FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
QUARTERLY REPORT UNDER SECTION 13 OR 15 (D) OF THE
SECURITIES EXCHANGE ACT OF 1934
FIRST FINANCIAL CORPORATION
September 30, 1995 <PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
QUARTERLY REPORT UNDER SECTION 13 OR 15 (D) OF THE
SECURITIES EXCHANGE ACT OF 1934
For Quarter Ended September 30, 1995
Commission File Number 0-16759
FIRST FINANCIAL CORPORATION
(Exact name of registrant as specified in its charter)
INDIANA 35-1546989
(State or other jurisdiction (I.R.S. Employer
incorporation or organization) Identification No.)
One First Financial Plaza, Terre Haute, IN 47807
(Address of principal executive office) (Zip Code)
(812)-238-6000
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15 (d) of the Securities Exchange Act
of 1934 during the preceding 12 months (or for such period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days.
Yes X No .
As of September 30, 1995 were outstanding 5,753,304 shares without par value,
of the registrant.
1 <PAGE>
FIRST FINANCIAL CORPORATION
FORM 10-Q
INDEX
Page No.
PART I. Financial Information
Item 1. Financial Statements:
Consolidated Statements of Condition..............................3
Consolidated Statements of Income..................................4
Consolidated Statements of Cash Flows..............................5
Notes to Consolidated Financial Statements.......................6,7
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations...........8,9,10
PART II. Other Information:
Item 4. Submission of Matters to a Vote of
Security Holders............................................11
Signatures..............................................................12
2 <PAGE>
<TABLE>
FIRST FINANCIAL CORPORATION
CONSOLIDATED STATEMENTS OF CONDITION
<CAPTION>
Sept. 30, December 31,
1995 1994
(Dollar amounts in thousands)
<S> <C> <C>
Cash and due from banks $51,827 51,947
Federal funds sold and securities purchased under
agreements to resell 2,700 23,725
Investments:
Held to Maturity (market value of $174,281 and
$168,879, respectively) 171,344 174,646
Available-For-Sale 242,340 178,272
Loans:
Commercial, financial and agricultural 169,441 163,268
Real estate - construction 21,676 20,446
Real estate - mortgage 454,783 424,427
Installment 197,862 185,533
Lease financing 4,506 5,259
848,268 798,933
Less:
Unearned income 1,318 1,882
Allowance for possible loan losses 10,200 9,649
836,750 787,402
Accrued interest receivable 11,198 9,704
Premises and equipment 23,000 20,011
Other assets 12,914 14,132
TOTAL ASSETS $1,352,073 $1,259,839
LIABILITIES AND SHAREHOLDERS' EQUITY
Deposit:
Noninterest-bearing $122,873 $125,106
Interest-bearing:
Certificates of deposit of $100,000 or more 139,983 109,306
Other interest-bearing deposits 795,228 758,954
1,058,084 993,366
Short-term borrowings:
Federal funds purchased and securities
sold under agreements to repurchase 47,098 66,685
Treasury tax and loan open-end note 7,366 5,406
Advances from Federal Home Loan Bank 79,297 46,272
133,761 118,363
Other liabilities 10,812 9,919
Long-term debt 6,655 7,470
Long-term advances from Federal Home Loan Bank 20,228 18,168
TOTAL LIABILITIES 1,229,540 1,147,286
Shareholders' equity:
Common stock, $.125 stated value per share;
authorized 10,000,000 shares; issued
5,815,857 shares for 1995 and 1994, including treasury 727 693
shares of 62,553 for 1995 and 19,600 for 1994.
Additional capital 33,150 25,498
Retained earnings 89,249 89,399
Unrealized gains(losses) on AFS securities, net of tax 1,345 (2,429)
Less treasury shares, at cost (1,938) (608)
TOTAL SHAREHOLDERS' EQUITY 122,533 112,553
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $1,352,073 $1,259,839
The accompanying notes are an integral part of the consolidated financial
statements.
</TABLE>
3 <PAGE>
<TABLE>
FIRST FINANCIAL CORPORATION
CONSOLIDATED STATEMENTS OF INCOME
<CAPTION>
Three Months Ended Nine Months ended
September 30, September 30,
1995 1994 1995 1994
(Amounts in thousands, except per share amounts)
<S> <C> <C> <C> <C>
INTEREST INCOME:
Loans $18,604 $16,006 $53,563 $45,956
Investment securities:
Taxable 4,713 3,763 13,580 11,342
Tax-exempt 1,764 1,698 5,313 4,901
6,477 5,461 18,893 16,243
Other interest income 169 94 533 261
TOTAL INTEREST INCOME 25,250 21,561 72,989 62,460
INTEREST EXPENSE:
Deposits 11,000 8,129 31,556 23,680
Other 2,051 1,347 5,642 3,702
TOTAL INTEREST EXPENSE 13,051 9,476 37,198 27,382
NET INTEREST INCOME 12,199 12,085 35,791 35,078
Provision for possible
loan losses 543 471 1,623 1,864
NET INTEREST INCOME AFTER
PROVISION FOR POSSIBLE
LOAN LOSSES 11,656 11,614 34,168 33,214
OTHER INCOME
Trust department income 358 309 1,034 902
Service charges on deposit
accounts 318 316 908 916
Other service charges and fees 770 667 2,332 1,965
Investment securities gains
(losses) (3) 18 (27) 36
Other 246 273 872 1,322
1,689 1,583 5,119 5,141
OTHER EXPENSES
Salaries and employee benefits 4,609 4,288 13,469 12,985
Occupancy expense 683 651 1,962 1,772
Equipment expense 506 512 1,509 1,524
Data processing expense 504 480 1,528 1,433
FDIC insurance expense (50) 546 1,037 1,640
Other 2,349 2,232 7,188 6,823
8,601 8,709 26,693 26,177
INCOME BEFORE INCOME TAXES 4,744 4,488 12,594 12,178
Income Tax Expense 1,289 1,271 3,432 3,330
NET INCOME $3,455 3,217 9,162 8,848
EARNINGS PER SHARE: $0.60 $0.55 $1.59 $1.52
Weighted average number of
shares outstanding 5,764 5,818 5,774 5,818
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
4 <PAGE>
FIRST FINANCIAL CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Nine Months Ended
September 30,
1995 1994
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $9,162 $8,848
Adjustment to reconcile net income to net cash
provided by operating activities:
Provision for possible loan losses 1,623 1,864
Provision for depreciation and amortization 1,726 1,850
Net (increase) decrease in accrued interest receivable (1,494) (227)
Other, net (636) 2,216
NET CASH PROVIDED BY OPERATING ACTIVITIES 10,381 14,551
CASH FLOWS FROM INVESTING ACTIVITIES:
Net increase (decrease) from purchases and maturities of
interest-bearing deposits with financial institutions 0 685
Sales and maturities of investment securities 0 195,139
Maturities of held-to-maturity securities 42,780 0
Sales and maturities of available-for-sale securities 33,156 0
Purchases of investment securities 0 (160,760)
Purchases of investment securities:
Held-to-maturity security (17,888) 0
Available-for-sale security (111,170) 0
Loans made to customers, net of repayments (50,947) (49,066)
Net decrease in federal funds sold 21,025 24,770
Additions to premises and equipment (4,317) (1,151)
NET CASH USED BY INVESTING ACTIVITIES (87,361) 9,617
CASH FLOWS FROM FINANCING ACTIVITIES:
Net increase from sales and
redemptions of certificates of deposit 92,840 15,174
Net decrease in other deposits (28,122) (25,135)
Net increase (decrease) in short-term borrowings 15,397 10,423
Cash dividends (3,171) (2,965)
Proceeds from reissuance of Treasury Stock 525 0
Purchase of treasury stock (1,855) 0
Net increase (decrease) from long-term debt 1,256 (15,257)
Repayments of long-term debt (10) (129)
NET CASH PROVIDED (USED) BY FINANCING ACTIVITIES 76,860 (17,889)
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (120) 6,279
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 51,947 43,460
CASH AND CASH EQUIVALENTS, END OF PERIOD $51,827 $49,739
======= =======
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the period for interest $34,952 $26,666
Income taxes paid $3,838 $2,542
The accompanying notes are an integral part of the consolidated financial statements.
</TABLE>
5 <PAGE>
FIRST FINANCIAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. The accompanying September 30, 1995 and 1994 consolidated financial
statements are unaudited. The December 31, 1994, consolidated statement of
condition amounts are as reported in the Corporation's 1994 annual report.
The significant accounting policies followed by First Financial
Corporation and its subsidiaries for interim financial reporting are
consistent with the accounting policies followed for annual financial
reporting. All adjustments, which are in the opinion of management necessary
for a fair statement of the results for the periods reported, have been
included in the accompanying consolidated financial statements and are of a
normal recurring nature.
2. The Corporation adopted Statements of Financial Standards No's 114 and
118 (SFAS 114), "Accounting by creditors for Impairment of a Loan" and
"Accounting by Creditors for Impairment of a Loan-Income Recognition and
Disclosures" as of January 1, 1995. SFAS 114 requires that certain impaired
loans be measured based either on the present value of expected future cash
flows discounted at the loan's effective interest rate, or the loan's
observable market price or the fair value of the collateral if the loan is
collateral dependent. The adoption of SFAS 114 did not result in additional
provisions for loan losses primarily because the majority of impaired loan
valuations continue to be based on the fair value of collateral.
The provision for loan and lease losses charged to expense is based upon
each affiliate's past loan and lease loss experience and an evaluation of
potential losses in the current loan and lease portfolio, including the
evaluation of impaired loans under SFAS 114. A loan is considered to be
impaired when based upon current information and events, it is probable that
Corporation will be unable to collect all amounts due according to the
contractual terms of the loan. Impairments is primarily measured based on the
fair value of the loans collateral. Impairment losses are included in the
provision for loan and lease losses. SFAS 114 does not apply to large groups
of smaller balance homogeneous loans that are collectively evaluated for
impairment, except for those loans restructured under a troubled debt
restructuring. Loans collectively evaluated for impairment include certain
smaller balance commercial loans, consumer loans, residential real estate
loans, and credit card loans, and are not included in the data that follows.
The following table summarizes impaired loan information.
$(thousands).....................................................September 30,
1995
Impaired loans.......................................................$ 3,715
Impaired loans with related reserve for loan losses calculated under
SFAS 114.......................................................... 3,597
Impaired loans with no realized reserve for loan losses calculated
under SFAS 114...................................................... 118
September 30,
1995
Average impaired loans................................................$ 4,342
Interest income recognized on impaired loans.......................... 159
Cash basis interest income recognized on impaired loans................ 0
Interest payments on impaired loans are typically applied to principal
unless collectability of the principal amount is fully assured, in which case
interest is recognized on the cash basis for certain troubled debt
restructuring which are included in the impaired loan data above.
6 <PAGE>
Commercial loans and residential real estate loans are placed on
nonaccrual at the time the loan is 90 days delinquent unless the credit is
well secured and in the process of collection. Commercial loans are charged
off at the time the loan becomes 180 days delinquent unless the loan is well
secured and in the process of collection, or other extenuating circumstances
support collection. Credit card loans and other unsecured personal credit
lines are typically charged off no later than 180 days delinquent. Other
consumer loans are typically charged off at 150 days delinquent. In all
cases, loans must be placed on nonaccrual or charged off at an earlier date if
collection of principal or interest is considered doubtful.
The interest on these loans is accounted for on the cash basis or cost
recovery method, until qualifying for return to accrual. Loans maybe returned
to accrual status when all the principal and interest amounts contractually
due are paid current.
3. In May, 1995, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standard No. 122, "Accounting for Mortgage
Servicing Rights" (SFAS 122). SFAS 122 amends Statements of Financial
Accounting Standard No 65. "Accounting for Certain Mortgage Banking
Activities", to require that mortgage banking enterprises recognize as
separate assets rights to service mortgage loans for others, however those
mortgage servicing rights are acquired. SFAS 122 also requires that mortgage
banking enterprises assess capitalized mortgage servicing rights based on the
fair value of those rights on a desegregated basis. SFAS 122 applies to fiscal
years beginning after December 15, 1995 however, earlier application is
encouraged. The Corporation has yet to determine whether to adopt SFAS 122
early; however, if adopted during 1995 the impact on the Corporation's
financial results is not expected to be material.
7 <PAGE>
FIRST FINANCIAL CORPORATION
ITEM 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
The purpose of the review is to point out key factors in First
Financial's recent performance, compared with earlier periods. The review
should be read in conjunction with the financial statements beginning on Page
3 of this report. All figures are for the consolidated entities. It is
presumed the readers of these financial statements and the following narrative
have previously read the Corporation's annual report for 1994.
At the May 16, 1995 meeting, the Board of Directors approved a 5% stock
dividend to shareholders of record June 20, 1995. This stock dividend is
reflected in the accompanying financial statements.
Earnings Analysis
Summary of Operating Results
Net income for the first nine months of $9,162,000 represents a $314,000
increase or 3.5% from the $8,848,000 reported for the same period a year
earlier. Earnings per share was $1.59 an increase of 4.6% from the $1.52 per
share reported in the prior year.
Net income for the current quarter of $3,455,000 represents a 7.4%
increase or $238,000 from the $3,217,000 reported for the same quarter of
1994. Earnings per share increased to $.60 from $.55 for the same period.
Net Interest Income
First Financial Corporation's primary source of earnings is net interest
income, which is the difference between the interest earned on loans and other
investments and the interest incurred for deposits and other sources of funds.
In the first nine months of 1995 net interest income increase $713,000 or 2%
as compared to the same period in 1994. Although the net interest income is
increased as compared to the same period of 1994, the net interest margin for
the year decreased from 4.42% in 1994 to 4.22% in 1995. This decrease is
caused by higher cost paid for interest bearing liabilities as the result of
more competition for funds.
Net interest income for the third quarter of 1995 increased only
$114,000 due to the higher cost paid for interest bearing liabilities.
Other Income
Other income for the first nine months of 1995, as compared to the same
period of 1994, remained almost unchanged. Significant decrease for the
individual components occurred in the categories of "other income". The major
contributing factor was the recovery of $425,000 in 1994 from a previous
recorded loss.
Other income for the third quarter of 1995 increased $106,000 or 6.7%
as compared to the same quarter of 1994. There were no significant changes
in any one category of other income.
8 <PAGE>
Other Expenses
For the first nine months of 1995, other expenses increased only 2.0% or
$516,000. The main reason for this small increase was due to the favorable
FDIC insurance adjustment which decreased the expense by $603,000 or 36.8%.
Other expense for the three months ended September 30, 1995, were down
$108,000 or 1.2%. These decreases are primarily the result of the favorable
FDIC insurance adjustment.
Analysis of Financial Condition
Allowance for Possible Loan Losses
The Corporation's provision for possible loan losses totaled $1,623,000
for the first nine months of 1995 compared to $1,864,000 for the same period a
year earlier. The decreased provision is the result of fewer non-performing
loans and an overall improvement in loan quality.
At September 30, 1995, the allowance for possible loan losses was 1.20%
of total loans, net of unearned income. This compares with an allowance of
1.21% at December 31, 1994. Net charge-offs for the first nine months of 1995
were $1,067,000 compared to $1,478,000 for the same period of 1994. The ratio
of net charge-offs to average loans outstanding for the last five years ended
December 31, 1994, was .43%. With this experience and based on management's
review of the portfolio, management believes the allowance of $10,200,000 at
September 30, 1995 is adequate.
Underperforming Assets
The following is a listing of all categories of non-performing assets
which includes potential problem loans at September 30, 1995 and December 31,
1994.
(000') (000')
9-30-95 12-31-94
Nonaccrual Loans $3,243 $3,481
Restructured Loans 185 217
$3,428 $3,698
Past due
> 90 days 3,089 1,992
Land sold on contract 1,079 519
Total non performing asset $7,596 $6,209
The ratio of the allowance for loan losses as a percentage of non-
performing loans was 155% at September 30, 1995 which represents an
decrease of 15% from December 31, 1994. This decrease is the result of an
increase in the amount of loans past due 90 days or more amounting to
$1,097,000 or 55%. There was no one significant factor which effected this
increase but on a consolidated basis each category of loans increased a small
amount.
9 <PAGE>
The following loan categories comprise significant components of the
non-performing loans at September 30, 1995:
Non-Accrual Loans
1. 1-4 family residential: $457 thousand or 14% or non-accrual
loans
2. Commercial loans: $2.0 million or 61% or non-accrual
loans
Past due > 90 days
1. 1-4 family residential: $1.2 million or 35% or past due loans
2. Installment loans: $803 thousand or 24% or past due loans
3. Commercial loans: $771 thousand or 24% or past due loans
4. Construction and land
Development $393 thousand or 12% or past due loans
There are no material industry concentrations within the non-performing
loans.
In addition to the above under-performing loans, certain loans are felt
by management to be impaired for reasons other than the current repayment
status. Such reasons may include but not be limited to previous payment
history, bankruptcy proceedings, industry concerns, or information related
to a specific borrower that may result in a negative future event to that
borrower. In accordance with the guide III item III. C 2, the Corporation had
$2.1 million of doubtful loans which are still in accrual status.
Liquidity and Interest Rate Sensitivity
The Corporation's objective in liquidity management is to manage the
assets and liabilities to meet the needs of borrowers while allowing for the
possibility of deposit withdrawals.
Part of the strategy in maintaining a satisfactory level of liquidity is
to structure a maturity schedule for the investment and loan portfolios that
will allow for fluctuations in the availability of funds. Within the next
twelve months $113,424,000 of investments will mature which represents 30.0%
of the investment portfolio. Investments with maturities of one to five years
comprise an additional 51.4% of the investment portfolio.
The investment maturities along with the normal run-off of loans
coupled with a large supply of unpledged securities for repurchase
agreements, federal funds purchased, additional negotiable certificates of
deposits, and other available borrowings affords the Corporation flexibility
in funding loan growth and meeting other market opportunities as they present
themselves.
During the next twelve months the Corporation will either reprice or
mature a total of $454,715,000 of assets. In this same period a total of
$546,744,000 of liabilities will either be repriced or mature. Thus, the
ratio of rate sensitive assets to rate sensitive liabilities as measured on a
static basis, is 83% as September 30, 1995. The Corporation will continue to
monitor this relationship to determine if it is appropriate to maintain a
satisfactory level of net interest margin, while considering interest rate
sensitivity.
Capital Adequacy
As of September 30, 1995, the Corporation's leverage ratio was 9.26%
which compared 9.30% at December 31, 1994.
At September 30, 1995, the Corporation's tier II capital ratio was
15.43% compared to 15.30% at December 31, 1994.
10<PAGE>
FIRST FINANCIAL CORPORATION
PART II OTHER INFORMATION
ITEM 4. Submission of Matters to a Vote of Security Holders
(a) The Annual meeting of the shareholders of the Corporation
was held on April 19, 1995.
(b) The following were elected Directors of the Corporation:
Walter A. Bledsoe, B. Guille Cox, Jr., Thomas T. Dinkel,
Welby M. Frantz, Anton Hulman George, Mari Hulman George,
Gregory L. Gibson, Max Gibson, Norman L. Lowery,
William Niemeyer, Patrick O'Leary, John W. Ragle,
Chapman J. Root II, Donald E. Smith, and Virginia Smith.
(c) The shareholders unanimously approved the annual report of
the Corporation and unanimously approved the actions of the
Directors and Officers of the Corporation for the fiscal
year ended December 31, 1994.
No other information is required to be filed under Part II of this
form.
11<PAGE>
FIRST FINANCIAL CORPORATION
FORM 10-Q
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
FIRST FINANCIAL CORPORATION
(Registrant)
Date: November 10, 1995 By (Signature)
Donald E. Smith, President
Date: November 10, 1995 By (Signature)
John W. Perry, Secretary
Date: November 10, 1995 By (Signature)
Michael A. Carty, Treasurer
12<PAGE>
14<PAGE>
<TABLE> <S> <C>
<ARTICLE> 9
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-END> SEP-30-1995
<CASH> 51,827
<INT-BEARING-DEPOSITS> 0
<FED-FUNDS-SOLD> 2,700
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 242,340
<INVESTMENTS-CARRYING> 413,684
<INVESTMENTS-MARKET> 416,621
<LOANS> 846,950
<ALLOWANCE> 10,200
<TOTAL-ASSETS> 1,352,073
<DEPOSITS> 1,058,084
<SHORT-TERM> 133,761
<LIABILITIES-OTHER> 10,812
<LONG-TERM> 26,883
<COMMON> 727
0
0
<OTHER-SE> 121,806
<TOTAL-LIABILITIES-AND-EQUITY> 1,352,073
<INTEREST-LOAN> 53,563
<INTEREST-INVEST> 18,893
<INTEREST-OTHER> 533
<INTEREST-TOTAL> 72,989
<INTEREST-DEPOSIT> 31,556
<INTEREST-EXPENSE> 5,642
<INTEREST-INCOME-NET> 35,791
<LOAN-LOSSES> 1,623
<SECURITIES-GAINS> (27)
<EXPENSE-OTHER> 26,693
<INCOME-PRETAX> 12,594
<INCOME-PRE-EXTRAORDINARY> 12,594
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 9,162
<EPS-PRIMARY> 1.59
<EPS-DILUTED> 1.59
<YIELD-ACTUAL> 4.22
<LOANS-NON> 3,243
<LOANS-PAST> 3,089
<LOANS-TROUBLED> 185
<LOANS-PROBLEM> 2,100
<ALLOWANCE-OPEN> 9,649
<CHARGE-OFFS> 2,178
<RECOVERIES> 1,106
<ALLOWANCE-CLOSE> 10,200
<ALLOWANCE-DOMESTIC> 10,200
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
