<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the Fiscal Year Ended Commission file number
December 31, 1995 0-16759
FIRST FINANCIAL CORPORATION
(Exact name of registrant as specified in its charter)
INDIANA 35-1546989
(State of Incorporation) (I.R.S. Employer Identification No.)
One First Financial Plaza
Terre Haute, IN 47807
(Address of principal executive offices) (Zip Code)
Registrant's telephone number: (812) 238-6000
Securities registered pursuant to Section 12(b) of the Act:
TITLE OF EACH CLASS NAME OF EACH EXCHANGE ON WHICH REGISTERED
------------------- -----------------------------------------
Common Stock, no par value Nasdaq
Securities registered pursuant to Section 12(g) of the Act: None
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, and (2) has been subject to such filing
requirements for the past 90 days. Yes __X__ No _____
Indicate by check mark if disclosure of delinquent filers pursuant to item
405 of regulation 8-K is not contained herein, and will not be contained, to
the of Registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of the Form 10-K or any amendment to the
form 10-K. __X__
As of January 31, 1996 the aggregate market value of the voting stock held
by nonaffiliates of the registrant based on the average bid and ask prices of
such stock was $139,251,864. (For purposes of this calculation, the
Corporation excluded the stock owned by certain beneficial owners and
management and the Corporation's ESOP.)
Shares of Common Stock outstanding as of January 31, 1996--5,753,304
shares.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the 1995 Annual Report to Shareholders are incorporated by
reference. Portions of the Definitive Proxy Statement for the First Financial
Corporation Annual Meeting to be held April 17, 1996 are incorporated by
reference into Part III.
<PAGE> 2
FORM 10-K CROSS-REFERENCE INDEX
PART I
<TABLE>
<CAPTION>
PAGE
<S> <C> <C>
Item 1 Business................................................................................... 2
Item 2 Properties................................................................................. 2
Item 3 Legal Proceedings.......................................................................... 2
Item 4 Submission of Matters to a Vote of Security Holders........................................ 2
PART II
Item 5 Market for Registrant's Common Stock and Related Stockholder Matters....................... 3
Item 6 Selected Financial Data.................................................................... 3
Item 7 Management's Discussion and Analysis of Financial Conditions and Results of Operations..... 3
Item 8 Financial Statements and Supplementary Data................................................ 3
Item 9 Changes in and Disagreement with Accountants on Accounting and Financial Disclosure........ 3
PART III
Item 10 Directors and Executive Officers of Registrant............................................. 3
Item 11 Executive Compensation..................................................................... 3
Item 12 Security Ownership of Certain Beneficial Owners and Management............................. 3
Item 13 Certain Relationships and Related Transactions............................................. 3
PART IV
Item 14 Exhibits, Financial Statement Schedules and Reports on Form 8-K............................ 4
Signatures................................................................................. 4, 5
</TABLE>
1
<PAGE> 3
PART I
ITEM 1. BUSINESS
First Financial Corporation became a multi-bank holding company in 1984.
For more information on the Bank's business, please refer to the following
sections of the 1995 Annual Report to Shareholders:
1. Description of bank services, affiliations, number of employees, and
competition, on page 25.
2. Information regarding supervision of the Bank, on page 13.
3. Details regarding competition, on page 25.
ITEM 2. PROPERTIES
First Financial Corporation (the Corporation) is located in a four story
office building in downtown Terre Haute that was occupied in June 1988. It is
leased to Terre Haute First National Bank. This bank also owns two other
facilities in downtown Terre Haute. One is leased to another party and the
other 50,000 square foot building housed operations and administrative staff
and equipment. In addition, the Bank holds in fee four other branch buildings
and one of branch buildings is a single story 44,000 square foot which is
located in a Terre Haute suburban area. Five other branch bank buildings are
leased by the Bank. The expiration dates on the leases are February 14, 2011,
May 31, 2011, September 1, 2001, June 30, 1999, and June 30, 1997.
Facilities of the Corporation's subsidiary, First State Bank, include
branches in Clay City and Poland, Indiana and two branch facilities in Brazil,
Indiana including the main office. The buildings are held in fee by First
State.
Facilities of the Corporation's subsidiary, First Citizens State Bank of
Newport, include its main office in Newport, Indiana and two branch facilities
in Cayuga and Clinton, Indiana. All three buildings are held in fee by First
Citizens.
Facilities of the Corporation's subsidiary, First Farmers State Bank,
include its main office in Sullivan, Indiana and five branch facilities in
Carlisle, Dugger, Farmersburg, Hymera, and Worthington, Indiana. All six
buildings are held in fee by First Farmers.
The facility of the Corporation's subsidiary, First Ridge Farm State Bank,
includes an office facility in Ridge Farm, Illinois. The building is held in
fee by First Ridge Farm State.
The facility of the Corporation's subsidiary, First Parke State Bank,
include its main office in Rockville, Indiana and three branch facilities in
Marshall, Montezuma and Rosedale, Indiana. All four buildings are held in fee
by First Parke.
The facility of the Corporation's subsidiary, First National Bank of
Marshall, is an office facility in Marshall, Illinois. The building is held in
fee by First National Bank of Marshall.
ITEM 3. LEGAL PROCEEDINGS
There are no material pending legal proceedings which involve the
Corporation or its subsidiaries that are expected to materially affect the
Corporation's future financial statements.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None
2
<PAGE> 4
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON STOCK AND RELATED STOCKHOLDER
MATTERS
See "Market and Dividend Information" on page 35 of the 1995 Annual
Report.
ITEM 6. SELECTED FINANCIAL DATA
See "Five-Year Comparison of Selected Financial Data" on page 8 of the
1995 Annual Report to Shareholders.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATION
See "Management's Discussion and Analysis" on pages 25 through 33 of the
1995 Annual Report to Shareholders.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
See "Consolidated Statements of Condition" on page 9, "Consolidated
Statements of Income" on page 10, "Consolidated Statements of Shareholders
Equity" on page 11, "Consolidated Statements of Cash Flows" on page 12, and
"Notes to Consolidated Financial Statements" on pages 13-22. "Responsibility
for Financial Statements" and "Report of Independent Accountants" can be found
on page 24.
Statistical disclosure by Bank Holding Company includes the following
information:
1. "Volume/Rate Analysis," on page 26.
2. "Loan Portfolio," on page 28.
3. "Allowance for Possible Loan Losses," on page 29.
4. "Under-Performing Loans," on page 30.
5. "Deposits," on page 31.
6. "Short-Term Borrowings," on page 31.
7. "Consolidated Balance Sheet-Average Balances and Interest Rates," on
page 34.
ITEM 9. CHANGES IN AND DISAGREEMENT WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF REGISTRANT
See pages 3 through 5 of the Annual Proxy Statement of First Financial
Corporation.
ITEM 11. EXECUTIVE COMPENSATION
See pages 5 through 10 of the Annual Proxy Statement of First Financial
Corporation.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
See pages 13 through 14 of the Annual Proxy Statement of First Financial
Corporation.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
See "Certain Relationships" on page 4, and "Transactions with Management"
on page 11 of the Annual Proxy Statement of First Financial Corporation.
3
<PAGE> 5
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENTS SCHEDULES AND REPORTS ON FORM 8-K
(a)(1) The following consolidated financial statements of the Registrant
and its subsidiaries are included in the Annual Report of First
Financial Corporation attached:
Consolidated Statements of Condition--December 31, 1995 and 1994
Consolidated Statements of Income--Years ended December 31,
1995, 1994, and 1993
Consolidated Statements of Shareholders' Equity--Years ended
December 31, 1995, 1994, 1993 and 1992
Consolidated Statements of Cash Flow--Years ended December 31,
1995, 1994 and 1993
Notes to Consolidated Financial Statements
(2) Schedules to the Consolidated Financial Statements required by Article
9 of Regulation S-X are not required, inapplicable, or the required
information has been disclosed elsewhere.
(3) Listing of Exhibits:
Exhibit Number Description
-------------- ------------
21 Subsidiaries
(b) Reports on Forms 8-K--None
(c) Exhibits--Exhibits to (a)(3) listed above are attached to this
report.
(d) Financial Statements Schedules--No schedules are required to be
submitted. See response to ITEM 14 (a)(2).
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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
Michael A. Carty, signed
-------------------------------
Michael A. Carty, Treasurer
(Principal Financial Officer
and Principal Accounting Officer)
Date: February 21, 1996
4
<PAGE> 6
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
Donald E. Smith, signed February 21, 1996
- -------------------------------
Donald E. Smith, President & Director
(Principal Executive Officer)
John W. Perry, signed February 21, 1996
- -------------------------------
John W. Perry, Secretary
Walter A. Bledsoe, signed February 21, 1996
- -------------------------------
Walter A. Bledsoe, Director
B. Guille Cox, Jr, signed February 21, 1996
- -------------------------------
B. Guille Cox, Jr., Director
Thomas T. Dinkel, signed February 21, 1996
- -------------------------------
Thomas T. Dinkel, Director
Welby M. Frantz, signed February 21, 1996
- -------------------------------
Welby M. Frantz, Director
Anton H. George, signed February 21, 1996
- -------------------------------
Anton H. George, Director
- -------------------------------
Mari H. George, Director
Max Gibson, signed February 21, 1996
- -------------------------------
Max Gibson, Director
Norman L. Lowery, signed February 21, 1996
- -------------------------------
Norman L. Lowery, Director
- -------------------------------
William A. Niemeyer, Director
Patrick O'Leary, signed February 21, 1996
- -------------------------------
Patrick O'Leary, Director
John W. Ragle, signed February 21, 1996
- -------------------------------
John W. Ragle, Director
February 21, 1996
- -------------------------------
Chapman J. Root II, Director
Virginia L. Smith, signed February 21, 1996
- -------------------------------
Virginia L. Smith, Director
5
<PAGE> 7
EXHIBIT 21
EXHIBIT 21--SUBSIDIARIES OF THE REGISTRANT
Terre Haute First National Bank is a wholly-owned subsidiary of the Registrant.
It is a national banking association. It is an Indiana corporation. The bank
conducts its business under the name of Terre Haute First National Bank.
First State Bank is a wholly-owned subsidiary of the Registrant. It is a
state corporation in Indiana. The bank conducts its business under the name of
First State Bank.
First Citizens State Bank of Newport is a wholly-owned subsidiary of the
Registrant. It is a state corporation in Indiana. The bank conducts its
business under the name of First Citizens State Bank.
First Farmers State Bank is a wholly-owned subsidiary of the Registrant.
It is a state corporation in Indiana. The bank conducts its business under the
name of First Farmers State Bank.
First Ridge Farm State Bank is a wholly-owned subsidiary of the
Registrant. It is a state corporation in Illinois. The bank conducts its
business under the name of First Ridge Farm State Bank.
First Parke State Bank is a wholly-owned subsidiary of the Registrant. It
is a state corporation in Indiana. The bank conducts its business under the
name of First Parke State Bank.
First National Bank of Marshall is a wholly-owned subsidiary of the
Registrant. It is a national banking association. It is an Illinois
corporation. The bank conducts its business under the name of First National
Bank.
6
<PAGE> 1
EXHIBIT 13
FINANCIAL REVIEW
CONTENTS
Five-Year Comparison of Selected Financial Data.............. 8
Audited Financial Statements and Related Notes............... 9
Reports of Management and Independent Accountants............ 24
Management's Discussion and Analysis......................... 25
Results of Operations -- Summary for 1995.................... 26
Financial Condition -- Summary............................... 28
Capital Resources............................................ 32
Interest Rate Sensitivity and Liquidity...................... 32
Average Consolidated Balance Sheet........................... 34
Market and Dividend Information.............................. 35
Selected Quarterly Financial Data............................ 35
NOTE: This Financial Review begins with page 7 of the annual Form 10-K, as
filed with the Securities and Exchange Commission. Upon written request, the
Corporation will provide without charge to each requesting shareholder a copy
of the Corporation's annual report on Form 10-K, which is required to be filed
with the Securities and Exchange Commission for the year ended December 31,
1995. Address all requests to:
MICHAEL A. CARTY, TREASURER - FIRST FINANCIAL CORPORATION
ONE FIRST FINANCIAL PLAZA - P.O. Box 540 - TERRE HAUTE, IN 47808
7
<PAGE> 2
FIVE YEAR COMPARISON OF SELECTED FINANCIAL DATA
<TABLE>
<CAPTION>
(Dollar amounts in thousands
except per share amounts) 1995 1994 1993 1992 1991
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Total assets $1,443,625 $1,260,084 $1,241,868 $1,225,114 $1,111,728
Investments 515,409 352,918 401,335 445,688 388,061
Net loans 823,667 797,051 738,824 684,222 606,527
Deposits 1,073,548 993,366 996,808 978,839 946,273
Long-term borrowings 56,721 25,638 41,299 26,556 9,523
Shareholders' equity 130,058 112,553 110,777 95,818 85,599
INCOME STATEMENT DATA:
Interest income 99,277 84,892 85,409 90,607 91,260
Interest expense 50,647 37,467 38,423 42,049 50,222
Net interest income 48,630 47,425 46,986 48,558 41,038
Provision for possible
loan losses 2,263 2,584 2,494 3,918 4,056
Other income 7,289 6,814 7,080 6,035 5,970
Other expenses 35,592 34,829 34,259 32,819 29,148
Net income 13,274 12,305 12,922 12,472 9,696
PER SHARE DATA:
Net income 2.30 2.12* 2.22* 2.16* 1.67*
Cash dividends .56 .52* .49* .44* .36*
PERFORMANCE RATIOS:
Net income to average assets 1.00% 1.00% 1.08% 1.10% .96%
Net income to average
shareholders' equity 10.99 11.06 12.88 13.86 11.93
Average total capital
to average assets 9.78 9.72 9.12 8.63 8.84
Average shareholders' equity
to average assets 9.08 9.04 8.39 7.89 8.08
Dividend payout 24.38 24.73 22.24 20.43 21.54
</TABLE>
*Restated to retroactively reflect 1995 stock dividend.
8
<PAGE> 3
CONSOLIDATED STATEMENTS OF CONDITION
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-------------------------------
(Dollar amounts in thousands) 1995 1994
- -----------------------------------------------------------------------------------------------
<S> <C> <C>
ASSETS
Cash and due from banks $62,747 $51,947
Federal funds sold - 23,725
Investment securities:
Held-to-maturity - 174,646
Available-for-sale 515,409 178,272
Loans 824,863 798,933
Less:
Unearned income 1,196 1,882
Allowance for possible loan losses 10,087 9,649
---------- ----------
813,580 787,402
Accrued interest receivable 12,597 9,704
Premises and equipment 23,927 20,011
Other assets 15,365 14,377
---------- ----------
TOTAL ASSETS $1,443,625 $1,260,084
========== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
Deposits:
Non-interest-bearing $ 128,672 $ 125,106
Interest-bearing:
Certificates of deposit of $100,000 or more 143,009 109,306
Other interest-bearing deposits 801,867 758,954
---------- ----------
1,073,548 993,366
Short-term borrowings:
Federal funds purchased and securities sold
under agreements to repurchase 68,778 66,685
Treasury tax and loan open-end note 3,872 5,406
Advances from Federal Home Loan Bank 95,296 46,272
---------- ----------
167,946 118,363
Long-term borrowings:
Advances from Federal Home Loan Bank 50,070 18,168
Other borrowings 6,651 7,470
Other liabilities 15,352 10,164
---------- ----------
TOTAL LIABILITIES 1,313,567 1,147,531
Commitments and Contingencies
Shareholders' equity
Common stock, $.125 stated value per share
authorized 10,000,000 shares in 1995 and 1994
issued 5,815,857 for 1995 and 1994, including
treasury shares of 62,553 for 1995 and 19,600 for 1994 727 693
Additional capital 33,150 25,498
Retained earnings 91,751 89,399
Unrealized gains (losses) on available-for-sale
securities, net of taxes 6,368 (2,429)
Less treasury shares, at cost (1,938) (608)
---------- ----------
TOTAL SHAREHOLDERS' EQUITY 130,058 112,553
---------- ----------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $1,443,625 $1,260,084
========== ==========
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
9
<PAGE> 4
CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
Years Ended December 31,
--------------------------
(Dollar amounts in thousands except per share data) 1995 1994 1993
- ----------------------------------------------------------------------------------------
<S> <C> <C> <C>
INTEREST INCOME:
Loans $72,147 $62,790 $60,430
Investment securities:
Taxable 19,371 15,079 19,715
Tax-exempt 7,029 6,549 4,763
Other interest income 730 474 501
------- ------- -------
TOTAL INTEREST INCOME 99,277 84,892 85,409
INTEREST EXPENSE:
Deposits 42,524 32,211 33,518
Short-term borrowings 5,706 3,252 3,016
Long-term borrowings 2,417 2,004 1,889
------- ------- -------
TOTAL INTEREST EXPENSE 50,647 37,467 38,423
NET INTEREST INCOME 48,630 47,425 46,986
Provision for possible loan losses 2,263 2,584 2,494
------- ------- -------
NET INTEREST INCOME AFTER
PROVISION FOR POSSIBLE LOAN LOSSES 46,367 44,841 44,492
OTHER INCOME:
Trust department income 1,448 1,267 1,165
Service charges on deposit accounts 1,222 1,215 1,345
Other service charges and fees 3,105 2,681 2,464
Investment securities gains (losses) 75 (57) 843
Other 1,439 1,708 1,263
------- ------- -------
7,289 6,814 7,080
OTHER EXPENSES:
Salaries and employee benefits 17,941 16,972 16,519
Occupancy 2,755 2,339 2,032
Equipment 2,087 2,073 2,147
Data processing 2,031 1,929 1,720
FDIC insurance 1,167 2,237 2,188
Printing and supplies 1,127 1,108 1,076
Other 8,484 8,171 8,577
------- ------- -------
35,592 34,829 34,259
INCOME BEFORE INCOME TAXES 18,064 16,826 17,313
Income tax expense 4,790 4,521 4,391
------- ------- -------
NET INCOME $13,274 $12,305 $12,922
======= ======= =======
EARNINGS PER SHARE:
NET INCOME $2.30 $2.12 $2.22
======= ======= =======
Weighted average number of shares outstanding in thousands 5,769 5,816 5,816
======= ======= =======
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
10
<PAGE> 5
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
Unrealized
Common Additional Retained Gains Treasury
(Dollar amounts in thousands except per share data) Stock Capital Earnings (Losses) Stock Total
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Balance, January 1, 1992, as restated $ 693 $25,905 $60,166 $ - $(1,165) $ 85,599
Net income - - 12,472 - - 12,472
Treasury stock purchased - - - - (143) (143)
Treasury stock reissuance - 165 - - 274 439
Cash dividends, $.44 per share - - (2,549) - - (2,549)
------ ------- ------- ------ ------- --------
Balance, December 31, 1992 693 26,070 70,089 - (1,034) 95,818
Net income - - 12,922 - - 12,922
Treasury stock reissuance - 188 - - 274 462
Treasury stock retirement - (760) - - 760 -
Unrealized gains on available-for-sale
securities - - - 4,449 - 4,449
Cash dividends, $.49 per share - - (2,874) - - (2,874)
------ ------- ------- ------ ------- --------
Balance, December 31, 1993 693 25,498 80,137 4,449 - 110,777
Net income - - 12,305 - - 12,305
Treasury stock purchased - - - - (608) (608)
Unrealized losses on available-for-sale
securities - - - (6,878) - (6,878)
Cash dividends, $.52 per share - - (3,043) - - (3,043)
------ ------- ------- ------ ------- --------
Balance, December 31, 1994 693 25,498 89,399 (2,429) (608) 112,553
Stock dividend, 5% 34 7,652 (7,686) - - -
Net income - - 13,274 - - 13,274
Treasury stock purchased - - - - (1,855) (1,855)
Treasury stock reissuance - - - - 525 525
Unrealized gains on available-for-sale
securities, net of taxes - - - 8,797 - 8,797
Cash dividends, $.56 per share - - (3,236) - - (3,236)
------ ------- ------- ------ ------- --------
Balance, December 31, 1995 $ 727 $33,150 $91,751 $6,368 $(1,938) $130,058
====== ======= ======= ====== ======= ========
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
11
<PAGE> 6
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
Years Ended December 31,
----------------------------
(Dollar amounts in thousands except per share data) 1995 1994 1993
- --------------------------------------------------------------------------------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $13,274 $12,305 $12,922
Adjustments to reconcile net income to net cash
provided by operating activities:
Net amortization of premiums (discounts)
on investment securities (1,918) 264 3,196
Provision for possible loan losses 2,263 2,584 2,494
Investment securities (gains) losses (75) 57 (843)
Provision for depreciation and amortization 2,289 2,452 2,252
Provision for deferred income taxes (293) (704) 904
Net (increase) decrease in accrued interest
receivable (2,893) (552) 1,426
Other, net (1,806) 917 (4,130)
-------- ------- --------
NET CASH PROVIDED BY OPERATING ACTIVITIES 10,841 17,323 18,221
-------- ------- --------
CASH FLOWS FROM INVESTING ACTIVITIES
Net increase from purchases and maturities of
interest-bearing deposits with financial institutions - 1,181 4,798
Sales and maturities of investment securities - - 246,007
Maturity of held-to-maturity securities - 22,602 -
Sales and maturities of available-for-sale securities 115,836 198,905 -
Purchases of investment securities - - (199,176)
Purchases of investment securities:
Held-to-maturity securities - (66,215) -
Available-for-sale securities (261,920) (117,774) -
Loans made to customers, net of repayments (28,342) (59,151) (53,878)
Net decrease (increase) in federal funds sold 23,725 4,110 (25,788)
Additions to premises and equipment (5,687) (2,814) (1,828)
-------- ------- --------
NET CASH USED BY INVESTING ACTIVITIES (156,388) (19,156) (29,865)
-------- ------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net increase (decrease) from sales and
redemptions of certificates of deposit 84,121 15,089 (9,142)
Net increase (decrease) in other deposits (3,939) (18,531) 26,345
Net increase (decrease) in short-term borrowings 49,582 32,996 (26,860)
Cash dividends (3,171) (2,965) (2,624)
Proceeds from reissuance of treasury stock 525 - 462
Purchases of treasury stock (1,855) (608) -
Proceeds from long-term borrowings 31,098 - 14,892
Repayments of long-term borrowings (14) (15,661) (159)
-------- ------- --------
NET CASH PROVIDED BY FINANCING ACTIVITIES $156,347 $10,320 $2,914
======== ======= ========
NET INCREASE (DECREASE) IN CASH AND
CASH EQUIVALENTS 10,800 8,487 (8,730)
CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR 51,947 43,460 52,190
-------- ------- --------
CASH AND CASH EQUIVALENTS, END OF YEAR $62,747 $51,947 $43,460
======== ======= ========
SUPPLEMENTAL DISCLOSURES OF
CASH FLOW INFORMATION:
Cash paid during the year for:
Interest $49,557 $37,170 $38,525
======== ======= ========
Income taxes $5,456 $4,091 $4,815
======== ======= ========
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
12
<PAGE> 7
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES:
BUSINESS
ORGANIZATION The consolidated financial statements of First Financial
Corporation and its subsidiaries (the Corporation) include the accounts of the
parent company and its wholly-owned subsidiaries, Terre Haute First National
Bank (Terre Haute First), First State Bank of Clay County, Indiana (First
State), First Citizens State Bank of Newport, Indiana (Citizens), First
Farmers State Bank of Sullivan, Indiana (Farmers), First Parke State Bank of
Rockville, Indiana (Parke), First Ridge Farm State Bank of Ridge Farm,
Illinois (Ridge Farm), and First National Bank of Marshall, Illinois
(Marshall). All significant inter-company balances and transactions have been
eliminated. All dollar amounts, except per share amounts, presented in these
notes have been rounded to the nearest thousand.
The Corporation, which is headquartered in Terre Haute, Indiana, offers a wide
variety of financial services including commercial and consumer lending,
lease financing, trust account services and depositor services through its
seven subsidiaries.
Terre Haute First is the largest bank in Vigo County. At the close of business
in 1995, it had almost 51% of the total deposits and almost 52% of the total
loans of the banks within the county. It operates ten full-service banking
branches within the county. In addition to its branches, it has a main office
in downtown Terre Haute and a 44,000 square foot operations center in a
suburban area of Terre Haute. In December 1994 the Corporation purchased a
50,000-square-foot commercial building on South Third Street in Terre Haute.
The building was remodeled to accommodate an expanded operations center and
additional office space.
First State has five branch locations in Clay County, a county contiguous to
Vigo County. Citizens has three branches, all of which are located in
Vermillion County, a county contiguous to Vigo County. Farmers has six
branches of which five are located in Sullivan County and one in Greene
County. Sullivan County is contiguous to Vigo County. Ridge Farm is located in
Vermilion County, Illinois. Parke has four branches in Parke County, a county
contiguous to Vigo County. Marshall is located in Clark County, Illinois, a
county contiguous to Vigo County.
The Corporation operates 30 branches in west central Indiana and east central
Illinois. The Corporation's primary source of revenue is derived from loans to
customers, primarily middle-income individuals, and investment activities.
REGULATORY AGENCIES First Financial Corporation is a multi-bank holding
company and as such is regulated by various banking agencies. The holding
company is regulated by the Seventh District of the Federal Reserve System.
The national bank subsidiaries are regulated by the Office of the Comptroller
of the Currency. The state bank subsidiaries are jointly regulated by their
respective state banking organizations and the Federal Deposit Insurance
Corporation.
SIGNIFICANT ACCOUNTING POLICIES
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates. The following is a summary
of significant accounting policies used in the consolidated financial
statements.
INVESTMENT SECURITIES The Corporation classifies all investment securities
into two categories as follows:
- Securities classified as "available-for-sale" represent securities that may
be sold prior to maturity due to changes in market interest rate risks,
prepayment risk, the Corporation's management of its income tax position,
general liquidity needs, increases in loan demand or similar factors.
Available-for-sale securities are carried at fair value, with the
unrealized gains and losses recorded, net of tax, as a separate component
of shareholders' equity. Fluctuation in the securities' fair value has
no effect on net income.
- Securities classified as "held-to-maturity" represent those securities
which the Corporation has the ability and positive intent to hold to
maturity. The Corporation may dispose of such securities under certain
unforeseen circumstances, such as issue credit deterioration or regulatory
requirements. These securities are carried at amortized cost.
On November 15, 1995, the Financial Accounting Standards Board (FASB) issued
the Special Report, "A Guide to Implementation of Statement of Financial
Accounting Standards No. 115 on Accounting for Certain Investments in Debt and
Equity Securities," which provides for the one-time reassessment and
reclassification of securities from the
13
<PAGE> 8
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
held-to-maturity category during the period November 15 through December 31,
1995. In accordance with the Special Report, the Corporation transferred
held-to-maturity securities with a carrying value of $164.1 million to the
available-for-sale category. The fair value of the securities transferred
exceeded their carrying value by $4.2 million.
Realized gains and losses on the sales of investment securities are based on
the adjusted cost of the specific security sold.
LOANS Interest income on loans is recorded as earned. Loans are placed on
non-accrual at the time the loan is 90 days delinquent unless the credit is
well secured and in the process of collection.
LEASE FINANCING Terre Haute First provides equipment financing to customers
through a variety of lease arrangements. Leases are carried at the aggregate
of lease payments receivable plus estimated residual values. Unearned income
on the leases is amortized over the lease terms resulting in an approximate
level rate of return.
ALLOWANCE FOR POSSIBLE LOAN LOSSES The allowance for possible loan losses is
maintained at a level considered adequate to provide for potential loan losses
and is based on management's evaluation of potential losses in the loan
portfolio, as well as prevailing and anticipated economic conditions. These
evaluations take into consideration such factors as changes in the nature and
volume of the loan portfolio, current economic conditions that may affect the
borrowers' ability to pay, overall portfolio quality and review of specific
problem loans.
In May 1993, the FASB issued SFAS No. 114, "Accounting by Creditors for
Impairment of a Loan." This Statement requires that impairment of certain
loans be measured based 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. SFAS No. 114, as amended by SFAS No. 118, was adopted by the
Corporation on January 1, 1995, and did not result in additions to the
allowance for loan losses.
MORTGAGE SERVICING RIGHTS In May 1995, the FASB issued SFAS No. 122,
"Accounting for Mortgage Servicing Rights." This Statement, which amends SFAS
No. 65, requires mortgage banking enterprises to recognize an asset for
originated mortgage servicing rights (OMSRs). The cost of originating a
mortgage loan is allocated at the time of origination between the loan and the
servicing rights based on their relative fair values. Gains are recognized
when the loan is sold.
The Corporation adopted SFAS No. 122 in the fourth quarter of 1995. As this
Statement prohibits retroactive application to prior periods, 1994, 1993 and
the first three quarters of 1995 were accounted for under SFAS No. 65. The
effect of adopting SFAS No. 122 was not material to the Corporation's
financial statements.
PREMISES AND EQUIPMENT Premises and equipment are recorded on the basis of
cost less accumulated depreciation. The provision for depreciation is computed
primarily by the straight-line method over the estimated useful lives of the
assets. Any gain or loss on the retirement of assets, which was not
significant in 1995, 1994 or 1993, is recognized currently.
INCOME TAXES The Corporation utilizes the liability method in accounting for
income taxes. Under this method, deferred tax assets and liabilities are
recognized for the future tax consequences attributable to differences between
the financial statement carrying amounts of existing assets and liabilities
and their respective tax bases.
CASH AND CASH EQUIVALENTS For purposes of cash flows, cash and cash
equivalents include cash and due from banks.
RECLASSIFICATIONS Certain amounts in the 1993 and 1994 consolidated financial
statements have been reclassified to conform with the 1995 presentation.
2. FAIR VALUES OF FINANCIAL INSTRUMENTS
The accompanying notes to the consolidated financial statements include
certain disclosures for financial instruments recorded on the consolidated
statements of condition at December 31, 1995 and 1994. The fair value
estimates are made at a discrete point in time based on relevant market and
financial instrument information. Since a market may not exist for a
significant portion of the Corporation's financial instruments, these
estimates are based on judgment regarding future expected loss experience,
current economic conditions, credit risk characteristics, and other factors.
These estimates are subjective in nature, involve uncertainties and matters
of significant judgment, and cannot be determined with precision. Changes in
assumptions could significantly affect the estimates. The fair value
estimates are based on existing on- and off-balance-sheet financial
instruments without attempting to estimate the value of anticipated future
business and values of assets and liabilities not considered financial
instruments. The following methodologies and assumptions were used to
estimate fair value disclosures for financial instruments:
14
<PAGE> 9
CASH AND DUE FROM BANKS, INTEREST-BEARING DEPOSITS WITH FINANCIAL INSTITUTIONS
AND FEDERAL FUNDS SOLD: The carrying values for these financial instruments
approximate their fair values.
INVESTMENT SECURITIES: Fair values for investment 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 or dealer quotes.
LOANS: For variable-rate loans that reprice frequently with no significant
change in credit risk, carrying value approximates fair value. The fair values
for conforming residential mortgage loans are based on quoted market prices of
similar loans sold in the secondary market. The fair values for residential
mortgage loans held for investment, commercial loans, real estate loans,
consumer loans, and lease financing are estimated using discounted cash flow
analyses, using interest rates being offered for loans with similar terms and
credit risk. For significant non-performing loans, fair value is based upon
discounted cash flows using a rate commensurate with the credit risk or recent
appraisals. The carrying value of accrued interest, adjusted for credit risk,
approximates its fair value.
DEPOSITS: The fair values disclosed for non-interest- and interest-bearing
demand and savings deposits approximate their carrying values. The fair value
of retaining deposit relationships in the future, known as a core deposit
intangible which is material, is not considered in the fair value disclosed
nor is it recorded in the balance sheet. Fair values for fixed rate time
deposits are estimated using a discounted cash flow calculation that applies
interest rates currently being offered for deposits with comparable
maturities. The carrying value of accrued interest on deposits is assumed to
approximate its fair value.
SHORT-TERM BORROWINGS: The fair values of federal funds purchased, borrowings
under repurchase agreements, and other short-term borrowings approximate their
carrying values.
LONG-TERM BORROWINGS: The fair values of the long-term borrowings are
estimated using discounted cash flow analyses, based on rates available to the
Corporation for similar types of borrowings.
OFF-BALANCE-SHEET INSTRUMENTS: Fair values for off-balance-sheet instruments
(guarantees and commitments) are based on fees currently charged to enter
similar agreements, considering the remaining terms of the agreements and the
counterparties' credit standing. The fair values of the Corporation's
off-balance-sheet financial instruments at December 31, 1995 and 1994 were
immaterial.
The following table presents a summary of the carrying amounts and fair values
of the Corporation's financial instruments at December 31, 1995 and 1994.
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------------------------------
1995 1994
--------------------- ------------------
CARRYING FAIR CARRYING FAIR
(Dollar amounts in thousands) VALUE VALUE VALUE VALUE
- ------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Cash and due from banks $ 62,747 $ 62,747 $ 51,947 $ 51,947
Federal funds sold - - 23,725 23,725
Investment securities (Note 4)
Available-for-sale securities 515,409 515,409 178,272 178,272
Held-to-maturity securities - - 174,646 168,879
Loans (Note 5) 824,863 837,151 798,933 786,369
Accrued interest receivable 12,597 12,597 9,704 9,704
Deposits (Note 8) 1,073,548 1,075,671 993,366 989,733
Short-term borrowings (Note 8) 167,946 167,946 118,363 118,363
Long-term borrowings (Note 9) 56,721 57,147 25,638 24,428
</TABLE>
3. RESTRICTIONS ON CASH AND DUE FROM BANKS:
Certain affiliate banks are required to maintain average reserve balances
with the Federal Reserve Bank. The amount of those reserve balances for the
period including December 31, 1995, was approximately $14.0 million.
15
<PAGE> 10
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
4. INVESTMENT SECURITIES:
As of December 31, 1995, the Corporation does not have any securities from any
issuer with an aggregate book value or fair value that exceeds ten percent of
shareholders' equity.
The amortized cost, estimated fair value and carrying value of investment
securities are summarized as follows:
<TABLE>
<CAPTION>
December 31, 1995
-----------------------------------------------------------------
Unrealized
Amortized ---------------------- Fair Carrying
(Dollar amounts in thousands) Cost Gains Losses Value Value
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
AVAILABLE-FOR-SALE:
United States Government $ 5,660 $ 35 $ - $ 5,695 $ 5,695
United States Government agencies 285,752 4,401 (551) 289,602 289,602
Collateralized mortgage obligations 66,264 1,506 (158) 67,612 67,612
State and municipal 139,435 4,085 (523) 142,997 142,997
Corporate obligations 8,776 734 (7) 9,503 9,503
-------- ------- ------- -------- --------
TOTAL $505,887 $10,761 $(1,239) $515,409 $515,409
======== ======= ======= ======== ========
<CAPTION>
December 31, 1995
-----------------------------------------------------------------
Unrealized
Amortized ---------------------- Fair Carrying
(Dollar amounts in thousands) Cost Gains Losses Value Value
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
AVAILABLE-FOR-SALE:
United States Government $ 4,805 $ - $ (79) $ 4,726 $ 4,726
United States Government agencies 138,520 281 (4,605) 134,196 134,196
Collateralized mortgage obligations 39,908 46 (604) 39,350 39,350
-------- ------- ------- -------- --------
183,233 327 (5,288) 178,272 178,272
-------- ------- ------- -------- --------
HELD-TO-MATURITY:
State and municipal 142,058 567 (5,493) 137,132 142,058
Corporate obligations 15,913 39 (271) 15,681 15,913
United States Government agencies 16,675 1 (610) 16,066 16,675
-------- ------- ------- -------- --------
174,646 607 (6,374) 168,879 174,646
-------- ------- ------- -------- --------
TOTAL $357,879 $ 934 $(11,662) $347,151 $352,918
======== ======= ======= ======== ========
</TABLE>
Investment securities with a par value amounting to approximately $100.6
million at December 31, 1995, were pledged as collateral for borrowings and for
other purposes.
The carrying value and estimated fair values of investment securities as of
December 31, 1995, by contractual maturity, are shown below. Expected
maturities may differ from contractual maturities because borrowers have the
right to call or prepay obligations with or without penalties. Also shown for
1995 are the weighted average yields computed on a tax equivalent basis,
assuming a federal income tax rate of 34%.
<TABLE>
<CAPTION>
Available-for-Sale
----------------------- Weighted
Amortized Fair Average
(Dollar amounts in thousands) Cost Value Yields
- -------------------------------------------------------------------------------
<S> <C> <C> <C>
Due in one year or less $127,801 $129,294 7.60%
=====
Due after one but within five years 105,444 107,374 6.91%
=====
Due after five but within ten years 78,803 80,578 7.41%
=====
Due after ten years 5,356 5,579 8.10%
=====
Mortgage backed securities 188,483 192,584 7.37%
-------- -------- =====
TOTAL $505,887 $515,409
======== ========
</TABLE>
16
<PAGE> 11
Below is a summary of the gross gains and losses and the net gain (loss)
realized by the Corporation from investments sold during the years ended
December 31, 1995, 1994 and 1993. Sales proceeds from available-for-sale
securities aggregated $60.3 million in 1995.
<TABLE>
<CAPTION>
(Dollar amounts in thousands) 1995 1994 1993
- -------------------------------------------------------------------------
<S> <C> <C> <C>
Gross gains $ 202 $ 1,039 $1,009
Gross losses (127) (1,096) (166)
------- ------- ------
Net gain (loss) $ 75 $ (57) $ 843
======= ======= ======
</TABLE>
5. LOANS:
Loans are summarized as follows:
<TABLE>
<CAPTION>
December 31, 1995
---------------------------------------------
1995 1994
----------------- ---------------------
Carrying Fair Carrying Fair
(Dollar amounts in thousands) Value Value Value Value
- ---------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Commercial, financial and agricultural $170,179 $166,031 $163,268 $158,777
Real estate - construction 22,134 21,788 20,446 20,003
Real estate - mortgage 430,673 450,189 424,427 419,647
Installment 197,726 194,915 185,533 182,529
Lease financing 4,151 4,228 5,259 5,413
-------- -------- -------- --------
TOTAL $824,863 $837,151 $798,933 $786,369
======== ======== ======== ========
</TABLE>
In the normal course of business, the Corporation's subsidiary banks make
loans to directors and executive officers and to their associates. These
related party loans are consistent with sound banking practices and are within
applicable bank regulatory lending limitations. In 1995 the aggregate dollar
amount of these loans to directors and executive officers who held office at
the end of the year amounted to $35.1 million at the beginning of the year.
During 1995, advances of $22.5 million and repayments of $25.1 million were
made with respect to related party loans for an aggregate dollar amount of
$32.5 million at December 31, 1995. The amount of such loans aggregated $32.2
million at December 31, 1994.
6. ALLOWANCE FOR POSSIBLE LOAN LOSSES:
Changes in the allowance for possible loan losses are summarized as follows:
<TABLE>
<CAPTION>
December 31,
---------------------------
(Dollar amounts in thousands) 1995 1994 1993
- -----------------------------------------------------------------------------
<S> <C> <C> <C>
Balance at beginning of year $9,649 $9,060 $9,875
Provision for possible loan losses 2,263 2,584 2,494
Recoveries of loans previously charged off 1,276 892 811
Loans charged off (3,101) (2,887) (4,120)
------- ------ ------
BALANCE AT END OF YEAR $10,087 $9,649 $9,060
======= ====== ======
</TABLE>
At December 31, 1995, the Corporation had $3.4 million in impaired loans
calculated under SFAS No. 114. Based on the estimated fair market value of the
related collateral as measured in accordance with SFAS No. 114, $3.3 million
of these impaired loans have an allowance of $779 thousand to cover estimated
collateral deficiencies. 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 as included in the impaired loan data above.
17
<PAGE> 12
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
7. PREMISES AND EQUIPMENT:
Premises and equipment are summarized as follows:
<TABLE>
<CAPTION>
December 31,
--------------------
(Dollar amounts in thousands) 1995 1994
- ------------------------------------------------------------
<S> <C> <C>
Land $2,861 $2,793
Building and leasehold improvements 21,510 20,563
Furniture and equipment 18,459 14,055
------- -------
42,830 37,411
Less accumulated depreciation (18,903) (17,400)
------- -------
TOTAL $23,927 $20,011
======= =======
</TABLE>
8. DEPOSITS AND SHORT-TERM BORROWINGS:
The carrying and fair values of deposits are as follows at December 31, 1995
and 1994:
<TABLE>
1995 1994
------------------------ ----------------------
Carrying Fair Carrying Fair
(Dollar amounts in thousands) Value Value Value Value
- ------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Non-interest-bearing demand deposits $128,672 $128,672 $125,106 $125,106
Interest-bearing demand deposits 268,091 268,091 258,636 258,636
Savings deposits 111,239 111,239 130,919 130,919
Time deposits:
$100,000 or more 143,009 143,835 109,306 108,569
Other time deposits 422,537 423,834 369,399 366,503
---------- ---------- -------- --------
$1,073,548 $1,075,671 $993,366 $989,733
========== ========== ======== ========
</TABLE>
9. LONG-TERM BORROWINGS:
Long-term borrowings at December 31, 1995 and 1994 are summarized as follows:
<TABLE>
<CAPTION>
1995 1994
------------------------ --------------------------
Carrying Fair Carrying Fair
(Dollar amounts in thousands) Value Value Value Value
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
City of Terre Haute, Indiana adjustable tender
economic development revenue bonds, series 1985 $6,600 $6,600 $ 6,600 $ 6,600
Term promissory note - bank - - 805 790
Other 51 51 65 65
--------- --------- -------- ----------
TOTAL $6,651 $ 6,651 $ 7,470 $ 7,455
========= ========= ======== ==========
Advances from the Federal Home Loan Bank $145,366 $145,792 $64,440 $ 63,245
Advances classified as short-term borrowings (95,296) (95,296) (46,272) (46,272)
--------- --------- -------- ----------
Advances classified as long-term debt $50,070 $50,496 $18,168 $ 16,973
========= ========= ======== ==========
</TABLE>
The aggregate minimum annual retirements of long-term borrowings are as follows:
<TABLE>
<S> <C>
1996 $95,296
1997 7,852
1998 22,703
1999 13,322
2000 2,103
Thereafter 10,741
--------
$152,017
Less current portion (95,296)
--------
$56,721
========
</TABLE>
18
<PAGE> 13
The economic development revenue bonds (bonds) require periodic interest
payments each year until maturity or redemption. The interest rate, which was
3.90% at December 31, 1995, is determined by a formula which considers rates
for comparable bonds and is adjusted periodically based on the frequency
selected by the bondholder at the date of purchase. The bonds are
collateralized by a first mortgage on the Corporation's headquarters building.
The bonds mature December 1, 2015, and bondholders may periodically require
earlier redemption.
The Corporation may use funds available under a letter of credit from another
financial institution to repay principal on bonds redeemed during the term of
the letter of credit. The letter of credit expires November 1, 1996, with an
option to renew for another five-year period. Funds advanced under the letter
of credit are due five years from the date of the advance. No bonds were
redeemed during 1995. Assuming that any redemptions required under the bonds
will be funded by the letter of credit, or by other similar borrowings, if
redemptions occur after 1996, there are no principal maturities of the bonds
within the next five years.
The above debt agreements require the Corporation to meet certain financial
covenants. The most restrictive covenants require the Corporation to maintain a
Tier I capital ratio of at least 6.2% and net income to average assets of 0.6%.
At December 31, 1995, the Corporation was in compliance with all of its debt
covenants.
All of the Corporation's Indiana subsidiary banks are members of the Federal
Home Loan Bank (FHLB) of Indianapolis and, accordingly, are permitted to obtain
advances. The advances from the FHLB aggregating $145.4 million at December 31,
1995, accrue interest at annual rates varying from 5.56% to 8.0%. The advances
are due at various dates through April 2003.
10. INCOME TAXES:
Income tax expense is summarized as follows:
<TABLE>
<CAPTION>
(Dollar amounts in thousands) 1995 1994 1993
- -------------------------------------------------------
<S> <C> <C> <C>
Federal:
Currently payable $3,404 $3,684 $2,390
Deferred (230) (584) 1,385
------ ------ ------
3,174 3,100 3,775
State:
Currently payable 1,679 1,541 1,097
Deferred (63) (120) (481)
------ ------ ------
1,616 1,421 616
------ ------ ------
TOTAL $4,790 $4,521 $4,391
====== ====== ======
</TABLE>
Income tax expense (credit) with respect to investment securities gains
amounted to approximately $20 thousand, $(15) thousand and $214 thousand in
1995, 1994 and 1993, respectively.
The major components of deferred income taxes are as follows:
<TABLE>
<CAPTION>
(Dollar amounts in thousands) 1995 1994 1993
-------------------------------------------------------
<S> <C> <C> <C>
Provision for possible loan losses $174 $ (747) $925
Lease financing (11) (200) (455)
Depreciation (20) 41 -
Pension expense 3 32 -
Deferred compensation 132 (5) 219
Other, net 15 175 215
----- ----- ----
TOTAL $293 $ (704) $904
===== ===== ====
</TABLE>
19
<PAGE> 14
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
The reconciliation of income tax expense with the amount computed by applying
the statutory federal income tax rate to income before income taxes is
summarized as follows:
<TABLE>
<CAPTION>
(Dollar amounts in thousands) 1995 1994 1993
- ----------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Federal income taxes computed at the statutory rate $6,185 $ 5,721 $ 5,886
Add (deduct) tax effect of:
Nontaxable income from tax-exempt investments and loans (2,283) (2,154) (1,876)
State tax, net of federal benefit 1,067 938 724
Investment tax credit (280) (211) (91)
Other, net 101 227 (252)
------- ------- -------
(1,395) (1,200) (1,495)
------- ------- -------
TOTAL $4,790 $ 4,521 $ 4,391
======= ======= =======
</TABLE>
The tax effects of temporary differences that give rise to significant portions
of the deferred tax assets and liabilities at December 31, 1995 and 1994, are
as follows:
<TABLE>
<CAPTION>
(Dollar amounts in thousands) 1995 1994
- ------------------------------------------------------------------------------------------------
<S> <C> <C>
Deferred tax assets:
Loans, principally the allowance for loan losses $3,995 $3,821
Unrealized losses on available-for-sale securities - 1,347
Deferred compensation 517 385
Compensated absences, principally due to accrual
for financial reporting purposes 231 216
Other 177 59
------- -------
Total gross deferred tax assets $4,920 $5,828
------- -------
Deferred tax liabilities:
Unrealized gains on available-for-sale securities (4,632) -
Premises and equipment, principally due to differences in depreciation (676) (656)
Lease financing, principally due to bases differences between tax
and financial reporting (407) (396)
Pensions, principally due to amounts that are nondeductible until paid (583) (586)
Loans, principally due to deferred fees and costs (42) (88)
Other (164) -
------- -------
Total gross deferred liabilities (6,504) (1,726)
------- -------
Net deferred tax assets (liabilities) $(1,584) $4,102
======= =======
</TABLE>
The Corporation has paid income taxes during the last three preceding years
that exceed the recorded deferred income tax asset.
11. SHAREHOLDERS' EQUITY:
The Corporation's Board of Directors approved a 5% stock dividend payable on
July 3, 1995, to shareholders of record on June 20, 1995. Accordingly, the
Corporation transferred $7.7 million from retained earnings to reflect this
dividend. All share and per share information has been restated.
At December 31, 1995, approximately $27.2 million of undistributed earnings of
the subsidiary banks, included in consolidated retained earnings, were
available for distribution to the parent company as dividends without
regulatory approval. In practice, the Corporation further limits dividends to
maintain adequate capital.
20
<PAGE> 15
12. COMMITMENTS AND CONTINGENCIES:
Terre Haute First is obligated to pay minimum fees approximating $599
thousand in 1996 under a facilities management contract for data processing
services, which expires April 1996. In addition, the Terre Haute First
Board of Directors approved changing the facilities management contract to
in-house processing. Terre Haute First is obligated to pay $370 thousand in
1996 related to this conversion. The minimum payment for the perpetual
license and maintenance fee is $96 thousand annually.
In the normal course of business, the Corporation is subject to various
claims and other pending and possible legal actions. Management believes
that the results of these claims and possible legal actions will not have a
material adverse effect on the Corporation's financial position or results
of operations.
13. FINANCIAL INSTRUMENTS WITH OFF-BALANCE-SHEET RISK:
The Corporation grants loans to customers primarily in west central
Indiana and eastern Illinois. Substantially all loans are collateralized by
specific items including accounts receivable, inventory, property, plant
and equipment, consumer assets, residential and commercial real estate and
income-producing commercial properties.
The Corporation 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
conditional commitments and standby letters of credit. The financial
instruments involve to varying degrees, elements of credit and interest
rate risk in excess of amounts recognized in the financial statements. The
Corporation's maximum exposure to credit loss in the event of
nonperformance by the other party to the financial instrument for
commitments to make loans is limited generally by the contractual amount of
those instruments. The Corporation follows the same credit policy to make
such commitments as is followed for those loans recorded in the financial
statements.
The Corporation had unused lines of credit of $62.4 million and $59.3
million and commitments to extend credit of $4.3 million and $3.3 million
as of December 31, 1995 and 1994, respectively. In addition, the
Corporation had outstanding commitments of $1.8 million and $2.6 million
under standby letters of credit as of December 31, 1995 and 1994,
respectively. The fair values of the Corporation's off-balance-sheet
financial instruments at December 31, 1995 and 1994 were immaterial.
14. RETIREMENT PLANS:
Substantially all employees of the Corporation are covered by a
retirement program that consists of a defined benefit plan and an employee
stock ownership plan (ESOP). Benefits under the defined benefit plan are
actuarially determined based on an employee's service and compensation, as
defined, and funded as necessary.
Assets in the ESOP are considered in calculating the funding to the
defined benefit plan required to provide such benefits. Any shortfall of
benefits under the ESOP are to be provided by the defined benefit plan. The
ESOP may provide benefits beyond those determined under the defined benefit
plan. Contributions to the ESOP are determined by the Corporation's Board
of Directors. During 1995, 1994 and 1993, the Corporation made no
contribution to the defined benefit plan. The Corporation contributed $525,
$525 and $462 to the ESOP in 1995, 1994 and 1993, respectively.
Pension expense included the following components:
<TABLE>
<CAPTION>
(Dollar amounts in thousands) 1995 1994 1993
- ----------------------------------------------------------------------------------------
<S> <C> <C> <C>
Service cost - benefits earned $ 765 $ 763 $ 611
Interest cost on projected benefit obligation 777 694 674
Actual (return) loss on plan assets (1,252) 838 (3,704)
Net amortization and deferral 240 (1,864) 2,948
------- ------- -------
Total pension expense $ 530 $ 431 $ 529
======= ======= =======
</TABLE>
The information on the following page sets forth the funded status of the
Corporation's retirement program. Actuarial present value of benefits is based
on service to date and present pay levels.
21
<PAGE> 16
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
<TABLE>
<CAPTION>
December 31,
-------------------
(Dollar amounts in thousands) 1995 1994
- ------------------------------------------------------------------------------------------------
<S> <C> <C>
Vested $10,978 $ 7,499
Nonvested 354 (217)
------- --------
Accumulated benefits obligation 11,332 7,282
------- --------
Additional amounts related to
projected pay increases 4,467 2,422
------- --------
Total projected benefit obligation $15,799 $ 9,704
Assets at fair value, consisting primarily
of the Corporation's common stock 15,996 14,607
------- --------
Excess of assets over projected benefits 197 4,903
Unrecognized net loss (871) (2,491)
Unrecognized prior service cost 111 126
Unrecognized net transition asset 2,051 (1,045)
------- --------
Prepaid pension asset recognized in the
statement of condition $ 1,488 $ 1,493
======= =======
Principal assumptions used:
Discount rate 6.00% 8.00%
======= =======
Rate of increase in compensation levels 6.00% 5.50%
======= =======
Expected long-term rate of return on plan assets 7.00% 7.00%
======= =======
</TABLE>
15. PARENT COMPANY CONDENSED FINANCIAL STATEMENTS:
The parent company's condensed statements of condition as of December 31,
1995 and 1994, and the related condensed statements of income and retained
earnings and cash flows for each of the three years in the period ended
December 31, 1995, are as follows:
<TABLE>
<CAPTION>
STATEMENTS OF CONDITION December 31,
----------------------
(Dollar amounts in thousands) 1995 1994
- ------------------------------------------------------------------------------------
<S> <C> <C>
ASSETS
Cash deposits in affiliated banks $ 1,926 $ 1,811
Investments in bank subsidiaries 128,262 111,111
Land and headquarters building, net 7,565 7,801
Other 3,484 3,108
-------- --------
TOTAL ASSETS $141,237 $123,831
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
LIABILITIES:
Long-term borrowings $ 7,457 $ 8,371
Dividends payable 1,611 1,547
Other liabilities 2,111 1,360
-------- --------
TOTAL LIABILITIES 11,179 11,278
-------- --------
SHAREHOLDERS' EQUITY:
Common stock 727 693
Additional capital 33,150 25,498
Retained earnings 91,751 89,399
Unrealized gains (losses) on available-for-sale securities
of bank subsidiaries, net of tax 6,368 (2,429)
Less treasury shares, at cost (1,938) (608)
-------- --------
TOTAL SHAREHOLDERS' EQUITY 130,058 112,553
-------- --------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $141,237 $123,831
======== ========
</TABLE>
22
<PAGE> 17
STATEMENTS OF INCOME AND RETAINED EARNINGS
<TABLE>
<CAPTION>
Years Ended December 31,
---------------------------------
(Dollar amounts in thousands) 1995 1994 1993
- -------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Income:
Dividends from bank subsidiaries $ 5,065 $ 3,270 $ 3,051
Other income 847 833 834
------- ------- -------
Total income 5,912 4,103 3,885
Expenses:
Interest on long-term borrowings 460 435 411
Other operating expenses 718 604 703
------- ------- -------
Total operating expenses 1,178 1,039 1,114
------- ------- -------
Income before income taxes and equity
in undistributed earnings of bank subsidiaries 4,734 3,064 2,771
Income tax (expense) credit 83 (574) 268
------- ------- -------
Income before equity in undistributed
earnings of bank subsidiaries 4,817 2,490 3,039
Equity in undistributed earnings of bank subsidiaries 8,457 9,815 9,883
------- ------- -------
Net income $13,274 $12,305 $12,922
======= ======= =======
</TABLE>
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Years Ended December 31,
(Dollar amounts in thousands) 1995 1994 1993
- ------------------------------------------------------------------------------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $13,274 $12,305 $12,922
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation 165 160 160
Equity in undistributed earnings of bank
subsidiaries (8,457) (9,815) (9,883)
Increase in other liabilities 540 839 11
Decrease (increase) in other assets 8 (3) 273
------- ------- -------
NET CASH PROVIDED BY OPERATING ACTIVITIES $ 5,530 $ 3,486 $ 3,483
CASH FLOWS FROM INVESTING ACTIVITIES:
Additional investment in bank subsidiaries - - (328)
------- ------- -------
NET CASH USED IN INVESTING ACTIVITIES - - (328)
------- ------- -------
CASH FLOWS FROM FINANCING ACTIVITIES:
Principal payments on long-term borrowings (914) (216) (210)
Proceeds from reissuance of treasury stock 525 - 462
Purchase of treasury stock (1,855) (608) -
Dividends paid (3,171) (2,965) (2,576)
------- ------- -------
NET CASH USED BY FINANCING ACTIVITIES (5,415) (3,789) (2,324)
------- ------- -------
NET INCREASE (DECREASE) IN CASH 115 (303) 831
CASH, BEGINNING OF YEAR 1,811 2,114 1,283
------- ------- -------
CASH, END OF YEAR 1,926 1,811 2,114
======= ======= =======
Supplemental disclosures of cash flow information:
Cash paid during the year for:
Interest $458 $435 $410
======= ======= =======
Income taxes $ 5,456 $ 4,091 $ 4,815
======= ======= =======
</TABLE>
23
<PAGE> 18
RESPONSIBILITY FOR FINANCIAL STATEMENTS
To the Shareholders and Board of Directors of First Financial Corporation:
The management of First Financial Corporation has prepared and is
responsible for the preparation and accuracy of the financial statements and
other information included in this report. The financial statements have been
prepared in accordance with generally accepted accounting principles and where
appropriate, include amounts based on judgments and estimates by management.
To fulfill its responsibility, the Corporation maintains and continues to
refine a system of internal accounting controls and procedures to provide
reasonable assurance that (i) the Corporation's assets are safeguarded; (ii)
transactions are executed in accordance with proper management authorization;
and (iii) financial records are reliable for the preparation of financial
statements. The design, monitoring and revision of internal accounting control
systems involve, among other things, management judgments with respect to the
relative costs and expected benefits of such control procedures.
Coopers & Lybrand L.L.P. performs an independent audit of the
Corporation's financial statements for the purpose of determining that such
statements are presented in conformity with generally accepted accounting
principles and their report appears below. The independent accountants are
appointed based upon recommendations by the Examining and Trust Audit Committee
and approved by the Board of Directors.
The Examining and Trust Audit Committee of the Board of Directors,
composed of three independent directors, meets periodically with the
Corporation's management and the independent accountants to discuss the audit
scope and findings as well as address internal control systems and financial
reporting matters. The independent accountants have direct access to the
Examining and Trust Audit Committee.
Donald E. Smith Michael A. Carty
Donald E. Smith Michael A. Carty
President & Chief Executive Officer Treasurer
REPORT OF INDEPENDENT ACCOUNTANTS
We have audited the accompanying consolidated statements of condition of
First Financial Corporation and subsidiaries as of December 31, 1995 and 1994,
and the related consolidated statements of income, shareholders' equity and
cash flows for each of the three years in the period ended December 31, 1995.
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 and subsidiaries as of December 31, 1995 and 1994, and
the consolidated results of their operations and their cash flows for each of
the three years in the period ended December 31, 1995, in conformity with
generally accepted accounting principles.
Coopers and Lybrand L.L.P.
Indianapolis, Indiana
February 9, 1996
24
<PAGE> 19
MANAGEMENT'S DISCUSSION AND ANALYSIS
The following information provides management's discussion and analysis of
First Financial Corporation's financial condition and the results of its
operations. The information presented should be read in conjunction with the
audited financial statements and related footnotes appearing elsewhere in this
report.
First Financial Corporation (the Corporation) is a multi-bank holding company.
The Corporation, which is headquartered in Terre Haute, Indiana, offers a wide
variety of financial services including commercial and consumer lending, lease
financing, trust account services and depositor services through its seven
subsidiaries. The Corporation's principal subsidiary is Terre Haute First
National Bank (Terre Haute First) located in Vigo County. The Corporation's
other six wholly-owned bank subsidiaries are First State Bank of Clay County,
Indiana (First State), First Citizens State Bank of Newport, Indiana
(Citizens), First Farmers State Bank of Sullivan, Indiana (Farmers), First
Ridge Farm State Bank of Ridge Farm, Illinois (Ridge Farm), First Parke State
Bank of Rockville, Indiana (Parke), and First National Bank of Marshall,
Illinois (Marshall). At the close of business in 1995, the Corporation and its
subsidiaries had 642 full time equivalent employees.
Terre Haute First is the largest bank in Vigo County. At the close of business
in 1995, it had almost 51% of the total deposits and almost 52% of the total
loans of the banks within the county. It operates ten full-service banking
branches within the county. In addition to its branches, it has a main office
in downtown Terre Haute and a 44,000 square foot operations center in a
suburban area of Terre Haute. In December 1994 the Corporation purchased a
50,000-square-foot commercial building on South Third Street in Terre Haute.
The building was remodeled to accommodate an expanded operations center and
additional office space.
First State has five branch locations in Clay County, a county contiguous to
Vigo County. Citizens has three branches, all of which are located in
Vermilion County, a county contiguous to Vigo County. Farmers has six branches
of which five are located in Sullivan County and one in Greene County. Sullivan
County is contiguous to Vigo County. Ridge Farm is located in Vermilion County,
Illinois. Parke has four branches in Parke County, a county contiguous to Vigo
County. Marshall is located in Clark County, Illinois, a county contiguous to
Vigo County.
Terre Haute First faces competition from other financial institutions in Vigo
County. These competitors include three commercial banks, a mutual savings bank
and other financial institutions, including consumer finance companies, credit
unions and one federal savings bank. The six other bank subsidiaries have
similar competition in their primary market areas. The number of competitors of
each subsidiary is as follows:
FIRST STATE--Three commercial banks, two credit unions and one brokerage
firm in Clay County, Indiana.
CITIZENS--Three commercial banks, two credit unions and one brokerage firm
in Vermilion County, Indiana.
FARMERS--Two commercial banks, one savings and loan, and one brokerage
firm in Sullivan County, Indiana, and three commercial banks in Greene County,
Indiana.
PARKE--Two commercial banks, five credit unions and two brokerage firms in
Parke County, Indiana.
RIDGE FARM--Four commercial banks, one savings and loan, five credit
unions and two brokerage firms in Vermilion County, Illinois.
MARSHALL--Three commercial banks and one savings and loan in Clark County,
Illinois.
The Corporation's business activities are centered in west central Indiana and
east central Illinois. The Corporation has no foreign activities other than
periodically investing available funds in time deposits held in foreign
branches of domestic banks.
The economy of the Wabash Valley, our market area, performed better in 1995 in
terms of employment growth and lower unemployment rate than the nation. Our
banks' policies of normally making loans in their market area has resulted in a
geographic concentration of loans. However, our loan-to-deposit ratio of 76.7%
is comparable to the average ratio of bank holding companies of a similar size.
The banks have the ability to fund continued growth, which should result in
improved net interest margin and net income. In 1995 there has been continued
retail and industrial construction in the Wabash Valley. This should provide a
base for a steady, modest growth in our market area during the coming year.
In December 1995, the Corporation reached an agreement to merge with Crawford
Bancorp, Inc., with total assets of approximately $103 million. The merger is
expected to be completed in the third quarter of 1996, subject to customary
closing conditions, including regulatory approvals.
There are no other presently known trends, events or uncertainties that will
have or that are reasonably likely to have a material effect on the
Corporation's liquidity, capital resources or operations for 1996.
25
<PAGE> 20
RESULTS OF OPERATIONS--SUMMARY FOR 1995
Net income for 1995 was $13.3 million or $2.30 per share. The increased
earnings over 1994 net income of $12.3 million or $2.12 per share were
primarily the result of improved net interest income, increased income from
sources other than interest and a reduction in the amount paid for insurance
from the Federal Deposit Insurance Corporation.
The primary components of income and expense affecting net income are discussed
in the following analysis.
NET INTEREST INCOME
The principal source of the Corporation's earnings is net interest income,
which represents the difference between interest earned on loans and
investments and the interest cost associated with deposits and other sources of
funding.
Total average interest-earning assets increased to $1,248.8 million or 8.2%
from $1,154.2 million in 1994 and the yield on these assets increased 7.7% from
7.68% in 1994 to 8.27% in 1995. Total average interest-bearing liabilities
amounted to $1,076.1 million in 1995 compared to $997.5 million in 1994, while
the yield on these interest-bearing liabilities increased 25.6% from 3.75% in
1994 to 4.71% in 1995.
On a tax equivalent basis, net interest income increased $1.5 million from
$51.2 million in 1994 to $52.7 million in 1995. Although the net interest
income increased as compared to the same period of 1994, the net interest
margin for the year decreased from 4.43% in 1994 to 4.22% in 1995. This
decrease is the result of higher costs of interest-bearing liabilities because
of strong competition for funds.
The following table sets forth the components of net interest income due to
changes in volume and rate. The table information compares 1995 to 1994 and
1994 to 1993.
<TABLE>
<CAPTION>
1995 COMPARED TO 1994 1994 COMPARED TO 1993
INCREASE (DECREASE) DUE TO INCREASE (DECREASE) DUE TO
------------------------------------ -------------------------------------
VOLUME/ VOLUME/
(DOLLAR AMOUNTS IN THOUSANDS) VOLUME RATE RATE TOTAL VOLUME RATE RATE TOTAL
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Interest earned on
interest-earning assets:
Loans (1) $4,760 $4,331 $ 327 $9,418 $5,699 $(3,048) $ (286) $2,365
Taxable investment
securities 1,917 2,108 268 4,293 (4,584) (69) 17 (4,636)
Tax-exempt
investment
securities (1) 270 445 12 727 3,332 (428) (198) 2,706
Federal funds sold 139 113 36 288 (91) 196 (47) 58
Interest-bearing
deposits:
Domestic (32) (32) 32 (32) (17) (9) 3 (23)
Foreign - - - - (64) (64) 64 (64)
------ ------ ------ ------- ------ ------- ------ ------
Total interest income $7,054 $6,965 $ 675 $14,694 $4,275 $(3,422) $ (447) $ 406
------ ------ ------ ------- ------ ------- ------ ------
Interest paid on
interest-bearing
liabilities:
Savings deposits (1,172) 573 (66) (665) 560 (1,303) (67) (810)
Time deposits 4,720 5,155 1,103 10,978 (157) (352) 2 (507)
Federal funds
purchased
and securities sold
under agreement to
repurchase (349) 855 (150) 356 (486) 603 (145) (28)
Other 1,643 585 296 2,524 156 207 11 374
------ ------ ------- ------- ------ ------- ------ ------
Total interest expense 4,842 7,168 1,183 13,193 73 (845) (199) (971)
------ ------ ------- ------- ------ ------- ------ ------
Net interest income $2,212 $(203) $ (508) $ 1,501 $4,202 $(2,577) $ (248) $1,377
====== ====== ======= ======= ====== ======= ====== ======
</TABLE>
(1) Changes in interest income include the effect of tax equivalent
adjustments using a federal tax rate of 34%.
26
<PAGE> 21
PROVISION FOR POSSIBLE LOAN LOSSES
The provision for possible loan losses is established by charging current
earnings with an amount which will maintain the allowance for possible loan
losses at a level sufficient to provide for potential losses in the
Corporation's loan portfolio. Management considers several factors in
determining the provision, including loss experience, changes in the
composition of the portfolio, the financial condition of borrowers, economic
trends, and general economic conditions. The provision for possible loan
losses totaled $2.3 million for 1995 as compared to $2.6 million for 1994.
Net charge-offs for 1995 decreased to $1.8 million or 8.5% from 1994. At
December 31, 1995, the resulting allowance for possible loan losses was $10.1
million or 1.22% of total loans, net of unearned income. A year earlier the
allowance was 1.21% of total loans.
OTHER INCOME
Other income increased in 1995 to $7.3 million from $6.8 million earned in
1994. There were no major contributing factors for this increase. Most of the
components of other income increased slightly.
OTHER EXPENSES
Other expenses totaled $35.6 million for 1995 compared to $34.8 million for
1994. This represents an increase of $763 thousand or 2.2% for 1995. Although
the Corporation had a decrease of $1.0 million or 47.8% in the FDIC insurance
adjustment, it was offset by most of the other components of other expenses,
which increased slightly for 1995. Salaries and related benefits, the largest
component of this group, increased from $17.0 million to $17.9 million or
5.7%. The primary reasons for this increase were higher average salaries and a
larger number of full time equivalent employees for 1995 of 642 compared to
624 at the end of 1994. Occupancy expenses increased 17.8% from 1994 levels.
All other expenses for 1995 increased to $8.5 million from $8.2 million as
compared to the same period of 1994.
INCOME TAXES
The Corporation's federal income tax provision was $3.2 million in 1995
compared to a provision of $3.1 million in 1994. The overall effective tax
rate in 1995 of 26.5% compares to a 1994 effective rate of 26.9%. In 1995,
state tax expense also increased slightly to $1.6 million from $1.4 million
in 1994.
COMPARISON OF 1994 TO 1993
Net income for 1994 was $12.3 million or $2.12 per share compared to $12.9
million in 1993 or $2.22 per share. This decreased income was primarily the
result of recognizing $57 thousand of losses on securities sold for 1994 while
recognizing $843 thousand of gains on securities sold in 1993.
Net interest income for 1994 as compared to 1993 remained almost unchanged.
Net yield on interest-earning assets was 4.43% for both years.
27
<PAGE> 22
FINANCIAL CONDITION--SUMMARY
The Corporation's total assets increased to a record $1,444 million at December
31, 1995, up from $1,260 million a year earlier. Loans, net of unearned income,
increased by $26.6 million, to $823.7 million. The increase in loans was
primarily funded by deposits and advances from the Federal Home Loan Bank.
Advances from the Federal Home Loan Bank at December 31, 1995, were $145.4
million, of which $95.3 million represents short-term obligations. Total
shareholders' equity at December 31, 1995, was $130.1 million compared to
$112.6 million a year earlier. Following is an analysis of the components of
the Corporation's statement of condition. Information describing the components
of the Corporation's investment securities, the market value, maturities and
weighted average yields of the investments is included in Note 4 of the related
notes to the consolidated financial statements.
LOAN PORTFOLIO
Loans outstanding by major category as of December 31 for each of the last
five years and the maturities and interest sensitivity of the loans
outstanding as of December 31, 1995, are set forth in the following analysis.
<TABLE>
<CAPTION>
(Dollar amounts in thousands) 1995 1994 1993 1992 1991
- --------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
LOAN CATEGORY
Commercial, financial and agricultural $170,179 $163,268 $153,841 $158,707 $141,586
Real estate - construction 22,134 20,446 17,109 16,255 14,340
Real estate - mortgage 430,673 424,427 400,594 362,138 306,473
Installment 197,726 185,533 163,486 143,579 140,975
Lease financing 4,151 5,259 7,121 9,183 13,053
-------- -------- -------- -------- --------
TOTAL $824,863 $798,933 $742,151 $689,862 $616,427
======== ======== ======== ======== ========
<CAPTION>
After One After
Within But Within Five
(Dollar amounts in thousands) One Year Five Years Years Total
- --------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
MATURITY DISTRIBUTION
Commercial, financial and agricultural $78,015 $38,306 $53,858 $170,179
Real estate - construction 11,265 3,337 7,532 22,134
------- ------- ------- ---------
TOTAL $89,280 $41,643 $61,390 $192,313
======= ======= ======= =========
Real estate - mortgage 430,673
Installment 197,726
Lease financing 4,151
---------
TOTAL LOANS $824,863
=========
Loans maturing after one year with:
Fixed interest rates $20,446 $13,305
Variable interest rates 21,197 48,085
------- -------
TOTAL $41,643 $61,390
======= =======
</TABLE>
28
<PAGE> 23
ALLOWANCE FOR POSSIBLE LOAN LOSSES
The activity in the Corporation's allowance for possible loan losses is shown
in the following analysis:
<TABLE>
<CAPTION>
(Dollar amounts in thousands) 1995 1994 1993 1992 1991
- ----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Amount of loans outstanding
at December 31, $824,863 $798,933 $742,151 $689,862 $616,427
======== ======== ======== ======== ========
Average amount of loans by year $822,401 $764,750 $699,191 $626,827 $574,488
======== ======== ======== ======== ========
Allowance for possible loan
losses at beginning of year $ 9,649 $ 9,060 $ 9,875 $ 8,479 $ 6,545
Loans charged off:
Commercial, financial and agricultural 1,086 1,482 1,433 1,218 1,215
Real estate - mortgage 165 124 1,438 519 578
Installment 1,702 1,279 1,146 1,195 1,091
Leasing 148 2 103 58 119
-------- -------- -------- -------- --------
Total loans charged off 3,101 2,887 4,120 2,990 3,003
-------- -------- -------- -------- --------
Recoveries of loans previously charged off:
Commercial, financial and agricultural 712 382 377 104 316
Real estate - mortgage 137 127 94 65 292
Installment 420 374 313 232 260
Leasing 7 9 27 67 13
-------- -------- -------- -------- --------
Total recoveries 1,276 892 811 468 881
-------- -------- -------- -------- --------
Net loans charged off 1,825 1,995 3,309 2,522 2,122
Provision charged to expense 2,263 2,584 2,494 3,918 4,056
-------- -------- -------- -------- --------
Balance at end of year $ 10,087 $ 9,649 $ 9,060 $ 9,875 $ 8,479
======== ======== ======== ======== ========
Ratio of net charge-offs during period
to average loans outstanding .22% .26% .47% .40% .37%
======== ======== ======== ======== ========
</TABLE>
Management anticipates $943 thousand of commercial, financial and agricultural
loans, $201 thousand of real estate-mortgage loans, $1.2 million of
installment loans, and $100 thousand of leases will be charged off for 1996.
The remaining $7.6 million or 76% of the allowance will be available for
losses resulting from unforeseen circumstances.
29
<PAGE> 24
FINANCIAL CONDITION--SUMMARY (continued)
UNDER-PERFORMING LOANS
Management monitors the components and status of under-performing loans as a
part of the evaluation procedures used in determining the adequacy of the
allowance for possible loan losses. It is the Corporation's policy to
discontinue the accrual of interest on loans where, in management's opinion,
serious doubt exists as to collectibility. The amounts shown below represent
non-accrual loans, loans which have been restructured to provide for a
reduction or deferral of interest or principal because of deterioration in the
financial condition of the borrower and those loans which are past due more
than 90 days where the Corporation continues to accrue interest. The interest
income for non-accrual and restructured loans that would have been recorded in
1995, 1994 and 1993, under the original terms of the loans is $316 thousand,
$467 thousand and $311 thousand, respectively. The Corporation recorded
interest income on such loans in the amounts of $63 thousand, $377 thousand
and $137 thousand for 1995, 1994 and 1993, respectively.
<TABLE>
<CAPTION>
(Dollar amounts in thousands) 1995 1994 1993 1992 1991
- ---------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Non-accrual loans $2,782 $3,486 $2,925 $4,234 $6,436
Restructured loans 185 217 1,259 1,287 639
------ ------ ------ ------ ------
2,967 3,703 4,184 5,521 7,075
Accruing loans past due 5,809 1,992 1,385 1,453 2,283
------ ------ ------ ------ ------
$8,776 $5,695 $5,569 $6,974 $9,358
====== ====== ====== ====== ======
</TABLE>
The ratio of the allowance for loan losses as a percentage of non-performing
loans was 115% at December 31, 1995, compared to 169% in 1994. This decrease
is the result of an increase in the amount of loans past due 90 days or more
amounting to $5.8 million compared to $2.0 million in 1994. This increase was
primarily the result of one commercial real estate loan amounting to $1.4
million which became past due 90 days or more and a general increase in loan
delinquencies in most categories of loans on a consolidated basis. The
commercial real estate loan is secured by a commercial building. Management
anticipates the proceeds from a fair market value sale will equal or exceed
the carrying value of the loan.
The following loan categories comprise significant components of the non-
performing loans at December 31, 1995:
<TABLE>
<CAPTION>
(Dollar amounts in thousands)
- ------------------------------------------------------------
<S> <C> <C>
Non-accrual loans:
Construction and land development $ 585 21%
1-4 family residential 485 18
Non-farm, non-residential 565 20
Other, various 1,093 41
------- ----
2,728 100%
======= ====
Past due 90 days or more:
1-4 family residential $2,098 36%
Commercial loans 2,536 44
Installment loans 601 10
Other, various 574 10
------- ----
$5,809 100%
======= ====
</TABLE>
There are no material concentrations by industry within the non-performing
loans.
In addition to the above under-performing loans, certain loans are felt by
management to be impaired for reasons other than 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.
The Corporation had $1.8 million of doubtful loans which are still in accrual
status.
30
<PAGE> 25
DEPOSITS
Total deposits increased to $1,073.5 million or 8.1% in 1995. The Corporation
experienced a significant fluctuation between deposit types due to a
rate-sensitive market environment. Savings decreased $19.7 million or 15.0%,
while large certificates of deposit increased $33.7 million or 30.8%. Other
time deposits increased $53.1 million or 14.4% in 1995.
The aggregate carrying value of short-term borrowings was $167.9 million and
$118.4 million at December 31, 1995 and 1994, respectively. The weighted
average interest rate was 5.76% and 4.89% for 1995 and 1994, respectively.
The information below presents the average amount of deposits and rates paid
on those deposits for 1995, 1994 and 1993.
<TABLE>
<CAPTION>
1995 1994 1993
---------------- -------------- ---------------
(Dollar amounts in thousands) Amount Rate Amount Rate Amount Rate
- ------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Non-interest-bearing
demand deposits $ 121,063 $ 113,864 $ 94,781
Interest-bearing demand deposits 243,202 2.70% 254,816 2.60% 239,973 2.80%
Savings deposits 116,243 2.52% 151,566 2.25% 146,647 2.89%
Time deposits:
$100,000 or more 148,718 5.72% 123,379 4.43% 133,509 3.98%
Other time deposits 434,326 5.65% 356,918 4.65% 350,146 4.92%
---------- ---------- --------
TOTALS $1,063,552 $1,000,543 $965,056
========== ========== ========
</TABLE>
The maturities of certificates of deposit of $100 thousand or more outstanding
at December 31, 1995, are summarized as follows (in thousands of dollars):
<TABLE>
<S> <C>
3 months or less $55,500
Over 3 through 6 months 25,434
Over 6 through 12 months 26,995
-------
Over 12 months 35,080
=======
</TABLE>
SHORT-TERM BORROWINGS
A summary of the carrying value of the Corporation's short-term borrowings at
December 31, 1995, 1994 and 1993 is presented below:
<TABLE>
<CAPTION>
(Dollar amounts in thousands) 1995 1994 1993
- ----------------------------------------------------------------------------------
<S> <C> <C> <C>
Federal funds purchased $ 52,800 $ 3,495 $ 4,491
Securities sold under agreements to repurchase 15,978 63,190 67,123
Advances from Federal Home Loan Bank 95,296 46,272 4,341
Other short-term borrowings 3,872 5,406 9,412
-------- -------- -------
$167,946 $118,363 $85,367
======== ======== =======
</TABLE>
Federal funds purchased amounted to $52.8 million in 1995 compared to $3.5
million in 1994. The primary reasons for this increase were the funding of
some investment securities with short-term maturities prior to other
securities maturing in 1996, and a year end increase in funds that were not
available for investment until the first week of January. The investments were
primarily in 6-month to one-year callable federal agencies.
Securities sold under agreements to repurchase decreased by $47 million or
74.7% in 1995 from the same period in 1994 because of the lack of incentive to
have funds held in this category compared to prior years.
Advances from the Federal Home Loan Bank increased to $95.3 million in 1995
compared to $46.3 million in 1994. The major reasons for the increase were for
temporary liquidity and to arbitrage several investments with these funds. The
difference between the investment yield and borrowing rate provided a positive
return to the Corporation. The difference in spread was either matched in
index (LIBOR) or the Corporation did assume basis and/or option risk. With the
increase in capital, it was determined to add more leverage to the Balance
Sheet and increase the net income. This strategy was primarily implemented in
the fourth quarter of 1995 and should continue on in 1996. As of December 31,
1995, the total investments in such programs totaled $67.2 million. The
Asset/Liability Committee reviews these investments weekly.
31
<PAGE> 26
FINANCIAL CONDITION--SUMMARY (continued)
The amounts and interest rates related to federal funds purchased and
securities sold under agreements to repurchase are presented below:
<TABLE>
<CAPTION>
(Dollar amounts in thousands) 1995 1994 1993
----------------------------- ---- ----- ----
<S> <C> <C> <C>
Average amount outstanding $40,313 $48,868 $64,322
Maximum amount outstanding at a month end 68,778 66,685 78,343
Average interest rate during year 5.83% 4.08% 3.14%
Interest rate at year end 6.00% 4.22% 3.26%
</TABLE>
CAPITAL RESOURCES
As of December 31, 1995, the Corporation's shareholders' equity was $130.1
million, an increase of 15.5% from the 1994 level of $112.6 million. The
primary reason for this increase was the increase in unrealized gains on
available-for-sale securities, net of tax, to $6.4 million in 1995 from
negative $2.4 million in 1994. The Corporation transferred all of its
held-to-maturity securities to the available-for-sale category in November
1995. Bank regulatory agencies have established capital adequacy standards
which are used extensively in their monitoring and control of the industry.
These standards relate capital to level of risk by assigning different
weightings to assets and certain off-balance-sheet activity. Capital is
measured by two risk-based ratios: Tier I capital and total capital, which
includes Tier II capital. The rules require that companies have minimum ratios
of 4% and 8% for Tier I and total capital, respectively. As of December 31,
1995, the Corporation had Tier I capital of 14.41% and total capital of
15.58%, significantly exceeding regulatory minimum standards.
Additionally, a Tier I leverage ratio is also used by bank regulators as
another measure of capital strength. This ratio compares Tier I capital to
total reported assets reduced by goodwill. The regulatory minimum level of
this ratio is 3%, and it acts as a constraint on the degree to which a company
can leverage its equity base. The Corporation's Tier I leverage ratio was
9.30% at December 31, 1995.
First Financial Corporation's objective is to maintain adequate capital to
merit the confidence of its customers and shareholders. To warrant this
confidence, the Corporation's management maintains a capital position which
they believe is sufficient to absorb unforeseen financial shocks without
unnecessarily restricting dividends to its shareholders. The Corporation's
dividend payout ratio for 1995 and 1994 was 24.4% and 24.7%, respectively. The
Corporation expects to continue its policy of paying regular cash dividends,
subject to future earnings and regulatory restrictions and capital
requirements.
INTEREST RATE SENSITIVITY AND LIQUIDITY
First Financial Corporation charges the seven subsidiary banks with monitoring
and managing their individual sensitivity to fluctuations in interest rates
and assuring that they have adequate liquidity to meet loan and deposit
demand. This function is accomplished through the Asset/Liability Committee.
The primary goal of the committee is to maximize net interest income within
the interest rate risk limits set by the Committee.
The Committee reviews a series of monthly reports to insure that performance
objectives are being met. The Committee also monitors and controls its
interest rate risk through the use of a microcomputer model. The first measure
of interest rate risk utilized is static gap analysis. Asset and liability
classifications are identified by repricing and maturity schedules. This
identifies potential risk in the mismatch of assets and liabilities as
interest rates change. The second measure of interest rate risk is earnings
simulation. Utilizing the model, management can measure the effects that any
variety of scenarios may have on income. Simulation incorporates changes in
interest rates, the shape of the yield curve and prepayments into its
calculations. At the discretion of management, they may assume alternate
volumes, reinvestment strategies and interest rate relationships.
32
<PAGE> 27
It is important to note that each measure of interest rate risk has its
limitations and that each is dependent upon certain assumptions. The Committee
has performed a thorough analysis of these inputs and believes the assumptions
to be valid and theoretically sound. Furthermore, the relationships are
continuously monitored for behavioral changes. The Committee believes that the
combination of reports and information represents a fairly comprehensive view
of interest rate risk.
For the next 12 months, the Corporation is liability sensitive with $79.5
million more liabilities repricing than assets, with a .86 sensitivity ratio.
This represents 5.51% of total assets. Under corporate policy, the sensitivity
ratio should fall within .8 and 1.2 and gap should not exceed 20% of total
assets. Thus, the current position is well within the stated guidelines. The
Corporation has $164.9 million of investments that mature throughout the year
to meet its liquidity needs. The following table illustrates the Corporation's
year end position at differing time intervals.
Utilizing the Corporation's position at year end, the earnings simulations
model projects that under the current rate environment, net income will
increase by 22.2% in 1996, all things being equal. Although actual results will
undoubtedly differ from this projection due to changes in many variables, this
represents a 1.2% return on assets. The earnings assets yield 7.7% and
interest-bearing liabilities cost 3.9%; thus, the margin is 3.8%. Management
actively monitors the Corporation's position and periodically implements
strategies to meet all of the Corporation's objectives.
Rate Sensitivity Analysis at December 31, 1995
<TABLE>
<CAPTION>
(DOLLAR AMOUNTS IN THOUSANDS)
RATE SENSITIVE WITHIN: 1-3 MONTHS 4-6 MONTHS 7-12 MONTHS 1-5 YEARS 5-PLUS YEARS TOTAL
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Earning assets:
Investments $ 44,474 $ 57,436 $ 62,986 $212,258 $138,255 $ 515,409
Loans 159,718 53,626 100,740 399,103 100,393 813,580
--------- -------- --------- -------- -------- -----------
TOTAL EARNING
ASSETS 204,192 111,062 163,726 611,361 238,648 1,328,989
Other assets - - - - 114,636 114,636
--------- -------- --------- -------- -------- -----------
TOTAL ASSETS $204,192 $111,062 $ 163,726 $611,361 $353,284 $1,443,625
========= ======== ========= ======== ======== ===========
Interest-bearing liabilities:
Interest-bearing deposits $ 82,481 $ 68,813 $ 131,363 $116,320 $402,890 $801,867
Interest-bearing
deposits over $100 55,500 25,434 26,995 22,617 12,463 143,009
Borrowed funds 146,042 801 21,103 - - 167,946
Long-term debt - - - 45,932 10,789 56,721
--------- -------- --------- -------- -------- -----------
TOTAL INTEREST-
BEARING LIABILITIES 284,023 95,048 179,461 184,869 426,142 1,169,543
Other liabilities - - - - 144,024 144,024
Capital - - - - 130,058 130,058
--------- -------- --------- -------- -------- -----------
TOTAL LIABILITIES
AND CAPITAL $284,023 $ 95,048 $ 179,461 $184,869 $700,224 $1,443,625
========= ======== ========= ======== ======== ===========
Rate sensitivity gap
(assets-liabilities) $(79,831) $ 16,014 $ (15,735) $426,492
Cumulative sensitivity ratio 0.72 0.83 0.86 1.47
Cumulative gap
percent of total assets -5.53% -4.42% -5.51% 24.03%
</TABLE>
33
<PAGE> 28
CONSOLIDATED BALANCE SHEET--AVERAGE BALANCES AND INTEREST RATES
<TABLE>
<CAPTION>
December 31,
-------------------------------------------------------------------------------------------
1995 1994 1993
---------------------------- ---------------------------- --------------------------
Average Yield/ Average Yield/ Average Yield/
(Dollar amounts in thousands) Balance Interest Rate Balance Interest Rate Balance Interest Rate
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
ASSETS
Interest-earning assets:
Loans (1) (2) $ 822,401 $ 72,564 8.82% $ 764,750 $63,146 8.26% $ 699,191 $60,780 8.69%
Taxable investment
securities 273,739 19,371 7.08% 242,869 15,079 6.21 316,428 19,715 6.23
Tax-exempt investment
securities (2) 140,068 10,650 7.60% 136,353 9,923 7.28 93,287 7,217 7.74
Federal funds sold 12,577 730 5.80% 9,562 442 4.62 12,542 384 3.06
Interest-bearing deposits
in other banks:
Domestic - - - 636 32 5.03 923 55 5.96
Foreign - - - - - - 1,118 64 5.72
---------- -------- ---- ---------- ------- ----- ---------- ------- ----
Total interest-earning assets $1,248,785 $103,315 8.27% $1,154,170 $88,622 7.68% $1,123,489 $88,215 7.85%
-------- ==== ------- ===== ------- ====
Non-interest earning assets:
Cash and due from bank 49,489 49,390 44,630
Premises and equipment, net 21,465 18,948 18,705
Other assets 20,213 16,972 18,713
Less allowance for loan losses (10,122) (9,264) (9,548)
---------- ---------- ----------
TOTALS $1,329,830 $1,230,216 $1,195,989
========== ========== ==========
LIABILITIES AND
SHAREHOLDERS' EQUITY
Interest-bearing liabilities:
Savings deposits 359,445 9,481 2.64 406,382 10,146 2.50 386,620 10,956 2.83%
Time deposits 583,044 33,043 5.67 480,297 22,065 4.59 483,655 22,571 4.67
Federal funds purchased
and securities sold under
agreement to repurchase 40,313 2,350 5.83 48,868 1,994 4.08 64,322 2,022 3.14
Other 93,296 5,773 6.19 61,950 3,262 5.27 58,765 2,874 4.89
---------- -------- ---- ---------- ------- ----- ---------- ------- ----
Total interest-bearing
liabilities: $1,076,098 $50,647 4.71% $997,497 $37,467 3.75% $993,362 $38,423 3.87%
-------- ==== ------- ===== ------- ====
Non interest-bearing
liabilities:
Demand deposits 120,773 113,864 94,781
Other 12,160 7,627 7,493
---------- ---------- ----------
1,209,031 1,118,988 1,095,636
Shareholders' equity 120,799 111,228 100,353
---------- ---------- ----------
TOTALS $1,329,830 $1,230,216 $1,195,989
========== ========== ==========
Net interest earnings $52,668 $51,155 $49,792
======== ======= =======
Net yield on interest-earning
assets 4.22% 4.43% 4.43%
===== ===== ====
</TABLE>
(1) For purposes of these computations, nonaccruing loans are included in
the daily average loan amounts outstanding.
(2) Interest income includes the effect of tax equivalent adjustments
using a federal tax rate of 34%.
34
<PAGE> 29
EFFECTS OF INFLATION
The effects of inflation on an enterprise's reported results of operations
vary depending on the components of the enterprise's assets and liabilities.
Except for a bank's premises and equipment, which comprise a relatively small
portion of total assets, a bank's assets and liabilities are primarily
monetary in nature. Consequently, because a bank's monetary assets exceed
monetary liabilities, banks generally experience a loss in purchasing power
during periods of inflation. However, when considering the effects of
inflation on banks, it is important to remember that interest rates, which
affect the bank's costs for funds, do not always move in correlation with
consumer prices.
MARKET AND DIVIDEND INFORMATION
At year-end 1995 shareholders owned 5,753,304 shares of the Corporation's
common stock. The stock was held by approximately 1,033 shareholders and
traded over-the-counter under the NASDAQ National Market System. Such
over-the-counter market quotations reflect inter-dealer prices, without
retail mark-up, mark-down or commission and may not necessarily represent
actual transactions.
Historically, the Corporation has paid cash dividends semi-annually and
currently expects that comparable cash dividends will continue to be paid in
the future. The following table gives quarterly high and low trade prices and
dividends per share during each quarter for 1995 and 1994.
<TABLE>
<CAPTION>
1995 1994
---------------------------- -----------------------------------
CASH CASH
BID QUOTATION DIVIDENDS BID QUOTATION DIVIDENDS
HIGH LOW DECLARED HIGH LOW DECLARED
- ------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
March 31 $30.00 $28.56 $33.33 $29.53
June 30 29.00 26.68 $.28 33.37 31.91 $.257
September 30 30.00 29.00 32.86 31.19
December 31 31.50 29.50 $.28 31.19 28.58 $.267
- ------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
SELECTED QUARTERLY FINANCIAL DATA
1995
--------------------------------------------------------------------------------
NET PROVISION
INTEREST INTEREST INTEREST FOR POSSIBLE NET NET INCOME
(Dollar amounts in thousands) INCOME EXPENSE INCOME LOAN LOSSES INCOME PER SHARE
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
March 31 $23,427 $11,832 $11,595 $540 $2,720 $.47*
June 30 24,312 12,315 11,997 540 2,987 .52*
September 30 25,250 13,051 12,199 543 3,455 .60
December 31 26,288 13,449 12,839 640 4,112 .71
<CAPTION>
1994
----------------------------------------------------------------------------
NET PROVISION
INTEREST INTEREST INTEREST FOR POSSIBLE NET NET INCOME
(Dollar amounts in thousands) INCOME EXPENSE INCOME LOAN LOSSES INCOME PER SHARE*
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
March 31 $20,267 $8,915 $11,352 $963 $2,510 $.43
June 30 20,632 8,991 11,641 430 3,121 .54
September 30 21,561 9,476 12,085 471 3,217 .55
December 31 22,432 10,085 12,347 720 3,457 .60
</TABLE>
*Restated to retroactively reflect 1995 stock dividend.
35
<PAGE> 1
EXHIBIT 99
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(A) OF THE SECURITIES
EXCHANGE ACT OF 1934 (AMENDMENT NO. )
Filed by the Registrant [X]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
[ ] Preliminary Proxy Statement
[X] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to Rule 240.14a-11(c) or Rule 240.14a-12
FIRST FINANCIAL CORPORATION
- -------------------------------------------------------------------------------
(Name of Registrant as Specified in Its Charter)
FIRST FINANCIAL CORPORATION
- -------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement)
Payment of Filing Fee (Check the appropriate box):
[X] $125 per Exchange Act Rules 0-11(c)(1)(ii), 14a-6(I)(1), or 14a-6(j)(2).
[ ] $500 per each party to the controversy pursuant to Exchange Act
Rule 14a-6(I)(3).
[ ] Fee computed on table below per Exchange Act Rules 14a-6(I)(4) and 0-11.
1) Title of each class of securities to which transaction applies:
________________________________________________________________________
2) Aggregate number of securities to which transaction applies:
________________________________________________________________________
3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11*
________________________________________________________________________
4) Proposed maximum aggregate value of transaction:
________________________________________________________________________
*Set forth the amount on which the filing fee is calculated and state how it
was determined.
[ ] Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee was
paid previously. Identify the previous filing by registration statement
number, or the Form or Schedule and the date of its filing.
1) Amount Previously Paid:_____________________________________________________
2) Form, Schedule or Registration statement no.:_______________________________
3) Filing Party:_______________________________________________________________
4) Date Filed:_________________________________________________________________
<PAGE> 2
FIRST FINANCIAL CORPORATION
ONE FIRST FINANCIAL PLAZA
P.O. BOX 540
TERRE HAUTE, INDIANA 47808
THIS PROXY SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned hereby appoints King A. Fasig and Earl W. Kickler, or
either of them as Proxies, each with the power to appoint his substitute, and
hereby authorizes them to represent and to vote, as designated below, all
shares of common stock of First Financial Corporation which the undersigned is
entitled to vote at the Annual Meeting of Shareholders to be held at One First
Financial Plaza, Terre Haute, Indiana on Wednesday, April 17, 1996, at 11:00
a.m. (local time), or any adjournment thereof, on the following matters:
1. Election of Directors
/ / FOR all nominees listed below (except as marked to the contrary below)
/ / WITHHOLD AUTHORITY to vote for all nominees listed below:
Walter A. Bledsoe Mari H. George Patrick O'Leary
B. Guille Cox, Jr. Gregory L. Gibson John W. Ragle
Thomas T. Dinkel Max L. Gibson Chapman J. Root II
Welby M. Frantz Norman L. Lowery Donald E. Smith
Anton H. George William A. Niemeyer Virginia L. Smith
(INSTRUCTIONS: TO WITHHOLD AUTHORITY TO VOTE FOR ANY INDIVIDUAL, STRIKE A
LINE THROUGH THE NOMINEE'S NAME IN THE LIST ABOVE.)
2. In their discretion, on such other matters as may properly come before the
meeting.
THIS PROXY WHEN PROPERLY EXECUTED WILL BE VOTED AS DIRECTED OR IF NO
DIRECTION IS INDICATED, WILL BE VOTED FOR PROPOSAL NO. 1.
Please sign exactly as name appears below. If there are two or more
owners, both should sign. When signing as attorney, executor, administrator,
trustee or guardian, please give full title as such. If a corporation, please
sign in full corporate name by President or other authorized officer. If a
partnership, please sign in partnership name by authorized person.
Dated:_______________, 1996 _________________________________________
(Signature)
_________________________________________
(Signature, if held jointly)
YOUR VOTE IS IMPORTANT. PLEASE MARK,
SIGN, DATE AND RETURN THIS PROXY
PROMPTLY USING THE ENCLOSED ENVELOPE.
<PAGE> 3
FIRST FINANCIAL CORPORATION
ONE FIRST FINANCIAL PLAZA
P.O. BOX 540
TERRE HAUTE, INDIANA 47808
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD APRIL 17, 1996
Notice is hereby given that, pursuant to the call of its Directors, an
Annual Meeting of Shareholders of First Financial Corporation ("Corporation")
will be held on April 17, 1996 at 11:00 o'clock a.m., local time, at One First
Financial Plaza, Terre Haute, Indiana.
The purposes of the meeting are:
(1) To elect the Board of Directors of the Corporation to serve for the
ensuing year.
(2) To transact such other business as may properly be presented at the
meeting.
Only shareholders of record at the close of business on March 19, 1996
will be entitled to notice of and to vote at the meeting.
By Order of the Board of Directors
DONALD E. SMITH
DONALD E. SMITH
Chairman of the Board and President
March 22, 1996
IMPORTANT--PLEASE MAIL YOUR PROXY PROMPTLY
IN ORDER THAT THERE MAY BE PROPER REPRESENTATION AT THE
MEETING, YOU ARE URGED TO COMPLETE, SIGN, DATE AND RETURN THE
ENCLOSED PROXY IN THE ENVELOPE PROVIDED. NO POSTAGE IS REQUIRED
IF MAILED IN THE UNITED STATES.
<PAGE> 4
PROXY STATEMENT OF
FIRST FINANCIAL CORPORATION
ONE FIRST FINANCIAL PLAZA
P.O. BOX 540
TERRE HAUTE, INDIANA 47808
(812) 238-6000
ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD APRIL 17, 1996
GENERAL INFORMATION
This Proxy Statement is furnished in connection with the solicitation by
the Board of Directors of First Financial Corporation (the "Corporation") of
Proxies for use at an Annual Meeting of Shareholders of the Corporation to be
held on April 17, 1996 at 11:00 a.m. at One First Financial Plaza, Terre Haute,
Indiana, and at any and all adjournment of such meeting. This Proxy Statement
and accompanying form of proxy were first mailed to the shareholders on or
about March 22, 1996.
The Corporation is a multi-bank holding company which owns Terre Haute
First National Bank ("Terre Haute First"), First State Bank, First Citizens
State Bank, First Farmers State Bank, First Ridge Farm State Bank, First Parke
State Bank and First National Bank of Marshall.
Only shareholders of record as of March 19, 1996, will be entitled to
notice of, and to vote at, the Annual Meeting. As of March 1, 1996 the
Corporation had issued and outstanding 5,767,175 shares of common stock, which
were held by approximately 1,030 shareholders of record. There are no other
outstanding securities of the Corporation entitled to vote.
For the matter to be voted on at this Annual Meeting, each share is
entitled to one vote, exercisable in person or by proxy. Approval of a
plurality of the votes cast at the meeting, assuming a quorum is present, is
required for election of each nominated director. Action on any other matters
to come before the meeting must be approved by an affirmative vote of a
majority of the shares present, in person, or by proxy. Abstentions, broker
non-votes, and instructions on the accompanying proxy card to withhold
authority to vote for one or more of the named nominees will result in the
respective nominee receiving fewer votes.
The cost of soliciting proxies will be borne by the Corporation. In
addition to use of the mails, proxies may be solicited personally or by
telephone by officers, directors and certain employees who will not be
specially compensated for such soliciting.
1
<PAGE> 5
Any shareholder giving a proxy has the right to revoke it at any time
before it is exercised. Therefore, execution of the proxy will not affect the
shareholder's right to vote in person if he or she attends the meeting.
Revocation may be made prior to the meeting (i) by written notice sent to John
W. Perry, Secretary, First Financial Corporation, One First Financial Plaza,
P.O. Box 540, Terre Haute, Indiana 47808, (ii) personally upon oral or written
request at the Annual Meeting, or (iii) by duly executing a proxy bearing a
later date.
The shares represented by proxies will be voted as instructed by the
shareholders giving the proxies. In the absence of specific instructions to the
contrary, proxies will be voted in favor of the election as directors of the
fifteen (15) persons named as nominees in this Proxy statement. If for any
reason any of the director/nominees becomes unable or is unwilling to serve at
the time of the meeting (an event which the Board of Directors does not
anticipate), the persons named as proxies in the accompanying form of proxy
will have discretionary authority to vote for a substitute nominee or nominees
named by the Board of Directors if the Board of Directors elects to fill such
nominees' positions. Any other matters that may properly come before the
meeting will be acted upon by the persons named as proxies in the accompanying
form of proxy in accordance with their discretion.
ELECTION OF DIRECTORS
The Board of Directors is composed of fifteen (15) members, all of whom
hold office for a term of one (1) year or until other respective successors are
duly elected and qualified. For each of the fifteen (15) nominees for director
listed below there is a brief summary of his or her present principal
occupation, other business experience during the last five years, age, and the
year such individual first became a director.
[THE REST OF THIS PAGE INTENTIONALLY LEFT BLANK]
2
<PAGE> 6
<TABLE>
<CAPTION>
NAME AND AGE YEAR BECAME TITLE OR POSITION PRINCIPAL OCCUPATION
A DIRECTOR WITH CORPORATION FOR THE LAST FIVE YEARS
- ------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Walter A. Bledsoe, 80 1983* Director Personal Investments
B. Guille Cox, Jr., 50 1987 Director Attorney-At-Law with Cox Zwerner
Gambill & Sullivan
Thomas T. Dinkel, 45 1989 Director President of Sycamore
Engineering, Inc.
Welby M. Frantz, 83 1983* Director Business Consultant
Anton H. George, 36 1987 Director President, Indianapolis
Motor Speedway Corp.,
Director, Indiana Energy, Inc.
Mari H. George, 61 1989 Director Chairman, Indianapolis Motor
Speedway Corp.
Gregory L. Gibson, 33 1994 Director President, ReTec, Inc.
Max L. Gibson, 55 1983* Director President of Majax Company,
Director, IPALCO, Inc.
Norman L. Lowery, 49 1989 Vice Chairman President of Terre Haute First
(effective January 1, 1996),
Attorney-At-Law with Wright
Shagley & Lowery through 1995
William A. Niemeyer, 73 1983* Director President of Niemeyer Coal Co.
Patrick O'Leary, 59 1983* Director President of Contract Services, LLC
John W. Ragle, 69 1983* Director President of Ragle & Company, Inc.
Chapman J. Root II, 46 1989 Director President, Root Company, Director
International Speedway Corp.
Donald E. Smith, 69 1983* Chairman of President of Terre Haute First and
the Board and First Financial Corporation through
President 1995. Director, Southern Indiana
Gas and Electric Company
Virginia L. Smith, 48 1987 Director President of R.J. Oil Co., Inc.
</TABLE>
*First Financial Corporation was formed in 1983.
3
<PAGE> 7
ADDITIONAL INFORMATION CONCERNING BOARD OF DIRECTORS
ATTENDANCE AT MEETINGS. During 1995, the Board of Directors of the
Corporation held 12 regular meetings and a total of 19 meetings. No director
standing for re-election attended fewer than 75% of the aggregate number of
Board meetings and meetings on committees on which he or she served, except Mr.
Root, who attended 63%.
CERTAIN RELATIONSHIPS. Certain family relationships exist among the
directors of the Corporation. Donald E. Smith is the father of Virginia L.
Smith and father-in-law of Norman L. Lowery. Mari H. George is the mother of
Anton H. George. Max L. Gibson is the father of Gregory L. Gibson. There are no
arrangements or understandings between any of the directors pursuant to which
any of them have been selected for their respective positions.
COMMITTEES. The Board of Directors had no standing nominating or any
committee performing similar functions during 1995; such functions are
performed by the Board of Directors as a whole.
The Corporation's Examining Committee, which consists of John W. Ragle,
Max Gibson, and Patrick O'Leary, reviews the Corporation's accounting
functions, operations and management and the adequacy and effectiveness of the
internal controls and internal auditing methods and procedures. This Committee
recommends to the Board the appointment of the independent public accountants
for the Corporation. This Committee met twice during 1995.
The Corporation's Compensation Committee, which consists of Messrs.
O'Leary, Smith, Frantz, M. Gibson, Niemeyer, A. George, and Lowery, overviews
the compensation of the officers of subsidiary banks and recommends salaries
and bonus amounts to the full Board of Directors. Such Committee met four times
in 1995.
COMPENSATION OF DIRECTORS. Directors of the Corporation received a fee of
$100 per meeting during 1995 if the meeting was held as a joint meeting with
the Board of Directors of Terre Haute First. Only one meeting of the Board of
Directors of the Corporation was not held as a joint meeting with the Board of
Directors of Terre Haute First during 1995. For meetings of the Board of
Directors of the Corporation which were not joint meetings with the Board of
Directors of Terre Haute First, directors received a fee of $500 per such
meeting attended.
Directors of Terre Haute First, a wholly-owned banking subsidiary of the
Corporation, received a fee in 1995 of $500 for each meeting attended and a
semi-annual fee of $1,800. In addition, Directors of Terre Haute First, other
than those employed by Terre Haute First, receive a fee of $300 for each Loan
Discount Committee meeting attended. Directors of Terre Haute First that are
not yet seventy (70) have the option of participating in a deferred director's
fee program, pursuant to which each year, for five years, $6,000 of Director's
fees are deferred until the participant reaches the age of sixty-five (65) or
seventy (70), at which point the Director may elect to receive payments over a
ten year period. For 1995, the allocated cost of the deferred Director's fees
was $141,313, which is funded by Terre Haute First with insurance products.
4
<PAGE> 8
Directors of First State Bank, a wholly-owned banking subsidiary of the
Corporation, received a fee of $200 for each meeting attended.
Directors of First Citizens State Bank, a wholly-owned banking subsidiary
of the Corporation, received a fee of $300 for each meeting attended.
Directors of First Farmers State Bank, a wholly-owned banking subsidiary
of the Corporation, received a fee of $200 for each meeting attended.
Directors of First Ridge Farm State Bank, a wholly-owned banking
subsidiary of the Corporation, received a fee of $200 for each meeting
attended.
Directors of First Parke State Bank, a wholly-owned banking subsidiary of
the Corporation, received a fee of $200 for each meeting attended.
Directors of First National Bank of Marshall, a wholly-owned banking
subsidiary of the Corporation, received a fee of $325 for each meeting
attended.
EXECUTIVE OFFICERS OF THE CORPORATION
The executive officers of the Corporation, all of whom serve for a one
year term, consist of Donald E. Smith, Chairman of the Board and President of
the Corporation; Norman L. Lowery, Vice Chairman; John W. Perry, Secretary of
the Corporation; Michael A. Carty, Treasurer of the Corporation; and W. Edward
Jukes, Chief Credit Officer of the Corporation. Mr. Perry, age fifty-two, was
Treasurer of the Corporation from 1983 through 1990 and has been Secretary from
1990 through the present. For the past nine years, Mr. Perry's principal
occupation has been as the Senior Vice President of Terre Haute First. Mr.
Carty, age forty-five, has been Senior Vice President of Terre Haute First
since 1990 and was Vice President of Terre Haute First from 1983 until 1990.
Mr. Jukes, age fifty-three, has been Senior Vice President of Terre Haute First
since 1989. For additional information concerning Mr. Smith and Mr. Lowery,
see "ELECTION OF DIRECTORS."
COMPENSATION OF OFFICERS
COMPENSATION COMMITTEE REPORT
Decisions on compensation of the Corporation's executives are made by the
Compensation Committee of the Board, which also serves as the Compensation
Committee of Terre Haute First. Each member of the Compensation Committee,
except Mr. Smith, was a non-employee director. All decisions of the
Compensation Committee relating to the compensation of the Corporation's
executive officers are reviewed by the full Board. Pursuant to rules of the
Securities and Exchange Commission designed to enhance disclosure of
corporation policies toward executive compensation, set forth on the following
page is a report submitted by Messrs. O'Leary (Chairman), Smith, Frantz, M.
Gibson, Niemeyer, A. George and Lowery in their capacity as the Board's
Compensation Committee addressing the Corporation's compensation policies for
1995 as they affected Mr. Smith and Messrs. Perry and Jukes, the two other
executive officers other than Mr. Smith who, for 1995, were the Corporation's
most highly paid executives whose total annual salary and bonus exceeded
$100,000 (collectively with Mr. Smith, the "senior executives").
5
<PAGE> 9
COMPENSATION POLICIES TOWARD EXECUTIVE OFFICERS. The Compensation
Committee's executive compensation policies are designed to provide competitive
levels of compensation to the executive officers and to reward officers for
satisfactory individual performance and for satisfactory performance of the
Corporation as a whole. There are no established goals or standards relating to
performance of the Corporation which have been utilized in setting compensation
of individual employees.
BASE SALARY. Each executive officer is reviewed individually by the
Compensation Committee, which review includes an analysis of the performance of
the Corporation and Terre Haute First. In addition, the review includes, among
other things, an analysis of the individual's performance during the past
fiscal year, focusing primarily upon the following aspects of the individual's
job or characteristics of the individual exhibited during the most recent
fiscal year: quality and quantity of work; supervisory skills; dependability;
initiative; attendance; overall skill level; and overall value to the
Corporation.
ANNUAL BONUS AMOUNTS. The Compensation Committee determines whether a
bonus should be paid based primarily upon the overall performance of the
Corporation. For 1995, Mr. Smith received a bonus of $115,000 and Messrs. Perry
and Jukes each received a bonus equal to their 1994 bonus of $12,673 and
$10,069, respectively.
OTHER COMPENSATION PLANS. At various times in the past the Corporation
has adopted certain broad-based employee benefit plans in which the senior
executives are permitted to participate on the same terms as non-executive
employees who meet applicable eligibility criteria, subject to any legal
limitations on the amount that may be contributed or the benefits that may be
payable under the plans.
BENEFITS. The Corporation provides medical and pension benefits to the
senior executives that are generally available to other Corporation employees.
The amount of perquisites, as determined in accordance with the rules of the
Securities and Exchange Commission relating to executive compensation, did not
exceed 10% of salary and bonus for fiscal 1995.
MR. SMITH'S 1995 COMPENSATION. Regulations of the Securities and Exchange
Commission require that the Compensation Committee disclose the Committee's
basis for compensation reported for Mr. Smith in 1995. Mr. Smith's salary and
bonus are determined in the same manner as discussed above for other senior
executives, except that $75,000 of Mr. Smith's $115,000 bonus was made in
connection with an employment agreement providing for a split dollar life
insurance arrangement between the Corporation, Terre Haute First, and Mr.
Smith. The Compensation Committee believes that Mr. Smith has managed the
Corporation well.
Members of the 1995 Compensation Committee
Welby M. Frantz Anton H. George Max L. Gibson
Norman L. Lowery William A. Niemeyer Patrick O'Leary
Donald E. Smith
6
<PAGE> 10
COMPENSATION COMMITTEE INSIDER PARTICIPATION
During the past fiscal year, Mr. Smith, the Corporation's Chief Executive
Officer, served on the Compensation Committee but did not participate in any
discussion or voting with respect to his salary or bonus as an executive
officer and excused himself from the room during the discussion by the
Compensation Committee of his compensation. In addition, Mr. Lowery, the
son-in-law of Mr. Smith, abstained from discussion and voting on any
recommended salary or bonus for Mr. Smith.
SUMMARY COMPENSATION TABLE
The following table sets forth for the fiscal years ending December 31,
1995, 1994, and 1993 the cash compensation paid by the Corporation, as well as
certain other compensation paid or awarded during those years, to the Chief
Executive Officer and any other executive officer whose total annual salary and
bonus exceeded $100,000 during the fiscal year ended December 31, 1995.
<TABLE>
<CAPTION>
NAME AND PRINCIPAL YEAR ANNUAL COMPENSATION (1) ALL OTHER
POSITION SALARY BONUS (2) COMPENSATION (3)
- ----------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Donald E. Smith 1995 $263,604 $115,000 $7,781
President, CEO 1994 $253,465 $ 40,000 $29,027
and Director 1993 $242,550 $ 36,400 $26,991
John W. Perry 1995 $131,801 $ 12,673 $1,247
Secretary 1994 $126,732 $ 12,673 $1,247
1993 $115,500 $ 10,510 $1,247
W. Edward Jukes 1995 $104,723 $ 10,069 $1,394
Chief Credit Officer 1994 $100,695 $ 10,069 $1,394
1993 $ 91,770 $ 8,351 $1,394
</TABLE>
(1) While officers enjoy certain perquisites, such perquisites do not exceed
the lesser of $50,000 or 10% of such officer's salary and bonus and are not
required to be disclosed by applicable rules of the Securities and Exchange
Commission.
(2) The bonus amounts are payable pursuant to determinations made by the
Compensation Committee of the Corporation, as described in the "Compensation
Committee Report."
7
<PAGE> 11
(3) These amounts represent Corporation payments on behalf of the above-named
individuals pursuant to a life insurance program ("Life Insurance
Program") for the executive officers of Terre Haute First which began in
1985. Under the Life Insurance Program, Terre Haute First purchased a life
insurance policy on behalf of each executive officer of Terre Haute First
(including the three listed above). The policy is owned by the individual
and will be paid at age 65 for those presently 55 or older, and at age 60
for those who are less than 55 years of age. The annual cost of this
insurance for those reported was as follows: $1,247 for Mr. Perry; and
$1,394 for Mr. Jukes. In addition, this amount includes the annual premium
payment in the amount of approximately $285,000 for a life insurance
policy for Mr. Smith. Mr. Smith no longer participates in the group term
life insurance policy of the Corporation (which coverage would terminate
upon his retirement). The Corporation determined to purchase a policy of
life insurance for Mr. Smith which would continue to be in effect
following his retirement as an executive officer of the Corporation and
Terre Haute First. Beginning in 1995, the Corporation paid for the term
portion of a split dollar insurance policy on Mr. Smith. The dollar value
of the benefit to Mr. Smith of the remainder of the premium paid by the
Corporation or Terre Haute First in connection with such policy, which was
issued pursuant to an Employment Agreement between the Corporation, Terre
Haute First, and Mr. Smith, was $7,781. The Corporation expects to recover
the premiums it pays for such policy from the proceeds of such policy.
Allocations to the named individual's respective account in the
Corporation's Employee Stock Ownership Plan ("ESOP"), which are properly
includable in this column, were not calculable as of the date of this
Proxy Statement. Such amounts for 1994 were as follows: $7,117 for Mr.
Smith; $6,836 for Mr. Perry; and $5,450 for Mr. Jukes.
EMPLOYEE BENEFIT PLANS
Employee Stock Ownership Plan. The Corporation sponsors the First
Financial Corporation Employee Stock Ownership Plan ("ESOP") and the First
Financial Corporation Employees' Pension Plan ("Pension Plan") for the benefit
of substantially all of the employees of the Corporation and its subsidiaries.
As discussed below, these plans constitute a "floor-offset" retirement program.
The Pension Plan is a defined benefit "floor" plan which provides each
participant with a minimum benefit or "floor" which is offset by the benefit
provided by the ESOP. Thus, if a participant's benefit under the ESOP is
insufficient to fund the minimum "floor" of benefits specified by the Pension
Plan, the Pension Plan will make up the difference. If a participant's benefit
under the ESOP is higher than the minimum or "floor" benefit under the Pension
Plan, the participant receives the higher benefit under the ESOP.
All employees of the Corporation and its subsidiaries become participants
in the ESOP after completing one year of service for the Corporation or its
subsidiaries and attaining age 21. Under the terms of the ESOP, the Corporation
or its subsidiaries, as participating employers, may contribute Corporation
common stock to the ESOP or contribute cash to the ESOP which will be primarily
invested in the Corporation's common stock. The amount of contributions, when
they are made, is determined by the Board of Directors of the Corporation. No
participant contributions are required or allowed under the ESOP.
For a discussion of the forms in which benefits may be distributed under
the ESOP, see the discussion under "Defined Benefit Plan" below.
8
<PAGE> 12
Participants have the right to direct the voting of the shares of the
Corporation's stock allocated to their accounts under the ESOP on all corporate
matters.
For the year ended December 31, 1995, the Corporation contributed to the
ESOP $525,000 in Corporate Stock. The stock will be allocated to the individual
ESOP accounts of the participants effective as of December 31, 1995, although
no allocation to the individual accounts had been made or calculated as of the
date of mailing of this Proxy Statement.
Defined Benefit Plan. As described above, the Pension Plan was adopted in
conjunction with, but is separate from, the ESOP. Employees become participants
in the Pension Plan after completing one year of service for the Corporation or
its subsidiaries and attaining age 21. All employees of the Corporation and its
subsidiaries are eligible to become participants. No participant contributions
are required or allowed under the Pension Plan. The Pension Plan, in
conjunction with the ESOP, is designed to provide participants with a minimum
retirement benefit.
The monthly guaranteed minimum benefit under the Pension Plan is reduced
by the monthly benefit derived from the participant's vested portion of his
ESOP account balance, calculated by the actuary for the Pension Plan as a
single life annuity. The normal retirement benefit will begin at age 65 and be
paid monthly for as long as the participant lives.
The normal form of retirement benefit under the ESOP and Pension Plan is a
monthly life annuity. A married participant will receive an actuarially
equivalent joint and 50% survivor annuity (a monthly payment for the
participant's life with the surviving spouse receiving 50% of that amount for
life), unless the participant otherwise elects and the participant's spouse
consents to such election. A participant may also elect to receive his
retirement income from the ESOP and Pension Plan in the form of: a monthly
income payable for life; a monthly income payable for life with either 50%,
66-2/3%, or 100% of the participant's benefit paid to the participant's
designated beneficiary starting upon the participant's death and continuing for
long as beneficiary lives; or a monthly income payable for life with 60, 120 or
180 monthly payments guaranteed, provided that the number of guaranteed monthly
payments cannot be for a period greater than the joint life expectancy of the
participant and his spouse. The ESOP also provides that a participant's benefit
may be distributed in a single lump sum or substantially equal monthly,
quarterly or annual installments over a period which does not exceed the
participant's life expectancy (or the joint life expectancy of the participant
and his spouse). However, a participant may be deemed that all or any part of
the distribution from the ESOP be made in whole shares of the Corporation's
common stock prior to the date specified for distribution, with any fractional
shares distributed in cash.
The following table sets forth the years of service under the Pension
Plan, with respect to the executive officers named in the Summary Compensation
Table under "COMPENSATION OF OFFICERS."
9
<PAGE> 13
<TABLE>
<S> <C>
NAME OF INDIVIDUAL YEARS OF BENEFIT SERVICE
------------------ ------------------------
Donald E. Smith 27
John W. Perry 21
W. Edward Jukes 6
</TABLE>
The following table shows the estimated annual benefits payable under the
Pension Plan upon retirement at age 65 for various periods of Benefit Service
at specified levels of remuneration. The benefit amounts presented in the
totals are annual straight life annuity amounts without deduction for social
security or other offset amounts. A participant's Final Average Annual
Compensation shown under the Pension Plan is generally based on the
compensation set forth in the Summary Compensation Table.
ESTIMATED MINIMUM ANNUAL RETIREMENT BENEFIT (1)
FINAL AVERAGE ANNUAL COMPENSATION
<TABLE>
YEARS
OF BENEFIT 250K
SERVICE 70K 100K 130K 160K 190K 220K OR MORE
---------- ----- ---- ---- ---- ---- ---- -------
<S> <C> <C> <C> <C> <C> <C> <C>
10 $16,795 $24,745 $32,695 $40,123 $45,688 $51,253 $54,191
20 33,590 49,490 65,390 81,158 94,673 108,188 115,324
30 43,600 64,235 85,085 106,793 120,000 120,000 120,000
40 46,148 67,973 89,798 111,623 120,000 120,000 120,000
</TABLE>
(1) Maximum benefits under the Pension Plan are subject to the annual
limitation ($120,000 for 1996) imposed on qualified plans by the Internal
Revenue Code.
(2) The maximum compensation which may be taken into account for any
purpose under the Pension Plan is limited by the Internal Revenue Code to
$150,000 for 1996.
10
<PAGE> 14
TRANSACTIONS WITH MANAGEMENT
Directors and principal officers of the Corporation and their associates
were customers of, and have had transactions with, the Corporation and its
subsidiary banks in the ordinary course of business during 1995. Comparable
transactions may be expected to take place in the future.
During 1995 various directors and officers of the Corporation and their
respective associates were indebted to the subsidiary banks from time to time.
These loans were made in the ordinary course of business on substantially the
same terms, including interest rates and collateral, as those prevailing at the
time for similar transactions with other persons and did not involve more than
the normal risk of collectability or present other unfavorable features.
The law offices of B. Guille Cox, Jr., in which Mr. Cox is a partner, were
paid $14,448 in legal fees by the Corporation and its subsidiaries for the
fiscal year ending December 31, 1995.
The law offices of Norman L. Lowery, in which Mr. Lowery was a partner,
were paid $127,183 in legal fees by the Corporation and its subsidiaries for
the fiscal year ending December 31, 1995.
[THE REST OF THIS PAGE INTENTIONALLY LEFT BLANK]
11
<PAGE> 15
COMPARATIVE PERFORMANCE GRAPH
The following graph compares cumulative total shareholder return on the
Corporation's common stock over the last five fiscal years with the returns of
the CRSP Total Return Index for the NASDAQ Stock Market (U.S.) and the CRSP
Total Return Index for NASDAQ bank stocks. The graph assumes $100.00 was
invested on January 1, 1990 in the Corporation's common stock and in each of
the two indices shown, and the reinvestment of all dividends.
FFC STOCK
TOTAL RETURN COMPARISON
[PERFORMANCE GRAPH]
<TABLE>
<CAPTION>
NASDAQ Market (US) NASDAQ Bank FFC Stock
<S> <C> <C> <C>
12/90 100.00 100.00 100.00
12/91 160.65 160.70 91.36
12/92 186.87 238.85 149.83
12/93 214.51 272.39 215.41
12/94 209.69 271.41 202.58
12/95 296.30 404.30 219.60
</TABLE>
EMPLOYMENT CONTRACTS
On January 3, 1995, the Corporation, Terre Haute First, and Mr. Smith
entered into an Employment Agreement ("Agreement") whose term expires on
December 31, 2000 (although the Agreement may be renewed for successive one (1)
year terms as agreed upon by the parties). The Agreement provides that Mr.
Smith will serve as President and Chief Executive Officer of the Corporation
during the term of the Agreement and perform such other duties as may be
established by the Board of Directors of the Corporation and Terre Haute First.
Under the terms of the Agreement, Mr. Smith will be paid an annual salary as
set by the Board of Directors of the Corporation and Terre Haute First. In
addition, the Agreement required that the Corporation and Terre Haute First
establish a split dollar life insurance arrangement with Mr. Smith which will
insure the lives of Mr. Smith and his spouse. Under the terms of the Agreement,
the Corporation and Terre Haute First expect to recover the premiums they pay
for such policy from the proceeds of such policy.
12
<PAGE> 16
PRINCIPAL SHAREHOLDERS AND SECURITY OWNERSHIP OF MANAGEMENT
The following table contains information concerning individuals or
entities who, to the knowledge of the Corporation, beneficially owned on March
1, 1996, more than 5% of the common stock of the Corporation:
<TABLE>
<CAPTION>
NAME AND ADDRESS OF SHARES BENEFICIALLY OWNED PERCENT OF CLASS
BENEFICIAL OWNER
<S> <C> <C>
First Financial Corporation 452,521 (1) 7.85%
Employee Stock Ownership
Plan ("ESOP")
One First Financial Plaza
Terre Haute, Indiana 47807
Mary F. Hulman 683,873 11.86%
900 Wabash Avenue
Terre Haute, Indiana 47807
Princeton Mining Company 551,655 9.57%
State Road 46 South
Terre Haute, Indiana 47803
</TABLE>
(1) Represents shares held in trust by the Corporation's subsidiary, Terre
Haute First.
The Trust Departments of four (4) subsidiary banks of the Corporation
which have trust departments hold, as of March 1, 1996, 971,927 shares of the
Corporation's common stock for the beneficiaries of certain trusts, estates and
agencies administered by the subsidiary banks. The respective trust departments
are authorized to vote 345,215 shares of the Corporation's common stock which
such trust departments hold of record, either in person or by proxy, so long as
each vote is in the best interest of any such trust, estate or agency and the
beneficiaries or principals thereof. All shares held by such trust departments
will be voted in accordance with the instructions of co-fiduciaries,
beneficiaries or principals, as applicable.
SECURITY OWNERSHIP MANAGEMENT
The following table sets forth as of March 1, 1996 the total number of
shares of common stock of the Corporation beneficially owned by each Director
and certain executive officers of the Corporation and by all Directors and
executive officers as a group. The number of shares shown as being beneficially
owned by each Director and executive officer are those over which he or she has
sole or shared voting or investment power.
13
<PAGE> 17
<TABLE>
<CAPTION>
NAME OF BENEFICIAL OWNER SHARES BENEFICIALLY OWNED (1) PERCENT OF CLASS
<S> <C> <C>
Walter A. Bledsoe 13,599 .24%
B. Guille Cox, Jr. 38,776 .67%(2)
Thomas T. Dinkel 4,150 .07%
Welby M. Frantz 3,880 .07%
Anton H. George 281 .01%
Mari H. George 210 .01%
Gregory L. Gibson 24,849 .43%
Max L. Gibson 108,106 1.87%
Norman L. Lowery 9,234 .16%
William A. Niemeyer 3,964 .07%
Patrick O'Leary 22,041 .38%
John W. Ragle 51,697 .90%
Chapman J. Root II 277,773 4.82%(3)
Donald E. Smith 59,768 1.04%
Virginia L. Smith 8,470 .15%
John W. Perry 9,107 .16%
W. Edward Jukes 10,387 .18%
All Directors and Executive Officers
as a group (18 individuals)(4) 650,418 11.28%
</TABLE>
(1) The information contained in this column is based upon stockholder records
of the Corporation and information furnished to the Corporation by the
individuals identified above.
(2) Mr. Cox, under certain circumstances, has the power, with the consent of
others, to vote an additional 207,922 shares (3.61%). These shares are not
reflected in the above amount.
(3) Includes 277,426 shares held by the 1992 Root Children's Business Trust, of
which Mr. Root is a trustee. Mr. Root disclaims beneficial ownership with
respect to all such shares in the trust except those in which he is the
beneficiary.
14
<PAGE> 18
(4) Excludes 207,922 shares over which Mr. Cox may, under certain
circumstances, exercise voting control. Includes shares held for the
accounts of Donald E. Smith, John W. Perry, Michael A. Carty, and W.
Edward Jukes in the First Financial Corporation Employee Stock
Ownership Plan described above.
CERTAIN FILINGS
Section 16(a) of the Securities and Exchange Act of 1934 requires the
Corporation's directors and executive officers, and persons who own more than
ten percent of a registered class of the Corporation's equity securities, to
file with the Securities and Exchange Commission ("SEC") initial reports of
ownership and reports of changes in ownership of Corporation common stock and
other equity securities of the Corporation. Officers, directors and greater
than ten-percent shareholders are required by SEC regulations to furnish the
Corporation with copies of all Section 16(a) forms they file. To the best
knowledge of the Corporation, during the most recent fiscal year all officers,
directors and greater than ten-percent beneficial owners of the Corporation
complied with all Section 16(a) filing requirements applicable to them.
INDEPENDENT ACCOUNTANTS
The Board of Directors appointed Coopers & Lybrand L.L.P., Certified
Public Accountants, as independent accountants to audit the books, records and
accounts of the Corporation for 1995. The Board of Directors anticipates that
it will appoint an independent public accountant to audit the books, records,
and accounts of the Corporation for 1996 in April, 1996. Representatives of
Coopers & Lybrand L.L.P. are expected to be in attendance at the annual meeting
and will be provided an opportunity to make a statement should they desire to
do so and to respond to appropriate inquiries from the shareholders. Coopers &
Lybrand L.L.P. have been independent accountants for the Corporation since
1984.
SHAREHOLDERS PROPOSALS
Any proposals which shareholders desire to present at the 1997 Annual
meeting must be received by the Corporation at its principal executive offices
on or before November 22, 1996 to be considered for inclusion in the
Corporation's proxy material for that meeting.
ANNUAL REPORT TO SHAREHOLDERS
The 1995 Annual Report to Shareholders, containing financial statements
for the year ended December 31, 1995, and other information concerning the
operations of the Corporation is enclosed herewith, but is not to be regarded
as proxy soliciting material.
15
<PAGE> 19
UPON WRITTEN REQUEST, THE CORPORATION WILL PROVIDE WITHOUT CHARGE TO
EACH REQUESTING SHAREHOLDER, A COPY OF THE CORPORATION'S ANNUAL REPORT ON FORM
10-K, WHICH IS REQUIRED TO BE FILED WITH THE SECURITIES AND EXCHANGE COMMISSION
FOR THE YEAR ENDED DECEMBER 31, 1995. ADDRESS ALL REQUESTS TO:
MICHAEL A. CARTY, TREASURER
FIRST FINANCIAL CORPORATION
ONE FIRST FINANCIAL PLAZA
P.O. BOX 540
TERRE HAUTE, INDIANA 47808
OTHER MATTERS
The Annual Meeting is called for the purposes set forth in the Notice. The
Board of Directors of the Corporation does not know of any matters for action
by shareholders at such Annual Meeting other than the matters described in the
notice. However, the enclosed Proxy will confer discretionary authority with
respect to matters which are not known to the Board of Directors at the time of
the printing hereof and which may properly come before the Annual Meeting. It
is the intention of the persons named in the Proxy to vote pursuant to the
Proxy with respect to such matters in accordance with their best judgment.
By Order of the Board of Directors
DONALD E. SMITH SIGNATURE
DONALD E. SMITH
Chairman of the Board and President
16
