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, 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 June 30, 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 June 30, 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:
Item 4. Submission of Matters to a Vote of
Security Holders............................................11
Signatures..............................................................13
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FIRST FINANCIAL CORPORATION
CONSOLIDATED BALANCE SHEETS
June 30, December 31,
1997 1996
(Dollar amounts in thousands)
Cash and due from banks $61,860 $66,658
Interest-bearing deposits with financial institutions 596 1,095
Federal funds sold and securities purchased under
agreements to resell 275 2,000
Investments:
Available-For-Sale 606,366 582,744
Loans:
Commercial, financial and agricultural 202,090 197,449
Real estate - construction 24,540 22,629
Real estate - mortgage 523,856 508,010
Installment 187,651 188,670
Lease financing 3,299 3,284
941,436 920,042
Less:
Unearned income 1,074 1,275
Allowance for loan losses 12,581 10,756
927,781 908,011
Accrued interest receivable 14,833 14,985
Premises and equipment, net 25,188 26,137
Other assets 18,021 18,012
TOTAL ASSETS $1,654,920 $1,619,642
LIABILITIES AND SHAREHOLDERS' EQUITY
Deposits:
Noninterest-bearing $139,959 $141,492
Interest-bearing:
Certificates of deposit of $100,000 or more 204,296 187,199
Other interest-bearing deposits 852,579 846,537
1,196,834 1,175,228
Short-term borrowings:
Federal funds purchased and securities
sold under agreements to repurchase 60,866 62,416
Treasury tax and loan open-end note 8,354 5,131
Advances from Federal Home Loan Bank 154,716 140,244
223,936 207,791
Other liabilities 14,802 15,685
Long-term debt 6,652 6,637
Long-term advances from Federal Home Loan Bank 57,912 63,924
TOTAL LIABILITIES 1,500,136 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 shares for 1996 and 1997
Additional capital 43,761 43,761
Retained earnings 107,559 101,093
Unrealized gains on securities, net of tax 2,629 4,688
TOTAL SHAREHOLDERS' EQUITY 154,784 150,377
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $1,654,920 $1,619,642
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,
1997 1996 (A) 1997 1996 <F1>(A)
(Amounts in thousands, except per share amounts)
INTEREST INCOME:
Loans $20,502 $19,128 $40,442 $38,438
Investment securities:
Taxable 8,098 7,544 16,205 14,574
Tax-exempt 1,864 1,621 3,647 3,302
9,962 9,165 19,852 17,876
Other interest income 57 138 77 365
TOTAL INTEREST INCOME 30,521 28,431 60,371 56,679
INTEREST EXPENSE:
Deposits 11,585 11,532 22,889 22,883
Other 3,930 2,653 7,811 5,172
TOTAL INTEREST EXPENSE 15,515 14,185 30,700 28,055
NET INTEREST INCOME 15,006 14,246 29,671 28,624
Provision for
loan losses 1,336 968 2,737 1,703
NET INTEREST INCOME AFTER
PROVISION FOR
LOAN LOSSES 13,670 13,278 26,934 26,921
OTHER INCOME
Trust department income 495 443 985 858
Service charges on deposit
accounts 338 365 676 716
Other service charges and fees 804 758 1,690 1,618
Investment securities gains 124 148 355 154
Other 158 279 572 636
1,919 1,993 4,278 3,982
OTHER EXPENSES
Salaries and employee benefits 5,326 5,267 10,601 10,459
Occupancy expense 702 808 1,396 1,673
Equipment expense 769 656 1,531 1,212
Other 2,800 2,962 5,680 6,121
9,597 9,693 19,208 19,465
INCOME BEFORE INCOME TAXES 5,992 5,578 12,004 11,438
Income Tax Expense 1,618 1,616 3,199 3,417
NET INCOME $4,374 $3,962 $8,805 $8,021
EARNINGS PER SHARE $0.65 $0.59 $1.32 $1.20
Weighted average number of
shares outstanding 6,682 6,682 6,682 6,677
The accompanying notes are an integral part of the consolidated financial statements.
<F1>(A) All information is restated for the 5% stock dividend and Crawford merger.
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FIRST FINANCIAL CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
Six Months Ended
June 30,
1997 1996 <F1>(A)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $8,805 $8,021
Adjustment to reconcile net income to net cash
provided by operating activities:
Provision for loan losses 2,737 1,702
Provision for depreciation and amortization 1,352 1,260
Net (increase) decrease in accrued interest receivable 152 -667
Other, net -912 -1,607
NET CASH PROVIDED BY OPERATING ACTIVITIES 12,134 8,709
CASH FLOWS FROM INVESTING ACTIVITIES:
Net decrease from purchase and maturities of interest-bearing
deposits with financial institutions 499 175
Sales and maturities of available-for-sale securities 78,787 75,559
Purchases of available-for-sale securities -105,042 -101,011
Loans made to customers, net of repayments -21,847 5,375
Net decrease in federal funds sold 1,725 7,575
Additions to premises and equipment -470 -2,259
NET CASH USED BY INVESTING ACTIVITIES -46,348 -14,586
CASH FLOWS FROM FINANCING ACTIVITIES:
Net increase from sales and
redemptions of certificates of deposit 19,629 31,734
Net increase (decrease) in other deposits 1,977 -28,776
Net increase (decrease) in short-term borrowings 16,145 -8,289
Cash dividends -2,338 -1,611
Proceeds from reissuance of Treasury Stock 0 600
Purchase of treasury stock 0 -131
Net decrease in long-term debt -5,997 -1,832
NET CASH PROVIDED (USED) BY FINANCING ACTIVITIES 29,416 -8,305
NET DECREASE IN CASH AND CASH EQUIVALENTS - 4,798 -14,182
CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR 66,658 65,298
CASH AND CASH EQUIVALENTS, END OF PERIOD $61,860 $51,116
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the period for interest $32,444 $28,198
Income taxes paid $3,134 $3,801
The accompanying notes are an integral part of the consolidated financial statements.
<F1>(A) 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 June 30, 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 presentation 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 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)
June 30,
1997 1996
Impaired loans.................................................$ 2,107 $4,955
Impaired loans with related reserve for loan losses calculated
under SFAS 114................................................ 2,107 4,955
Impaired loans with no realized reserve for loan losses calculated
under SFAS 114................................................ 0 0
June 30,
1997 1996
Average impaired loans.........................................$ 1,969 $4,039
Interest income recognized on impaired loans................... 91 153
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 deemed to be assured,
in which case interest is recognized on the cash basis.
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.
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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
The Corporation reported earnings of $8.8 million for the first six
months which reflect a 9.8% increase above the same period for 1996, while the
second quarter net income of $4.4 million reflects a 10.4% increase over the
second quarter of 1996. Earnings per share results of $1.32 and $0.65 for the
six and three month period respectively, reflect similar increases from the
respective prior year's $1.20 and $0.59 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 1997 net interest income increased to $29,671,000
from $28,624,000 in the same period of 1996. The net interest margin for the
quarter decreased from 4.30% in 1996 to 4.20% in 1997. This decrease was the
result of a lower yield on earning assets and the cost of funds was higher
than the prior year.
Other Income
Other income for the six months of 1997, as compared to the same period
of 1996, increased $296,000 or 7.4%. The major contributing factor was the
increase in investment securities gains of $355,000 in 1997 compared to
$154,000 as in the same period of 1996. Second quarter other income decreased
$74,000 or 3.7% from same quarter of 1996 . There were no other significant
changes.
Other Expenses
Other expenses for the first six months of 1997, as compared to the same
period of 1996, decreased to $19,208,000 from $19,465,000. The Corporation
changed data processing service from a facilities management firm to an in-
house operation which impacted data processing expenses favorably, decreasing
to $66,000 in 1997 from $696,000 for the same period of 1996. These decreases
were offset by increased equipment expenses which grew by $319,000 or 26.3%.
Depreciation expense for capital expenditures incurred for the system
conversion is the primary reason for the increase. Occupancy expenses
decreased by $277,000 or 16.6% compared to the same period of 1996 due to real
and personal property tax reduction. This also affected second quarter other
expenses which decreased to $9,597,000 from $9,693,000 for the same quarter of
1996. There were no other significant changes.
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Allowance for Loan Losses
The Corporation's provision for loan losses totaled $2,737,000 for the
first six months of 1997 compared to $1,703,000 in the same period a year
earlier. This represents a $1,034,000 increase and was deemed appropriate to
properly reserve for the increases in lending activity and underperforming
loans during the period.
At June 30, 1997, the allowance for loan losses was 1.34% of net loans.
This compares with an allowance of 1.17% at December 31, 1996. Net chargeoffs
for the first six months of 1997 were $912,000 compared to $1,700,000 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 $12,581,000 at June 30, 1997 is adequate.
Underperforming Assets
The following is a listing of all categories of non-performing assets
which includes potential problem loans at June 30, 1997 and December 31, 1996.
June 30, 1997 December 31, 1996
(000's) (000's)
Nonaccrual Loans $ 3,765 $ 2,504
Restructured Loans 58 34
$ 3,823 $ 2,538
Past due
> 90 days $ 7,699 $ 5,296
Land sold on contract and other 1,370 1,871
Total non-performing assets $12,892 $ 9,705
======= =======
The ratio of the allowance for loan losses as a percentage of non-
performing assets (exclusive of land sold on contract) was 109% at June
30,1997 compared to 137% at December 31, 1996. This decrease is the result of
an increase in the amount of loans placed in nonaccrual amounting to
$1,261,000 and past due 90 days or more amounting to $2,403,000. There was no
one significant factor which affected this increase.
The following loan categories comprise significant components of the
non-performing loans at June 30, 1997
Non-Accrual Loans:
June 30, 1997 December 31, 1996
(000's) (000's)
1-4 family residential $ 628 17% $ 287 12%
Commercial loans 1,728 46 1,420 57
Installment loans 470 12 469 18
Other, various 939 25 328 13
$3,765 100% $2,504 100%
====== ==== ====== ====
Past due 90 days or more:
1-4 family residential $4,180 54% $2,256 43%
Commercial loans 1,412 18% 1,125 21
Installment loans 845 11% 943 18
Non farm nonresidential properties 784 11% 848 16
Other, various 478 6 124 2
$7,699 100% $5,296 100%
====== ==== ====== ====
9
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 June 30, 1997 the Corporation had $1.4 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 June 30, 1997 are summarized
below. Given a 100 basis point increase in rates, net income would decrease
3.57% over the next 12 months. A 100 basis point decrease would result in a
.78% increase in net income.
Earnings At Risk
YEAR 1 YEAR 2 YEAR 3
DOWN 300 -1.02% -9.30% -18.26%
DOWN 200 .69 -4.80 -10.95
DOWN 100 .78 -2.00 -5.11
UP 100 -3.57 -6.20 -5.61
UP 200 -4.32 -4.83 -3.69
UP 300 -1.62 1.10 5.33
Liquidity Risk
Liquidity is measured by the Corporation's ability to raise funds to
meet the obligations from its customers, including deposit withdrawals and
credit needs. The Corporation has $9.3 million of investments that mature
throughout the coming twelve months. The Corporation also anticipates $19.4
million of principal from mortgage backed securities. Given the current rate
environment the Corporation anticipates $52.8 million of Federal Agency
Securities called within the next year.
Capital Adequacy
As of June 30, 1997 the Corporation's leverage ratio was 9.36% which
compared to 9.35% at December 31, 1996.
At June 30, 1997, the Corporation's total capital, which includes Tier
II capital, was 17.01% compared to 16.00% at December 31, 1996. These amounts
exceed minimum regulatory capital requirements.
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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 16, 1997.
(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, 1996.
(d) The proposal to amend the Corporation's Articles of Incorporation to
increase the authorized shares of Common stock from 10,000,000 to
40,000,000 was approved.
(e) The proposal to adopt an amendment to the Corporation's Articles of
Incorporation providing the classification of the Corporation's Board of
Directors into three classes, setting the number of directors at between
5 and 20, and providing that vacancies on the Board of Directors may be
filled for the remainder of any unexpired term by a majority vote of
directors in office was approved.
(f) The proposal to adopt an amendment to the Corporation's Articles of
Incorporation providing that directors may be removed only for cause and
by the affirmative vote of at least 66 2/3% of the shares eligible to
vote for directors was approved.
(g) The proposal to adopt an amendment to the Corporation's Articles of
Incorporation providing that special meetings of shareholders may only
be called by the Chairman or a majority of the directors of the
Corporation was approved.
(h) The proposal to adopt an amendment to the Corporation's Articles of
Incorporation authorizing 10,000,000 shares of preferred stock was
approved.
(i) The proposal to adopt an amendment to the Corporation's Articles of
Incorporation enumerating factors the Board may consider in evaluating
offers to acquire the Corporation was approved.
(j) The proposal to adopt an amendment to the Corporation's Articles of
Incorporation to add a "fair price business combination" provision was
approved.
(k) The proposal to adopt an amendment to the Corporation's Articles of
Incorporation to require a 66 2/3% vote of shareholders to amend certain
provisions of the Corporation's Articles of Incorporation was approved.
11
(l) The proposal to adopt an amendment to the Corporation's Articles of
Incorporation limiting the liability of directors and indemnifying
officers, directors, employees and agents of the Corporation to the extent
permitted by Indiana law was approved.
(m) The proposal to adopt an amendment to the Corporation's Articles of
Incorporation consistent with Indiana law was approved.
No other information is required to be filed under Part II of this form.
12
FIRST FINANCIAL CORPORATION
PART II OTHER INFORMATION
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 13, 1997 By (Signature)
Donald E. Smith, President
Date: August 13, 1997 By (Signature)
John W. Perry, Secretary
Date: August 13, 1997 By (Signature)
Michael A. Carty, Treasurer
13