Net (increase) decrease in accrued interest receivable (287) 57 Other, net (1,175) 483 NET CASH PROVIDED BY OPERATING ACTIVITIES 6,494 8,744 CASH FLOWS FROM INVESTING ACTIVITIES: Net increase (decrease) from purchases and maturities of interest-bearing deposits with financial institutions 0 685 Sales and maturities of investment securities 0 151,829 Maturities of held-to-maturity securities 31,787 0 Sales and maturities of available-for-sale securities 20,466 0 Purchases of investment securities 0 (150,531) Purchases of investment securities: Held-to-maturity security (12,961) 0 Available-for-sale security (61,837) 0 Loans made to customers, net of repayments (29,109) (25,110) Net decrease in federal funds sold 17,870 21,125 Additions to premises and equipment (1,623) (807) NET CASH USED BY INVESTING ACTIVITIES (35,407) (2,809) CASH FLOWS FROM FINANCING ACTIVITIES: Net increase from sales and redemptions of certificates of deposit 83,065 7,049 Net decrease in other deposits (38,837) (10,363) Net increase (decrease) in short-term borrowings (13,494) 9,117 Cash dividends (1,546) (1,469) Proceeds from reissuance of Treasury Stock 525 0 Purchase of treasury stock (1,312) 0 Net decrease from long-term debt (2,801) (5,983) Repayments of long-term debt (6) (86) NET CASH PROVIDED (USED) BY FINANCING ACTIVITIES 25,594 (1,735) NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (3,319) 4,200 CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 51,947 43,460 CASH AND CASH EQUIVALENTS, END OF PERIOD $48,628 $47,660 SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION: Cash paid during the period for interest $22,498 $17,758 Income taxes paid $2,527 $1,580 The accompanying notes are an integral part of the consolidated financial statements. 6 FIRST FINANCIAL CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 1. Accounting Policies The accompanying June 30, 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. 7 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. At the May 16, 1995 meeting, the Board of Directors approved a 5% stock dividend to shareholders of record June 20, 1995. This stock dividend is reflected in the accompanying financial statements. Earnings Analysis Summary of Operating Results For the first half of 1995 the Corporation reported that earnings had increased to $5.7 million or $.99 per share from $5.6 million or $.97 per share in the prior year. The net income for the second quarter was $267,000 or 9.8% above the first quarter of 1995. For the second quarter of 1995 net income as compared to the second quarter of 1994 was down slightly because of a one-time insurance recovery of $425,000 in 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. The spread in net interest margin decreased in the first six months of 1995 as compared to same period of 1994, thereby causing a decrease from 4.32% for the same quarter of 1994 to 4.22% in 1995. Although net interest income increased $356,000 or 3.0% as compared to the same period of 1994, the spread in interest rates for the second quarter decreased from 4.38% in 1994 to 4.27% 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 six months of 1995, as compared to the same period of 1994, decreased $128,000 or 3.6%. The major contributing factor was the recovery of $425,000 in 1994 from previous losses. This also affected second quarter other income which went down to $.52 per share from $.54 per share. There were no other significant changes. Other Expenses For the first six months of 1995, other expenses increased 3.6% or $624,000. Occupancy expense increased from $1,121,000 to $1,279,000 due to increased facilities cost resulting from the acquisition of a new operations building. Other expenses for the three months ended June 30, 1995, were up $219,000 or 2.5%. These increases are primarily the result of the Corporation's overall growth. 8 Analysis of Financial Condition Allowance for Possible Loan Losses The Corporation's provision for possible loan losses totaled $1,080,000 for the first half of 1995 compared to $1,393,000 for the same period a year earlier. The decreased provision is the result of fewer non-performing loans and an overall improvement in loan quality. At June 30, 1995, the allowance for possible loan losses was 1.26% of total loans, net of unearned income. This compares with an allowance of 1.21% at December 31, 1994. Net charge-offs for the first six months of 1995 were $324,000 compared to $1,219,000 for the same period of 1994. The ratio of net charge-offs to average loans outstanding for the last five years ended December 31, 1994, was .43%. With this experience and based on management's review of the portfolio, management believes the allowance of $10,401,000 at June 30, 1995 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 $107,416,000 of investments will mature which represents 27.9% of the investment portfolio. Investments with maturities of one to five years comprise an additional 48.2% 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 $470,538,000 of assets. In this same period a total of $513,996,000 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 92% as June 30, 1995. The Corporation will continue to monitor this relationship to determine if it is appropriate to maintain a satisfactory level of net interest margin, while considering interest rate sensitivity. Capital Adequacy As of June 30, 1995, the Corporation's leverage ratio was 9.14% which compared 9.30% at December 31, 1994. At June 30, 1995, the Corporation's tier II capital ratio was 15.27% compared to 15.30% at December 31, 1994. 9 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 anual 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. 10 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: August 11, 1995 By (Signature) Donald E. Smith, President Date: August 11, 1995 By (Signature) John W. Perry, Secretary Date: August 11, 1995 By (Signature) Michael A. Carty, Treasurer 11