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, 2002
----------------
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 April 30, 2002 were outstanding 6,832,284 shares without par value, of
the registrant.
2
FIRST FINANCIAL CORPORATION
FORM 10-Q
INDEX
PART I. Financial Information Page No.
--------
Item 1. Financial Statements:
Consolidated Statements of Condition................................4
Consolidated Statements of Income...................................5
Consolidated Statements of Shareholders' Equity and
Comprehensive Income.............................................6
Consolidated Statements of Cash Flows...............................7
Notes to Consolidated Financial Statements..........................8
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations...........10
Item 3. Interest Rate Risk and Quantitative and Qualitative
Disclosures about Market Risk...........................12
PART II. Other Information:
Signatures...........................................................14
3
FIRST FINANCIAL CORPORATION
CONSOLIDATED STATEMENTS OF CONDITION
(Dollar amounts in thousands, except per share data)
March 31, December 31,
2002 2001
---- ----
(Unaudited)
ASSETS
Cash and due from banks $ 63,383 $ 68,205
Federal funds sold and short-term investments 1,170 43,376
Securities, available-for-sale 516,491 463,509
Loans:
Commercial, financial and agricultural 325,985 302,496
Real estate - construction 35,010 34,610
Real estate - mortgage 810,632 757,345
Installment 267,014 249,710
Lease financing 4,955 5,023
---------- ----------
1,443,596 1,349,184
Less:
Unearned income 677 723
Allowance for loan losses 20,450 18,313
---------- ----------
1,422,469 1,330,148
Accrued interest receivable 14,092 14,948
Premises and equipment, net 29,613 26,237
Bank-owned life insurance 48,445 47,756
Goodwill 7,102 7,102
Other Intangible Assets 4,315 3,767
Other assets 39,264 36,857
---------- ----------
TOTAL ASSETS $2,146,344 $2,041,905
========== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
Deposits:
Noninterest-bearing $ 129,931 $ 163,985
Interest-bearing:
Certificates of deposit of $100 or more 190,259 204,474
Other interest-bearing deposits 1,098,511 945,197
---------- ----------
1,418,701 313,656
Short-term borrowings 38,311 54,596
Other borrowings 436,414 426,078
Other liabilities 29,607 30,064
---------- ----------
TOTAL LIABILITIES 1,923,033 1,824,394
Shareholders' equity
Common stock, $.125 stated value per share;
Authorized shares--40,000,000
Issued shares-7,225,483
Outstanding shares--6,832,284 in 2002
and 6,844,260 in 2001 903 903
Additional capital 66,680 66,680
Retained earnings 164,766 158,038
Accumulated other comprehensive income: 7,887 8,299
Treasury shares at cost 393,199 in 2002
and 381,223 in 2001 (16,925) (16,409)
---------- ----------
TOTAL SHAREHOLDERS' EQUITY 223,311 217,511
---------- ----------
TOTAL LIABILITIES AND
SHAREHOLDERS' EQUITY $2,146,344 $2,041,905
========== ==========
See accompanying notes.
4
FIRST FINANCIAL CORPORATION
CONSOLIDATED STATEMENTS OF INCOME
(Dollar amounts in thousands, except per share data)
Three Months Ended
March 31,
2002 2001
---- ----
(Unaudited) (Unaudited)
INTEREST INCOME:
Loans, including related fees $ 26,535 $ 27,749
Securities:
Taxable 4,945 6,943
Tax-exempt 2,052 2,070
Other 773 706
---------- ----------
TOTAL INTEREST INCOME 34,305 37,468
INTEREST EXPENSE:
Deposits 8,977 13,383
Short-term borrowings 250 6,501
Other borrowings 5,612 676
---------- ----------
TOTAL INTEREST EXPENSE 14,839 20,560
---------- ----------
NET INTEREST INCOME 19,466 16,908
Provision for loan losses 1,932 1,488
---------- ----------
NET INTEREST INCOME AFTER PROVISION
FOR LOAN LOSSES 17,534 15,420
---------- ----------
NON-INTEREST INCOME:
Trust department income 842 886
Service charges and fees on deposit accounts 1,506 1,208
Other service charges and fees 1,255 912
Securities gains 1 -
Insurance commissions 1,324 145
Sales of mortgage loans 566 228
Other 679 488
---------- ----------
TOTAL NON-INTEREST INCOME 6,173 3,867
---------- ----------
NON-INTEREST EXPENSE:
Salaries and employee benefits 8,509 6,191
Occupancy expense 939 871
Equipment expense 852 952
Printing and supplies expenses 216 258
Other 4,312 3,190
---------- ----------
TOTAL NON-INTEREST EXPENSE 14,828 11,462
---------- ----------
INCOME BEFORE INCOME TAXES 8,879 7,825
Provision for income taxes 2,151 1,918
---------- ----------
NET INCOME $ 6,728 $ 5,907
========== ==========
EARNINGS PER SHARE:
Net Income $ 0.98 $ 0.88
========== ==========
Weighted average number of shares
outstanding (in thousands) 6,832 6,694
========== ==========
See accompanying notes.
5
FIRST FINANCIAL CORPORATION
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
AND COMPREHENSIVE INCOME
Three Months Ended
March 31, 2002, and 2001
(Dollar amounts in thousands)
(Unaudited)
Accumulated
Other
Common Additional Retained Comprehensive Treasury
Stock Capital Earnings Income/(Loss) Stock Total
Balance, January 1, 2002 $903 $66,680 $158,038 $8,299 $(16,409) $217,511
Comprehensive income:
Net income 6,728 6,728
Change in net unrealized
gains/(losses) on available-
for-sale securities (412) (412)
--------
Total comprehensive income 6,316
Treasury stock purchase (516) (516)
---- ------- -------- ------ -------- --------
Balance, March 31, 2002 $903 $66,680 $164,766 $7,887 $(16,925) $223,311
==== ======= ======== ====== ======== ========
Balance, January 1, 2001 $903 $66,680 $141,653 $3,900 $(21,913) $191,223
Comprehensive income:
Net income 5,907 5,907
Change in net unrealized
gains/(losses) on
available-for-
sale securities 5,415 5,415
--------
Total comprehensive income 11,322
---- ------- -------- ------ -------- --------
Balance, March 31, 2001 $903 $66,680 $147,560 $9,315 $(21,913) $202,545
==== ======= ======== ====== ======== ========
See accompanying notes.
6
FIRST FINANCIAL CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollar amounts in thousands)
Three Months Ended
March 31,
2002 2001
---- ----
(Unaudited)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income $ 6,728 $ 5,907
Adjustments to reconcile net income to net cash
provided by operating activities:
Net accretion of discounts on investments (411) (571)
Provision for loan losses 1,932 1,488
Securities gains 1 -
Depreciation and amortization 791 835
Other, net 1,344 2,242
-------- --------
NET CASH FROM OPERATING ACTIVITIES 10,385 9,901
-------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Sales of available-for-sale securities 22,776 -
Maturities and principal reductions on
available-for-sale securities 41,634 30,052
Purchases of available-for-sale securities (79,662) (11,185)
Loans made to customers, net of repayments 5,580 9,508
Net change in federal funds sold 42,206 4,175
Purchase of First Community Financial Corp. 15,048 -
Additions to premises and equipment (622) (621)
-------- --------
NET CASH FROM INVESTING ACTIVITIES 46,960 31,929
-------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net change in deposits (41,591) (41,541)
Net change in short-term borrowings (21,423) 26,077
Dividends paid (3,973) (3,747)
Purchase of treasury stock (516) -
Proceeds from other borrowings 21,005 43,500
Repayments on other borrowings (15,669) (79,934)
-------- --------
NET CASH FROM FINANCING ACTIVITIES (62,167) (55,645)
-------- --------
NET CHANGE IN CASH AND CASH EQUIVALENTS (4,822) (13,815)
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 68,205 68,755
-------- --------
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 63,383 $ 54,940
======== ========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the period for interest $ 15,792 $ 20,625
======== ========
Income taxes paid $ 350 $ 124
======== ========
See accompanying notes.
7
FIRST FINANCIAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The accompanying March 31, 2002 and 2001 consolidated financial statements
are unaudited. The December 31, 2001 consolidated financial statements are as
reported in the First Financial Corporation (the Corporation) 2001 annual
report. The following notes should be read together with notes to the
consolidated financial statements included in the 2001 annual report filed with
the Securities and Exchange Commission as an exhibit to Form 10-K.
1. The significant accounting policies followed by the 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. The Corporation reports
financial information for only one segment, banking.
2. 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. The
following table summarizes impaired loan information:
(000's)
March 31, December 31,
2002 2001
---- ----
Impaired loans with related allowance for loan
losses calculated under SFAS No. 114.............. $ 5,546 $ 3,610
Interest payments on impaired loans are typically applied to principal
unless collection of the principal amount is deemed to be fully assured, in
which case interest is recognized on a cash basis.
3. Securities
----------
The amortized cost and fair value of the Corporation's investments at March
31, 2002 are shown below. All securities are classified as available-for-sale.
(000's)
March 31, 2002
Amortized Cost Fair Value
-------------- ----------
United States Government and its agencies $146,533 $148,272
Collateralized Mortgage Obligations 94,040 95,432
States and Municipal 162,172 166,827
Corporate Obligations 105,808 105,960
-------- --------
$508,553 $516,491
======== ========
4. Short-Term Borrowings
---------------------
Period-end short-term borrowings were comprised of the following:
(000's)
March 31, December 31,
2002 2001
---- ----
Federal Funds Purchased $ 22,345 $ 9,920
Repurchase Agreements 14,284 37,400
Note Payable - U.S. Government 1,682 7,276
-------- --------
$ 38,311 $ 54,596
======== ========
8
5, Other Borrowings
----------------
Other borrowings at period-end are summarized as follows:
(000's)
March 31, December 31,
2002 2001
---- ----
FHLB Advances $409,814 $419,478
Note Payable to a Financial Institution 20,000 -
City of Terre Haute, Indiana Economic
Development Revenue bonds 6,600 6,600
-------- --------
$436,414 $426,078
======== ========
6. Derivatives
-----------
During 2000, the Corporation entered into an interest rate swap with a 24
month term and a notional principal balance of $10 million, under which the
Corporation makes variable rate payments, based on LIBOR, and receives fixed
rate payments. The interest rate swap was designated as a hedge against a
similar maturity certificate of deposit promotion. At March 31, 2002, the
interest rate swap contract has a fair value of $226 thousand, which is
approximately the same amount as the fair value adjustment to the hedged
certificates of deposit. The interest rate swap is included in time deposits on
the statement of condition. Net settlement income or expense is included in
interest expense.
During 2001, the Corporation purchased an interest rate cap contract with a
notional principal balance of $50 million. The agreement requires the
counterparty to pay the Corporation the excess of the 3 month LIBOR over 6.00%.
The cap has a 36 month term which runs through March, 2004. No payments are
currently required under the agreement. The agreement was entered into to help
protect the Corporation's net interest income should interest rates increase in
excess of the cap's trigger amount. The interest rate cap is carried at fair
value, approximately $153 thousand at March 31, 2002, and is included in other
assets on the statement of condition.
7. Acquisitions
------------
Forrest Sherer, Inc. (FSI) - On May 1, 2001, the Corporation acquired all
of the outstanding common stock of FSI, a full-line insurance agency
headquartered in Terre Haute, Indiana. The purchase price was $8.5 million,
consisting of the issuance of 182,672 shares of the Corporation's common stock
and the payment of $1.7 million in cash. Assets acquired, liabilities assumed
and net assets at acquisition were not significant. The acquisition was
accounted for as a purchase and resulted in the recording of goodwill of
approximately $5.4 million and a customer list intangible of approximately $3.1
million. Prior to the adoption of new accounting guidance, effective January 1,
2002, goodwill was being amortized using the straight-line method over 15 years.
The customer list intangible is being amortized, using an accelerated method,
over ten years.
Community Financial Corporation (CFC) - On January 31, 2002, the
Corporation acquired all of the outstanding stock of CFC for $33 million in
cash. CFC is a bank holding company based in Olney, Illinois, which had total
assets of approximately $190 million and net assets of approximately $32 million
at acquisition. The fair values of significant assets acquired and liabilities
assumed were $98 million of loans, $48 million of cash and cash equivalents, $38
million of securities and $148 million of deposits. The transaction was
accounted for as a purchase and resulted in the recording of a core deposit
intangible of approximately $1 million.
The following table presents proforma revenue, net income, and earnings per
share determined as if the acquisition had been consummated at January 1, 2001.
Key assumptions include the add back of the amortization of the intangible
assets of $130 thousand of FSI.
Three months ended March 31,
(000's omitted
except per share data)
2002 2001
---- ----
Revenue $ 41,338 $ 46,237
Net income 5,585 5,994
Earnings per share $ 0.82 $ 0.90
9
8. New Accounting Standards
------------------------
A new accounting standard dealing with asset retirement obligations will
apply for 2003. The Corporation does not believe this standard will have a
material affect on its financial position or results of operations.
Effective January 1, 2002, the Corporation adopted a new accounting
standard dealing with the impairment and disposal of long-lived assets. The
effect of this on the financial position and results of operations of the
Corporation was not significant.
New accounting standards issued in 2001 required all business combinations
initiated after June 30, 2001 to be recorded using the purchase method of
accounting. Under the purchase method, all identifiable tangible and intangible
assets and liabilities of the acquired company are recorded at fair value at
date of acquisition, and the excess of cost over fair value of net assets
acquired is recorded as goodwill. Identifiable intangible assets with finite
useful lives will be separated from goodwill and amortized over their expected
lives, whereas goodwill, both amounts previously recorded and future amounts
purchased, will cease being amortized on January 1, 2002. Annual impairment
testing will be required for goodwill with impairment being recorded if the
carrying amount of goodwill exceeds its implied fair value.
The Corporation adopted this standard on January 1, 2002 and ceased
amortizing goodwill associated with the acquisitions of The Morris Plan Company
of Terre Haute in 1998 and FSI in 2001. No goodwill was recognized during the
first quarter of 2002 and management does not believe any amount of the goodwill
recorded by the Corporation is impaired. The $7.1 million of goodwill on the
balance sheet is net of accumulated amortization of $737 thousand.
Intangible assets subject to amortization are as follows:
(000's)
Gross Amount Accumulated
Amortization
Customer list intangible 3,108 417
Core deposit intangible 705 -
Branch purchase intangibles 981 460
Non-compete agreements 500 102
-------- --------
5,294 979
Amortization expense for the first quarter 2002 was $157 thousand.
Estimated amortization expense for the next five years is:
(000's)
2002 653
2003 648
2004 648
2005 648
2006 640
If this standard had been in effect in 2001, net income for the quarter
ended March 31, 2001, would not have included goodwill amortization of $169
thousand and would have been $6.1 million. Earnings per share would have been
$0.91.
FIRST FINANCIAL CORPORATION
ITEMS 2. and 3. Management's Discussion and Analysis of Financial Condition
and Results of Operations and Quantitative and Qualitative Disclosures
About Market Risk
The purpose of this discussion is to point out key factors in the
Corporation's recent performance compared with earlier periods. The discussion
should be read in conjunction with the financial statements beginning on page
four of this report. All figures are for the consolidated entities. It is
presumed the readers of these financial statements and of the following
narrative have previously read the Corporation's annual report for 2001.
Forward-looking statements contained in the following discussion are based
on estimates and assumptions that are subject to significant business, economic
and competitive uncertainties, many of which are beyond the Corporation's
control and are subject to change. These uncertainties can affect actual results
and could cause actual results to differ materially from those expressed in any
forward-looking statements in this discussion.
10
Summary of Operating Results
----------------------------
Net income for the three months ended March 31, 2002 was $6.7 million, a
13.9% improvement from the $5.9 million in the same period in 2001. Basic
earnings per share increased to $0.98 for the first quarter of 2002 compared to
$0.88 for 2001, an 11.4% improvement.
The primary components of income and expense affecting net income are
discussed in the following analysis.
Net Interest Income
- -------------------
The 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 paid for deposits and other sources of funds. Net interest income
increased to $19.5 million in the first three months of 2002 from $16.9 million
in the same period of 2001, a 15.1% or $2.6 million increase. This was the
result of an increase of $142.4 million in average interest earning assets and
an improved net interest margin for 2002. The net interest margin increased from
3.8% in 2001 to 4.1% in 2002, a 6.5% increase driven by a greater decline in the
average cost of funds than in the yield on earning assets.
Non-Interest Income
- -------------------
Non-interest income increased $2.3 million, or 59.6%, over 2001, which was
driven by increases in fee-based income, higher gains from the sales of mortgage
loans and insurance commission income related to the recent acquisition of
Forrest Sherer, Inc.
Non-Interest Expenses
- ---------------------
Non-interest expenses increased $3.4 million, or 29.4%, due mainly to costs
associated with the recent acquisitions, and increases in employee salaries and
fringe benefit programs.
Allowance for Loan Losses
- -------------------------
The Corporation's provision for loan losses increased to $1.9 million for the
first three months of 2002 compared to $1.5 million in the same period of 2001.
At March 31, 2002, the allowance for loan losses was 1.43% of net loans, an
increase from 1.38% at December 31, 2001. Net chargeoffs for the first three
months of 2002 were $1.5 million compared to only $.7 million for the same
period of 2001. Based on management's analysis of the current portfolio, an
evaluation that includes consideration of historical loss experience and
potential loss exposure on identified problem loans, management believes the
allowance of $20.5 million at March 31, 2002 is adequate.
Nonperforming Loans and Leases
- ------------------------------
Nonperforming loans and leases consist of (1) nonaccrual loans and leases
on which the ultimate collectability of the full amount of interest is
uncertain, (2) loans and leases which have been renegotiated to provide for a
reduction or deferral of interest or principal because of a deterioration in the
financial position of the borrower, and (3) loans and leases past due ninety
days or more as to principal or interest. A summary of nonperforming loans and
leases at March 31, 2002 and December 31, 2001 follows:
(000's)
March 31, 2002 December 31, 2001
-------------- -----------------
Nonaccrual loans and leases $12,849 $ 8,854
Renegotiated loans and leases 591 590
Ninety days past due loans and leases 4,157 4,925
------- -------
Total nonperforming loans and leases $17,597 $14,369
======= =======
Ratio of the allowance for loan losses
as a percentage of nonperforming loans
and leases 116% 127%
11
The following loan categories comprise significant components of the
nonperforming loans at March 31, 2002 and December 31, 2001.
(000's)
March 31, 2002 December 31, 2001
-------------- -----------------
Non-Accrual Loans:
- ------------------
1-4 family residential $ 2,882 $ 3,033
Commercial loans 8,719 4,406
Installment loans 1,248 1,415
Other, various - -
------- -------
$12,849 $ 8,854
======= =======
Past due 90 days or more:
- -------------------------
1-4 family residential $ 1,926 $ 1,587
Commercial loans 1,274 2,177
Installment loans 957 1,161
Other, various - -
------- -------
$ 4,157 $ 4,925
======= =======
There are no material industry concentrations within the nonperforming loans.
Interest Rate Sensitivity and Liquidity
- ---------------------------------------
The Corporation charges the nine subsidiary banks with monitoring and
managing their individual sensitivity to fluctuations in interest rates and
assuring that they have adequate liquidity to meet loan demand or any potential
unexpected deposit withdrawals. This function is facilitated by the
Asset/Liability Committee (the 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. This goal is accomplished through management of the
subsidiary bank's balance sheet liquidity and interest rate risk exposures due
to the changes in economic conditions and interest rate levels.
Interest Rate Risk and Quantitative and Qualitative Disclosures About
Market Risk
- -----------
Management considers interest rate risk to be the Corporation's most
significant market risk. Interest rate risk is the exposure to changes in net
interest income as a result of changes in interest rates. Consistency in the
Corporation's net income is largely dependent on the effective management of
this risk.
The Committee reviews a series of monthly reports to ensure that
performance objectives are being met. It monitors and controls interest rate
risk through earnings simulation. Simulation modeling measures the effects of
changes in interest rates, changes in the shape of the yield curve, and changes
in prepayment speeds on net interest income. The primary measure of Interest
Rate Risk is "Earnings at Risk." This measure projects the earnings effect of
various rate movements over the next three years on net interest income. It is
important to note that measures of interest rate risk have limitations and are
dependent upon certain assumptions. These assumptions are inherently uncertain
and, as a result, the model cannot precisely predict the impact of interest rate
fluctuations on net interest income. Actual results will differ from simulated
results due to timing, frequency, and amount of interest rate changes as well as
overall market conditions. The Committee has performed a thorough analysis and
believes the assumptions to be valid and theoretically sound. The relationships
are continuously monitored for behavioral changes.
As outlined in Note 6, the Corporation makes limited use of derivatives to
facilitate its interest rate risk management activities. At March 31, 2002,
derivatives include a $10 million interest rate swap directly related to a
certificate of deposit special and a $50 million interest rate cap designed to
help protect net interest income should rates rise significantly in the near
term. The Corporation currently does not invest in derivative products for
short-term gain, nor is engaged in securities trading activity. The Corporation
invests in assets whose value is derived from an underlying asset. These assets
include government agency issued mortgage-backed securities. The performance of
these assets in changing rate environments and the impact of derivatives are
included in the following table.
The table below shows the Corporation's estimated earnings sensitivity
profile as of March 31, 2002. Given a 100 basis point increase in rates, net
interest income would increase 1.89% over the next 12 months and increase 4.86%
over the second 12 month period. A 100 basis point decrease would result in a
3.40% decrease in net interest income over the next 12 months and a 6.80%
decrease over the second 12 month period. These estimates assume all rates
changed overnight and management took no action as a result of this change.
12
Percentage Change in Net Interest Income
Basis Point ------------------------------------------
Interest Rate Change 12 months 24 months 36 months
---------------------------------------------------------------------------
Down 300 -11.64 -22.73 -31.73
Down 200 -6.09 -13.15 -19.08
Down 100 -3.40 -6.80 -9.72
Up 100 1.89 4.86 7.53
Up 200 4.09 9.81 15.06
Up 300 5.10 13.36 21.21
The Corporation does have other assets and liabilities, which contain
embedded options, most notably callable agency securities, and putable Federal
Home Loan Bank advances. The securities pay a premium rate and the advances
charge a discounted rate in exchange for the option. Therefore, there is a
benefit to current income from using these products. Management believes these
put and call options are clearly and closely related to the underlying
instruments and that they are therefore not considered derivatives. Typical rate
shock analysis does not reflect management's ability to react and thereby reduce
the effects of rate changes, and represents a worst case scenario. The model
assumes no actions are taken and prices change to the full extent of the rate
shock.
Liquidity Risk
- --------------
Liquidity is measured by each bank's ability to raise funds to meet the
obligations from its customers, including deposit withdrawals and credit needs.
This is accomplished primarily by maintaining sufficient liquid assets in the
form of investment securities and core deposits. The Corporation has $18.9
million of investments that mature throughout the coming 12 months. The
Corporation also anticipates $60.0 million of principal payments from
mortgage-backed securities. Given the current interest rate environment, the
Corporation anticipates $14.0 million of securities to be called within the next
12 months. With these sources of funds, the Corporation currently anticipates
adequate liquidity to meet the expected obligations of its customers.
Financial Condition
- -------------------
Comparing the first quarter of 2002 to 2001, average deposits were up
$164.2 million, or 12.4%. These deposits were used to fund an increase in total
average loan of $147.6 million and pay down average borrowings by $21.3 million.
Average assets increased $167.1 million, or 8.3%, and average shareholders'
equity increased $26.9 million, or 13.7%. Both the return on average assets and
return of average equity increased in 2002 over 2001 to 1.23% and 12.6%
respectively. The first quarter's performance pushed book value per share up
8.0% to $32.68 in 2002 from $30.26 in 2001.
The purchase of Community Bank and Trust, N.A. was consummated on January
31, 2002. This acquisition is already benefiting the company. The average
balance changes reported above include Community's $97.9 million of average
loans, $134.9 million of average deposits, and $172.3 million of average total
assets. It also contributed $121 thousand to net income for the quarter.
Capital Adequacy
- ----------------
As of March 31, 2002, the Corporation's leverage ratio was 9.53% compared
to 9.87% at December 31, 2001.
At March 31, 2002, the Corporation's total risk-based capital ratio, which
includes Tier II capital, was 14.62% compared to 15.15% at December 31, 2001.
These amounts exceed minimum regulatory capital requirements.
13
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: May 10, 2002 By /s/ Donald E. Smith
---------------------------------
Donald E. Smith, Chairman
Date: May 10, 2002 By /s/ Norman L. Lowery
---------------------------------
Norman L. Lowery, Vice Chairman
Date: May 10, 2002 By /s/ Michael A. Carty
---------------------------------
Michael A. Carty, Treasurer
14