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, 1997
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, 1997
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, 1997 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 Balance Sheets........................................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:
Signatures..............................................................11
2
FIRST FINANCIAL CORPORATION
CONSOLIDATED BALANCE SHEETS
March 31, December 31,
1997 1996
(Amounts in thousands)
Cash and due from banks $69,011 $66,658
Interest-bearing deposits with financial institutions 1,099 1,095
Federal funds sold and securities purchased under
agreement to resell 0 2,000
Investments:
Available-For-Sale 593,698 582,744
Loans:
Commercial, financial and agricultural 205,281 197,449
Real estate - construction 23,561 22,629
Real estate - mortgage 507,412 508,010
Installment 185,839 188,670
Lease financing 3,392 3,284
925,485 920,042
Less:
Unearned income 1,251 1,275
Allowance for loan losses 11,709 10,756
912,525 908,011
Accrued interest receivable 15,119 14,985
Premises and equipment 25,746 26,137
Other assets 18,222 18,012
TOTAL ASSETS $1,635,420 $1,619,642
LIABILITIES AND SHAREHOLDERS' EQUITY
Deposit:
Noninterest-bearing $136,754 $141,492
Interest-bearing:
Certificates of deposit of $100,000 or more 192,941 187,199
Other interest-bearing deposits 853,066 846,537
1,182,761 1,175,228
Short-term borrowings:
Federal funds purchased and securities
sold under agreements to repurchase 52,392 62,416
Treasury tax and loan open-end note 6,340 5,131
Advances from Federal Home Loan Bank 155,787 140,244
214,519 207,791
Other liabilities 13,008 15,685
Long-term debt 6,633 6,637
Long-term advances from Federal Home Loan Bank 67,638 63,924
TOTAL LIABILITIES 1,484,559 1,469,265
Shareholders' equity:
Common stock, $.125 stated value per share;
authorized 10,000,000 shares; issued and outstanding 835 835
6,681,876 for 1996 and 1997
Additional capital 43,761 43,761
Retained earnings 105,524 101,093
Unrealized gains on securities, net of tax 741 4,688
TOTAL SHAREHOLDERS' EQUITY 150,861 150,377
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $1,635,420 $1,619,642
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,
1997 1996
(Amounts in thousands,
except per share data)
<F1>
INTEREST INCOME:
Loans $19,940 $19,310
Investment securities:
Taxable 8,107 7,030
Tax-exempt 1,783 1,681
9,890 8,711
Other interest income 20 227
TOTAL INTEREST INCOME 29,850 28,248
INTEREST EXPENSE
Deposits 11,304 11,351
Other 3,881 2,519
TOTAL INTEREST EXPENSE 15,185 13,870
NET INTEREST INCOME 14,665 14,378
Provision for loan losses 1,401 735
NET INTEREST INCOME AFTER PROVISION FOR
LOAN LOSSES 13,264 13,643
OTHER INCOME
Trust department income 490 415
Service charges on deposit accounts 332 396
Other service charges and fees 892 851
Investment securities gains (losses) 231 6
Other 414 321
2,359 1,989
OTHER EXPENSES
Salaries and employee benefits 5,275 5,192
Occupancy expense 694 865
Equipment expense 762 556
Data processing expense 63 532
Other 2,817 2,627
9,611 9,772
INCOME BEFORE INCOME TAXES 6,012 5,860
Income Tax Expense 1,581 1,801
NET INCOME $4,431 $4,059
EARNINGS PER SHARE $0.66 $0.61
6,682 6,672
The accompanying notes are an integral part of the consolidated financial statements.
<F1> All information is restated for the 5% stock dividend and Crawford merger
4
FIRST FINANCIAL CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
Three Months Ended
March 31,
1997 1996
(Amounts in thousands)
<F2>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $4,431 $4,059
Adjustment to reconcile net income to net cash
provided by operating activities:
Provision for loan losses 1,401 735
Provision for depreciation and amortization 640 668
Net increase in accrued interest receivable -134 -387
Other, net 1,652 319
NET CASH PROVIDED BY OPERATING ACTIVITIES 7,990 5,394
CASH FLOWS FROM INVESTING ACTIVITIES:
Increase from purchase and maturities of interest-bearing
deposits with financial institutions -4 -5
Sales and maturities of available-for sale securities 37,213 69,532
Purchase of available-for-sale securities -54,195 -77,918
Loans made to customers, net of repayments -5,967 19,633
Net decrease (increase) in federal funds sold 2,000 -4,238
Additions to premises and equipment - 317 -1,410
NET CASH PROVIDED (USED) BY INVESTING ACTIVITIES -21,270 5,594
CASH FLOWS FROM FINANCING ACTIVITIES:
Net increase from sales and
redemptions of certificates of deposit 13,173 32,252
Net decrease in other deposits - 5,640 -15,225
Net increase (decrease) in short-term borrowings 6,728 -46,011
Cash dividends -2,338 -1,770
Proceeds from reissuance of Treasury Stock 0 600
Purchase of treasury stock 0 -131
Net increase from long-term debt 3,714 953
Repayments of long-term debt -4 -4
NET CASH PROVIDED (USED) BY FINANCING ACTIVITIES 15,633 -29,336
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 2,353 -18,348
CASH AND CASH EQUIVALENTS, BEGINNING OF QUARTER 66,658 65,276
CASH AND CASH EQUIVALENTS, END OF QUARTER $69,011 $46,928
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the quarter for interest $14,855 $13,484
Income taxes paid $326 $524
The accompanying notes are an integral part of the consolidated financial statements.
<F2> All information is restated for the 5% stock dividend and Crawford merger.
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FIRST FINANCIAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. The accompanying March 31, 1997 and 1996 consolidated financial
statements are unaudited. The December 31, 1996, consolidated balance sheet
amounts are as reported in the Corporation's 1996 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 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
the Corporation will be unable to collect all amounts due according to the
contractual terms of the loan. Impairment is primarily measured based on the
fair value of the loan's collateral. Impairment losses are included in the
calculation of 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.
(000'S)
March 31,
1997 1996
Impaired loans.........................................................$ 1,999 $3,762
Impaired loans with related reserve for loan losses calculated under
SFAS 114............................................................. 1,998 3,642
Impaired loans with no realized reserve for loan losses calculated
under SFAS 114........................................................ 1 120
March 31,
1997 1996
Average impaired loans.................................................$ 1,993 $4,028
Interest income recognized on impaired loans........................... 42 47
Cash basis interest income recognized on impaired loans................ 0 0
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
restructurings which are included in the impaired loan data above.
6
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 may be returned
to accrual status when all the principal and interest amounts contractually
due are paid and the loan is returned to current.
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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 reader of these financial statements and the following narrative
have previously read the Corporation's annual report for 1996.
Summary of Operating Results
Net income for current quarter of $4,431,000 was 9.2% greater than the
first quarter of 1996. Earnings per share increased to $.66 from $.61 for the
same period of 1996 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 1997 net interest income increased to $14,665,000
from $14,378,000 in the same period of 1996. The net interest margin for the
quarter decreased from 4.33% in 1996 to 4.16% in 1997. This decrease was the
result of a lower yield on earnings asset while the cost of funds was higher
than the prior year.
Other Income
Other income for the three month period ending March 31, 1997, as
compared to the same period of 1996 increased $370,000 or 18.6%. The main
contributing factor to the increase were realized gains from the sale of
securities of $231,000 which were recognized as a result of repositioning the
investment portfolio. In addition, trust department income increased to
$490,000 or 18.1% above the prior year, and other miscellaneous income increased
to $414,000, 15.6% more than the same period of 1996.
Other Expenses
Other expenses for the first three months of 1997, as compared to the same
period of 1996, decreased to $9,611,000 from $9,772,000. The Corporation
changed data processing service from a facilities management firm to an
in-house operation which impacted data processing expenses favorably, decreasing
to $63,000 in 1997 from $532,000 for the same period of 1996. These decreases
were offset by increased equipment expenses which grew by $206,000 or 37%.
Depreciation expense for capital expenditures incurred for the system conversion
is the primary reason for the increase. Occupancy expenses decreased by
$171,000 or 20% compared to the same period of 1996 due to real and personal
property tax reduction.
Allowance for Loan Losses
The Corporation's provision for loan losses totaled $1,401,000 for the
first three months of 1997 compared to $735,000 in the same period a year
earlier. This represents a $666,000 increase and was deemed necessary to
properly reserve for the increase in underperforming loans during the quarter.
8
At March 31, 1997, the allowance for loan losses was 1.27% of net loans.
This compares with an allowance of 1.17% at December 31, 1997. Net chargeoffs
for the first three months of 1997 were $443,000 compared to $848,000 for the
same period of 1996. The ratio of net chargeoffs to average loans outstanding
for the last five years ended December 31, 1996, was .37%. With this experience
and based on management's review of the portfolio, management believes the
allowance of $11,709,000 at March 31, 1997 is adequate.
Underperforming Assets
The following is a listing of all categories of non-performing assets
which includes potential problem loans at March 31, 1997 and December 31, 1996.
(000') (000')
March 31, 97 December 31,96
Nonaccrual Loans $ 3,735 $ 2,504
Restructured Loans 44 34
$ 3,779 $ 2,538
Past due
> 90 days $ 5,516 $ 5,296
Land sold on contract and others 1,989 1,871
Total non-performing asset $11,284 $ 9,705
The ratio of the allowance for loan losses as a percentage of
non- performing loans was 126% at March 31, 1997 representing a decrease of 8%
from December 31, 1996. This decrease is the result of an increase in the
amount of loans placed in nonaccrual status amounting to $1,231,000 or 49%. No
one particular category affected the 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, 1997
Non-Accrual Loans:
(000') (000)
March 31, 97 December 31,96
1-4 family residential $ 426 11% $ 287 12%
Commercial loans 2,035 55% 1,420 57%
Installment loans 406 11% 469 18%
Other, various 868 23% 328 13%
$3,735 100% $2,504 100%
====== ==== ====== ====
Past due 90 days or more:
1-4 family residential $1,991 36% $2,256 43%
Commercial loans 937 17% 1,125 21%
Installment loans 921 17% 943 18%
Non farm nonresidential properties 1,031 19% 848 16%
Other, various 636 11% 124 2%
$5,516 100% $5,296 100%
====== ==== ====== ====
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There are no material concentrations by industry 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. At March 31, 1997, the Corporation had $1.2 million of
doubtful loans which are still in accrual status.
INTEREST RATE SENSITIVITY AND LIQUIDITY
First Financial Corporation charges the eight subsidiary banks with
monitoring and managing their individual sensitivity to fluctuations in
interest rates and assuring that they have adequate liquidity to meet loan and
deposit demand. This function is facilitated by the Asset Liability
Committee. The primary goal of the committee is to maximize net interest
income within the interest rate risk limits approved by the Board of Directors.
Interest Rate Risk
The committee reviews a series of monthly reports to insure that
performance objectives are being met. The committee monitors and controls
interest rate risk through earnings simulation. Simulation modeling measures
the effects of interest rate changes on net interest income. The primary
measure of interest rate risk is Earnings At Risk. This measure projects the
effect of various rate movements over the next three years.
The Corporation's Earnings At Risk as of March 31, 1997 are summarized
below. Given a 100 basis point increase in rates, net income would increase
2.02% over the next 12 months. A 100 basis point decrease would result in a
.36% increase in net income.
Earnings At Risk
YEAR 1 YEAR 2 YEAR 3
DOWN 300 -3.01% -8.09% -17.22%
DOWN 200 0.41% -2.66% -8.07%
DOWN 100 0.36% -1.18% -3.77%
UP 100 2.02% 3.54% 5.89%
UP 200 3.95% 7.35% 11.93%
UP 300 5.69% 11.46% 17.97%
Liquidity Risk
Liquidity is measured by the Corporation's ability to raise funds to meet
the obligation from its customers, including deposit withdrawals and credit
needs. The Corporation has $13.1 million of investments that mature throughout
the coming year. The Corporation also anticipates $17.5 million of principal
from mortgage backed securities. Given the current rate environment the
Corporation does not anticipate any Federal Agency calls within the next
year.
Capital Adequacy
As of March 31, 1997 the Corporation's leverage ratio was 9.25% which
compared to 9.35% at December 31, 1996.
At March 31, 1997, the Corporation's total capital, which includes Tier II
capital, was 16.54% compared to 16.00% at December 31, 1996. These amounts
exceed minimum regulatory capital requirements.
10
FIRST FINANCIAL CORPORATION
PART II OTHER INFORMATION
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 13, 1997 By (Signature)
Donald E. Smith, President
Date: May 13, 1997 By (Signature)
John W. Perry, Secretary
Date: May 13, 1997 By (Signature)
Michael A. Carty, Treasurer
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