EXHIBIT 13(a)
CONSOLIDATED FINANCIAL STATEMENTS
REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
Board of Directors and Stockholders
First Financial Corporation
We have audited the accompanying consolidated balance sheets of First Financial
Corporation as of December 31, 1996 and 1995, and the related consolidated
statements of income, changes in stockholders' equity, and cash flows for each
of the three years in the period ended December 31, 1996. These financial
statements are the responsibility of the Corporation's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of First Financial
Corporation at December 31, 1996 and 1995, and the consolidated results of its
operations and its cash flows for each of the three years in the period ended
December 31, 1996 in conformity with generally accepted accounting principles.
January 14, 1997
Milwaukee, Wisconsin
-1-
CONSOLIDATED BALANCE SHEETS
FIRST FINANCIAL CORPORATION
December 31,
1996 1995
----------- -------
(Dollars in thousands)
ASSETS
Cash $ 133,529 $ 123,379
Federal funds sold 2,513 34,929
Interest-earning deposits 18,043 13,801
---------- ----------
CASH AND CASH EQUIVALENTS 154,085 172,109
Securities available for sale (at fair value):
Investment securities 136,477 80,999
Mortgage-related securities 1,048,085 571,293
Securities held to maturity:
Investment securities (fair value of
$57,996,000--1996 and $119,063,000--
1995) 58,434 119,426
Mortgage-related securities (fair value of
$597,106,000--1996 and $691,060,000--
1995) 602,352 699,468
Loans receivable:
Held for sale 19,119 26,651
Held for investment 3,493,700 3,590,149
Foreclosed properties and repossessed
assets 3,997 3,379
Real estate held for investment or sale 7,431 8,289
Office properties and equipment 50,428 51,124
Intangible assets, less accumulated
amortization 12,739 21,481
Other assets 113,584 126,740
---------- ----------
$5,700,431 $5,471,108
========== ==========
-2-
December 31,
1996 1995
---------- -------
(Dollars in thousands)
LIABILITIES
Deposits $4,444,932 $4,424,525
Federal Home Loan Bank advances and
other borrowings 769,526 570,508
Advance payments by borrowers for
taxes and insurance 13,382 13,206
Other liabilities 62,080 77,952
---------- ----------
TOTAL LIABILITIES 5,289,920 5,086,191
STOCKHOLDERS' EQUITY
Serial preferred stock, $1 par value:
Authorized: 3,000,000 shares
None issued
Common stock, $1 par value:
Authorized: 75,000,000 shares
Issued: 37,450,879 (1996) and
37,095,456 (1995) shares
Outstanding: 36,802,484 (1996) and
37,095,456 (1995) shares 37,451 37,095
Additional paid-in capital 43,668 42,337
Net unrealized gain (loss) on
securities available for sale 1,300 (6,021)
Treasury stock, 648,395 shares, at cost (14,447)
Common stock purchased by ESOP (271)
Retained earnings 342,539 311,777
---------- ----------
TOTAL STOCKHOLDERS' EQUITY 410,511 384,917
$5,700,431 $5,471,108
========== ==========
See notes to consolidated financial statements.
-3-
CONSOLIDATED STATEMENTS OF INCOME
FIRST FINANCIAL CORPORATION Year Ended December 31,
1996 1995 1994
(Dollars in thousands,
except per share amounts)
Interest income:
Mortgage loans $175,508 $183,434 $176,914
Other loans 126,186 120,256 100,755
Mortgage-related securities 97,251 98,821 89,379
Investments 20,105 14,797 14,816
-------- -------- --------
TOTAL INTEREST INCOME 419,050 417,308 381,864
Interest expense:
Deposits 199,450 196,823 174,819
Federal Home Loan Bank advances and
other borrowings 32,291 37,348 29,403
-------- -------- --------
TOTAL INTEREST EXPENSE 231,741 234,171 204,222
-------- -------- --------
NET INTEREST INCOME 187,309 183,137 177,642
Provisions for losses on loans 9,030 9,738 6,824
-------- -------- --------
NET INTEREST INCOME AFTER PROVISIONS
FOR LOSSES ON LOANS 178,279 173,399 170,818
Non-interest income:
Deposit account service fees 13,934 12,101 10,582
Loan fees and service charges 12,300 11,109 9,814
Insurance and brokerage sales commis-
sions 7,293 6,849 7,269
Service fees on loans sold 6,193 7,125 7,737
Net gain on sales of loans held for sale 15,082 2,703 2,732
Net gain (loss) on sales of securities
available for sale (11,592) 1,182 (7,896)
Other 3,184 3,222 3,056
-------- -------- --------
TOTAL NON-INTEREST INCOME 46,394 44,291 33,294
-------- -------- --------
224,673 217,690 204,112
Non-interest expense:
Compensation, payroll taxes and other
employee benefits 47,996 45,263 51,496
Federal deposit insurance premiums 38,439 10,169 10,291
Occupancy 9,377 9,006 9,157
Amortization of intangible assets 8,955 5,245 5,365
Data processing 7,577 7,159 7,360
Acquisition-related costs 6,458
Loan expense 7,222 6,257 6,669
Telephone and postage 6,594 6,434 6,083
Marketing 6,012 5,941 5,004
Furniture and equipment 4,855 5,303 6,071
Net cost of (income from) operations
of foreclosed properties (260) (164) 1,123
Other 12,005 11,531 11,748
-------- -------- --------
TOTAL NON-INTEREST EXPENSE 148,772 118,602 120,367
-------- -------- --------
INCOME BEFORE INCOME TAXES
AND EXTRAORDINARY ITEM 75,901 99,088 83,745
Income taxes 25,443 35,104 30,716
-------- -------- --------
INCOME BEFORE EXTRAORDINARY ITEM 50,458 63,984 53,029
Extraordinary item, net of tax
effect of $370,000 (686)
-------- -------- --------
NET INCOME $ 49,772 $ 63,984 $ 53,029
======== ======== ========
Earnings per share:
Primary:
Income before extraordinary item $ 1.33 $ 1.70 $ 1.42
Extraordinary item (.02)
-------- -------- --------
Net income $ 1.31 $ 1.70 $ 1.42
======== ======== ========
Fully diluted:
Income before extraordinary item $ 1.32 $ 1.69 $ 1.42
Extraordinary item (.02)
-------- -------- --------
Net income $ 1.30 $ 1.69 $ 1.42
======== ======== ========
Cash dividends paid per share $ .510 $ .384 $ .320
See notes to consolidated financial statements.
-4-
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
FIRST FINANCIAL CORPORATION
Net
Unrealized
Gain
(Loss) on Common
Additional Securities Stock
Common Paid-In Available Treasury Purchased
Stock Capital For Sale Stock By ESOP
------ --------- ---------- -------- ---------
(Dollars in thousands)
BALANCES AT JANUARY 1, 1994 $34,823 $37,967 $ 1,747 $(4,126) $(2,025)
Net income
Cash dividends ($.320 per share)
Exercise of stock options 349 1,246
Issuance of common stock in
conjunction with acquisition 1,172 3,616
Change in net unrealized gain
(loss) on securities available
for sale, net of tax (10,366)
Pre-merger transactions
of pooled company 63 19 457 417
-------- -------- -------- -------- --------
BALANCES AT DECEMBER 31, 1994 36,407 42,848 (8,619) (3,669) (1,608)
Net income
Cash dividends ($.384 per share)
Exercise of stock options 630 2,394
Payment on ESOP loan 790
Change in net unrealized gain
(loss) on securities available
for sale, net of tax 2,598
Pre-merger transactions
of pooled company 58 (2,905) 3,669 547
-------- -------- -------- -------- --------
BALANCES AT DECEMBER 31, 1995 37,095 42,337 (6,021) 0 (271)
Net income
Cash dividends ($.510 per share)
Exercise of stock options 356 1,346
Payment on ESOP loan 271
Change in net unrealized gain
(loss) on securities available
for sale, net of tax 7,321
Purchase of treasury stock (14,447)
Other (15)
--------- --------- --------- --------- ---------
BALANCES AT DECEMBER 31, 1996 $ 37,451 $ 43,668 $ 1,300 $ (14,447) $ 0
========= ========= ========= ========= =========
See notes to consolidated financial statements.
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY (Continued)
FIRST FINANCIAL CORPORATION
Retained Stockholders'
Earnings Equity
-------- ---------
BALANCES AT JANUARY 1, 1994 $212,257 $280,643
Net income 53,029 53,029
Cash dividends ($.320 per share) (9,950) (9,950)
Exercise of stock options 1,595
Issuance of common stock in
conjunction with acquisition 6,613 11,401
Change in net unrealized gain
(loss) on securities available
for sale, net of tax (10,366)
Pre-merger transactions
of pooled company 956
-------- --------
BALANCES AT DECEMBER 31, 1994 261,949 327,308
Net income 63,984 63,984
Cash dividends ($.384 per share) (14,156) (14,156)
Exercise of stock options 3,024
Payment on ESOP loan 790
Change in net unrealized gain
(loss) on securities available
for sale, net of tax 2,598
Pre-merger transactions
of pooled company 1,369
-------- --------
BALANCES AT DECEMBER 31, 1995 311,777 384,917
Net income 49,772 49,772
Cash dividends ($.510 per share) (19,010) (19,010)
Exercise of stock options 1,702
Payment on ESOP loan 271
Change in net unrealized gain
(loss) on securities available
for sale, net of tax 7,321
Purchase of treasury stock (14,447)
Other (15)
-------- ---------
BALANCES AT DECEMBER 31, 1996 $342,539 $ 410,511
======== =========
See notes to consolidated financial statements.
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CONSOLIDATED STATEMENTS OF CASH FLOWS
FIRST FINANCIAL CORPORATION
Year Ended December 31,
1996 1995 1994
-------- -------- ------
(Dollars in thousands)
OPERATING ACTIVITIES
Net income $ 49,772 $ 63,984 $ 53,029
Adjustments to reconcile net income
to net cash provided by operating
activities:
Decrease (increase) in accrued
interest on loans 261 (4,657) (2,563)
(Decrease) increase in accrued
interest on deposits (1,090) 4,123 148
Loans originated for sale (225,154) (210,150) (298,813)
Proceeds from sales of loans held
for sale 320,066 211,658 443,931
Provision for depreciation 6,075 5,746 6,513
Provision for losses on loans and
other assets 8,563 10,240 7,949
Amortization of intangible assets
and servicing rights 10,822 6,442 6,255
Net (gain) loss on sales of loans
and other assets (3,447) (3,911) 4,924
Other (17,176) 3,639 (1,971)
---------- ---------- -----------
NET CASH PROVIDED BY OPERATING ACTIVITIES 148,692 87,114 219,402
INVESTING ACTIVITIES
Proceeds from sales of investment
securities available for sale 24,343 18,759 65,088
Proceeds from maturities of investment
securities held to maturity 90,327 51,126 24,393
Proceeds from maturities of available
for sale investment securities 6,935 9,615 16,649
Purchases of available for sale
investment securities (82,884) (15,770) (2,627)
Purchases of investment securities held
to maturity (29,849) (62,710) (7,610)
Proceeds from sales of mortgage-related
securities available for sale 395,281 182,563
Principal payments received on
mortgage-related securities 195,168 233,949 292,219
Purchases of mortgage-related securities (803,280) (594,952)
Principal collected on loans
receivable 669,578 564,076 586,875
Loans originated for portfolio (825,935) (726,877) (972,726)
Additions to office properties and
equipment (4,391) (3,473) (3,397)
Proceeds from sales of foreclosed
properties and repossessed assets 7,408 8,048 8,745
Proceeds from sales of real estate
held for investment 1,376 18 14,042
Business acquisition 4,593
---------- ---------- --------
NET CASH PROVIDED BY (USED IN)
INVESTING ACTIVITIES (355,923) 76,761 (386,145)
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CONSOLIDATED STATEMENTS OF CASH FLOWS--Continued
FIRST FINANCIAL CORPORATION Year Ended December 31,
1996 1995 1994
-------- -------- ------
(Dollars in thousands)
FINANCING ACTIVITIES
Net increase (decrease) in deposits 21,497 38,947 ( 96,257)
Increase (decrease) in advance payments by
borrowers for taxes and insurance 176 (2,780) 337
Net increase in reverse repurchase
agreements 28,118 12,845 13,127
Proceeds of borrowings 1,718,100 1,094,623 1,119,527
Repayments of borrowings (1,547,200) (1,245,406) (881,342)
Proceeds from exercise of stock options 1,702 3,254 1,845
Proceeds from vesting of employee
benefit plans 271 1,929 416
Purchase of treasury stock (14,447)
Payments of cash dividends to
stockholders (19,010) (14,156) (9,950)
---------- ---------- ----------
NET CASH PROVIDED BY (USED IN)
FINANCING ACTIVITIES 189,207 (110,744) 147,703
---------- ---------- ----------
INCREASE (DECREASE) IN CASH AND CASH
EQUIVALENTS (18,024) 53,131 (19,040)
Cash and cash equivalents at
beginning of year 172,109 118,978 138,018
---------- ---------- ----------
CASH AND CASH EQUIVALENTS AT END OF YEAR $ 154,085 $ 172,109 $ 118,978
========== ========== ==========
Supplemental disclosure of cash flow information:
Cash paid or credited to accounts for:
Interest on deposits and borrowings $ 232,275 $ 230,501 $ 202,520
Income taxes 26,997 35,138 34,111
Non-cash investing activities:
Mortgage loans securitized and trans-
ferred to mortgage-related securities
available for sale 161,087
Investment securities transferred to
available-for-sale portfolio at
amortized cost 20,734 67,337
Mortgage-related securities transferred
to available-for-sale portfolio at
amortized cost 391,537 64,153
Mortgage loans transferred to loans
held for sale portfolio 27,068 15,467 26,028
Loans receivable transferred to
foreclosed properties 7,676 6,158 7,169
See notes to consolidated financial statements.
-7-
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FIRST FINANCIAL CORPORATION
December 31, 1996
NOTE A--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Business: First Financial Corporation ("FFC") provides a full range of financial
services from offices in Wisconsin and Illinois through its wholly-owned insured
banking subsidiary, First Financial Bank ("FF Bank") and FF Bank's subsidiaries,
all of which are wholly-owned. FFC and its subsidiary are subject to competition
from other financial institutions. FFC and its subsidiary also are subject to
the regulations of certain federal agencies and undergo periodic examinations by
those regulatory authorities.
Basis of Financial Statement Presentation: The consolidated financial statements
have been prepared in accordance with generally accepted accounting principles
and include the accounts of FFC and FF Bank. Significant intercompany accounts
and transactions have been eliminated. Investments in joint ventures, which are
not material, are accounted for on the equity method.
In preparing the consolidated financial statements in conformity with generally
accepted accounting principles, management is required to make estimates and
assumptions that affect the amounts reported in the consolidated financial
statements and accompanying notes. Actual results could differ from those
estimates. In addition to those discussed under "Investment And Mortgage-Related
Securities Held To Maturity And Available For Sale" below, material estimates
that are particularly susceptible to change in the near-term relate to the
determination of the allowance for loan losses, the valuation of investments,
mortgage-related securities, and mortgage servicing rights. In connection with
the determination of the allowance for loan losses and real estate owned,
management obtains independent appraisals for significant properties.
Cash and Cash Equivalents: FFC considers its interest-earning deposits and
federal funds sold which have original maturities of three months or less to be
cash equivalents.
Investment and Mortgage-Related Securities Held to Maturity and Available for
Sale: Debt securities are classified as held-to- maturity when FFC has the
intent and ability to hold the securities to maturity. Held-to-maturity
securities are stated at amortized cost.
Debt securities not classified as held-to-maturity are classified as
available-for-sale. Available-for-sale securities are stated at fair value, with
the unrealized gains and losses, net of tax, reported as a separate component of
stockholders' equity. As a result, the balance of stockholders' equity at
December 31, 1996 was increased by $1,300,000, net of $742,000 in deferred
income
-8-
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--Continued
FIRST FINANCIAL CORPORATION
NOTE A--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES--Continued
taxes, and at December 31, 1995 was decreased by $6,021,000, net of $3,104,000
in deferred income taxes. See Notes C and D. No securities are held by FFC in a
trading account.
In October 1995, the Financial Accounting Standards Board ("FASB") approved a
modification of Statement of Financial Accounting Standards ("Statement") No.
115, wherein from November 15, 1995 through December 31, 1995 FF Bank had the
opportunity to reconsider its classification of investment and mortgage-related
securities as held-to-maturity, trading, or available-for-sale. Accordingly, on
December 21, 1995, FFC chose to reclassify certain investments and
mortgage-related securities from held-to- maturity to available-for-sale. At the
date of transfer, the amortized cost of the investment and mortgage-related
securities was $20,734,000 and $391,537,000, respectively. The net unrealized
gain on those securities was $895,000 and $410,000, which was credited to
stockholders' equity net of income tax effect of $322,000 and $148,000,
respectively.
The amortized cost of debt securities classified as held-to- maturity or
available-for-sale is adjusted for amortization of premiums and accretion of
discounts to maturity, or in the case of mortgage-related securities, over the
estimated life of the security. Such amortization is included in interest income
from the related security.
Interest and dividends are included in interest income from the related
securities. Realized gains and losses and declines in value judged to be other
than temporary are included in net securities gains (losses). The cost of
securities sold is based on the specific identification method.
In connection with the amortization of premiums and discounts and in determining
if declines in value are other than temporary, management estimates future cash
flows to be generated by pools of loans underlying the mortgage-related
securities. Included in this evaluation are such factors as i) estimated loan
prepayment rates, ii) a review of delinquencies, foreclosures, repossessions and
recovery rates relative to the underlying mortgage loans collateralizing each
security, iii) the level of available subordination or other credit
enhancements, iv) an assessment of the servicer of the underlying mortgage
portfolio and v) the rating assigned to each security by independent national
rating agencies.
Interest, Fees, and Discounts on Loans: Interest on loans is recorded using the
accrual method. Allowances ($907,000--1996; $914,000--1995) are established for
uncollected interest on non-accrual loans. Generally, a loan is classified as
non-accrual and the accrual of interest on such loan is discontinued when the
contractual payment of principal or interest has become more than 90 days past
due or management has serious doubts about further
-9-
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--Continued
FIRST FINANCIAL CORPORATION
NOTE A--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES--Continued
collectibility of principal or interest, even though the loan currently is
performing. When a loan is placed on non-accrual status, accrued but unpaid
interest is reversed. Generally, loans are restored to accrual status when the
obligation is brought current, has performed in accordance with the contractual
terms for a reasonable period of time and the ultimate collectibility of the
total contractual principal and interest is no longer in doubt.
Loan origination and commitment fees and certain direct loan origination costs
are being deferred and the net amounts amortized as an adjustment to the related
loan's yield. FFC is amortizing these amounts, using the level yield method,
over the contractual life of the related loans. Such deferred fees are recorded
as income upon prepayment of the related loans.
Unearned discounts on consumer, home improvement and manufactured housing loans
are amortized over the term of the loans using a method which approximates the
level yield method.
The discounts on loans of acquired businesses are being amortized using the
level yield method, adjusted for prepayments.
Loans Held for Sale: Loans held for sale are recorded at the lower of aggregate
cost or market value and generally consist of current production of certain
fixed-rate first mortgage loans. Fees received from the borrower are deferred
and recorded as an adjustment of the sales price.
Mortgage Servicing Rights: Fees charged for servicing loans for other investors
are recognized as income in the period the related loan payments are received
from the borrowers. Effective January 1, 1995, FFC adopted Statement No. 122,
"Accounting for Mortgage Servicing Rights." Statement No. 122 requires that a
mortgage banking enterprise recognize as a separate asset the rights to service
mortgage loans for others, whether those rights are purchased or originated. In
accordance with the Statement, an enterprise that acquires mortgage servicing
rights through either the origination or purchase of mortgage loans and sells or
securitizes those loans with servicing rights retained should allocate the total
cost of the mortgage loans to the mortgage servicing rights and to the loans
(without the mortgage servicing rights) based on their relative fair values. The
value of mortgage servicing rights originated prior to January 1, 1995 is not
recorded on FFC's consolidated balance sheets. FFC has recognized originated
servicing rights of $2,715,000 and $1,747,000, during 1996 and 1995,
respectively.
Originated servicing rights resulting from the above adoption of Statement No.
122, purchased servicing rights resulting from the valuation of loan servicing
acquired in business acquisitions or in the purchase of loan servicing rights
from other financial institutions and excess servicing rights for servicing
income
-10-
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--Continued
FIRST FINANCIAL CORPORATION
NOTE A--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES--Continued
above the normal servicing spread, are amortized in proportion to, and over the
period of, estimated net servicing revenues, and are shown as a reduction of
"Service fees on loan sold" in the consolidated statements of income. Servicing
rights recorded subsequent to the adoption of Statement No. 122 are carried at
the lower of amortized cost or fair value. Impairment of mortgage servicing
rights is assessed based on the fair value of those rights. Fair values are
estimated using discounted cash flows based on a current market interest rate.
For purposes of measuring impairment, the rights are stratified based on the
following predominant risk characteristics of the underlying loans: loan product
type (i.e., fixed rate or adjustable) and interest rate. The amount of
impairment recognized is the amount by which the capitalized mortgage servicing
rights for a stratum exceed their fair value.
Allowances for Losses: Allowances for losses on loans, foreclosed properties and
repossessed assets are established when a loss is probable and can be reasonably
estimated. These allowances are provided based on past experience and on
prevailing market conditions. Management's evaluation of loss considers various
factors including, but not limited to, general economic conditions, loan
portfolio composition, prior loss experience and estimated collateral value.
A substantial portion of FF Bank's loans are collateralized by real estate in
Wisconsin and Illinois. Accordingly, the ultimate collectibility of a
substantial portion of FF Bank's loan portfolio and the recovery of a
substantial portion of the carrying amount of real estate owned are susceptible
to changes in market conditions in Wisconsin and Illinois.
Management believes that the allowances for losses on loans, foreclosed
properties and repossessed assets are adequate. While management uses available
information to recognize losses, future additions to the allowances may be
necessary based on changes in economic conditions.
Effective January 1, 1995, FFC adopted Statement No. 114, "Accounting by
Creditors for Impairment of a Loan." Statement No. 114, which was amended by
Statement No. 118, requires that impaired loans be measured at the present value
of expected future cash flows discounted at the loan's effective interest rate,
or, as a practical expedient, at the loan's observable market price or the fair
value of the collateral if the loan is collateral dependent. Statement No. 114
permits certain loans with homogeneous characteristics to be excluded from the
effects of this statement. Approximately 95% of FFC's loans outstanding at
December 31, 1996 are included in one or more homogeneous categories. The
adoption of Statements No. 114 and 118 had no effect on FFC's financial
condition or results of operations.
-11-
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--Continued
FIRST FINANCIAL CORPORATION
NOTE A--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES--Continued
Depreciation and Amortization: The cost of office properties and equipment and
real estate held for investment or sale is being depreciated principally by the
straight-line method over the estimated useful lives of the assets. The cost of
leasehold improvements is being amortized on the straight-line method over the
lesser of the term of the respective lease or estimated economic life.
Intangible Assets: The cost in excess of net assets of acquired businesses is
being amortized over ten to fifteen years using the straight-line and
accelerated methods. The cost in excess of net assets of acquired businesses,
aggregating $1,356,000 and $4,164,000 at December 31, 1996 and 1995,
respectively, is net of accumulated amortization.
The premiums resulting from the valuation of core deposits acquired in business
combinations or in the purchase of branch offices are amortized over the
estimated life of the deposit base of seven to ten years using the level yield
method. Core deposit intangibles, aggregating $11,383,000 and $17,317,000 at
December 31, 1996 and 1995, respectively, are net of accumulated amortization.
During 1996 $4,200,000 in additional amortization of goodwill and core deposit
intangibles was recorded based on FFC's re-evaluation of these intangibles in
accordance with Statement No. 72, "Accounting for Certain Acquisitions of
Banking and Thrift Institutions" with regard to early 1980's acquisitions.
Income Taxes: FFC and its subsidiary file a consolidated federal income tax
return and separate state income tax returns. Financial statement provisions are
made in the income tax expense accounts for deferred taxes applicable to income
and expense items reported in different periods than for income tax purposes.
FFC accounts for income taxes using the liability method. Deferred income tax
assets and liabilities are adjusted regularly to amounts estimated to be
receivable or payable based on current tax law and FFC's tax status.
Consequently, tax expense in future years may be impacted by changes in tax
rates and tax return limitations.
Per Share Amounts: The Board of Directors declared a five-for-four stock split
of FFC's common stock to stockholders of record on December 16, 1996 payable on
December 30, 1996. This stock split was distributed in the form of a 25% stock
dividend. The par value of the common stock remained at $1.00. All numbers of
shares and per share amounts in the financial statements and notes have been
adjusted to reflect these distributions.
Primary and fully diluted earnings per share are based on the weighted average
number of common shares outstanding during each
-12-
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--Continued
FIRST FINANCIAL CORPORATION
NOTE A--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES--Continued
period and common equivalent shares (using the treasury sharemethod) outstanding
at the end of each period. FFC's common equivalent shares consist entirely of
stock options. The resulting number of shares used in computing primary earnings
per share in 1996, 1995 and 1994 after adjustment is 38,093,000, 37,732,000 and
37,319,000, respectively. The resulting number of shares used in computing fully
diluted earnings per share in 1996, 1995 and 1994 after adjustment is
38,220,000, 37,917,000 and 37,358,000, respectively.
Pending Accounting Changes: The FASB has issued Statement No. 125, "Accounting
for Transfers and Servicing of Financial Assets and Extinguishments of
Liabilities" which is effective for transfers occurring after December 31, 1996.
This statement provides accounting and reporting standards for transfers and
servicing of financial assets and extinguishments of liabilities based on a
consistent application of a financial-components approach that focuses on
control. The FASB subsequently issued Statement No. 127, in December, 1996,
which provides for the deferral of the effective date of certain provisions of
Statement No. 125. Management believes that the effect of adopting these
statements will not be material to FFC's financial condition or results of
operations.
Reclassifications: Certain 1995 and 1994 accounts have been reclassified to
conform to the 1996 presentations.
NOTE B--BUSINESS COMBINATION
On February 28, 1995, FFC acquired FirstRock Bancorp, Inc. ("FirstRock") of
Rockford, Illinois. In the acquisition, 5,458,015 shares of FFC common stock
were issued to FirstRock shareholders. Upon closing, FirstRock's subsidiary,
First Federal Savings Bank, FSB ("First Federal") was merged into FF Bank with
First Federal's six offices now operating as branch banking offices of FF Bank.
FirstRock was merged into FFC. The transaction was accounted for as a
pooling-of-interests.
As a result of the FirstRock acquisition, FFC and FirstRock incurred expenses i)
in conjunction with the acquisition itself and ii) relative to the
reorganization of FirstRock's operations following the acquisition. The
acquisition/transaction costs and charges aggregated $6.5 million on a pre-tax
basis and $4.0 million on an after-tax basis, or $0.10 per share.
-13-
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--Continued
FIRST FINANCIAL CORPORATION
NOTE C--INVESTMENT SECURITIES
The following is a summary of available-for-sale investment securities and
held-to-maturity investment securities.
Amortized Gross Unrealized
Cost Gains Losses Fair Value
December 31, 1996: (Dollars in thousands)
Available-for-sale:
U.S. Government and
federal agency
obligations $ 90,112 $ 1,514 $ 87 $ 91,539
Adjustable-rate mortgage
mutual fund 45,796 858 44,938
-------- ------- ------- --------
$135,908 $ 1,514 $ 945 $136,477
======== ======= ======= ========
Held-to-maturity:
U.S. Government and
federal agency
obligations $ 56,802 $ 166 $ 605 $ 56,363
Corporate and bank notes
receivable (investment
grade) 583 3 580
State and municipal
obligations 1,049 4 1,053
-------- ------- ------- --------
$ 58,434 $ 170 $ 608 $ 57,996
======== ======= ======= ========
December 31, 1995:
Available-for-sale:
U.S. Government and
federal agency
obligations $ 31,812 $ 916 $ 51 $ 32,677
Adjustable-rate mortgage
mutual fund 47,905 17 659 47,263
Corporate and bank notes
receivable (investment
grade) 997 62 1,059
-------- ------- ------- --------
$ 80,714 $ 995 $ 710 $ 80,999
======== ======= ======= ========
Held-to-maturity:
U.S. Government and
federal agency
obligations $113,519 $ 417 $ 777 $113,159
Corporate and bank notes
receivable (investment
grade) 4,859 2 11 4,850
State and municipal
obligations 1,048 8 2 1,054
-------- ------- ------- --------
$119,426 $ 427 $ 790 $119,063
======== ======= ======= ========
-14-
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--Continued
FIRST FINANCIAL CORPORATION
NOTE C--INVESTMENT SECURITIES--Continued
The amortized cost and fair value of investment securities at December 31, 1996,
by contractual maturity or repricing date, are shown below.
Available-For-Sale Held-To-Maturity
Amortized Fair Amortized Fair
Cost Value Cost Value
(Dollars in thousands)
Due in one year or less $ 48,873 $ 47,929 $ 20,098 $ 19,830
Due after one year through
five years 47,003 47,108 37,934 37,762
Due after five years through
ten years 402 404
Due after ten years 40,032 41,440
-------- -------- -------- --------
$135,908 $136,477 $ 58,434 $ 57,996
======== ======== ======== ========
During the years ended December 31, 1996, 1995 and 1994, investment securities
available for sale with a fair value at the date of sale of $24,343,000,
$18,759,000, and $65,088,000, respectively, were sold. The gross realized gains
on such sales totaled $1,464,000, $1,182,000, and $1,319,000, in 1996, 1995, and
1994, respectively. Gross realized losses on such sales totaled $4,000 and
$544,000 in 1996 and 1994, respectively.
Accrued interest on investment securities, including those securities classified
as federal funds sold, interest-earning deposits and short-term securities, was
$2,208,000 and $3,470,000 at December 31, 1996 and 1995, respectively.
-15-
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--Continued
FIRST FINANCIAL CORPORATION
NOTE D--MORTGAGE-RELATED SECURITIES
The following is a summary of available-for-sale and held-to- maturity
mortgage-related securities.
Amortized Gross Unrealized
Cost Gains Losses Fair Value
(Dollars in thousands)
December 31, 1996:
Available-for-sale:
U.S. Government agencies:
Mortgage-backed
securities $ 912,071 $ 4,884 $ 789 $ 916,166
Collateralized mortgage
obligations 12,609 33 172 12,470
Non-agency:
Mortgage-backed
securities 121,932 572 3,055 119,449
---------- ------- ------- ----------
$1,046,612 $ 5,489 $ 4,016 $1,048,085
========== ======= ======= ==========
Held-to-maturity:
U.S. Government agencies:
Mortgage-backed
securities $ 177,347 $ 3,746 $ 154 $ 180,939
Collateralized mortgage
obligations 270,424 1,630 11,355 260,699
Non-agency:
Mortgage-backed
securities 154,146 1,137 259 155,024
Collateralized mortgage
obligations 435 9 444
---------- ------- ------- ----------
$ 602,352 $ 6,522 $11,768 $ 597,106
========== ======= ======= ==========
December 31, 1995:
Available-for-sale:
U.S. Government agencies:
Mortgage-backed
securities $ 132,770 $ 2,216 $ 178 $ 134,808
Collateralized mortgage
obligations 66,513 866 197 67,182
Non-agency:
Mortgage-backed
securities 381,419 2,334 14,450 369,303
---------- ------- ------- ----------
$ 580,702 $ 5,416 $14,825 $ 571,293
========== ======= ======= ==========
Held-to-maturity:
U.S. Government agencies:
Mortgage-backed
securities $ 214,407 $ 4,642 $ 145 $ 218,904
Collateralized mortgage
obligations 275,008 666 11,092 264,582
Non-agency:
Mortgage-backed
securities 209,442 166 2,671 206,937
Collateralized mortgage
obligations 611 26 637
---------- ------- ------- ----------
$ 699,468 $ 5,500 $13,908 $ 691,060
========== ======= ======= ==========
-16-
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--Continued
FIRST FINANCIAL CORPORATION
NOTE D--MORTGAGE-RELATED SECURITIES--Continued
During the years ended December 31, 1996 and 1994, mortgage-related securities
available for sale with a fair value at the date of sale of $395,281,000 and
$182,563,000, respectively, were sold, while no mortgage-related securities were
sold during the year ended December 31, 1995. The gross realized gains on such
sales totaled $4,469,000 and $461,000 in 1996 and 1994, respectively. The gross
realized losses on such sales totaled $17,521,000 and $132,000 in 1996 and 1994,
respectively. Also, in 1994, FFC recorded a $9,000,000 permanent impairment loss
on two non-agency securities which were sold in 1996 at a further loss of
$12,800,000, which loss is included in the gross realized losses for 1996 as
noted above.
Accrued interest receivable on mortgage-related securities was $9,091,000 and
$8,475,000 at December 31, 1996 and 1995, respectively.
NOTE E--LOANS RECEIVABLE
Loans receivable held for investment consist of the following:
December 31,
1996 1995
---------- -------
(Dollars in thousands)
Real estate mortgage loans:
Residential (including multi-family) $2,035,010 $2,176,659
Commercial and other 151,875 136,714
Construction - residential (including
multi-family) 71,596 56,314
Construction - commercial 22,095 15,710
---------- ----------
Total real estate mortgage loans 2,280,576 2,385,397
Consumer and other loans:
Consumer 415,155 362,659
Home equity 296,749 284,700
Education 269,633 240,650
Credit card 179,352 214,107
Manufactured housing 104,783 139,385
Business 11,728 17,198
---------- ----------
Total consumer and other loans 1,277,400 1,258,699
---------- ----------
Total loans before net items 3,557,976 3,644,096
Less:
Allowances for losses 23,228 25,235
Undisbursed loan proceeds 42,709 28,992
Deferred net loan origination costs (1,810) (977)
Unearned discounts 149 697
---------- ----------
64,276 53,947
---------- ----------
$3,493,700 $3,590,149
========== ==========
Accrued interest on loans receivable was $24,901,000 and $25,777,000 at December
31, 1996 and 1995, respectively.
The following table sets forth the composition of the non-residential real
estate loan portfolio, including both permanent
-17-
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--Continued
FIRST FINANCIAL CORPORATION
NOTE E--LOANS RECEIVABLE--Continued
and construction loans, by geographic location of the related
collateral properties.
December 31,
1996 1995
--------------------------- --------------------------
Percent Percent
Of Of
Property Location Amount Total Amount Total
(Dollars in thousands)
Wisconsin $114,751 66.0% $ 96,196 63.1%
Illinois 27,253 15.7 30,734 20.2
Iowa 12,441 7.1 2,547 1.7
Minnesota 6,090 3.5 7,343 4.8
Georgia 3,911 2.2 4,021 2.6
Texas 2,670 1.5 2,127 1.4
Tennessee 2,370 1.4 2,399 1.6
Other 4,484 2.6 7,057 4.6
-------- ----- -------- -----
$173,970 100.0% $152,424 100.0%
======== ===== ======== =====
NOTE E--LOANS RECEIVABLE--Continued
Loans serviced for investors amounted to $2,372,000,000, $2,326,000,000 and
$2,424,000,000 at December 31, 1996, 1995 and 1994, respectively. These loans
are not reflected in the consolidated financial statements. FF Bank originates
mortgage loans which, depending whether the loans meet FF Bank's investment
objectives, may be sold in the secondary mortgage market or to other private
investors.
NOTE F--FORECLOSED PROPERTIES AND REPOSSESSED ASSETS
Foreclosed properties and repossessed assets are summarized as follows:
December 31,
1996 1995
------- ------
(Dollars in thousands)
Real estate owned $ 763 $ 2,531
Real estate judgments subject to redemption 3,074 1,436
Manufactured housing owned 182 303
Repossessed collateral assets 157 102
------- -------
4,176 4,372
Less allowance for losses 179 993
------- -------
$ 3,997 $ 3,379
======= =======
-18-
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--Continued
FIRST FINANCIAL CORPORATION
NOTE G--ALLOWANCES FOR LOSSES
A summary of the activity in the allowances for loan losses follows:
Year Ended December 31,
1996 1995 1994
------ ------ -----
(Dollars in thousands)
Balance at beginning of year $25,235 $25,180 $25,905
Acquired bank's allowance 816
Provisions 9,030 9,738 6,824
Charge-offs (12,145) (11,087) (9,872)
Recoveries 1,108 1,404 1,507
------- ------- -------
BALANCE AT END OF YEAR $23,228 $25,235 $25,180
======= ======= =======
A summary of the activity in the allowance for losses on foreclosed properties
and repossessed assets follows. The provisions for losses are included in the
Consolidated Statements of Income in "Net cost of (income from) operations of
foreclosed properties."
Year Ended December 31,
1996 1995 1994
------ ------ -----
(Dollars in thousands)
Balance at beginning of year $ 993 $1,146 $3,561
Provisions (467) 60 1,000
Charge-offs (347) (213) (3,415)
------ ------ ------
BALANCE AT END OF YEAR $ 179 $ 993 $1,146
====== ====== ======
NOTE H--OFFICE PROPERTIES AND EQUIPMENT
Office properties and equipment are summarized as follows:
December 31,
1996 1995
-------- ------
(Dollars in thousands)
Land and parking lot improvements $12,551 $12,160
Office buildings and improvements 53,556 52,083
Furniture and equipment 34,876 36,814
Leasehold improvements 2,899 2,850
------- -------
103,882 103,907
Less allowances for depreciation and
amortization 53,454 52,783
------- -------
$50,428 $51,124
======= =======
-19-
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--Continued
FIRST FINANCIAL CORPORATION
NOTE I--DEPOSITS
Deposits are summarized as follows:
December 31, 1996 December 31, 1995
Weighted Weighted
Average Average
Amount Rate Amount Rate
------ ---- ------ ----
(Dollars in thousands)
Checking accounts:
Interest-bearing $ 306,967 1.16% $ 321,929 1.17%
Non-interest-bearing 148,176 151,274
---------- ----------
Total checking
accounts 455,143 0.78 473,203 0.78
Passbook accounts 649,841 2.71 687,960 2.67
Variable-rate insured
money market accounts 377,466 3.53 310,545 3.45
Certificate accounts 2,955,355 5.74 2,944,600 5.72
---------- ----------
4,437,805 4.60% 4,416,308 4.56%
==== ====
Accrued interest 7,127 8,217
---------- ----------
$4,444,932 $4,424,525
========== ==========
Aggregate annual maturities of certificate accounts at December 31, 1996 are as
follows:
Matures During
Year Ending
December 31,
(Dollars in thousands)
1997 $1,966,010
1998 729,014
1999 143,100
2000 90,695
2001 23,412
Thereafter 3,124
----------
$2,955,355
Certificate accounts with balances of $100,000 or more totaled $233,704,000 and
$214,943,000 at December 31, 1996 and 1995, respectively. The following table
presents the maturities of certificate accounts in amounts of $100,000 or more
at December 31, 1996 by time remaining to maturity.
Maturities
(Dollars in thousands)
January 1, 1997 through March 31, 1997 $ 72,321
April 1, 1997 through June 30, 1997 43,395
July 1, 1997 through December 31, 1997 58,965
January 1, 1998 and after 59,023
---------
$ 233,704
-20-
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--Continued
FIRST FINANCIAL CORPORATION
NOTE J--BORROWINGS
Federal Home Loan Bank ("FHL Bank") advances and other borrowings are comprised
of the following:
December 31,
1996 1995
------------------ -----------------------
Weighted Weighted
Average Average
Maturity Amount Rate Amount Rate
(Dollars in thousands)
Federal Home Loan Bank: On Demand $303,100 5.60% $154,401 5.95%
1996 320,367 5.81
1997 400,031 5.41 31 7.00
2000 162 7.00 162 7.00
2001 100 5.50 100 5.50
2003 307 2.50 307 2.50
Subordinated notes 1999 54,925 8.51
Reverse repurchase
agreements: 1996 25,972 5.89
1997 54,090 5.42
Collateralized mortgage
obligations Various 5,616 16.67 8,024 18.65
Industrial development
revenue bonds Various 6,120 7.12 6,219 7.10
-------- --------
$769,526 5.58% $570,508 6.31%
======== ===== ======== =====
At December 31, 1996, FFC has an unused line-of-credit in the amount of
$18,000,000. The line-of-credit is available to FFC for working-capital purposes
or for potential future acquisitions. Under the terms of the line-of-credit,
which is available through April, 1997, interest on outstanding notes would be
payable at the lender's then prevailing prime rate. The line-of-credit agreement
contains various covenants relative to the operations of FFC and FF Bank.
Included among the covenants are restrictions on levels of total borrowings and
the interest-bearing asset/liability ratio for FFC, on a consolidated basis, and
a requirement that FF Bank maintain a minimum risk-based regulatory capital of
8.0%. All of such covenants are met at December 31, 1996. In addition, FFC would
pledge its stock in FF Bank as collateral should the line-of-credit be drawn
upon.
Aggregate maturities on borrowings at December 31, 1996 are as follows. Payments
on collateralized mortgage obligations are included based upon estimated
prepayments on the underlying mortgage portfolios.
-21-
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--Continued
FIRST FINANCIAL CORPORATION
NOTE J--BORROWINGS--Continued
Matures During
Year Ending
December 31,
(Dollars in thousands)
1997 $757,959
1998 2,707
1999 1,914
2000 884
2001 235
Thereafter through 2021 5,827
--------
$769,526
FF Bank is required to maintain unencumbered first mortgage loans in its
portfolio aggregating at least 167% of the amount of outstanding advances from
the FHL Bank as collateral. In addition, these borrowings are collateralized by
FHL Bank stock of $35,419,000 at December 31, 1996, which is included in "Other
assets" in the consolidated balance sheets.
In January, 1996, FFC redeemed all of its outstanding 8% Subordinated Notes due
November, 1999, which aggregated $54,925,000 at the date of redemption. The net
after-tax cost of $686,000 associated with the redemption has been reported as
an extraordinary charge in 1996.
Reverse repurchase agreements outstanding at the end of 1996 had maturity dates
within ninety days. These agreements are treated as financings with the
obligations to repurchase securities reflected as a liability and the dollar
amount of the securities underlying the agreements remaining in the asset
accounts. The securities underlying the agreements are held by the counter-
party brokers in FF Bank's account. The agreements were collateralized by
mortgage-related securities having a fair value of $54,895,000 and $27,786,000
at December 31, 1996 and 1995, respectively. Based upon month-end balances,
securities sold under agreements to repurchase averaged $92,984,000 and
$59,092,000 during 1996 and 1995, respectively. The maximum amount outstanding
at any month-end was $173,789,000 and $100,454,000 during 1996 and 1995,
respectively.
UFS Capital Corporation and FFS Funding Corporation, FF Bank's wholly-owned
finance subsidiaries, have issued the collateralized mortgage obligations.
Principal repayments are scheduled in varying amounts through January, 2003. The
obligations are collateralized by mortgage-backed securities with a carrying
value of $9,015,000 and a fair value of $9,152,000 at December 31, 1996.
Industrial development revenue bonds are payable in seven annual installments
ranging from $105,000 to $150,000 with additional payments of $1,910,000 and
$3,320,000 due October 1, 2012 and
-22-
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--Continued
FIRST FINANCIAL CORPORATION
NOTE J--BORROWINGS--Continued
2021, respectively. Interest is payable semi-annually. The bonds were issued to
refinance an apartment project which was previously sold. The bonds are
collateralized by mortgage-backed securities with a carrying value and a fair
value of $9,212,000 and $9,431,000, respectively, at December 31, 1996. FF Bank
has a loan receivable from the buyer of $5,746,000 at December 31, 1996, which
is secured by a first mortgage on the apartment project.
-23-
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--Continued
FIRST FINANCIAL CORPORATION
NOTE K--INCOME TAXES
The provision for income taxes consists of the following:
Year Ended December 31,
1996 1995 1994
------- ------- -----
(Dollars in thousands)
Current:
Federal $25,472 $31,849 $30,743
State 460 3,794 1,903
------- ------- -------
25,932 35,643 32,646
Deferred (credit):
Federal 667 (2,080)
State (1,141) (1,206) 150
------- ------- -------
(489) (539) (1,930)
------- ------- -------
25,443 35,104 30,716
Extraordinary item (370)
------- ------- -------
$25,073 $35,104 $30,716
======= ======= =======
The provision for income taxes relative to continuing operations differs from
that computed at the federal statutory corporate tax rate as follows:
Year Ended December 31,
1996 1995 1994
------- ------- -----
(Dollars in thousands)
Income before income taxes $75,215 $99,088 $83,745
======= ======= =======
Tax at federal statutory rate (35%) $26,325 $34,681 $29,311
Add (deduct) effect of:
State income taxes (net of
federal income taxes) (442) 1,682 2,019
Change in valuation allowance
for deferred tax assets 148 (898) (864)
Other (588) (361) 250
------- ------- -------
INCOME TAX PROVISION $25,443 $35,104 $30,716
======= ======= =======
The significant components of the net deferred tax asset (liability) are as
follows:
Deferred Tax
Asset (Liability)
At December 31,
1996 1995
------- ------
(Dollars in thousands)
Deferred loan fees and other
loan yield adjustments $ (961) $ 156
Depreciation (2,386) (2,399)
Loan loss allowances 8,108 11,715
Deferred compensation 2,239 2,185
Deposit base
intangible amortization 2,896 2,636
FHL Bank stock dividend (1,084) (1,084)
Market valuation adjustments (759) 3,148
Capital loss carryforward 3,395
State tax net operating loss
carryforwards 2,641 1,753
Other 96 (677)
-------- --------
14,185 17,433
Valuation allowance for
deferred tax assets (3,047) (2,899)
-------- --------
$ 11,138 $ 14,534
======== ========
-24-
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--Continued
FIRST FINANCIAL CORPORATION
NOTE K--INCOME TAXES--Continued
Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amounts of assets and liabilities for financial reporting
purposes and the amounts used for income tax purposes.
For financial reporting purposes, a valuation allowance has been recognized to
offset deferred tax assets related to state net operating loss carryforwards of
subsidiary, deposit base intangibles and other temporary differences. When
realized, the tax benefit for these items will be used to reduce current tax
expense for that period.
FF Bank qualified under provisions of the Internal Revenue Code that permitted
it to deduct from taxable income an allowance for bad debts that differed from
the provision for such losses charged to income for financial reporting
purposes. Accordingly, no provision for income taxes has been made for
$79,243,000 of retained income at December 31, 1996. If, in the future, FF Bank
no longer qualifies as a bank for tax purposes, income taxes may be imposed at
the then-applicable rates. If income taxes had been provided, the deferred tax
liability would have been approximately $31,804,000.
NOTE L--STOCKHOLDERS' EQUITY
On October 16, 1996, FFC began its first share repurchase program for its common
stock. Under this program, up to 1,875,000 shares can be purchased over a
six-month time frame. During 1996, FFC purchased 648,395 shares at an average
per share cost of $22.28 and an aggregate cost of $14,447,000. The repurchased
shares became treasury shares and can be used for general corporate purposes.
The Board of Directors of FFC is authorized to issue preferred stock in series
and to establish the voting powers, other special rights of the shares of each
such series and the qualifications and restrictions thereof. Preferred stock may
rank prior to the common stock as to dividend rights, liquidation preferences or
both, and may have full or limited voting rights.
Under Wisconsin state law, preferred stockholders would be entitled to vote as a
separate class or series in certain circumstances, including any amendment which
would adversely change the specific terms of such series of stock or which would
create or enlarge any class or series ranking prior thereto in rights and
preferences. No preferred stock has been issued.
Deposits in FF Bank are insured to the maximum allowable amounts by the Savings
Association Insurance Fund ("SAIF") as administered by the Federal Deposit
Insurance Corporation ("FDIC"). As a SAIF-insured institution, FF Bank is
required to meet tangible, core and risk-based regulatory capital requirements
of the Office of Thrift Supervision ("OTS") as
-25-
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--Continued
FIRST FINANCIAL CORPORATION
NOTE L--STOCKHOLDERS' EQUITY--Continued
formulated under the Federal Deposit Insurance Corporation Improvement Act
("FDICIA").
The FDICIA contains provisions for regulatory capital standards that require a
minimum 1.5% tangible capital ratio, a minimum 3.0% core leverage capital to
adjusted tangible assets capital ratio and a minimum 8.0% qualifying total
capital to risk- weighted assets capital ratio. At December 31, 1996 FF Bank's
regulatory capital significantly exceeded all minimum standards required under
the FDICIA.
As of December 31, 1996 and 1995, FF Bank was "well capitalized" as defined by
the regulatory capital standards. To be categorized as well capitalized, a
financial institution must maintain a minimum core leverage ratio of 5.0%, core
risk-based ratio of 6.0%, and a total risk-based ratio of 10.0%.
The following table summarizes FF Bank's capital amounts and capital ratios, and
the capital amounts and ratios required by its regulators:
Minimum Required
Minimum Required To Be Well
For Capital Capitalized Under
Actual Adequacy Purposes OTS Requirements
--------------------- ------------------------ -----------------------
Amount Ratio Amount Ratio Amount Ratio
------ ----- ------ ----- ------ -----
(Dollars in thousands)
As of December 31, 1996:
Tangible capital
(to tangible assets) $352,763 6.20% $ 85,376 1.50%
Core leverage capital
(to adjusted tangible
assets) 364,146 6.39% 171,093 3.00% $285,155 5.00%
Risk-based capital
(to risk-based assets) 346,133 13.91% 199,134 8.00% 248,918 10.00%
Core leverage capital
(to risk-based assets) 364,146 14.63% 149,351 6.00%
As of December 31, 1995:
Tangible capital
(to tangible assets) $400,199 7.30% $ 82,251 1.50%
Core leverage capital
(to adjusted tangible
assets) 417,516 7.59% 165,021 3.00% $275,036 5.00%
Risk-based capital
(to risk-based assets) 442,544 15.82% 223,850 8.00% 279,813 10.00%
Core leverage capital
(to risk-based assets) 417,516 14.92% 167,888 6.00%
-26-
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--Continued
FIRST FINANCIAL CORPORATION
NOTE L--STOCKHOLDERS' EQUITY--Continued
Under the terms of the FDICIA, FF Bank is further subject to the prompt
corrective action ("PCA") provisions of the FDICIA. Under the FDICIA, thrift
institutions are assigned, based upon regulatory capital ratios and other
subjective supervisory criteria, to one of five PCA categories, ranging from
"well capitalized" to "critically undercapitalized". Institutions assigned to
the three lowest categories are subject to PCA sanctions by the OTS. PCA
sanctions include, among other items, additional restrictions on dividends and
capital distributions.
Applicable rules and regulations of the OTS impose limitations on dividends by
FF Bank. Within those limitations, certain "safe harbor" dividends are
permitted, subject to providing the OTS at least 30 days advance notice. The
safe harbor amount is based upon an institution's regulatory capital level.
Thrift institutions which have capital in excess of all capital requirements
before and after the proposed dividend are permitted to make capital
distributions during any calendar year up to the greater of (i) 100% of net
income to date during the calendar year, plus one-half of the surplus over such
institution's capital requirements at the beginning of the calendar year, or
(ii) 75% of net income over the most recent four-quarter period.
Additional restrictions would apply to an institution which does not meet its
capital requirement before or after a proposed dividend. In addition, as a
result of the PCA provisions of the FDICIA, the OTS has indicated that it
intends to review existing regulations on dividends to determine whether
amendments are necessary based on such provisions. In the interim, the OTS has
indicated that it intends to determine the permissibility of dividends
consistent with the PCA provisions of the FDICIA.
NOTE M--EMPLOYEE BENEFIT PLANS
FFC sponsors a defined-contribution profit sharing plan which covers all full
time employees who have completed one year of service and are at least
twenty-one years old. Corporate contributions are discretionary. Expense for
this plan for 1996, 1995 and 1994 was $2,122,000, $ -0- and $3,353,000,
respectively.
FFC sponsors a supplemental executive retirement plan for certain executive
officers, which is funded through life insurance and provides additional
benefits at retirement. At December 31, 1996, the projected future obligation
under this plan amounted to $1,838,000, which is being accrued through a
combination of annual amortization of prior service costs plus current annual
provisions for additional service costs and interest. Expense for this plan was
$272,000, $215,000 and $227,000 for 1996, 1995 and 1994, respectively.
-27-
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--Continued
FIRST FINANCIAL CORPORATION
NOTE M--EMPLOYEE BENEFIT PLANS--Continued
FFC sponsors an unfunded defined-benefit retirement plan for all outside
directors. At December 31, 1996, the projected future obligation under this plan
totaled $1,464,000, which is being accrued through a combination of annual
amortization of prior service costs plus current annual provisions for
additional service costs and interest. Expense for this plan was $208,000,
$126,000 and $183,000 in 1996, 1995 and 1994, respectively.
During 1995, as part of the acquisition of FirstRock, FF Bank acquired the
existing Employee Stock Ownership Plan ("ESOP"), originally established in 1992.
The plan covers substantially all employees with more than one year of service
who have attained the age of twenty-one. During 1996, the ESOP was utilized in
conjunction with FFC's profit sharing plan, resulting in the distribution of
69,312 shares held in the plan to employees. During 1995, the ESOP was utilized
in lieu of FFC's profit sharing plan, resulting in the distribution of
approximately 201,250 FFC shares. The ESOP shares, which were purchased in 1992,
are grandfathered from Statement of Position ("SOP") No. 93-6 issued by the
American Institute of Certified Public Accountants. As such, expense for ESOP
shares allocated to FFC employees was recorded at cost as opposed to market
value as required by SOP No. 93-6 for shares acquired by the ESOP after 1992.
The expense related to ESOP distributions for 1996, 1995 and 1994 was $271,000,
$828,000 and $231,000, respectively. At December 31, 1996, all ESOP shares have
been allocated to employees and the plan will be merged into the profit sharing
plan in 1997.
FFC also sponsors a defined-benefit pension plan covering substantially all of
its Illinois-based employees (the "Retirement Plan"). Benefits are based upon a
formula using years of service and the participant's compensation during the
term of employment.
-28-
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--Continued
FIRST FINANCIAL CORPORATION
NOTE M--EMPLOYEE BENEFIT PLANS--Continued
The following tables set forth the Retirement Plan's funded status and amounts
recognized in the consolidated financial statements:
December 31,
1996 1995
-------- ------
(Dollars in thousands)
Actuarial present value of benefit obligations:
Accumulated benefit obligation, including
vested benefits of $2,936,000--1996 and
$2,971,000--1995 $ 3,427 $ 3,126
========= =========
Plan assets at fair value, primarily fixed
income securities $ 4,080 $ 4,143
Projected benefit obligation 3,530 3,238
--------- ---------
Plan assets in excess of projected
benefit obligation 550 905
Unrecognized prior service cost 190 201
Unrecognized net loss from past experience
different from that assumed and effects
of changes in assumptions 480 500
Unrecognized net transition asset (1,047) (1,175)
--------- ---------
Prepaid pension cost included in other assets $ 173 $ 431
========= =========
Net periodic expense for the Retirement Plan, as determined by actuarial
consultants, was $160,000, $238,000 and $504,000 in 1996, 1995 and 1994,
respectively.
The principal actuarial assumptions used to develop the pension benefit
obligation for the Retirement Plan were as follows:
Year Ended December 31,
1996 1995 1994
-------- -------- ------
Weighted average discount rate 7.50% 7.25% 8.25%
Rate of increase in future compensation 5.00 5.00 5.00
Expected long-term rate of return on plan
assets 8.50 8.50 8.50
FFC does not, as a policy, offer post-retirement benefits other than profit
sharing, ESOP, pensions and certain supplemental retirement benefits noted
above.
NOTE N--FINANCIAL INSTRUMENTS WITH OFF-BALANCE-SHEET RISK
FFC is a party to financial instruments with off-balance-sheet risk in the
normal course of business to meet the financing needs of its customers. These
financial instruments include commitments to extend credit and financial
guarantees and involve, to varying degrees, elements of credit and interest-rate
risk in excess of the amount recognized in the consolidated balance sheets. The
contract amounts of those instruments reflect the extent of involvement FFC has
in particular classes of financial instruments.
FFC's exposure to credit loss in the event of nonperformance by the other party
to the financial instrument for commitments to extend credit and financial
guarantees written is represented by the
-29-
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--Continued
FIRST FINANCIAL CORPORATION
NOTE N--FINANCIAL INSTRUMENTS WITH OFF-BALANCE-SHEET RISK
contractual amount of those instruments. FFC uses the same credit policies in
making commitments and conditional obligations as it does for on-balance-sheet
instruments.
Financial instruments whose contract amounts represent credit risk are as
follows:
December 31,
1996 1995
-------- ------
(Dollars in thousands)
Commitments to extend credit:
Fixed rate (6.55% to 8.85% at
December 31, 1996) $ 13,566 $ 19,398
Adjustable rate 16,605 20,778
Unused lines of credit:
Credit cards 718,268 837,341
Home equity 426,408 360,189
Business lines 873 1,158
Other 8,800 8,800
Loans sold with recourse 27,000 37,000
Financial guarantees written 7,000 10,995
Commitments to extend credit are agreements to lend to a customer as long as
there is no violation of any condition established in the contract. Commitments
generally have fixed expiration dates or other termination clauses and may
require payment of a fee. As some such commitments expire without being drawn
upon, the total commitment amounts do not necessarily represent future cash
requirements. FFC evaluates each customer's creditworthiness on a case-by-case
basis. With the exception of credit card lines-of-credit, FFC generally extends
credit only on a secured basis. Collateral obtained varies but consists
primarily of one- to four-family residences and income-producing commercial
properties.
Commitments to extend credit on a fixed-rate basis expose FFC to a certain
amount of interest-rate risk if market rates of interest increase substantially
during the commitment period. Similar risks exist relative to loans classified
as held for sale, which totaled $19,119,000 at December 31, 1996. This exposure,
however, is partially mitigated by firm commitments to sell certain of these
loans. Commitments outstanding to sell mortgage loans at December 31, 1996
amount to $20,709,000.
All loans currently sold to others are sold on a non-recourse basis with the
servicing of these loans being retained by FF Bank. At December 31, 1996, 1995
and 1994, $27,000,000, $37,000,000 and $44,000,000, respectively, of the
serviced loans were previously sold with recourse. Of these recourse loans,
approximately $19,000,000, $27,000,000 and $36,000,000 were federally-insured or
federally-guaranteed at December 31, 1996, 1995 and 1994, respectively. In
addition, management has considered the remaining uninsured or non-guaranteed
balance in the determination of the adequacy of the allowance for losses.
-30-
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--Continued
FIRST FINANCIAL CORPORATION
NOTE N--FINANCIAL INSTRUMENTS WITH OFF-BALANCE-SHEET RISK-- Continued
Financial guarantees represent agreements whereby, for an annual fee, letters of
credit were issued by FF Bank to provide credit enhancement in connection with
the issuance of industrial development revenue bonds issued by municipalities to
finance commercial or multi-family real estate owned by third parties. In the
event the third party borrowers default on principal or interest payments on the
bonds, FF Bank is required to either pay the amount in default or acquire the
then outstanding bonds. FF Bank may foreclose on the underlying real estate to
recover amounts in default. Management has considered these agreements in its
review of the adequacy of the allowance for losses. At December 31, 1996, bonds
in the aggregate principal amount of $7,000,000 are supported by letters of
credit issued by FF Bank. The bond agreements have expiration dates through
2008.
Except for the above-noted commitments to originate and/or sell mortgage loans
in the normal course of business, FFC and FF Bank have not undertaken the use of
off-balance sheet derivative financial instruments for any purpose.
NOTE O--FAIR VALUES OF FINANCIAL INSTRUMENTS
Fair value information about financial instruments, whether or not recognized in
the balance sheet, for which it is practicable to estimate that value follows.
In cases where quoted market prices are not available, fair values are based on
estimates using present value or other valuation techniques. Those techniques
are significantly affected by the assumptions used, including the discount rate
and estimates of future cash flows. In that regard, the derived fair value
estimates cannot be substantiated by comparison to independent markets and, in
many cases, could not be realized in immediate settlement of the instrument.
Certain financial instruments and all nonfinancial instruments are excluded from
these disclosures.
The following methods and assumptions were used by FFC in estimating its fair
value disclosures for financial instruments:
CASH AND CASH EQUIVALENTS: The carrying amounts reported in the
balance sheet for cash and short-term instruments approximate those
assets' fair values.
ACCRUED INTEREST INCOME AND EXPENSE: The fair value of accrued
interest income and expense approximates the respective book value.
INVESTMENT AND MORTGAGE-RELATED SECURITIES: Fair values for investment
and mortgage-related securities are based on quoted market prices,
where available. If quoted market prices are not available, fair
values are based on quoted market prices of comparable instruments.
-31-
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--Continued
FIRST FINANCIAL CORPORATION
NOTE O--FAIR VALUES OF FINANCIAL INSTRUMENTS--Continued
LOANS RECEIVABLE: For variable-rate mortgage loans that reprice
frequently and with no significant change in credit risk, fair values
are based on carrying values. The fair values for fixed-rate
residential mortgage loans are based on quoted market prices of
similar loans sold in conjunction with securitization transactions,
adjusted for differences in loan characteristics. The fair values for
commercial real estate loans, rental property mortgage loans and
consumer and other loans are estimated using discounted cash flow
analyses and interest rates currently being offered for loans with
similar terms to borrowers of similar credit quality.
MORTGAGE SERVICING RIGHTS: Mortgage loan servicing rights, consist of
FFC's contractual right to service loans for others. These rights are
valued at estimated fair values using a discounted cash flow model.
The value of those rights originated prior to January 1, 1995 is not
included.
FHL BANK AND FEDERAL RESERVE BANK STOCK: The stock is carried at cost
which is its redeemable value since the market for this stock is
restricted.
DEPOSITS: The fair values disclosed for interest-bearing and
non-interest-bearing checking accounts, passbook accounts and money
market accounts are, by definition, equal to the amount payable on
demand at the reporting date (i.e., their carrying amounts). The fair
values of fixed-rate certificates of deposit are estimated using a
discounted cash flow calculation that applies interest rates currently
being offered on certificates to a schedule of aggregated expected
monthly maturities of the outstanding certificates of deposit.
BORROWINGS: The fair values of FFC's long-term borrowings are
estimated using discounted cash flow analyses, based on FFC's current
incremental borrowing rates for similar types of borrowing
arrangements. Short term borrowing fair values approximate the
carrying value due to the nature of the borrowing.
OFF-BALANCE-SHEET INSTRUMENTS: Fair values for FFC's off-
balance-sheet instruments (lending commitments and unused lines of
credit) are based on fees currently charged to enter into similar
agreements, taking into account the remaining terms of the agreements,
the counterparties' credit standing and discounted cash flow analyses.
The fair value of these off-balance-sheet items approximates the
recorded amounts of the related fees and is not material at December
31, 1996 and 1995.
-32-
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--Continued
FIRST FINANCIAL CORPORATION
NOTE O--FAIR VALUES OF FINANCIAL INSTRUMENTS--Continued
The carrying amounts and fair values of FFC's financial instruments consist of
the following:
December 31,
1996 1995
---------------------- ------------------------------
Carrying Fair Carrying Fair
Amount Value Amount Value
------ ----- ------ -----
(Dollars in thousands)
Cash equivalents $ 20,556 $ 20,556 $ 48,730 $ 48,730
Investment securities 194,911 194,473 200,425 200,062
FHL Bank and Federal Reserve
Bank stock 36,229 36,229 35,456 35,456
Mortgage-related securities 1,650,437 1,645,191 1,270,761 1,262,353
Loans receivable 3,512,819 3,521,154 3,616,800 3,647,193
Mortgage servicing rights 9,243 11,792 8,395 10,993
Accrued interest receivable 36,224 36,224 37,722 37,722
Deposits 4,437,805 4,431,876 4,416,308 4,423,272
Federal Home Loan Bank
and other borrowings 769,526 770,505 570,508 574,082
Accrued interest payable 10,051 10,051 10,585 10,585
NOTE P--MORTGAGE SERVICING RIGHTS
An analysis of activity in FFC's combined excess mortgage servicing rights,
purchased mortgage servicing rights and originated mortgage servicing rights
(originated after January 1, 1995) is as follows:
Year Ended December 31,
1996 1995 1994
------- ------- ------
(Dollars in thousands)
Balance at beginning
of year $ 8,395 $ 7,880 $ 4,441
Additions 2,723 1,773 4,508
Amortization (1,875) (1,258) (1,069)
------- ------- -------
BALANCE AT END OF YEAR $ 9,243 $ 8,395 $ 7,880
======= ======= =======
NOTE Q--STOCK-BASED COMPENSATION
FFC has a stock option plan under which shares of common stock are reserved for
the grant of both incentive and non-incentive stock options to directors,
officers and employees. The date on which the options are first exercisable,
generally two or more years from the grant date, is determined by the Stock Plan
Committee of the Board of Directors. The options expire no later than ten years
from the grant date.
-33-
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--Continued
FIRST FINANCIAL CORPORATION
NOTE Q--STOCK-BASED COMPENSATION--Continued
FFC has elected to follow Accounting Principles Board Opinion No. 25,
"Accounting for Stock Issued to Employees" (APB 25) and related Interpretations
in accounting for its employee stock options because, as discussed below, the
alternative fair value accounting provided for under FASB Statement No. 123,
"Accounting for Stock-Based Compensation," requires use of option valuation
models that were not developed for use in valuing employee stock options. Under
APB 25, because the exercise price of FFC's employee stock options equals the
market price of the underlying stock on the date of grant, no compensation
expense is recognized.
Pro forma information regarding net income and earnings per share is required by
Statement No. 123, which also requires that the information be determined as if
FFC has accounted for its employee stock options granted subsequent to December
31, 1994 under the fair value method of that Statement. The fair value for these
options was estimated at the date of grant using a Black-Scholes option pricing
model with the following weighted-average assumptions for 1996 and 1995,
respectively: risk-free interest rates of 5.9% and 6.6%; a dividend yield of
2.5%; volatility factors of the expected market price of FFC's common stock of
.25 and .27; and weighted-average expected lives of the options of 4.5 and 4.4
years.
The Black-Scholes option valuation model was developed for use in estimating the
fair value of traded options which have no vesting restrictions and are fully
transferable. In addition, option valuation models require the input of highly
subjective assumptions including the expected stock price volatility. Because
FFC's employee stock options have characteristics significantly different from
those of traded options, and because changes in the subjective input assumptions
can materially affect the fair value estimate, in management's opinion, the
existing models do not necessarily provide a reliable single measure of the fair
value of its employee stock options.
For purposes of pro forma disclosures, the estimated fair value of the options
is amortized to expense over the options' vesting period. FFC's pro forma
information follows (in thousands except for earnings per share information):
1996 1995
-------- ------
Pro forma net income $ 49,736 $ 63,959
Pro forma earnings per share:
Primary $ 1.31 $ 1.70
Fully diluted $ 1.30 $ 1.69
Because Statement No. 123 is applicable only to options granted
subsequent to December 31, 1994, its pro forma effect will not be
fully reflected until 1997.
-34-
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--Continued
FIRST FINANCIAL CORPORATION
NOTE Q--STOCK-BASED COMPENSATION--Continued
A summary of the status of FFC's stock option plan as of December 31, 1996, 1995
and 1994 and changes during the years ended on those dates follows:
1996 1995 1994
--------------------- --------------------- ---------------------
Weighted Weighted Weighted
Average Average Average
Exercise Exercise Exercise
Options Price Options Price Options Price
------- ----- ------- ----- ------- -----
(Number of options in thousands)
Outstanding at begin-
ning of year 1,779 $ 7.35 2,459 $ 6.58 2,691 $ 5.82
Granted 18 17.91 35 13.73 219 12.21
Exercised (373) 5.50 (708) 4.95 (416) 4.56
Forfeited (9) 14.81 (7) 12.58 (35) 7.45
----- ----- -----
OUTSTANDING AT END OF
YEAR 1,415 7.92 1,779 7.35 2,459 6.58
===== ===== =====
Options exercisable at
year-end 1,147 1,295 1,589
Weighted-average fair
value of options grant-
ed during the year $4.37 $3.53
The following table summarizes information about stock options outstanding at
December 31, 1996:
Options Outstanding Options Exercisable
--------------------------------------------- ------------------------------
Weighted-
Average Weighted- Weighted-
Range of Remaining Average Average
Exercise Options Contractual Exercise Options Exercise
Prices Outstanding Life Price Exercisable Price
- ---------------- ----------- -------------- ------------ ------------- ------------
(Number of options in thousands)
$ 2.48 to $ 6.40 244 4.3 years $ 3.89 244 $ 3.89
$ 7.55 896 5.9 years 7.55 719 7.55
$10.90 to $13.40 252 7.5 years 12.25 182 12.27
$16.60 to $19.65 23 9.2 years 17.59 2 17.10
---------- ----------
$ 2.48 to $19.65 1,415 6.0 years 7.92 1,147 7.54
========== ==========
At December 31, 1996, options for 755,000 shares were available for future
grant.
NOTE R--LITIGATION
FFC is involved in certain lawsuits in the course of its general lending
business and other operations. FFC believes there are sound defenses against the
claims asserted therein and is vigorously defending these actions. Management,
after review with its legal counsel, is of the opinion that the ultimate
disposition of its litigation will not have a material effect on FFC's financial
condition.
-35-
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--Continued
FIRST FINANCIAL CORPORATION
NOTE S--FIRST FINANCIAL CORPORATION PARENT COMPANY ONLY
FINANCIAL INFORMATION
BALANCE SHEETS
December 31,
1996 1995
-------- ------
(Dollars in thousands)
ASSETS
Cash and cash equivalents $ 35,603 $ 13,613
Investment securities available for sale 4,687 4,668
Investment in subsidiary 368,017 417,830
Prepaid expenses and other assets 3,743 5,068
-------- --------
$412,050 $441,179
======== ========
LIABILITIES
Subordinated notes $ 54,925
Other liabilities $ 1,539 1,066
-------- --------
TOTAL LIABILITIES 1,539 55,991
STOCKHOLDERS' EQUITY
Common stock 37,451 37,095
Additional paid-in capital 43,668 42,337
Retained earnings 342,539 311,777
Net unrealized gain (loss) on
securities available for sale 1,300 (6,021)
Treasury stock, at cost (14,447)
-------- --------
TOTAL STOCKHOLDERS' EQUITY 410,511 385,188
-------- --------
$412,050 $441,179
======== ========
STATEMENTS OF INCOME
Year Ended December 31,
1996 1995 1994
------- ------- ------
(Dollars in thousands)
Interest income $ 795 $ 920 $ 644
Interest expense on borrowings 182 4,675 4,686
------- ------- -------
NET INTEREST INCOME (EXPENSE) 613 (3,755) (4,042)
Equity in net income of subsidiary 51,428 68,028 56,903
------- ------- -------
52,041 64,273 52,861
Management fees paid to subsidiary 700 660 628
Other expenses 1,401 1,807 1,080
------- ------- -------
INCOME BEFORE INCOME TAX CREDITS
AND EXTRAORDINARY ITEM 49,940 61,806 51,153
Income tax credits (518) (2,178) (1,876)
------- ------- -------
INCOME BEFORE EXTRAORDINARY ITEM 50,458 63,984 53,029
Extraordinary item (686)
------- ------- -------
NET INCOME $49,772 $63,984 $53,029
======= ======= =======
-36-
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--Continued
FIRST FINANCIAL CORPORATION
NOTE S--FIRST FINANCIAL CORPORATION PARENT COMPANY ONLY FINANCIAL INFORMATION--
Continued
STATEMENTS OF CASH FLOWS
Year Ended December 31,
1996 1995 1994
-------- -------- ------
(Dollars in thousands)
OPERATING ACTIVITIES
Net income $ 49,772 $ 63,984 $ 53,029
Adjustments to reconcile net income
to net cash provided by (used in)
operating activities:
Equity in net income of subsidiary (51,428) (68,028) (56,903)
Other 2,326 1,649 218
-------- -------- --------
NET CASH PROVIDED BY (USED IN)
OPERATING ACTIVITIES 670 (2,395) (3,656)
INVESTING ACTIVITIES
Cash dividends from subsidiary 113,000 16,945 16,200
Investment in subsidiary (5,000)
-------- -------- --------
NET CASH PROVIDED BY
INVESTING ACTIVITIES 108,000 16,945 16,200
FINANCING ACTIVITIES
Redemption of subordinated debt (54,925)
Purchase of treasury stock (14,447)
Exercise of stock options 1,702 3,024 1,595
Cash dividends paid (19,010) (14,156) (9,950)
-------- -------- --------
NET CASH USED IN
FINANCING ACTIVITIES (86,680) (11,132) (8,355)
-------- -------- --------
Increase in cash and cash equivalents 21,990 3,418 4,189
Cash and cash equivalents at beginning
of year 13,613 10,195 6,006
-------- -------- --------
CASH AND CASH EQUIVALENTS AT END OF YEAR $ 35,603 $ 13,613 $ 10,195
======== ======== ========
-37-