<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, 1996 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 47807
Terre Haute, IN
(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
Indicated 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, 1997 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 $168,659,784. (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, 1997--6,681,876
shares.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the 1996 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 16, 1997 are incorporated by
reference into Part III.
<PAGE> 2
FORM 10-K CROSS-REFERENCE INDEX
<TABLE>
<CAPTION>
PAGE
<S> <C>
PART I
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 Disclosures . . . . . . . 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 1996 Annual Report to Shareholders:
1. Description of bank services, affiliations, number of employees, and
competition, on page 34.
2. Information regarding supervision of the Bank, on page 21.
3. Details regarding competition, on page 34.
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.
Facilities of the Corporation's subsidiary, First Crawford State Bank,
include its main office in Robinson, Illinois and two branch facilities in
Oblong and Sumner, Illinois. All three buildings are held in fee by First
Crawford.
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 44 of the 1996 Annual Report.
ITEM 6. SELECTED FINANCIAL DATA
See "Five Year Comparison of Selected Financial Data" on page 16 of the
1996 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 34 through 42 of the
1996 Annual Report to Shareholders.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
See "Consolidated Balance Sheets" on page 17, "Consolidated Statements of
Income" on page 18, "Consolidated Statements of Shareholders Equity" on page 19,
"Consolidated Statements of Cash Flows" on page 20, and "Notes to Consolidated
Financial Statement" on pages 21-31. "Responsibility for Financial Statements"
and "Report of Independent Accountants" can be found on page 33. Statistical
disclosure by Bank Holding Company include the following information:
1. "Volume/Rate Analysis," on page 35.
2. "Loan Portfolio," on page 37.
3. "Allowance for Possible Loan Losses," on page 38.
4. "Under-Performing Loans," on page 39.
5. "Deposits," on page 40.
6. "Short-Term Borrowings," on page 40.
7. "Consolidated Balance Sheet-Average Balances and Interest Rates," on
page 43.
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 5 through 6 of the Annual Proxy Statement of First Financial
Corporation.
ITEM 11. EXECUTIVE COMPENSATION
See pages 7 through 10 of the Annual Proxy Statement of First Financial
Corporation.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
See pages 23 through 24 of the Annual Proxy Statement of First Financial
Corporation.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
See "Certain Relationships" on page 5, and "Transactions with Management"
on page 10 of the Annual Proxy Statement of First Financial Corporation.
3
<PAGE> 5
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 18, 1996
- ---------------------------------
Donald E. Smith, President & Director
(Principal Executive Officer)
John W. Perry, signed February 18, 1996
- ---------------------------------
John W. Perry, Secretary
Walter A. Bledsoe, signed February 18, 1996
- ---------------------------------
Walter A. Bledsoe, Director
B. Guille Cox, Jr, signed February 18, 1996
- ---------------------------------
B. Guille Cox, Jr., Director
Thomas T. Dinkel, signed February 18, 1996
- ---------------------------------
Thomas T. Dinkel, Director
Welby M. Frantz, signed February 18, 1996
- ---------------------------------
Welby M. Frantz, Director
Anton H. George, signed February 18, 1996
- ---------------------------------
Anton H. George, Director
- ---------------------------------
Mari H. George, Director
Max Gibson, signed February 18, 1996
- ---------------------------------
Max Gibson, Director
Norman L. Lowery, signed February 18, 1996
- ---------------------------------
Norman L. Lowery, Director
- ---------------------------------
William A. Niemeyer, Director
Patrick O'Leary, signed February 18, 1996
- ---------------------------------
Patrick O'Leary, Director
February 18, 1996
- ---------------------------------
John W. Ragle, Director
Chapman J. Root II, signed February 18, 1996
- ---------------------------------
Chapman J. Root II, Director
Virginia L. Smith, signed February 18, 1996
- ---------------------------------
Virginia L. Smith, Director
4
<PAGE> 1
EXHIBIT 13
FIVE YEAR COMPARISON OF SELECTED FINANCIAL DATA
<TABLE>
<CAPTION>
(Dollar amounts in thousands
except per share amounts)
- --------------------------------------------------------------------------------------------------------------
1996 1995 1994 1993 1992
(Restated, See Note 15)
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Total assets $1,619,642 $1,545,307 $1,356,375 $1,339,657 $1,320,670
Investments 582,744 544,289 382,102 432,103 476,304
Net loans 918,767 879,516 857,039 796,205 736,326
Deposits 1,175,228 1,163,481 1,077,719 1,083,139 1,064,133
Long-term borrowings 70,561 56,750 25,672 41,337 26,597
Shareholders' equity 150,377 140,075 122,098 119,621 103,828
INCOME STATEMENT DATA:
Interest income 115,836 106,330 91,607 92,329 98,209
Interest expense 57,810 54,144 40,489 41,482 45,772
Net interest income 58,026 52,186 51,118 50,847 52,437
Provision for possible
loan losses 4,461 2,563 2,674 2,614 4,068
Other income 7,849 7,922 7,382 7,584 6,518
Other expenses 39,280 38,690 37,616 37,006 35,548
Net income 15,971 13,897 13,325 13,995 13,522
PER SHARE DATA:
Net income 2.39 2.08* 1.98* 2.08* 2.02*
Cash dividends .65 .53* .50* .46* .41*
PERFORMANCE RATIOS:
Net income to average assets 1.03% .97% 1.00% 1.08% 1.10%
Net income to average
shareholders' equity 11.19 10.65 11.07 12.87 13.88
Average total capital
to average assets 9.80 9.84 9.75 9.16 8.66
Average shareholders' equity
to average assets 9.19 9.15 9.07 8.42 7.90
Dividend payout 26.85 25.58 25.22 22.25 20.03
</TABLE>
*Restated to retroactively reflect 1996 stock dividend.
16
<PAGE> 2
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
------------------------------
(Dollar amounts in thousands) 1996 1995
- ---------------------------------------------------------------------------------------------
(RESTATED, SEE NOTE 15)
<S> <C> <C>
ASSETS
Cash and due from banks $ 66,658 $ 65,276
Interest-bearing deposits with financial institutions 1,095 1,078
Federal funds sold 2,000 10,000
Investment securities - available-for-sale 582,744 544,289
Loans 920,042 881,647
Less:
Unearned income 1,275 2,131
Allowance for loan losses 10,756 10,616
----------- -----------
908,011 868,900
Accrued interest receivable 14,985 13,600
Premises and equipment 26,137 25,639
Other assets 18,012 16,525
----------- -----------
TOTAL ASSETS $ 1,619,642 $ 1,545,307
=========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
Deposits:
Non-interest-bearing $ 141,492 $ 136,356
Interest-bearing:
Certificates of deposit of $100,000 or more 187,199 153,092
Other interest-bearing deposits 846,537 874,033
----------- -----------
1,175,228 1,163,481
Short-term borrowings:
Federal funds purchased and securities sold
under agreements to repurchase 62,416 69,661
Treasury tax and loan open-end note 5,131 3,872
Advances from Federal Home Loan Bank 140,244 95,296
----------- -----------
207,791 168,829
Long-term borrowings:
Advances from Federal Home Loan Bank 63,924 50,070
Other borrowings 6,637 6,680
Other liabilities 15,685 16,172
----------- -----------
TOTAL LIABILITIES 1,469,265 1,405,232
Commitments and Contingencies
Shareholders' equity
Common stock, $ .125 stated value per share,
authorized 10,000,000 shares, issued and outstanding
6,681,876 shares for 1996 and 6,667,312 for 1995 835 805
Additional capital 43,761 36,048
Retained earnings 101,093 98,625
Unrealized gains on available-for-sale securities,
net of taxes 4,688 6,535
Less treasury shares, at cost - (1,938)
----------- -----------
TOTAL SHAREHOLDERS' EQUITY 150,377 140,075
----------- -----------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 1,619,642 $ 1,545,307
=========== ===========
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
17
<PAGE> 3
CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
------------------------------------
(Dollar amounts in thousands except per share data) 1996 1995 1994
- ----------------------------------------------------------------------------------------------------
(RESTATED, SEE NOTE 15)
<S> <C> <C> <C>
INTEREST INCOME:
Loans $ 78,706 $ 77,253 $ 67,690
Investment securities:
Taxable 29,835 20,857 16,565
Tax-exempt 6,811 7,271 6,787
Other interest income 484 949 565
-------- -------- --------
TOTAL INTEREST INCOME 115,836 106,330 91,607
INTEREST EXPENSE:
Deposits 45,983 45,932 35,190
Short-term borrowings 7,077 5,792 3,293
Long-term borrowings 4,750 2,420 2,006
-------- -------- --------
TOTAL INTEREST EXPENSE 57,810 54,144 40,489
-------- -------- --------
NET INTEREST INCOME 58,026 52,186 51,118
Provision for loan losses 4,461 2,563 2,674
-------- -------- --------
NET INTEREST INCOME AFTER
PROVISION FOR LOAN LOSSES 53,565 49,623 48,444
OTHER INCOME:
Trust department income 1,797 1,560 1,358
Service charges on deposit accounts 1,431 1,588 1,567
Other service charges and fees 3,263 3,105 2,681
Investment securities gains (losses) 154 75 (57)
Other 1,204 1,594 1,833
-------- -------- --------
7,849 7,922 7,382
OTHER EXPENSES:
Salaries and employee benefits 21,222 19,505 18,389
Occupancy 2,939 2,944 2,537
Equipment 2,871 2,314 2,273
Data processing 787 2,031 1,929
FDIC insurance 38 1,275 2,430
Printing and supplies 1,216 1,220 1,195
Other 10,207 9,401 8,863
-------- -------- --------
39,280 38,690 37,616
INCOME BEFORE INCOME TAXES 22,134 18,855 18,210
Income tax expense 6,163 4,958 4,885
-------- -------- --------
NET INCOME $ 15,971 $ 13,897 $ 13,325
======== ======== ========
EARNINGS PER SHARE:
NET INCOME $ 2.39 $ 2.08 $ 1.98
======== ======== ========
Weighted average number of shares outstanding in thousands 6,679 6,684 6,733
======== ======== ========
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
18
<PAGE> 4
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
(RESTATED, SEE NOTE 15)
(Dollar amounts in thousands COMMON ADDITIONAL RETAINED UNREALIZED TREASURY
except per share data) STOCK CAPITAL EARNINGS GAINS (LOSSES) STOCK TOTAL
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Balance, January 1, 1993,
as previously reported $ 693 $ 26,070 $ 70,089 $ - $(1,034) $ 95,818
Adjustment for pooling of interests 78 2,898 5,034 - - 8,010
----- -------- -------- ------- ------- --------
Balance January 1, 1993, as restated 771 28,968 75,123 - (1,034) 103,828
Net income - - 13,995 - - 13,995
Treasury stock retirement - (760) - - 760 -
Treasury stock reissuance - 188 - - 274 462
Unrealized gains on available-for-sale
securities - - - 4,449 - 4,449
Cash dividends, $.46 per share - - (3,113) - - (3,113)
----- -------- -------- ------- ------- --------
Balance, December 31, 1993 771 28,396 86,005 4,449 - 119,621
Net income - - 13,325 - - 13,325
Treasury stock purchase - - - - (608) (608)
Unrealized losses on available-for-sale
securities - - - (6,878) - (6,878)
Cash dividends, $.50 per share - - (3,362) - - (3,362)
----- -------- -------- ------- ------- --------
Balance, December 31, 1994 771 28,396 95,968 (2,429) (608) 122,098
Net income - - 13,897 - - 13,897
Stock dividend, 5% 34 7,652 (7,686) - - -
Treasury stock purchase - - - - (1,855) (1,855)
Treasury stock reissuance - - - - 525 525
Unrealized gains on available-for-sale
securities - - - 8,964 - 8,964
Cash dividends, $.53 per share - - (3,554) - - (3,554)
----- -------- -------- ------- ------- --------
Balance, December 31, 1995 805 36,048 98,625 6,535 (1,938) 140,075
Net income - - 15,971 - - 15,971
Stock dividend, 5% 36 9,177 (9,213) - - -
Treasury stock purchase - - - - (132) (132)
Treasury stock reissuance - - - - 600 600
Treasury stock retirement (6) (1,464) - - 1,470 -
Unrealized losses on available-for-sale
securities - - - (1,847) - (1,847)
Cash dividends, $.65 per share - - (4,290) - - (4,290)
----- -------- -------- ------- ------- --------
Balance, December 31, 1996 $ 835 $ 43,761 $101,093 $ 4,688 $ - $150,377
===== ======== ======== ======= ======= ========
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
19
<PAGE> 5
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
--------------------------------------
(Dollar amounts in thousands except per share data) 1996 1995 1994
- ------------------------------------------------------------------------------------------------------------------
(RESTATED, SEE NOTE 15)
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 15,971 $ 13,897 $ 13,325
Adjustments to reconcile net income to net cash
provided by operating activities:
Net amortization of (discounts) premiums on investment securities (2,051) (1,890) 329
Provision for loan losses 4,461 2,563 2,674
Investment securities (gains) losses (154) (75) 57
Provision for depreciation and amortization 2,536 2,484 2,644
Provision for deferred income taxes (283) (213) (711)
Netincrease in accrued interest receivable (1,385) (2,892) (595)
Other, net (282) (1,647) 1,322
--------- --------- ---------
NET CASH PROVIDED BY OPERATING ACTIVITIES 18,813 12,227 19,045
--------- --------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Net (increase) decrease from purchases and maturities of
interest-bearing deposits with financial institutions (17) (298) 1,181
Sales and maturities of investment securities:
Sales and maturities of held-to-maturity securities - - 27,099
Sales and maturities of available-for-sale securities 167,416 126,305 203,314
Purchases of investment securities:
Held-to-maturity securities - - (70,209)
Available-for-sale securities (207,659) (271,893) (121,315)
Loans made to customers, net of repayments (43,373) (25,000) (61,947)
Net increase in federal funds sold 8,000 14,325 6,560
Additions to premises and equipment (3,037) (6,489) (3,028)
--------- --------- ---------
NET CASH USED BY INVESTING ACTIVITIES (78,670) (163,050) (18,345)
--------- --------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net increase from sales and
redemptions of certificates of deposit 18,549 89,633 15,476
Net decrease in other deposits (6,802) (3,872) (20,896)
Net increase in short-term borrowings 38,962 49,579 32,420
Cash dividends (3,720) (3,489) (3,283)
Proceeds from reissuance of treasury stock 600 525 -
Purchases of treasury stock (132) (1,855) (608)
Proceeds from long-term borrowings 13,825 31,098 -
Repayments of long-term borrowings (43) (18) (15,665)
--------- --------- ---------
NET CASH PROVIDED BY FINANCING ACTIVITIES $ 61,239 $ 161,601 $ 7,444
--------- --------- ---------
NET INCREASE IN CASH AND CASH EQUIVALENTS 1,382 10,778 8,144
CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR 65,276 54,498 46,354
--------- --------- ---------
CASH AND CASH EQUIVALENTS, END OF YEAR $ 66,658 $ 65,276 $ 54,498
========= ========= =========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the year for:
Interest $ 55,585 $ 53,047 $ 40,200
========= ========= =========
Income taxes $ 6,974 $ 5,577 $ 4,520
========= ========= =========
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
20
<PAGE> 6
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 of Vigo County, Indiana (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), First National Bank of Marshall,
Illinois (Marshall) and First Crawford State Bank of Robinson, Illinois
(Crawford). 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
eight subsidiaries.
Terre Haute First is the largest bank in Vigo 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 50,000-square-foot
commercial building on South Third Street in Terre Haute, which 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 has one
branch and is located in Vermilion County, Illinois. Parke has four branches
in Parke County, a county contiguous to Vigo County. Marshall has one branch
and is located in Clark County, Illinois, a county contiguous to Vigo County.
Crawford has three branches of which two are located in Crawford County,
Illinois, and one in Lawrence County, Illinois.
The Corporation operates 33 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 (SFAS) 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 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 $183.1 million to the available-for-sale category. The
fair value of the securities transferred exceeded their carrying value by
$4.5 million.
21
<PAGE> 7
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
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 or in the process of collection.
LEASE FINANCING Terre Haute First provides equipment financing to customers
through a variety of lease arrangements principally classified as direct
financing leases. 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 LOAN LOSSES The allowance for loan losses is maintained at a
level considered adequate to provide for 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, the years 1994
and 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 1996, 1995 or 1994, 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 1994 and 1995 consolidated
financial statements have been reclassified to
2. FAIR VALUES OF FINANCIAL INSTRUMENTS
These accompanying notes to the consolidated financial statements include
certain disclosures for financial instruments recorded on the consolidated
balance sheets at December 31, 1996 and 1995. 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:
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.
22
<PAGE> 8
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, 1996
and 1995 were immaterial.
The following table presents a summary of the carrying amounts and fair
values of the Corporation's financial instruments at December 31, 1996 and
1995.
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------------------------------------------
1996 1995
-------------------------- ------------------------
CARRYING FAIR CARRYING FAIR
Dollar amounts in thousands) VALUE VALUE VALUE VALUE
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Cash and due from banks $ 66,658 $ 66,658 $ 65,276 $ 65,276
Interest-bearing deposits with financial institutions 1,095 1,095 1,078 1,078
Federal funds sold 2,000 2,000 10,000 10,000
Investment securities (Note 4)
Available-for-sale securities 582,744 582,744 544,289 544,289
Loans (Note 5) 920,042 921,020 881,647 893,973
Accrued interest receivable 14,985 14,985 13,600 13,600
Deposits (Note 8) 1,175,228 1,181,528 1,163,481 1,160,801
Short-term borrowings (Note 8) 207,791 207,791 168,829 168,829
Long-term borrowings (Note 9) 70,561 70,261 56,750 57,176
</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, 1996, was approximately $14.5 million.
23
<PAGE> 9
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
4. INVESTMENT SECURITIES:
As of December 31, 1996, 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, 1996
-------------------------------------------------------------------------------
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 $ 58,087 $ 927 $ (42) $ 58,972 $ 58,972
United States Government agencies 329,437 3,337 (1,881) 330,893 330,893
Collateralized mortgage obligations 42,918 1,013 (370) 43,561 43,561
State and municipal1 40,963 3,029 (533) 143,459 143,459
Corporate obligations 5,496 364 (1) 5,859 5,859
--------- --------- ---------- --------- ---------
TOTAL $576,901 $ 8,670 $ (2,827) $582,744 $582,744
========= ========= ========== ========= =========
</TABLE>
<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 $ 10,917 $ 48 $ (1) $ 10,964 $ 10,964
United States Government agencies 299,250 4,422 (552) 303,120 303,120
Collateralized mortgage obligations 68,720 1,557 (158) 70,119 70,119
State and municipal 144,261 4,234 (523) 147,972 147,972
Corporate obligations 11,366 755 (7) 12,114 12,114
-------- -------- -------- -------- --------
TOTAL $534,514 $ 11,016 $ (1,241) $544,289 $544,289
======== ======== ========= ======== ========
</TABLE>
Investment securities with a par value amounting to approximately $123.2
million at December 31, 1996 were pledged as collateral for borrowings and for
other purposes.
The carrying value and estimated fair values of investment securities as of
December 31, 1996, 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
1996 are the weighted average yields computed on a tax equivalent basis,
assuming a federal income tax rate of 35%.
<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 $158,683 $157,942 7.26%
Due after one but within five years 98,499 99,529 7.19%
Due after five but within ten years 90,402 91,519 7.55%
Due after ten years 12,179 12,345 7.93%
Mortgage backed securities 217,138 221,409 7.47%
-------- -------- -----
TOTAL $576,901 $582,744
======== ========
</TABLE>
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, 1996, 1995 and 1994. Sales proceeds from available-for-sale
securities aggregated $135.0 million in 1996.
<TABLE>
<CAPTION>
(Dollar amounts in thousands) 1996 1995 1994
- -------------------------------------------------------------------------------
<S> <C> <C> <C>
Gross gains $ 588 $ 202 $ 1,039
Gross losses (434) (127) (1,096)
---------- --------- -----------
Net gain (loss) $ 154 $ 75 $ (57)
========== ========= ===========
</TABLE>
24
<PAGE> 10
5. LOANS:
Loans are summarized as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------------------------
1996 1995
-------------- ------------
CARRYING CARRYING
(Dollar amounts in thousands) VALUE VALUE
- -----------------------------------------------------------------------------------------
<S> <C> <C>
Commercial, financial and agricultural $197,449 $180,858
Real estate - construction 22,629 22,882
Real estate - mortgage 508,010 460,060
Installment 188,670 213,696
Lease financing 3,284 4,151
-------- --------
TOTAL $920,042 $881,647
======== ========
</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 1996 the aggregate
dollar amount of these loans to directors and executive officers who held
office at the end of the year amounted to $35.8 million at the beginning of
the year. During 1996, advances of $28.9 million and repayments of $37.4
million were made with respect to related party loans for an aggregate dollar
amount of $27.3 million at December 31, 1996. The amount of such loans
aggregated $33.1 million at December 31, 1995.
6. ALLOWANCE FOR LOAN LOSSES:
Changes in the allowance for loan losses are summarized as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------------------------------------------------
Dollar amounts in thousands) 1996 1995 1994
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Balance at beginning of year $ 10,616 $ 10,536 $ 10,024
Provision for loan losses 4,461 2,563 2,67
Recoveries of loans previously charged off 1,080 1,338 990
Loans charged off (5,401) (3,821) (3,152)
-------- -------- --------
BALANCE AT END OF YEAR $ 10,756 $ 10,616 $ 10,536
======== ======== ========
</TABLE>
At December 31, 1996, the Corporation had $2.1 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, $1.5
million of these impaired loans have an allowance of $667 thousand to cover
estimated collateral deficiencies.
<TABLE>
<CAPTION>
(DOLLAR AMOUNTS IN THOUSANDS) FOR THE YEAR ENDED DECEMBER 31, 1996
- ---------------------------------------------------------------------------------------------------------
<S> <C>
Average impaired loans $ 3,520
Interest income recognized on impaired loans 151
Cash basis interest income recognized on impaired loans -
</TABLE>
Interest payments on impaired loans are typically applied to principal
unless collectibility of the principal amount is fully assured, in which
case interest is recognized on the cash basis.
7. PREMISES AND EQUIPMENT:
Premises and equipment are summarized as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------------------------------------------------
(Dollar amounts in thousands) 1996 1995
- --------------------------------------------------------------------------------------------------------
<S> <C> <C>
Land $ 3,266 $ 3,239
Building and leasehold improvements 23,640 23,598
Furniture and equipment 21,539 19,984
--------- ---------
48,445 46,821
Less accumulated depreciation (22,308) (21,182)
--------- ---------
TOTAL $ 26,137 $ 25,639
========= =========
</TABLE>
25
<PAGE> 11
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
8. DEPOSITS AND SHORT-TERM BORROWINGS:
The carrying and fair values of deposits are as follows at December 31,
1996 and 1995:
<TABLE>
<CAPTION>
1996 1995
------------------------------ --------------------------------
CARRYING FAIR CARRYING FAIR
(Dollar amounts in thousands) VALUE VALUE VALUE VALUE
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Non-interest-bearing demand deposits $ 141,492 $ 141,492 $ 136,356 $ 136,356
Interest-bearing demand deposits 275,677 275,677 290,721 290,721
Savings deposits 111,555 111,555 120,727 120,727
Time deposits:
$100,000 or more 187,199 189,748 153,092 152,952
Other time deposits 459,305 463,056 462,585 460,045
---------- ---------- ---------- ----------
$1,175,228 $1,181,528 $1,163,481 $1,160,801
========== ========== ========== ==========
</TABLE>
The aggregate carrying value of short-term borrowings was $207.8 million and
$168.8 million at December 31, 1996 and 1995, respectively. The weighted
average interest rate was 5.30% and 5.76% for 1996 and 1995, respectively.
9. LONG-TERM BORROWINGS:
Long-term borrowings at December 31, 1996 and 1995 are summarized as
follows:
<TABLE>
<CAPTION>
1996 1995
-------------------------------------- -------------------------------------
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
Other 37 37 80 80
---------- ---------- ---------- ---------
TOTAL $ 6,637 $ 6,637 $ 6,680 $ 6,680
========== ========== ========== =========
Advances from the Federal Home Loan Bank 204,168 203,868 $ 145,366 $ 145,792
Advances classified as short-term borrowings (140,244) (140,244) (95,296) (95,296)
---------- ---------- ---------- ---------
Advances classified as long-term debt $ 63,924 $ 63,624 $ 50,070 $ 50,496
========== ========== ========== =========
</TABLE>
The aggregate minimum annual retirements of long-term borrowings are as follows:
<TABLE>
<C> <C>
1997 $140,244
1998 24,694
1999 17,313
2000 2,108
2001 6,703
Thereafter 19,743
--------
$210,805
Less current portion (140,244)
--------
$ 70,561
========
</TABLE>
The economic development revenue bonds (bonds) require periodic interest
payments each year until maturity or redemption. The interest rate, which
was 4.20% at December 31,1996, 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,
1997 and is deemed to be automatically extended without amendment for one
year from the expiration date. No bonds were redeemed during 1996. 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.
26
<PAGE> 12
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, 1996, 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 $204.2 million at
December 31, 1996, accrue interest at annual rates varying from 4.95% to
8.0%. The advances are due at various dates through November 2011.
FHLB advances must be secured by eligible collateral as specified by the
FHLB. Accordingly, the Corporation has a blanket pledge of its first
mortgage loan portfolio as collateral for the advances outstanding at
December 31, 1996, with a required minimum ratio to collateral to advances
of 160%.
10. INCOME TAXES:
Income tax expense is summarized as follows:
<TABLE>
<CAPTION>
(Dollar amounts in thousands) 1996 1995 1994
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Federal:
Currently payable $ 4,772 $ 3,492 $ 4,055
Deferred (315) (150) (591)
-------- -------- --------
4,457 3,342 3,464
State:
Currently payable 1,750 1,679 1,541
Deferred (44) (63) (120)
-------- -------- --------
1,706 1,616 1,421
-------- -------- --------
TOTAL $ 6,163 $ 4,958 $ 4,885
======== ======== ========
</TABLE>
Income tax expense (credit) with respect to investment securities gains
amounted to approximately $43 thousand, $20 thousand and $(15) thousand in
1996, 1995 and 1994, respectively.
The major components of deferred income taxes are as follows:
<TABLE>
<CAPTION>
(Dollar amounts in thousands) 1996 1995 1994
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Provision for loan losses $ (364) $ (52) $ (747)
Lease financing (96) 11 (200)
Depreciation 266 (3) 41
Pension expense (16) (3) 32
Deferred compensation (34) (130) (5)
Other, net (114) (36) 168
-------- ------- -------
TOTAL $ (358) $ (213) $ (711)
======== ======= =======
</TABLE>
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) 1996 1995 1994
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Federal income taxes computed at the statutory rate $ 7,747 $ 6,454 $ 6,192
Add (deduct) tax effect of:
Nontaxable income from tax-exempt investments and loans (2,228) (2,355) (2,226)
State tax, net of federal benefit 1,110 1,067 938
Investment tax credit (280) (280) (211)
Other, net (186) 72 192
--------- --------- --------
(1,584) (1,496) (1,307)
--------- --------- --------
TOTAL $ 6,163 $ 4,958 $ 4,885
========= ========= ========
</TABLE>
27
<PAGE> 13
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
The tax effects of temporary differences that give rise to significant
portions of the deferred tax assets and liabilities at December 31, 1996 and
1995, are as follows:
<TABLE>
<CAPTION>
(Dollar amounts in thousands) 1996 1995
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Deferred tax assets:
Loans, principally the allowance for loan losses $ 4,359 $ 3,995
Deferred compensation 551 522
Compensated absences, principally due to accrual
for financial reporting purposes 251 231
Other 298 131
---------- ----------
Total gross deferred tax assets $ 5,459 $ 4,879
---------- ----------
Deferred tax liabilities:
Unrealized gains on available-for-sale securities (3,120) (4,718)
Premises and equipment, principally due to differences in depreciation (942) (685)
Lease financing, principally due to bases differences between tax
and financial reporting (311) (407)
Pensions, principally due to amounts that are nondeductible until paid (567) (583)
Other (315) (238)
---------- ----------
Total gross deferred liabilities (5,255) (6,631)
---------- ----------
Net deferred tax assets (liabilities) $ 204 $ (1,752)
========== ==========
</TABLE>
The Corporation has paid income taxes during the last three preceding years
that exceed the recorded deferred income tax asset.
11. SHAREHOLDERS' EQUITY:
At December 31, 1996, approximately $29.7 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.
The Corporation's Board of Directors approved a 5% stock dividend payable
on July 1, 1996 to shareholders of record on June 18, 1996. All previously
reported share and per share information has been restated.
12. COMMITMENTS AND CONTINGENCIES:
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 east central 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 consolidated financial statements.
28
<PAGE> 14
The Corporation had unused lines of credit of $121.7 million and $72.0
million and commitments to extend credit of $3.7 million and $4.3 million as
of December 31, 1996 and 1995, respectively. In addition, the Corporation
had outstanding commitments of $1.9 million and $1.8 million under standby
letters of credit as of December 31, 1996 and 1995, respectively. The fair
values of the Corporation's off-balance-sheet financial instruments at
December 31, 1996 and 1995 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 1996, 1995 and 1994, the Corporation made no contribution
to the defined benefit plan. The Corporation contributed $600, $525 and $525
to the ESOP in 1996, 1995 and 1994, respectively.
Pension expense included the following components:
<TABLE>
<CAPTION>
(Dollar amounts in thousands) 1996 1995 1994
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Service cost - benefits earned $ 957 $ 765 $ 763
Interest cost on projected benefit obligation 870 777 694
Actual (return) loss on plan assets (2,895) (1,252) 838
Net amortization and deferral 1,740 240 (1,864)
------- ------- --------
Total pension expense $ 672 $ 530 $ 431
======= ======= ========
</TABLE>
The information below 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.
<TABLE>
<CAPTION>
December 31,
--------------------------------------------------------
(Dollar amounts in thousands) 1996 1995
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Vested $ 9,091 $ 10,978
Nonvested 487 354
-------- --------
Accumulated benefits obligation 9,578 11,332
Additional amounts related to projected pay increases 3,729 4,467
-------- --------
Total projected benefit obligation $ 13,307 $ 15,799
Assets at fair value, consisting primarily
of the Corporation's common stock $ 18,847 15,996
-------- --------
Excess of assets over projected benefits 5,540 197
Unrecognized net (gain) loss (3,522) 2,051
Unrecognized prior service cost 95 111
Unrecognized net transition asset (697) (871)
-------- --------
Prepaid pension asset recognized in the
statement of condition $ 1,416 $ 1,488
======== ========
Principal assumptions used:
Discount rate 7.50% 6.00%
======== ========
Rate of increase in compensation levels 7.50% 6.00%
======== ========
Expected long-term rate of return on plan assets 7.00% 7.00%
======== ========
</TABLE>
29
<PAGE> 15
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
The Corporation also provides medical benefits to its employees subsequent
to their retirement. Accrued postretirement benefits as of December 31, 1996
are as follows:
<TABLE>
<CAPTION>
(Dollar amounts in thousands)
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C>
Accumulated postretirement benefit obligation (APBO):
Retirees $1,607
Active employees fully eligible to retire and receive benefits 46
Active employees not fully eligible 778
------
Total APBO 2,431
Unamortized transition obligation (1,843)
------
Accrued postemployment benefit liability $588
======
Net periodic postretirement benefit cost for 1996 included the following components:
Service cost - benefits attributed to service during the period $ 50
Interest cost on accumulated postretirement benefit obligation 168
Amortization of transition obligation over 20 years 102
------
Net periodic postretirement benefit cost $ 320
======
</TABLE>
The assumed discount rate used in determining the accumulated postretirement
benefit was 7.5% and the assumed medical care cost trend rate was 5.5%.
15. CRAWFORD BANCORP MERGER:
In July 1996 the Corporation consummated its acquisition of Crawford Bancorp
(Crawford) in Robinson, Illinois. In exchange for all of the outstanding
common stock of Crawford, the Corporation issued 626,796 shares of its
common stock. The acquisition was accounted for as a pooling of interests
and accordingly, the consolidated financial statements of the Corporation
for all prior periods presented have been restated to include Crawford.
Net interest income and net income of Crawford included in the Corporation's
consolidated statements of income are as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------------------------------------------------
(Dollar amounts in thousands) 1996 1995 1994
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
NET INTEREST INCOME:
First Financial Corporation $ 54,387 $ 48,630 $ 47,425
Crawford Bancorp 3,639 3,556 3,693
Combined 58,026 52,186 51,118
NET INCOME:
First Financial Corporation $ 15,751 $ 13,274 $ 12,305
Crawford Bancorp 220 623 1,020
Combined 15,971 13,897 13,325
</TABLE>
16. REGULATORY MATTERS:
The Corporation is subject to various regulatory capital requirements
administered by the federal banking agencies. Failure to meet minimum
capital requirements can initiate certain mandatory--and possibly additional
discretionary--actions by regulators that, if undertaken, could have a
direct material effect on the Corporation's financial statements. Under
capital adequacy quidelines and the regulatory framework for prompt
corrective action, the Corporation must meet specific capital guidelines
that involve quantitative measures of the Corporation's assets, liabilities,
and certain off-balance-sheet items as calculated under regulatory
accounting practices. The Corporation's capital amounts and classification
are also subject to qualitative judgments by the regulators about
components, risk weightings and other factors.
Quantitative measures established by regulation to ensure capital adequacy
require the Corporation to maintain minimum amounts and ratios (set forth in
the table on the next page) of total and Tier I capital (as defined in the
regulations) to risk-weighted assets (as defined), and of Tier I capital (as
defined) to average assets (as defined). Management believes, as of December
31, 1996, that the Corporation meets all capital adequacy requirements to
which it is subject.
As of December 31, 1996, the most recent notification from the respective
regulatory agencies categorized the Corporation and its subsidiary banks as
adequately capitalized under the regulatory framework for prompt corrective
30
<PAGE> 16
action. To be categorized as adequately capitalized the Corporation must
maintain minimum total risk-based, Tier I risk-based and Tier I leverage
ratios as set forth in the table. There are no conditions or events since
that notification that management believes have changed the Corporation's
category.
The Corporation's actual capital amounts and ratios are also presented in
the table.
<TABLE>
<CAPTION>
TO BE WELL CAPITALIZED
FOR CAPITAL UNDER PROMPT CORRECTIVE
ACTUAL ADEQUACY PURPOSES ACTION PROVISIONS
------------------------------- --------------------------- ----------------------------
(DOLLAR AMOUNTS IN THOUSANDS) AMOUNT RATIO AMOUNT RATIO AMOUNT RATIO
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
AS OF DECEMBER 31, 1996
Total Capital
(to Risk-Weighted Assets) $155,852 16.00% >$ 77,908 >8.0% >$ 97,385 > 10.0%
- - - -
Tier I Capital
(to Risk-Weighted Assets) 145,096 14.90% > 38,954 >4.0% > 58,431 > 6.0%
- - - -
Tier I Capital
(to Average Assets) 145,096 9.35% > 62,105 >4.0% > 77,632 > 5.0%
- - - -
AS OF DECEMBER 31, 1995
Total Capital
(to Risk-Weighted Assets) $143,616 15.65% >$ 73,397 >8.0% >$ 91,746 > 10.0%
- - - -
Tier I Capital
(to Risk-Weighted Assets) 133,000 14.50% > 36,698 >4.0% > 55,048 > 6.0%
- - - -
Tier I Capital
(to Average Assets) 133,000 9.31% > 57,173 >4.0% > 71,466 > 5.0%
- - - -
</TABLE>
17. PARENT COMPANY CONDENSED FINANCIAL STATEMENTS:
The parent company's condensed balance sheets as of December 31, 1996 and
1995, 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,
1996 are as follows:
<TABLE>
<CAPTION>
BALANCE SHEETS
DECEMBER 31,
--------------------------------------------------
(Dollar amounts in thousands) 1996 1995
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
ASSETS
Cash deposits in affiliated banks $ 2,537 $ 2,088
Investments in bank subsidiaries 147,192 138,181
Land and headquarters building, net 7,402 7,565
Other 4,466 3,581
--------- ---------
TOTAL ASSETS $ 161,597 $ 151,415
========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY
LIABILITIES:
Long-term borrowings $ 7,340 $ 7,457
Dividends payable 2,338 1,770
Other liabilities 1,542 2,113
--------- ---------
TOTAL LIABILITIES 11,220 11,340
========= =========
SHAREHOLDERS' EQUITY:
Common stock 835 805
Additional capital 43,761 36,048
Retained earnings 101,093 98,625
Unrealized gains on available-for-sale securities
of bank subsidiaries, net of taxes 4,688 6,535
Less treasury shares, at cost - (1,938)
--------- ---------
TOTAL SHAREHOLDERS' EQUITY 150,377 140,075
--------- ---------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 161,597 $ 151,415
========= ==========
</TABLE>
31
<PAGE> 17
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
<TABLE>
<CAPTION>
STATEMENTS OF INCOME AND RETAINED EARNINGS
YEARS ENDED DECEMBER 31,
-----------------------------------------------------------------------
(Dollar amounts in thousands) 1996 1995 1994
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Income:
Dividends from bank subsidiaries $ 5,008 $ 5,383 $ 3,588
Other income 861 848 834
--------- -------- --------
Total income 5,869 6,231 4,422
Expenses:
Interest on long-term borrowings 354 460 435
Other operating expenses 1,254 765 614
--------- -------- --------
Total operating expenses 1,608 1,225 1,049
--------- -------- --------
Income before income taxes and equity
in undistributed earnings of bank subsidiaries 4,261 5,006 3,373
Income tax (expense) credit 329 97 (573)
--------- -------- --------
Income before equity in undistributed
earnings of bank subsidiaries 4,590 5,103 2,800
Equity in undistributed earnings of bank subsidiaries 11,381 8,794 10,525
--------- -------- --------
Net income 15,971 13,897 13,325
Retained earnings at beginning of year 98,625 95,968 86,005
--------- -------- --------
114,596 109,865 99,330
Cash dividends (4,290) (3,554) (3,362)
Stock dividends (9,213) (7,686) -
--------- -------- --------
Retained earnings at end of year $ 101,093 $ 98,625 $ 95,968
========= ======== ========
</TABLE>
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
----------------------------------------------------------------------------------
(Dollar amounts in thousands) 1996 1995 1994
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 15,971 $ 13,897 $ 13,325
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation 171 165 160
Equity in undistributed earnings of bank subsidiaries (11,381) (8,794) (10,525)
Increase (decrease) in other liabilities (965) 540 839
Decrease in other assets 22 5 1
--------- --------- ---------
NET CASH PROVIDED BY OPERATING ACTIVITIES $ 3,818 $ 5,813 $ 3,800
CASH FLOWS FROM FINANCING ACTIVITIES:
Principal payments on long-term borrowings (117) (914) (216)
Proceeds from reissuance of treasury stock 600 525 -
Purchase of treasury stock (131) (1,855) (608)
Dividends paid (3,721) (3,489) (3,283)
--------- --------- ---------
NET CASH USED BY FINANCING ACTIVITIES (3,369) (5,733) (4,107)
--------- --------- ---------
NET INCREASE (DECREASE) IN CASH 449 80 (307)
CASH, BEGINNING OF YEAR 2,088 2,008 2,315
--------- --------- ---------
CASH, END OF YEAR $ 2,537 $ 2,088 $ 2,008
========= ========= =========
Supplemental disclosures of cash flow information:
Cash paid during the year for:
Interest $ 368 $ 458 $ 435
========= ========= =========
Income taxes $ 6,974 $ 5,577 $ 4,520
========= ========= =========
</TABLE>
32
<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 balance sheets of First
Financial Corporation and subsidiaries as of December 31, 1996 and 1995, and
the related consolidated statements of income, shareholders' equity and cash
flows for each of the three years in the period ended December 31, 1996. These
financial statements are the responsibility of the Corporation's management.
Our responsibility is to express an opinion on these financial statements based
on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the consolidated financial position of First
Financial Corporation and subsidiaries as of December 31, 1996 and 1995, and
the consolidated results of their operations and their cash flows for each of
the three years in the period ended December 31, 1996, in conformity with
generally accepted accounting principles.
COOPER + LYBRAND LLP
Indianapolis, Indiana
January 25, 1997
33
<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 eight
subsidiaries. The Corporation's principal subsidiary is Terre Haute First
National Bank (Terre Haute First) located in Vigo County. The Corporation's
other seven 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), First National Bank of Marshall, Illinois
(Marshall), and First Crawford State Bank of Robinson, Illinois (Crawford). At
the close of business in 1996 the Corporation and its subsidiaries had 694 full
time equivalent employees.
Terre Haute First is the largest bank in Vigo 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 50,000-square-foot
commercial building on South Third Street in Terre Haute, which serves as its
operations center and provides 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 has one branch and is located
in Vermilion County, Illinois. Parke has four branches in Parke County, a
county contiguous to Vigo County. Marshall has one branch and is located in
Clark County, Illinois, a county contiguous to Vigo County. Crawford has two
branches in Crawford County, Illinois and one branch in Lawrence County,
Illinois.
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,
brokerage firms and credit unions. The seven 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 Vermillion County, Indiana.
FARMERS -- Two commercial banks 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.
CRAWFORD -- Four commercial banks, one savings and loan, two credit
unions and four brokerage firms in Crawford County, Illinois, and five
commercial banks and one savings and loan in Lawrence 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, the Corporation's primary market area,
performed about the same as the national economy during 1996. The subsidiary
banks' policies of normally making loans in their market area has resulted in a
geographic concentration of loans. However, the Corporation's loan-to-deposit
ratio of 78.2% is comparable to the average ratio of bank holding companies of
a similar size. The subsidiary banks have the ability to fund continued growth,
which should result in increased net interest income and net income. In 1996
there has been continued retail and industrial construction in the Wabash
Valley. This should provide a base for a steady, modest growth in the market
area during the coming year.
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 1997.
34
<PAGE> 20
RESULTS OF OPERATIONS -- SUMMARY FOR 1996
Net income for 1996 was $16.0 million or $2.39 per share. The increased
earnings over 1995 net income of $13.9 million or $2.08 per share were
primarily the result of improved net interest income and reductions in Federal
Deposit Insurance Corporation insurance and data processing expenses. Prior to
1996, the Corporation's data processing was performed by an outside vendor
under a facilities management agreement. The Corporation was able to reduce its
data processing expenses with the conversion to an internal processing system.
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 $1,451.3 million from
$1,341.5 million in 1996 and the yield on these assets increased slightly from
8.24% in 1995 to 8.25% in 1996. Total average interest-bearing liabilities
amounted to $1,263.9 million in 1996 compared to $1,156.0 million in 1995,
while the yield on these interest-bearing liabilities decreased from 4.68% in
1995 to 4.57% in 1996.
On a tax equivalent basis, net interest income increased $5.5 million from
$56.4 million in 1995 to $61.9 million in 1996. Net interest margin increased
from 4.20% in 1995 to 4.27% in 1996. This increase is primarily the result of
lower costs for interest-bearing liabilities.
The following table sets forth the components of net interest income due to
changes in volume and rate. The table information compares 1996 to 1995 and
1995 to 1994.
<TABLE>
<CAPTION>
1996 Compared to 1995 1995 Compared to 1994
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) $ 388 $ 1,057 $ 5 $ 1,450 $ 4,755 $ 4,550 $ 318 $ 9,623
Taxable investment
securities 8,698 183 77 8,958 1,753 2,285 242 4,280
Tax-exempt
investment
securities (1) (803) 115 (8) (696) 274 448 12 734
Federal funds sold (483) (14) 7 (490) 210 147 55 412
Interest-bearing
deposits:
Domestic 4 14 1 19 (19) - - (19)
------ ------- ------- ------- ------- ------- ------- -------
Total interest income $7,804 $ 1,355 $ 82 $ 9,241 $ 6,973 $ 7,430 $ 627 $15,030
====== ======= ======= ======= ======= ======= ======= =======
Interest paid on
interest-bearing
liabilities:
Savings deposits 291 (509) (14) (232) (1,294) 578 (67) (783)
Time deposits 1,447 (1,119) (46) 282 4,811 5,591 1,123 11,525
Federal funds purchased
and securities sold
under agreement to
repurchase (699) (67) 19 (747) (317) 850 (132) 401
Other 5,181 (431) (387) 4,363 1,650 572 289 2,511
------ ------- ------- ------- ------- ------- ------- -------
Total interest expense 6,220 (2,126) (428) 3,666 4,850 7,591 1,213 13,654
------ ------- ------- ------- ------- ------- -------
Net interest income $1,584 $ 3,481 $ 510 $ 5,575 $ 2,123 $ (161) $ (586) $ 1,376
====== ======= ======= ======= ======= ======= ======= =======
(1) Changes in interest income include the effect of tax equivalent adjustments using a federal tax rate of 35%.
</TABLE>
35
<PAGE> 21
RESULTS OF OPERATIONS -- SUMMARY FOR 1996 (CONTINUED)
PROVISION FOR LOAN LOSSES
The provision for loan losses is established by charging current earnings
with an amount which will maintain the allowance for loan losses at a level
sufficient to provide for 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 loan losses totaled $4.5 million for 1996 as compared to
$2.6 million for 1995. This increase was due to the resolution of a few
commercial loans and increased consumer loan losses because of high consumer
debt.
Net charge-offs for 1996 increased to $4.3 million from 1995. At December
31, 1996, the resulting allowance for loan losses was $10.8 million or 1.17%
of total loans, net of unearned income. A year earlier the allowance was
1.21% of total loans.
OTHER INCOME
Other income decreased slightly in 1996 to $7.8 million from $7.9 million
earned in 1995. There were no major contributing factors for this decrease.
Although most components of other income, such as trust department income,
other service charges and fees, and investment securities gains, increased
$237 thousand, $158 thousand and $79 thousand respectively, these were
offset by a decrease in service charges on deposit accounts and all other
income by $157 thousand and $390 thousand, respectively.
OTHER EXPENSES
Other expenses totaled $39.3 million for 1996 compared to $38.7 million for
1995. This represents an increase of only $590 thousand or 1.5% for 1996.
Although the Corporation had a decrease of $1.2 million or 97.0% in the FDIC
insurance and $1.2 million or 61.3% in the data processing expense, these
were offset by increases in most of the other components of other expenses.
Salaries and related benefits, the largest component of this group,
increased from $19.5 million to $21.2 million or 8.8%.
INCOME TAXES
The Corporation's federal income tax provision was $4.5 million in 1996
compared to a provision of $3.3 million in 1995. The overall effective tax
rate in 1996 of 27.8% compares to a 1995 effective rate of 26.3%.
COMPARISON OF 1995 TO 1994
Net income for 1995 was $13.9 million or $2.08 per share compared to $13.3
million in 1994 or $1.98 per share. This increased income was primarily the
result of a reduction in FDIC insurance expense by $1.2 million or 47.5%.
Net interest income increased $1.2 million in 1995 as compared to 1994. Net
yield on interest-earning assets was 4.20% for 1995 and 4.41% for 1994.
36
<PAGE> 22
FINANCIAL CONDITION -- SUMMARY
The Corporation's total assets increased to a record $1,620 million at December
31, 1996, up from $1,545 million a year earlier. Loans, net of unearned
income, increased by $39.3 million, to $918.8 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, 1996, were $204.2
million, of which $140.2 million represents short-term obligations. Total
shareholders' equity at December 31, 1996, was $150.4 million compared to
$140.1 million a year earlier. Following is an analysis of the components of
the Corporation's balance sheet. 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 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, 1996, are set forth in the following
analysis.
<TABLE>
<CAPTION>
(Dollar amounts in thousands) 1996 1995 1994 1993 1992
- ----------------------------------------------------------------------------------------------------------------------------------
LOAN CATEGORY
<S> <C> <C> <C> <C> <C>
Commercial, financial and agricultural $197,449 $180,858 $174,371 $165,501 $171,159
Real estate - construction 22,629 22,882 21,428 18,404 16,779
Real estate - mortgage 508,010 460,060 455,673 430,699 388,571
Installment 188,670 213,696 203,689 179,346 157,814
Lease financing 3,284 4,151 5,259 7,121 9,183
-------- -------- -------- -------- --------
TOTAL $920,042 $881,647 $860,420 $801,071 $743,506
======== ======== ======== ======== ========
After One
Within But Within After Five
(Dollar amounts in thousands) One Year Five Years Years Total
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
MATURITY DISTRIBUTION
Commercial, financial and agricultural $131,137 $ 52,878 $ 13,434 $197,449
Real estate - construction 16,591 5,413 625 22,629
-------- -------- ------- --------
TOTAL $147,728 $ 58,291 $ 14,059 $220,078
======== ======== ======= ========
Real estate - mortgage 508,010
Installment 188,670
Lease financing 3,284
--------
TOTAL $920,042
========
Loans maturing after one year with:
Fixed interest rates $ 37,486 $ 11,402
Variable interest rates 20,805 2,657
-------- --------
TOTAL $ 58,291 $ 14,059
======== ========
</TABLE>
37
<PAGE> 23
FINANCIAL CONDITION -- SUMMARY (CONTINUED)
ALLOWANCE FOR LOAN LOSSES
The activity in the Corporation's allowance for loan losses is shown in the
following analysis:
<TABLE>
<CAPTION>
(Dollar amounts in thousands) 1996 1995 1994 1993 1992
- -------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Amount of loans outstanding
at December 31, $920,042 $881,647 $860,420 $801,071 $743,506
======== ======== ======== ======== ========
Average amount of loans by year $885,964 $881,559 $823,983 $752,712 $676,857
======== ======== ======== ======== ========
Allowance for loan losses
at beginning of year $ 10,616 $ 10,536 $ 10,024 $ 10,735 $ 9,324
Loans charged off:
Commercial, financial and agricultural 2,577 1,364 1,578 1,471 1,328
Real estate - mortgage 207 293 150 1,442 563
Installment 2,615 2,016 1,422 1,251 1,243
Leasing 2 148 2 103 58
-------- -------- -------- -------- --------
Total loans charged off 5,401 3,821 3,152 4,267 3,192
-------- -------- -------- -------- --------
Recoveries of loans previously charged off:
Commercial, financial and agricultural 426 727 460 484 169
Real estate - mortgage 147 138 131 99 65
Installment 500 466 390 332 234
Leasing 7 7 9 27 67
-------- -------- -------- -------- --------
Total recoveries 1,080 1,338 990 942 535
-------- -------- -------- -------- --------
Net loans charged off 4,321 2,483 2,162 3,325 2,657
Provision charged to expense 4,461 2,563 2,674 2,614 4,068
-------- -------- -------- -------- --------
Balance at end of year $ 10,756 $ 10,616 $ 10,536 $ 10,024 $ 10,735
======== ======== ======== ======== ========
Ratio of net charge-offs during period
to average loans outstanding .49% .28% .26% .44% .39%
======== ======== ======== ======== ========
</TABLE>
Management anticipates $1.3 million of commercial, financial and agricultural
loans, $168 thousand of real estate-mortgage loans, $1.7 million of
installment loans, and $5 thousand of leases will be charged off for 1997.
The remaining $7.6 million or 71% of the allowance will be available for
losses resulting from unforeseen circumstances.
38
<PAGE> 24
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 1996, 1995 and 1994, under the original terms of the loans is
$263 thousand, $333 thousand and $469 thousand, respectively. The Corporation
recorded interest income on such loans in the amounts of $152 thousand, $63
thousand and $377 thousand for 1996, 1995 and 1994, respectively.
<TABLE>
<CAPTION>
(Dollar amounts in thousands) 1996 1995 1994 1993 1992
- --------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Non-accrual loans $2,504 $3,130 $3,593 $2,998 $4,836
Restructured loans 34 185 217 1,259 1,287
------ ------ ------ ------ ------
2,538 3,315 3,810 4,257 6,123
Accruing loans past due 5,296 5,809 2,287 1,385 1,482
------ ------ ------ ------ ------
$7,834 $9,124 $6,097 $5,642 $7,605
====== ====== ====== ====== ======
</TABLE>
The ratio of the allowance for loan losses as a percentage of non-performing
loans was 137% at December 31, 1996, compared to 116% in 1995. This increase
is the result of a decrease in the amount of loans past due 90 days or more
and non-accrual loans compared to 1995.
The following loan categories comprise significant components of the
non-performing loans at December 31, 1996:
<TABLE>
<CAPTION>
(Dollar amounts in thousands)
- --------------------------------------------------------------------------
<S> <C> <C>
Non-accrual loans:
1-4 family residential $ 287 12%
Commercial loans 1,420 57
Installment loans 469 18
Other, various 328 13
-------- ----
2,504 100%
======== ====
Past due 90 days or more:
1-4 family residential $ 2,256 43%
Commercial loans 1,125 21
Installment loans 943 18
Other, various 972 18
-------- ----
$ 5,296 100%
======== ====
</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. At December 31, 1996 the Corporation had $1.7 million of doubtful
loans which are still in accrual status.
39
<PAGE> 25
FINANCIAL CONDITION -- SUMMARY (CONTINUED)
DEPOSITS
Total deposits increased to $1,175.2 million in 1996 from $1,163.5 for the
same period in 1995. The Corporation experienced a fluctuation between deposit
types due to a rate-sensitive market environment. Large certificates of
deposit increased $34.1 million or 22.3%.
The information below presents the average amount of deposits and rates paid
on those deposits for 1996, 1995 and 1994.
<TABLE>
<CAPTION>
1996 1995 1994
--------------------- ------------------- ----------------------
(Dollar amounts in thousands) Amounts Rate Amounts Rate Amounts Rate
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Non-interest-bearing
demand deposits $ 134,303 $ 128,172 $ 121,343
Interest-bearing demand deposits 282,331 2.59% 264,305 2.73% 279,122 2.69%
Savings deposits 119,167 2.44% 126,319 2.56% 162,373 2.30%
Time deposits:
$100,000 or more 229,338 5.45% 160,125 5.71% 134,548 4.42%
Other time deposits 425,563 5.47% 469,117 5.61% 389,466 4.62%
---------- ---------- ----------
TOTAL $1,190,702 $1,148,038 $1,086,852
========== ========== ==========
</TABLE>
The maturities of certificates of deposit of $100 thousand or more outstanding
at December 31, 1996, are summarized as follows (in thousands of dollars):
<TABLE>
<S> <C>
3 months or less $ 57,807
Over 3 through 6 months 34,507
Over 6 through 12 months 25,445
Over 12 months 69,440
--------
TOTAL $187,199
========
</TABLE>
SHORT-TERM BORROWINGS
A summary of the carrying value of the Corporation's short-term borrowings at
December 31, 1996, 1995 and 1994 is presented below:
<TABLE>
<CAPTION>
(Dollar amounts in thousands) 1996 1995 1994
- ----------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Federal funds purchased $ 38,130 $ 51,800 $ 3,495
Securities sold under agreements to repurchase 24,286 17,861 65,076
Advances from Federal Home Loan Bank 140,244 95,296 46,272
Other short-term borrowings 5,131 3,872 5,406
----------- -------- --------
$ 207,791 $168,829 $120,249
=========== ======== ========
</TABLE>
Federal funds purchased amounted to $38.1 million in 1996 compared to $51.8
million in 1995. Securities sold under agreements to repurchase increased
slightly by $6 million in 1996 from the same period in 1995.
Advances from the Federal Home Loan Bank increased to $140.2 million in 1996
compared to $95.3 million in 1995. 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 assumed basis and/or option risk. With its
increase in capital, the Corporation chose to add more leverage to the balance
sheet and increase net interest income. This strategy was primarily
implemented in the fourth quarter of 1995 and continued in 1996. As of
December 31, 1996, the total investments in such programs totaled $88.4
million. The Asset/Liability Committee reviews these investments and considers
the related strategies on a weekly basis.
40
<PAGE> 26
The amounts and interest rates related to federal funds purchased and
securities sold under agreements to repurchase are presented below:
<TABLE>
(Dollar amounts in thousands) 1996 1995 1994
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Average amount outstanding $ 30,476 $ 42,741 $ 50,616
Maximum amount outstanding at a month end 72,337 71,267 69,043
Average interest rate during year 5.54% 5.75% 4.09%
Interest rate at year end 6.25% 6.00% 4.22%
</TABLE>
CAPITAL RESOURCES
As of December 31, 1996, the Corporation's shareholders' equity was $150.4
million, an increase of 7.4% from the 1995 level of $140.1 million. 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 standards require that companies have minimum ratios of 4% and
8% for Tier I and total capital, respectively. As of December 31, 1996, the
Corporation had Tier I capital of 14.9% and total capital of 16.0%,
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 an
institution can leverage its equity base. The Corporation's Tier I leverage
ratio was 9.35% at December 31, 1996.
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 1996 and 1995 was 26.9% and 25.6%, 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 eight subsidiary banks with
monitoring and managing their individual sensitivity to fluctuations in
interest rates and assuring that they have adequate liquidity to meet loan
and deposit demand. This function is 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.
41
<PAGE> 27
INTEREST RATE SENSITIVITY AND LIQUIDITY (CONTINUED)
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. Due to the
conversion to the SENDERO asset/liability model, core deposits are now
classified as immediately repriceable. This classification is different from
that of previous years. The model then uses assumptions as to when these
deposits reprice and the magnitude of the change.
For the next twelve months, the Corporation is liability sensitive with
$321.8 million more liabilities repricing than assets or a .67 sensitivity
ratio. This represents 19.9% of total assets. The Corporation has $200.7
million of investments that mature throughout the coming 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 interest income
will increase by 3.0% in 1997, all things being equal. Actual results will
undoubtedly differ from this projection due to changes in many variables.
The earnings assets yield 7.9% without tax equivalency and interest-bearing
liabilities cost 4.3% for a resulting margin of 3.6%. Management actively
monitors the Corporation's position and periodically implements strategies
to meet the Corporation's objectives.
Rate Sensitivity Analysis at December 31, 1996
<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 $ 73,819 $ 72,587 $ 54,317 $228,582 $156,534 $ 585,839
Loans 224,222 87,254 155,327 385,832 55,376 908,011
--------- -------- -------- -------- -------- ----------
TOTAL EARNING ASSETS 298,041 159,841 209,644 614,414 211,910 1,493,850
Other assets - - - - 125,792 125,792
--------- -------- -------- -------- -------- ----------
TOTAL ASSETS $ 298,041 $159,841 $209,644 $614,414 $337,702 $1,619,642
========= ======== ======== ======== ======== ==========
Interest-bearing liabilities:
Interest-bearing deposits $ 491,203 $ 57,085 $115,455 $181,654 $ 1,140 $ 846,537
Interest-bearing deposits over $100 57,807 34,507 25,445 69,440 - 187,199
Borrowed funds 185,995 773 21,023 - - 207,791
Long-term debt - - - 50,818 19,743 70,561
--------- -------- -------- -------- -------- ----------
TOTAL INTEREST-BEARING LIABILITIES 735,005 92,365 161,923 301,912 20,883 1,312,088
Other liabilities - - - - 157,177 157,177
Capital - - - - 150,377 150,377
--------- -------- -------- -------- -------- ----------
TOTAL LIABILITIES AND CAPITAL $ 735,005 $ 92,365 $161,923 $301,912 $328,437 $1,619,642
========= ======== ======== ======== ======== ==========
Rate sensitivity gap (assets-liabilities) $(436,964) $ 67,476 $ 47,721 $312,502
Cumulative sensitivity ratio 0.41 0.55 0.67 0.99
Cumulative gap percent of total assets -26.98% -22.81% -19.87% -0.57%
</TABLE>
42
<PAGE> 28
CONSOLIDATED BALANCE SHEET -- AVERAGE BALANCES AND INTEREST RATES
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------------------------------------------------------------------------------
1996 1995 1994
-------------------------------- ----------------------------- -----------------------------
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) $ 885,964 $ 79,120 8.93% $ 881,559 $ 77,670 8.81% $ 823,983 $68,048 8.26%
Taxable investment securities 421,745 29,774 7.06 297,450 20,816 7.00 268,939 16,536 6.15
Tax-exempt investment
securities (2) 133,914 10,320 7.71 144,443 11,016 7.63 140,697 10,283 7.31
Federal funds sold 8,612 484 5.62 17,070 974 5.71 12,423 562 4.52
Interest-bearing deposits
in other banks:
Domestic 1,040 61 5.87 957 42 4.39 1,391 61 4.39
---------- -------- ---- ---------- -------- ---- ---------- ------- ----
Total interest-earning assets $1,451,275 $119,759 8.25% $1,341,479 $110,518 8.24% $1,247,433 $95,490 7.65%
-------- ==== -------- ==== ------- ====
Non-interest earning assets:
Cash and due from bank 57,919 51,917 51,830
Premises and equipment, net 26,598 22,719 19,976
Other assets 28,883 22,004 18,716
Less allowance for loan losses (10,644) (10,916) (10,115)
---------- ---------- ----------
TOTALS $1,554,031 $1,427,203 $1,327,840
========== ========== ==========
LIABILITIES AND
SHAREHOLDERS' EQUITY
Interest-bearing liabilities:
Savings deposits 401,498 10,215 2.54% 390,624 10,447 2.67% 441,495 11,230 2.54%
Time deposits 654,901 35,767 5.46 629,242 35,485 5.64 524,014 23,960 4.57
Federal funds purchased
and securities sold under
agreement to repurchase 30,476 1,689 5.54 42,741 2,436 5.70 50,616 2,035 4.02
Other 177,036 10,139 5.73 93,327 5,776 6.19 61,986 3,264 5.27
---------- -------- ---- ---------- -------- ---- ---------- ------- ----
Total interest-bearing
liabilities: $1,263,911 $ 57,810 4.57% $1,155,934 $ 54,144 4.68% $1,078,111 $40,489 3.76%
-------- ==== -------- ==== ------- ====
Non interest-bearing
liabilities:
Demand deposits 134,303 128,172 121,343
Other 13,053 12,553 7,994
---------- ---------- ----------
1,411,267 1,296,659 1,207,448
Shareholders' equity 142,764 130,544 120,392
---------- ---------- ----------
TOTALS $1,554,031 $1,427,203 $1,327,840
========== ========== ==========
Net interest earnings $ 61,949 $ 56,374 $55,001
======== ======== =======
Net yield on interest-earning assets 4.27% 4.20% 4.41%
==== ==== ====
</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 35%.
43
<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 1996 shareholders owned 6,681,876 shares of the Corporation's
common stock. The stock was held by 1,133 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 1996 and 1995.
<TABLE>
<CAPTION>
1996 1995
--------------------------- ---------------------------
BID QUOTATION CASH BID QUOTATION CASH
DIVIDENDS DIVIDENDS
Quarter ended HIGH LOW DECLARED HIGH LOW DECLARED
-----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
March 31 $33.33 $30.00 $29.94 $27.20
June 30 31.42 28.81 $.30 28.58 25.41 $.267
September 30 33.00 30.50 30.00 27.62
December 31 37.00 31.75 $.35 30.47 28.10 $.267
</TABLE>
SELECTED QUARTERLY DATA
<TABLE>
<CAPTION>
1996
--------------------------------------------------------------
NET PROVISION
INTEREST INTEREST INTEREST FOR LOAN NET NET INCOME
(Dollar amounts in thousands) INCOME EXPENSE INCOME LOSSES INCOME PER SHARE
- ----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
March 31 $28,248 $13,870 $14,378 $ 735 $4,059 $.61
June 30 28,431 14,185 14,246 968 3,962 .59
September 30 29,210 14,604 14,606 1,207 3,645 .55
December 31 29,947 15,151 14,796 1,551 4,305 .64
</TABLE>
<TABLE>
<CAPTION>
1995
--------------------------------------------------------------
NET PROVISION
INTEREST INTEREST INTEREST FOR LOAN NET NET INCOME
(Dollar amounts in thousands) INCOME EXPENSE INCOME LOSSES INCOME PER SHARE
- ----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
March 31 $25,132 $12,653 $12,479 $570 $2,941 $.44
June 30 26,083 13,192 12,891 585 3,191 .48
September 30 27,027 13,923 13,104 618 3,679 .55
December 31 28,088 14,376 13,712 790 4,086 .61
</TABLE>
*Restated to retroactively reflect 1996 stock dividend.
44
<PAGE> 1
EXHIBIT 21--SUBSIDIARIES OF THE REGISTRANT
Terre Haute First National Bank is a wholly-owned subsidiary of the
Registrant. It is an 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.
First Crawford 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 Crawford State Bank.
5
<TABLE> <S> <C>
<ARTICLE> 9
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> DEC-31-1996
<CASH> 66,658
<INT-BEARING-DEPOSITS> 1,095
<FED-FUNDS-SOLD> 2,000
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 582,744
<INVESTMENTS-CARRYING> 582,744
<INVESTMENTS-MARKET> 582,744
<LOANS> 918,767
<ALLOWANCE> 10,756
<TOTAL-ASSETS> 1,619,642
<DEPOSITS> 1,175,228
<SHORT-TERM> 207,791
<LIABILITIES-OTHER> 15,685
<LONG-TERM> 70,561
0
0
<COMMON> 835
<OTHER-SE> 149,542
<TOTAL-LIABILITIES-AND-EQUITY> 1,619,642
<INTEREST-LOAN> 78,706
<INTEREST-INVEST> 36,646
<INTEREST-OTHER> 484
<INTEREST-TOTAL> 115,836
<INTEREST-DEPOSIT> 45,983
<INTEREST-EXPENSE> 57,810
<INTEREST-INCOME-NET> 58,026
<LOAN-LOSSES> 4,461
<SECURITIES-GAINS> 154
<EXPENSE-OTHER> 39,280
<INCOME-PRETAX> 22,134
<INCOME-PRE-EXTRAORDINARY> 22,134
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 15,971
<EPS-PRIMARY> 2.39
<EPS-DILUTED> 2.39
<YIELD-ACTUAL> 4.27
<LOANS-NON> 2,504
<LOANS-PAST> 5,296
<LOANS-TROUBLED> 34
<LOANS-PROBLEM> 1,700
<ALLOWANCE-OPEN> 10,616
<CHARGE-OFFS> 5,401
<RECOVERIES> 1,080
<ALLOWANCE-CLOSE> 10,756
<ALLOWANCE-DOMESTIC> 10,756
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
