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, 1996
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, 1996
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, 1996 were outstanding 5,767,175 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................8
PART II. Other Information:
Item 4. Submission of Matters to a Vote of
Security Holders............................................11
Signatures..............................................................12
2
FIRST FINANCIAL CORPORATION
CONSOLIDATED STATEMENTS OF CONDITION
March 31, December 31,
1996 1995
(Dollar amounts in thousands)
Cash and due from banks $44,111 $62,747
Federal funds sold and securities purchased under
agreement to resell 6,893 -
Investments:
Available-For-Sale 516,395 515,409
Loans:
Commercial, financial and agricultural 158,249 170,179
Real estate - construction 20,360 22,134
Real estate - mortgage 432,116 430,673
Installment 191,364 197,726
Lease financing 3,824 4,151
805,913 824,863
Less:
Unearned income 1,119 1,196
Allowance for possible loan losses 9,958 10,087
794,836 813,580
Accrued interest receivable 12,926 12,597
Premises and equipment 24,881 23,927
Other assets 16,024 15,365
TOTAL ASSETS $1,416,066 $1,443,625
LIABILITIES AND SHAREHOLDERS' EQUITY
Deposit:
Noninterest-bearing $115,228 $128,672
Interest-bearing:
Certificates of deposit of $100,000 or more 176,416 143,009
Other interest-bearing deposits 799,236 801,867
1,090,880 1,073,548
Short-term borrowings:
Federal funds purchased and securities
sold under agreements to repurchase 22,717 68,778
Treasury tax and loan open-end note 4,164 3,872
Advances from Federal Home Loan Bank 95,152 95,296
122,033 167,946
Other liabilities 13,826 15,352
Long-term debt 6,648 6,651
Long-term advances from Federal Home Loan Bank 51,023 50,070
TOTAL LIABILITIES 1,284,410 1,313,567
Shareholders' equity:
Common stock, $.125 stated value per share;
authorized 10,000,000 shares; issued
5,815,857 shares for 1996 and 1995, including 727 727
treasury shares of 48,682 for 1996 and 62,553 for 1995
Additional capital 33,150 33,150
Retained earnings 95,753 91,751
Unrealized gains(losses) on AFS securities, net of tax 3,495 6,368
Less treasury shares, at cost -1,469 -1,938
TOTAL SHAREHOLDERS' EQUITY 131,656 130,058
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $1,416,066 $1,443,625
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,
1996 1995
(Amounts in thousands,
except per share data)
INTEREST INCOME:
Loans $18,126 $17,010
Investment securities:
Taxable 6,654 4,466
Tax-exempt 1,622 1,760
8,276 6,226
Other interest income 69 191
TOTAL INTEREST INCOME 26,471 23,427
INTEREST EXPENSE
Deposits 10,435 9,932
Other 2,511 1,900
TOTAL INTEREST EXPENSE 12,946 11,832
NET INTEREST INCOME 13,525 11,595
Provision for possible loan losses 630 540
NET INTEREST INCOME AFTER PROVISION FOR
POSSIBLE LOAN LOSSES 12,895 11,055
OTHER INCOME
Trust department income 390 315
Service charges on deposit accounts 311 289
Other service charges and fees 815 778
Investment securities gains (losses) 6 6
Other 321 291
1,843 1,679
OTHER EXPENSES
Salaries and employee benefits 4,805 4,328
Occupancy expense 807 633
Equipment expense 506 496
Data processing expense 521 535
FDIC insurance expense 5 543
Other 2,294 2,453
8,938 8,988
INCOME BEFORE INCOME TAXES 5,800 3,746
Income Tax Expense 1,798 1,026
NET INCOME 4,002 2,720
EARNINGS PER SHARE $0.70 $0.47
Weighted average number of shares outstanding 5,758 5,788
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,
1996 1995
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $4,002 $2,720
Adjustment to reconcile net income to net cash
provided by operating activities:
Provision for possible loan losses 630 540
Provision for depreciation and amortization 536 595
Net (increase) decrease in accrued interest receivable -329 212
Other, net 704 1,351
NET CASH PROVIDED BY OPERATING ACTIVITIES 5,543 5,418
CASH FLOWS FROM INVESTING ACTIVITIES:
Maturities of held-to-maturity securities 0 13,345
Sales and maturities of available-for-sale securities 65,656 2,976
Purchases of investment securities:
Held-to-maturity securities 0 -10,632
Available-for-sale securities -70,900 -50,766
Loans made to customers, net of repayments 18,122 -10,414
Net decrease (increase) in federal funds sold -6,893 21,725
Additions to premises and equipment -1,391 -619
NET CASH PROVIDED (USED) BY INVESTING ACTIVITIES 4,594 -34,385
CASH FLOWS FROM FINANCING ACTIVITIES:
Net increase from sales and
redemptions of certificates of deposit 32,280 73,572
Net decrease in other deposits -14,948 -42,239
Net decrease in short-term borrowings -45,913 - 1,597
Cash dividends -1,611 -1,546
Proceeds from reissuance of Treasury Stock 600 0
Purchase of treasury stock -131 -797
Net increase(decrease) from long-term debt 953 -1,897
Repayments of long-term debt -3 -3
NET CASH PROVIDED (USED) BY FINANCING ACTIVITIES -28,773 25,493
NET DECREASE IN CASH AND CASH EQUIVALENTS -18,636 -3,474
CASH AND CASH EQUIVALENTS, BEGINNING OF QUARTER 62,747 51,947
CASH AND CASH EQUIVALENTS, END OF QUARTER $44,111 $48,473
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the quarter for interest $ 12,572 $9,810
Income taxes paid $524 $900
The accompanying notes are an integral part of the consolidated financial statements.
5
FIRST FINANCIAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. The accompanying March 31, 1996 and 1995 consolidated financial statements
are unaudited. The December 31, 1995, consolidated statement of condition
amounts are as reported in the Corporation's 1995 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.
2. The Statements of Financial Standards No's 114 and 118 (SFAS 114),
"Accounting by Creditors for Impairment of a Loan" and "Accounting by
Creditors for Impairment of a Loan-Income Recognition and Disclosures"
requires that certain impaired loans be measured based either on the present
value of expected future cash flows discounted at the loan's effective interest
rate, or the loan's observable market price or the fair value of the
collateral if the loan is collateral dependent. The adoption of SFAS 114 did
not result in additional provisions for loan losses primarily because the
majority of impaired loan valuations continue to be based on the fair value of
collateral.
The provision for loan and lease losses charged to expense is based upon
each affiliate's past loan and lease loss experience and an evaluation of
potential losses in the current loan and lease portfolio, including the
evaluation of impaired loans under SFAS 114. A loan is considered to be
impaired when based upon current information and events, it is probable that
Corporation will be unable to collect all amounts due according to the
contractual terms of the loan. Impairments is primarily measured based on the
fair value of the loans' collateral. Impairment losses are included in the
provision for loan and lease losses. SFAS 114 does not apply to large groups of
smaller balance homogeneous loans that are collectively evaluated for
impairment, except for those loans restructured under a troubled debt
restructuring. Loans collectively evaluated for impairment include
certain smaller balance commercial loans, consumer loans, residential real
estate loans, and credit card loans, and are not included in the data that
follows.
The following table summarizes impaired loan information.
$(thousands)................................................... March 31,
1996
Impaired loans......................................................$ 3,762
Impaired loans with related reserve for loan losses calculated under
SFAS 114........................................................... 3,642
Impaired loans with no realized reserve for loan losses calculated
under SFAS 114..................................................... 120
March 31,
1996
Average impaired loans.............................................$ 3,762
Interest income recognized on impaired loans....................... 47
Cash basis interest income recognized on impaired loans............ 0
6
Interest payments on impaired loans are typically applied to principal
unless collectability of the principal amount is fully assured, in which case
interest is recognized on the cash basis for certain troubled debt
restructuring which are included in the impaired loan data above.
Commercial loans and residential real estate loans are placed on
nonaccrual at the time the loan is 90 days delinquent unless the credit is
well secured and in the process of collection. Commercial loans are charged
off at the time the loan becomes 180 days delinquent unless the loan is well
secured and in the process of collection, or other extenuating circumstances
support collection. Credit card loans and other unsecured personal credit
lines are typically charged off no later than 180 days delinquent. Other
consumer loans are typically charged off at 150 days delinquent. In all cases,
loans must be placed on nonaccrual or charged off at an earlier date if
collection of principal or interest is considered doubtful.
The interest on these loans is accounted for on the cash basis or cost
recovery method, until qualifying for return to accrual. Loans maybe
returned to accrual status when all the principal and interest amounts
contractually due are paid current.
3. The effect of adopting Statement of Financial Accounting Standard No. 122,
"Accounting for Mortgage Servicing Rights" was not material to the Corporation's
financial statement.
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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 1995.
Summary of Operating Results
Net income for current quarter of $4,002,000 was 47% greater than the
first quarter of 1995. Earnings per share increased to $.70 from $.47 for the
same period of 1995 which represents a record first quarter earnings.
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. In the first three months of 1996 net interest income increased
$1,930,000 or 16.6% as compared to the same period of 1995. The net interest
margin for the quarter increased from 4.17% in 1995 to 4.37% in 1996. This
increase was the result of continued growth in earning assets.
Other Income
Other income for the three month period ending March 31, 1996, as compared
to the same period of 1995 increased $164,000 or 9.8%. Contributing to the
increase were the increase of trust department income of $75,000 or 23.8%,
and other miscellaneous income of $31,000 or 10.7%.
Other Expenses
Other expenses for the first three months of 1996, as compared to the same
period of 1995, remained almost unchanged. Although the employee benefits
and occupancy expense increased by $192,000 and $174,000 respectably for the
first quarter of 1996 compared to the same period a year earlier, these
increases were offset by the favorable FDIC insurance adjustment which decreased
by $538,000 or 99%.
Allowance for Possible Loan Losses
The Corporation's provision for possible loan losses totaled $630,000 for
the first three months of 1996 compared to $540,000 in the same period a year
earlier.
At March 31, 1996, the allowance for possible loan losses was 1.24% of
total loans, net of unearned income. This compares with an allowance of
1.22% at December 31, 1995. Net chargeoffs for the first three months of
1996 were $755,000 compared to $311,000 for the same period of 1995. The
ratio of net chargeoffs to average loans outstanding for the last five years
ended December 31, 1995, was .34%. With this experience and based on
management's review of the portfolio, management believes the allowance of
$9,958,000 at March 31, 1996 is adequate.
8
Underperforming Assets
The following is a listing of all categories of non-performing assets
which includes potential problem loans at March 31, 1996 and December 31, 1995.
3-31-96 12-31-95
Nonaccrual Loans $ 2,558 $2,782
Restructured Loans 0 185
$ 2,558 $2,967
Past due
> 90 days $ 6,860 $5,809
Land sold on contract 1,289 1,218
Total non-performing asset $10,707 $9,994
The ratio of the allowance for loan losses as a percentage of
non-performing loans was 105% at March 31, 1996 which represents an decrease
of 9% from December 31, 1995. This decrease is the result of an increase in
the amount of loans past due 90 days or more amounting to $1,051,000 or 18%.
There was no one significant factor which affected this increase but on a
consolidated basis each category of loans increased a small amount.
The following loan categories comprise significant components of the
non-performing loans at March 31, 1996:
Non-Accrual Loans
1. 1-4 family residential: $306 thousand or 12% of non-accrual loans
2. Commercial loans: $1.1 million or 44% of non-accrual loans
3. Non farm nonresidential
properties: $791 thousand or 31% of non-accrual loans
Past due > 90 days
1. 1-4 family residential: $2.2 million or 33% of past due loans
2. Commercial loans: $3.1 million or 45% of past due loans
3. Non farm nonresidential properties: $731 thousand or 11% of past due loans
There are no material industry concentrations within the non-performing
loans.
In addition to the above under-performing loans, certain loans are felt by
management to be impaired for reasons other than the current repayment
status. Such reasons may include but not be limited to previous payment
history, bankruptcy proceedings, industry concerns, or information related to
a specific borrower that may result in a negative future event to that borrower.
The Corporation had $2.1 million of doubtful loans which are still in accrual
status.
9
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 $87,838,000 of investments will mature, which represents 16.9%
of the investment portfolio. Investments with maturities of one to five years
comprise an additional 38.6% 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 $522,271,000 of assets. In this same period a total of
$547,101,000 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 97% as March 31, 1996. 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, 1996 the Corporation leverage ratio was 9.10% which
compared 9.30% at December 31, 1995.
At March 31, 1996, the Corporation's total capital which includes Tier II
capital was 16.19% compared to 15.58% at December 31, 1995.
10
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 17, 1996.
(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, 1995.
No other information is required to be filed under Part II of this form.
11
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, 1996 By (Signature)
Donald E. Smith, President
Date: May 10, 1996 By (Signature)
John W. Perry, Secretary
Date: May 10, 1996 By (Signature)
Michael A. Carty, Treasurer
12