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
September 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 September 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 September 30, 1996 were outstanding 6,681,876 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
<F1>)
Sept 30, Dec. 31,
1996 1995
(Dollar amounts in thousands)
Cash and due from banks $70,885 $65,276
Federal funds sold and securities purchased under
agreements to resell 2,525 10,000
Investments
Available-For-Sale 585,693 545,367
Loans:
Commercial, financial and agricultural 204,093 180,858
Real estate - construction 21,284 22,882
Real estate - mortgage 490,503 460,060
Installment 194,144 213,696
Lease financing 3,284 4,151
913,308 881,647
Less:
Unearned income 1,372 2,131
Allowance for possible loan losses 10,587 10,616
901,349 868,900
Accrued interest receivable 15,756 13,600
Premises and equipment 26,455 25,639
Other assets 16,912 16,525
TOTAL ASSETS $1,619,575 $1,545,307
LIABILITIES AND SHAREHOLDERS' EQUITY
Deposits:
Noninterest-bearing $151,933 $136,356
Interest-bearing:
Certificates of deposit of $100,000 or more 207,879 153,092
Other interest-bearing deposits 822,282 874,033
1,182,094 1,163,481
Short-term borrowings:
Federal funds purchased and securities
sold under agreements to repurchase 62,358 69,661
Treasury tax and loan open-end note 8,631 3,872
Advances from Federal Home Loan Bank 118,502 95,296
189,491 168,829
Other liabilities 10,065 16,171
Long-term debt 6,640 6,680
Long-term advances from Federal Home Loan Bank 86,121 50,070
TOTAL LIABILITIES 1,474,411 1,405,231
Shareholders' equity:
Common stock, $.125 stated value per share;
authorized 10,000,000 shares; issued and outstanding
6,681,876 shares for 1996 and 6,667,312 shares for 1995 835 799
Additional capital 43,761 34,117
Retained earnings 99,127 98,625
Unrealized gains(losses) on AFS securities, net of tax 1,441 6,535
TOTAL SHAREHOLDERS' EQUITY 145,164 140,076
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $1,619,575 $1,545,307
The accompanying notes are an integral part of the consolidated financial statements.
<F1> Figures have been restated to reflect the acquisition of Crawford Bancorp, Inc.
3
FIRST FINANCIAL CORPORATION
CONSOLIDATED STATEMENTS OF INCOME
<F1> <F1>
Three Months Ended Nine Months ended
September 30, September 30,
1996 1995 1996 1995
(Amounts in thousands, except per share amounts)
INTEREST INCOME:
Loans $19,952 $19,925 $58,390 $57,422
Investment securities:
Taxable 7,473 5,062 22,047 14,651
Tax-exempt 1,747 1,824 5,049 5,495
9,220 6,886 27,096 20,146
Other interest income 38 216 403 674
TOTAL INTEREST INCOME 29,210 27,027 85,889 78,242
INTEREST EXPENSE:
Deposits 11,527 11,794 34,410 34,054
Other 3,077 2,129 8,249 5,714
TOTAL INTEREST EXPENSE 14,604 13,923 42,659 39,768
NET INTEREST INCOME 14,606 13,104 43,230 38,474
Provision for possible
loan losses 1,207 618 2,910 1,773
NET INTEREST INCOME AFTER
PROVISION FOR POSSIBLE
LOAN LOSSES 13,399 12,486 40,320 36,701
OTHER INCOME
Trust department income 435 380 1,293 1,110
Service charges on deposit
accounts 421 408 1,232 1,189
Other service charges and fees 769 770 2,292 2,332
Investment securities gains
(losses) 60 -3 214 -27
Other 215 311 851 979
1,900 1,866 5,882 5,583
OTHER EXPENSES
Salaries and employee benefits 5,127 4,971 15,586 14,544
Occupancy expense 724 737 2,397 2,114
Equipment expense 846 551 2,058 1,638
Data processing expense 30 515 726 1,528
FDIC insurance expense 5 -50 29 1,133
Other 3,252 2,571 8,653 7,832
9,984 9,295 29,449 28,789
INCOME BEFORE INCOME TAXES 5,315 5,057 16,753 13,495
Income Tax Expense 1,670 1,378 5,087 3,684
NET INCOME 3,645 3,679 11,666 9,811
EARNINGS PER SHARE: $0.55 $0.55 $1.75 $1.47
Weighted average number of
shares outstanding 6,682 6,678 6,677 6,690
The accompanying notes are an integral part of the consolidated financial statements.
<F1> Figures have been restated to reflect the acquisition of Crawford Bancorp, Inc.
4
FIRST FINANCIAL CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
<F1>
Nine Months Ended
September 30,
1996 1995
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $11,666 $9,811
Adjustment to reconcile net income to net cash
provided by operating activities:
Provision for possible loan losses 2,910 1,773
Provision for depreciation and amortization 1,923 1,956
Net increase in accrued interest receivable -2,156 -1,599
Other, net -1,830 -924
NET CASH PROVIDED BY OPERATING ACTIVITIES 12,513 11,017
CASH FLOWS FROM INVESTING ACTIVITIES:
Sales and maturities of investment securities 0 0
Maturities of held-to-maturity securities 0 42,780
Sales and maturities of available-for-sale securities 119,896 33,156
Purchases of investment securities:
Held-to-maturity security 0 -17,888
Available-for-sale security -167,315 -107,613
Loans made to customers, net of repayments -36,306 -48,806
Net decrease in federal funds sold 7,475 18,200
Additions to premises and equipment -2,649 -4,782
NET CASH USED BY INVESTING ACTIVITIES -78,899 -84,953
CASH FLOWS FROM FINANCING ACTIVITIES:
Net increase from sales and
redemptions of certificates of deposit 33,994 92,840
Net decrease in other deposits -15,381 -29,977
Net decrease in short-term borrowings 20,662 14,903
Cash dividends -3,760 -3,489
Proceeds from reissuance of Treasury Stock 600 525
Purchase of treasury stock -131 -1,855
Net increase from long-term debt 36,022 1,222
Repayments of long-term debt -11 -10
NET CASH PROVIDED BY FINANCING ACTIVITIES 71,995 74,159
NET DECREASE IN CASH AND CASH EQUIVALENTS 5,609 223
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 65,276 54,498
CASH AND CASH EQUIVALENTS, END OF PERIOD $70,885 $54,721
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the period for interest $42,245 $37,494
Income taxes paid $5,445 $3,959
The accompanying notes are an integral part of the consolidated financial statements.
<F1> Figures have been restated to reflect the acquisition of Crawford Bancorp, Inc.
5
FIRST FINANCIAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. The accompanying September 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
except for the restatement necessary for the acquisition of Crawford Bancorp,
Inc.
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.
$(thousands)................................................... Sept. 30
1996
Impaired loans.........................................................$ 3,211
Impaired loans with related reserve for loan losses calculated under
SFAS 114.............................................................. 3,196
Impaired loans with no realized reserve for loan losses calculated
under SFAS 114........................................................ 15
Sept.30
1996
Average impaired loans.................................................$ 3,976
Interest income recognized on impaired loans........................... 110
Cash basis interest income recognized on impaired loans................ 0
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 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
Net income for the first nine month of $11,666,000 represents a
$1,855,000 increase or 18.9% from the $9,811,000 reported for the same period
a year earlier. Earnings per share was $1.75 an increase of 19.0% from the
$1.47 per share reported in the prior year.
Net income for the current quarter of $3,645,000 represents a 0.9% below
1995 because of merger expenses of First Crawford State Bank and reduced
earnings at that affiliate. Earnings per share for quarters remained
unchanged at $.55 for both 1996 and 1995.
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 nine months of 1996 net interest income increased $4,756,000 or
12.4% 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 4.20% in 1995 to 4.31% in 1996.
For the third quarter of 1996 a net interest income increased $1,502,000
or 11.5% as compared to the same period of 1995, and the net interest margin
also increased from 4.23% in 1995 to 4.33% in 1996.
Other Income
Other income for the nine months of 1996, as compared to the same period
of 1995, increased $299,000 or 5.3%. The major contributing factor was the
increase in investment securities gains of $214,000 in 1996 compared to
$27,000 loss as in the same period of 1995. This also affected third quarter
other income which increased $34,000 or 1.8% from same quarter of 1995. There
were no other significant changes.
7
Other Expenses
Other expenses for the first nine months of 1996, as compared to the
same period of 1995, increased $660,000 or 2.3%. The expenses for the employee
salaries and benefits, occupancy, and equipment increased by $1,042,000,
$283,000 and $420,000 respectively for the first nine months of 1996 compared
to the same period a year earlier. In addition, all other category expenses
increased by $821,000 primarily because of merger expenses of First Crawford
State Bank. These increases were offset by the favorable FDIC insurance
adjustment which decreased by $1,104,000 or 97.4% and data processing expense
by $802,000 or 52.5%. The Corporation changed data processing service from a
facilities management firm to an in-house operation which impacted data
processing expenses favorably.
Other expenses for the three months ended September 30, 1996 were
increased by $689,000 or 7.4%. These increases is primarily the result of the
First Crawford State Bank merger expenses.
Allowance for Possible Loan Losses
The Corporation's provision for possible loan losses totaled $2,910,000
for the first nine months of 1996 compared to $1,773,000 for the same period a
year earlier. The increase provision is the result of increased delinquencies
and charge-offs in consumer loans.
At September 30, 1996 the allowance for possible loan losses was 1.16%
of total loans, net of unearned income. This compares with an allowance of
1.21% at December 31, 1995. Net charge-offs for the first nine months of 1996
were $2,939,000 compared to $1,344,000 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 .43%. With this experience and based on management's
review of the portfolio, management believes the allowance of $10,587,000 at
September 30, 1996 is adequate.
Underperforming Assets
The following is a listing of all categories of non-performing assets
which includes potential problem loans at September 30, 1996 and December 31,
1995.
<F1>
(000') (000')
9-30-96 12-31-95
Nonaccrual Loans $ 4,423 $ 3,088
Restructured Loans 50 219
$ 4,473 $ 3,307
Past due
> 90 days $ 6,168 $ 5,809
Land sold on contract 2,833 1,218
Total non-performing asset $13,474 $10,334
<F1> Figures have been restated to reflect the acquisition of Crawford
Bankcorp, Inc.
The ratio of the allowance for loan losses as a percentage of non-
performing loans was 99.5% at September 30, 1996 compared to 116% from
December 31, 1995. This decrease is the result of an increase in the amount
of non-accrual loans amounting to $1,335,000 or 43%. 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 September 30, 1996:
Non-Accrual Loans
1. 1-4 family residential: $606 thousand or 13% of non-accrual loans
2. Commercial loans: $2.7 million or 61% of non-accrual loans
3. Non farm nonresidential properties: $745 thousand or 17% of non-accrual loans
Past due > 90 days
1. 1-4 family residential: $2.1 million or 34% of past due loans
2. Commercial loans: $1.3 million or 21% of past due loans
3. Non farm nonresidential properties: $826 thousand or 14% of past due loans
4. Consumer Loans $1.4 million or 23% 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 $1.5 million of doubtful loans which are still
in accrual status.
8
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 $187,502,000 of investments will mature which represents 33.9%
of the investment portfolio. Investments with maturities of one to five years
comprise an additional 38.4% 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 $622,112,000 of assets. In this same period a total of
$584,432,000 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 106% as September 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 September 30, the Corporation's leverage ratio was 9.27% which
compared 9.31% at December 31, 1995.
At September 30, 1996, the Corporation's total capital which includes
tier II capital was 17.34% compared to 15.65% at December 31, 1995.
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 17 1996.
(b) The following were elected Directors of the Corporation:
Walter A. Bledsoe, B. Guille Cox, Jr., Thomas T. Dinkel, 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: November 13, 1996 By (Signature)
Donald E. Smith, President
Date: November 13, 1996 By (Signature)
John W. Perry, Secretary
Date: November 13, 1996 By (Signature)
Michael A. Carty, Treasurer
11