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, 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 June 30, 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 June 30, 1996 were outstanding 6,055,080 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.........................................10
Signatures.................................................................11
2
FIRST FINANCIAL CORPORATION
CONSOLIDATED STATEMENTS OF CONDITION
June 30, December 31,
1996 1995
(Dollar amounts in thousands)
Cash and due from banks $48,022 $62,747
Federal funds sold and securities purchased under
agreements to resell 1,050 -
Investments:
Available-For-Sale 521,186 515,409
Loans:
Commercial, financial and agricultural 164,799 170,179
Real estate - construction 19,035 22,134
Real estate - mortgage 445,767 430,673
Installment 186,361 197,726
Lease financing 3,579 4,151
819,541 824,863
Less:
Unearned income 1,019 1,196
Allowance for possible loan losses 10,086 10,087
808,436 813,580
Accrued interest receivable 13,164 12,597
Premises and equipment 25,090 23,927
Other assets 16,136 15,365
TOTAL ASSETS 1,433,084 1,443,625
LIABILITIES AND SHAREHOLDERS' EQUITY
Deposit:
Noninterest-bearing $114,858 $128,672
Interest-bearing:
Certificates of deposit of $100,000 or more 180,947 143,009
Other interest-bearing deposits 783,048 801,867
1,078,853 1,073,548
Short-term borrowings:
Federal funds purchased and securities
sold under agreements to repurchase 33,827 68,778
Treasury tax and loan open-end note 7,032 3,872
Advances from Federal Home Loan Bank 119,124 95,296
159,983 167,946
Other liabilities 10,642 15,352
Long-term debt 6,644 6,651
Long-term advances from Federal Home Loan Bank 48,245 50,070
TOTAL LIABILITIES 1,304,367 1,313,567
Shareholders' equity:
Common stock, $.125 stated value per share;
authorized 10,000,000 shares; issued
6,103,762 shares for 1996 and 6,104,424 shares for 1995 763 727.00
including treasury shares of 48,682 for 1996 and 44,510
for 1995
Additional capital 42,327 33,150
Retained earnings 88,604 91,751
Unrealized gains(losses) on AFS securities, net of tax -1,508 6,368
Less treasury shares, at cost -1,469 -1,938
TOTAL SHAREHOLDERS' EQUITY 128,717 130,058
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $1,433,084 $1,443,625
The accompanying notes are an integral part of the consolidated financial statements.
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FIRST FINANCIAL CORPORATION
CONSOLIDATED STATEMENTS OF INCOME
Three Months Ended Six Months ended
June 30, June 30,
1996 1995 1996 1995
(Amounts in thousands, except per share amounts)
INTEREST INCOME:
Loans $17,947 $17,949 $36,073 $34,959
Investment securities:
Taxable 7,102 4,401 13,756 8,867
Tax-exempt 1,559 1,789 3,181 3,549
8,661 6,190 16,937 12,416
Other interest income 46 173 115 364
TOTAL INTEREST INCOME 26,654 24,312 53,125 47,739
INTEREST EXPENSE:
Deposits 10,589 10,624 21,024 20,556
Other 2,686 1,691 5,197 3,591
TOTAL INTEREST EXPENSE 13,275 12,315 26,221 24,147
NET INTEREST INCOME 13,379 11,997 26,904 23,592
Provision for possible
loan losses 778 540 1,408 1,080
NET INTEREST INCOME AFTER
PROVISION FOR POSSIBLE
LOAN LOSSES 12,601 11,457 25,496 22,512
OTHER INCOME
Trust department income 409 361 799 676
Service charges on deposit
accounts 324 301 635 590
Other service charges and fees 708 784 1,523 1,562
Investment securities gains
(losses) 148 -30 154 -24
Other 245 335 566 626
1,834 1,751 3,677 3,430
OTHER EXPENSES
Salaries and employee benefits 4,903 4,532 9,708 8,860
Occupancy expense 751 646 1,558 1,279
Equipment expense 609 507 1,115 1,003
Data processing expense 152 489 673 1,024
FDIC insurance expense 10 544 15 1,087
Other 2,505 2,386 4,799 4,839
8,930 9,104 17,868 18,092
INCOME BEFORE INCOME TAXES 5,505 4,104 11,305 7,850
Income Tax Expense 1,609 1,117 3,407 2,143
NET INCOME 3,896 2,987 7,898 5,707
EARNINGS PER SHARE: $0.64 $0.49 $1.31 $0.94
Weighted average number of
shares outstanding 6,055 6,060 6,051 6,068
The accompanying notes are an integral part of the consolidated financial statements.
4
FIRST FINANCIAL CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
Six Months Ended
June 30,
1996 1995
CASH FLOWS FROM OPERATING ACTIVITIERS:
Net income $7,898 $5,707
Adjustment to reconcile net income to net cash
provided by operating activities:
Provision for possible loan losses 1,407 1,080
Provision for depreciation and amortization 1,036 1,169
Net increase in accrued interest receivable -567 -287
Other, net 1,680 -1,175
NET CASH PROVIDED BY OPERATING ACTIVITIES 8,094 6,494
CASH FLOWS FROM INVESTING ACTIVITIES:
Sales and maturities of investment securities:
Maturities of held-to-maturity securities 0 31,787
Sales and maturities of available-for-sale securities 68,909 20,466
Purchases of investment securities:
Held-to-maturity security 0 -12,961
Available-for-sale security -86,814 -61,837
Loans made to customers, net of repayments 3,939 -29,109
Net <increase> decrease in federal funds sold -1,050 17,870
Additions to premises and equipment -2,171 -1,623
NET CASH USED BY INVESTING ACTIVITIES -17,187 -35,407
CASH FLOWS FROM FINANCING ACTIVITIES:
Net increase from sales and
redemptions of certificates of deposit 33,970 83,065
Net decrease in other deposits -28,665 -38,837
Net decrease in short-term borrowings -7,963 -13,494
Cash dividends -1,611 -1,546
Proceeds from reissuance of Treasury Stock 600 525
Purchase of treasury stock -131 -1,312
Net decrease from long-term debt -1,825 -2,801
Repayments of long-term debt -7 -6
NET CASH PROVIDED (USED) BY FINANCING ACTIVITIES -5,632 25,594
NET DECREASE IN CASH AND CASH EQUIVALENTS -14,725 -3,319
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 62,747 51,947
CASH AND CASH EQUIVALENTS, END OF PERIOD $48,022 $48,628
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the period for interest $26,360 $22,498
Income taxes paid $3,782 $2,527
The accompanying notes are an integral part of the consolidated financial statements.
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FIRST FINANCIAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. The accompanying June 30, 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 are 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.
$(thousands)...................................................... June 30
1996
Impaired loans........................................................$ 4,955
Impaired loans with related reserve for loan losses calculated under
SFAS 114............................................................. 4,955
Impaired loans with no realized reserve for loan losses calculated
under SFAS 114....................................................... 0
June 30
1996
Average impaired loans................................................$ 4,359
Interest income recognized on impaired loans.......................... 153
Cash basis interest income recognized on impaired loans............... 0
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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.
At the May 21, 1996 meeting, the Board of Directors approved a 5% stock
dividend to shareholders of record June 18, 1996. This stock dividend is
reflected in the accompanying financial statements.
Earnings Analysis
Summary of Operating Results
The Corporation reported earnings of $7.9 million for the first six
month which reflect a 38% increase above the same period for 1995, while the
second quarter net income of $3.9 million reflects a 30% increase over the
second quarter of 1995. Earnings per share results of $1.31 and $0.64 for the
six and three month period respectively, reflect similar increases from the
respective prior year's $0.94 and $0.49 per share.
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 six months of 1996 net interest income increased $3,312,000 or
14.0% as compared to the same period of 1995. This increase was the result of
continued growth in earning assets and an increase in the net interest margin
from 4.22% in 1995 to 4.33% in 1996.
For the second quarter of 1996 a net interest income increased
$1,382,000 or 11.5% as compared to the same period of 1995, the net interest
margin decreased slightly from 4.27% in 1995 to 4.25% in 1996. This decrease
was caused by a decreased second quarter earnings rate of 8.2% compared to
8.3% of the same quarter of 1995.
Other Income
Other income for the six months of 1996, as compared to the same period
of 1995, increased $247,000 or 7.2%. The major contributing factor was the
increase in investment securities gains of $154,000 in 1996 compared to
$24,000 loss as in the same period of 1995. This also affected second quarter
other income which increased $83,000 or 4.7% from same quarter of 1995. There
were no other significant changes.
7
Other Expenses
Other expenses for the first six months of 1996, as compared to the same
period of 1995, decreased $224,000 or 1.2%. Although the employee benefits
and occupancy expense increased by $848,000 and $279,000 respectively for the
first six months of 1996 compared to the same period a year earlier, these
increase were offset by the favorable FDIC insurance adjustment which
decreased by $1,072,000 or 98.6% and data processing expense by $351,000 or
34.3%. The Corporation changed data processing service from a facilitics
management firm to an in house operation which impacted data processing
expenses favorably.
Other expenses for the three months ended June 30, 1996 were down by
$174,000 or 1.9%. These decreases are primarily the result of the favorable
FDIC insurance adjustment and the changing data processing services.
Allowance for Possible Loan Losses
The Corporation's provision for possible loan losses totaled $1,408,000
for the first half of 1996 compared to $1,080,000 for the same period a year
earlier.
At June 30, 1996, the allowance for possible loan losses was 1.23% of
total loans, net of unearned income. This compares with an allowance of 1.22%
at December 31, 1995. Net charge-offs for the first six months of 1996 were
$1,409,000 compared to $324,000 for the same period of 1995. The ratio of net
charge-offs 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 $10,086,000 at
June 30, 1996 is adequate.
Underperforming Assets
The following is a listing of all categories of non-performing assets
which includes potential problem loans at June 30, 1996 and December 31, 1995.
6-30-96 12-31-95
Nonaccrual Loans $ 4,626 $2,782
Restructured Loans 0 185
$ 4,626 $2,967
Past due
> 90 days $ 5,117 $5,809
Land sold on contract 1,322 1,218
Total non-performing asset $11,065 $9,994
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The ratio of the allowance for loan losses as a percentage of non-
performing loans was 104% at June 30, 1996 which represents a decrease of 10%
from December 31, 1995. This decrease is the result of an increase in the
amount of non-accrual loans amounting to $1,844,000 or 16%. This increase was
offset by decreased past loans due 90 days or more by $692,000 or 11.9%. There
was no one significant factor which affected this increase but on a
consolidated basis each category of loans increased a small amount and also
some of loans were reclassified from loans past due 90 days or more to the
non-accrual category.
The following loan categories comprise significant components of the
non-performing loans at June 30, 1996:
Non-Accrual Loans
1. 1-4 family residential: $500 thousand or 11% of non-accrual loans
2. Commercial loans: $1.7 million or 38% of non-accrual loans
3. Non farm nonresidential properties: $729 thousand or 16% of non-accrual loans
Past due > 90 days
1. 1-4 family residential: $1.5 million or 30% of past due loans
2. Commercial loans: $1.7 million or 34% of past due loans
3. Non farm nonresidential properties: $703 thousand or 14% 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 $2.2 million of doubtful loans which are still
in accrual status.
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 $184,450,000 of investments will mature which represents 35.9%
of the investment portfolio. Investments with maturities of one to five years
comprise an additional 42.9% 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 $611,593,000 of assets. In this same period a total of
$572,540,000 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 107% as June 30, 1996. 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, 1996, the Corporation's leverage ratio was 9.14% which
compared 9.30% at December 31, 1995.
At June 30, 1996, the Corporation's total capital which includes tier II
capital was 16.34% compared to 15.58% at December 31, 1995.
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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.
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 12, 1996 By (Signature)
Donald E. Smith, President
Date: August 12, 1996 By (Signature)
John W. Perry, Secretary
Date: August 12, 1996 By (Signature)
Michael A. Carty, Treasurer
11