FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
QUARTERLY REPORT UNDER SECTION 13 OR 15 (D) OF THE
SECURITIES EXCHANGE ACT OF 1934
FIRST FINANCIAL CORPORATION
September 30, 1997 <PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
QUARTERLY REPORT UNDER SECTION 13 OR 15 (D) OF THE
SECURITIES EXCHANGE ACT OF 1934
For Quarter Ended September 30, 1997
Commission File Number 0-16759
FIRST FINANCIAL CORPORATION
(Exact name of registrant as specified in its charter)
INDIANA 35-1546989
(State or other jurisdiction (I.R.S. Employer
incorporation or organization) Identification No.)
One First Financial Plaza, Terre Haute, IN 47807
(Address of principal executive office) (Zip Code)
(812)-238-6000
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934
during the preceding 12 months (or for such period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X No .
As of September 30, 1997 were outstanding 6,681,876 shares without par value, of
the registrant.
1 <PAGE>
FIRST FINANCIAL CORPORATION
FORM 10-Q
INDEX
Page No.
PART I. Financial Information
Item 1. Financial Statements:
Consolidated Balance Sheets........................................3
Consolidated Statements of Income..................................4
Consolidated Statements of Cash Flows..............................5
Notes to Consolidated Financial Statements.........................6
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations................8
PART II. Other Information:
Signatures..............................................................12
2 <PAGE>
<TABLE>
FIRST FINANCIAL CORPORATION
CONSOLIDATED BALANCE SHEETS
<CAPTION>
September 30, December 31,
1997 1996
(Dollar amounts in thousands)
<S> <C> <C>
Cash and due from banks $65,329 $66,658
Interest-bearing deposits with financial institutions 299 1,095
Federal funds sold and securities purchased under
agreements to resell 0 2,000
Investments: Available-For-Sale 565,532 582,744
Loans:
Commercial, financial and agricultural 217,616 197,449
Real estate - construction 24,423 22,629
Real estate - mortgage 548,807 508,010
Installment 187,844 188,670
Lease financing 3,309 3,284
981,999 920,042
Less:
Unearned income 1,049 1,275
Allowance for loan losses 13,110 10,756
967,840 908,011
Accrued interest receivable 15,401 14,985
Premises and equipment 25,190 26,137
Other assets 20,605 18,012
TOTAL ASSETS $1,660,196 $1,619,642
LIABILITIES AND SHAREHOLDERS' EQUITY
Deposit:
Noninterest-bearing $154,673 $141,492
Interest-bearing:
Certificates of deposit of $100,000 or more 185,070 187,199
Other interest-bearing deposits 852,431 846,537
1,192,174 1,175,228
Short-term borrowings:
Federal funds purchased and securities
sold under agreements to repurchase 64,038 62,416
Treasury tax and loan open-end note 6,256 5,131
Advances from Federal Home Loan Bank 167,880 140,244
238,174 207,791
Other liabilities 15,004 15,685
Long-term debt 6,646 6,637
Long-term advances from Federal Home Loan Bank 45,757 63,924
TOTAL LIABILITIES 1,497,755 1,469,265
Shareholders' equity:
Common stock, $.125 stated value per share;
authorized 10,000,000 shares; issued and outstanding 835 835
6,681,876 1996 and 1997
Additional capital 43,761 43,761
Retained earnings 112,178 101,093
Unrealized gains on securities, net of tax 5,667 4,688
TOTAL SHAREHOLDERS' EQUITY 162,441 150,377
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $1,660,196 $1,619,642
The accompanying notes are an integral part of the consolidated financial statements.
</TABLE>
3 <PAGE>
<TABLE>
FIRST FINANCIAL CORPORATION
CONSOLIDATED STATEMENTS OF INCOME
<CAPTION>
Three Months Ended Nine Months ended
September 30, September 30,
1997 1996 1997 1996
(amounts in thousands, except per share amounts)
<S> <C> <C> <C> <C>
INTEREST INCOME:
Loans $21,322 $19,952 $61,764 $58,390
Investment securities:
Taxable 7,963 7,473 24,168 22,047
Tax-exempt 1,857 1,747 5,504 5,049
9,820 9,220 29,672 27,096
Other interest income 23 38 100 403
TOTAL INTEREST INCOME 31,165 29,210 91,536 85,889
INTEREST EXPENSE:
Deposits 11,662 11,527 34,551 34,410
Other 3,992 3,077 11,803 8,249
TOTAL INTEREST EXPENSE 15,654 14,604 46,354 42,659
NET INTEREST INCOME 15,511 14,606 45,182 43,230
Provision for
loan losses 1,251 1,207 3,988 2,910
NET INTEREST INCOME AFTER
PROVISION FOR
LOAN LOSSES 14,260 13,399 41,194 40,320
OTHER INCOME
Trust income 485 435 1,470 1,293
Service charges on deposit
accounts 334 363 1,010 1,076
Other service charges and fees 1,000 827 2,690 2,448
Investment securities gains 60 60 402 214
Other 318 215 903 851
2,197 1,900 6,475 5,882
OTHER EXPENSES
Salaries and employee benefits 5,560 5,127 16,161 15,586
Occupancy expense 768 724 2,164 2,397
Equipment expense 752 846 2,283 2,058
Other 2,973 3,287 8,653 9,408
10,053 9,984 29,261 29,449
INCOME BEFORE INCOME TAXES 6,404 5,315 18,408 16,753
Income Tax Expense 1,785 1,670 4,984 5,087
NET INCOME $4,619 $3,645 $13,424 $11,666
EARNINGS PER SHARE $0.69 $0.55 $2.01 $1.75
Weighted average number of
shares outstanding 6,682 6,682 6,682 6,677
The accompanying notes are in integral part of the consolidated financial statements.
</TABLE>
4<PAGE>
<TABLE>
FIRST FINANCIAL CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
<CAPTION>
Nine Months Ended
September 30,
1997 1996
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $13,424 $11,666
Adjustment to reconcile net income to net cash
provided by operating activities:
Provision for loan losses 3,988 2,910
Provision for depreciation and amortization 1,767 1,923
Net (increase) decrease in accrued interest receivable -416 -2,156
Other, net -2,743 -1,830
NET CASH PROVIDED BY OPERATING ACTIVITIES 16,020 12,513
CASH FLOWS FROM INVESTING ACTIVITIES:
Net decrease from purchase and maturities of interest-bearing
deposits with financial institutions 796 0
Sales and maturities of available-for-sale securities 149,156 119,896
Purchases of available-for-sale securities -129,281 -167,315
Loans made to customers, net of repayments -63,422 -36,306
Net decrease in federal funds sold 2,000 7,475
Additions to premises and equipment -1,092 -2,649
NET CASH USED BY INVESTING ACTIVITIES -41,843 -78,899
CASH FLOWS FROM FINANCING ACTIVITIES:
Net increase from sales and
redemptions of certificates of deposit 3,397 33,994
Net increase (decrease) in other deposits 13,549 -15,381
Net increase in short-term borrowings 30,383 20,662
Cash dividends -4,677 -3,760
Proceeds from reissuance of treasury stock 0 600
Purchase of treasury stock 0 -131
Net increase (decrease) from long-term debt -18,158 36,011
NET CASH PROVIDED BY FINANCING ACTIVITIES 24,494 71,995
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS - 1,329 5,609
CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR 66,658 65,276
CASH AND CASH EQUIVALENTS, END OF PERIOD $65,329 $70,885
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the period for interest $47,676 $42,245
Income taxes paid $5,153 $5,445
The accompanying notes are an integral part of the consolidated financial statements.
</TABLE>
5<PAGE>
FIRST FINANCIAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. The accompanying September 30, 1997 and 1996 consolidated financial
statements are unaudited. The December 31, 1996, consolidated balance sheet
amounts are as reported in the Corporation's 1996 annual report.
The significant accounting policies followed by First Financial Corporation
and its subsidiaries for interim financial reporting are consistent with the
accounting policies followed for annual financial reporting. All adjustments,
which are in the opinion of management necessary for a fair statement of the
results for the periods reported, have been included in the accompanying
consolidated financial statements and are of a normal recurring nature.
2. A loan is considered to be impaired when, based upon current information and
events, it is probable that the Corporation will be unable to collect all
amounts due according to the contractual terms of the loan. Impairment is
primarily measured based on the fair value of the loan's collateral.
The following table summarizes impaired loan information.
(000'S)
September,
1997 1996
Impaired loans...............................................$ 1,782 $3,211
Impaired loans with related reserve for loan losses calculated
under SFAS 114............................................... 1,782 3,196
Impaired loans with no related reserve for loan losses
calculated under SFAS 114.................................... 0 15
Interest payments on impaired loans are typically applied to principal
unless collectability of the principal amount is deemed to be fully assured, in
which case interest is recognized on a cash basis.
Commercial loans and residential real estate loans are placed on
nonaccrual at the time the loan is 90 days delinquent unless the credit is well
secured and in the process of collection. Commercial loans are charged off at
the time the loan becomes 180 days delinquent unless the loan is well secured
and in the process of collection, or other extenuating circumstances support
collection. Credit card loans and other unsecured personal credit lines are
typically charged off no later than 180 days delinquent. Other consumer loans
are typically charged off at 150 days delinquent. In all cases, loans must be
placed on nonaccrual or charged off at an earlier date if collection of
principal or interest is considered doubtful.
The interest on these loans is accounted for on the cash basis or cost
recovery method, until qualifying for return to accrual. Loans may be returned
to accrual status when all the principal and interest amounts contractually due
are paid.
6<PAGE>
3. The cost and fair value of the Corporation's investments at September 30,
1997 are shown below. All investments are considered as available-for-sale.
(000's)
September 30, 1997
Amortized Cost Fair Value
Available-For-Sale:
United States Government $ 6,488 $ 6,487
United States Government Agencies 382,886 386,036
State and Municipal 142,851 146,722
Other 26,264 26,287
$558,489 $565,532
======== ========
7<PAGE>
FIRST FINANCIAL CORPORATION
ITEM 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
The purpose of the review is to point out key factors in First Financial's
recent performance, compared with earlier periods. The review should be read in
conjunction with the consolidated financial statements beginning on Page 3 of
this report. All figures are for the consolidated entities. It is presumed the
reader of these consolidated financial statements and the following narrative
have previously read the Corporation's annual report for 1996.
Summary of Operating Results
The Corporation's reported earnings of $13,424,000 for the first nine
months of 1997 reflects a 15.1% increase above the same period for 1996, while
the third quarter net income of $4,619,000 reflects a 26.7% increase over the
third quarter of 1996. Earnings per share results of $2.01 and $0.69 for the
nine and three month period respectively, reflect similar increases from the
respective prior year's $1.75 and $0.55 per share.
Net Interest Income
First Financial Corporation's primary source of earnings is net interest
income, which is the difference between the interest earned on loans and other
investments and the interest incurred for deposits and other sources of funds.
In the first nine months of 1997 net interest income increased to $45,182,000
from $43,230,000 in the same period of 1996. The higher net interest income was
attributable solely to higher volume which more than offset a declining spread
in interest rates that decreased from 4.31% in 1996 to 4.24% in 1997. This
decrease was the result of both a lower yield on earnings asset and a higher
cost of funds for 1997.
For the third quarter of 1997 net interest income increased $905,000 or
6.2% as compared to the same quarter of 1996. Again, the increase was due to
higher volume while the net interest margin remained almost unchanged at 4.32%
in 1997 compared to 4.33% for 1996.
Other Income
Other income for the nine months of 1997, as compared to the same period
of 1996, increased $593,000 or 10.1%. Most other income categories increased due
to increased service volume or increased service charges. Third quarter other
income for 1997 increased $297,000 or 15.6% as compared to third quarter of
1996. The increases in the third quarter were also due to higher volume and
service charges.
Other Expenses
Other expenses for the first nine months of 1997, as compared to the same
period of 1996, decreased to $29,261,000 from $29,449,000. The Corporation
changed it's data processing service from a facilities management firm to an
in-house operation which impacted data processing expenses favorably, decreasing
to $98,000 in 1997 from $726,000 for the same period of 1996. These savings were
partially offset by increased equipment expenses which grew by $225,000 or
10.9%. Occupancy expenses decreased by $233,000 or 9.7% compared to the same
period of 1996 due to real and personal property tax reduction. Third quarter
other expenses for 1997 remained almost unchanged at $10,053,000 compared to
$9,984,000 for the same quarter of 1996. Third quarter expenses were also
impacted by savings in data processing expenses and property taxes.
8<PAGE>
Allowance for Loan Losses
The Corporation's provision for loan losses totaled $3,988,000 for the
first nine months of 1997 compared to $2,910,000 in the same period a year
earlier. This represents a $1,078,000 increase to properly reserve for the
increases in lending activity and underperforming loans during the year.
At September 30, 1997, the allowance for loan losses was 1.34% of net
loans. This compares with an allowance of 1.17% at December 31, 1996. Net
chargeoffs for the first nine months of 1997 were $1,634,000 compared to
$2,939,000 for the same period of 1996. The ratio of net chargeoffs to average
loans outstanding for the last five years ended December 31, 1996, was .37%.
With this experience and based on management's review of the portfolio,
management believes the allowance of $13,110,000 at September 30, 1997 is
adequate.
Underperforming Assets
The following is a listing of all categories of non-performing assets
which includes potential problem loans at September 30, 1997 and
December 31, 1996.
September 30, 1997 December 31, 1996
(000') (000')
Nonaccrual Loans $ 3,181 $ 2,504
Restructured Loans 377 34
$ 3,558 $ 2,538
Past due > 90 days $ 5,607 $ 5,296
Land sold on contract and others 1,837 1,871
Total non-performing asset $11,002 $ 9,705
======= =======
The ratio of the allowance for loan losses as a percentage of
non-performing assets (exclusive of land sold on contract) was 143% at
September 30, 1997 compared to 137% at December 31, 1996.
9<PAGE>
The following loan categories comprise significant components of the
non-performing loans at September 30, 1997
Non-Accrual Loans:
September 30, 1997 December 31, 1996
(000') (000')
1-4 family residential $ 610 19% $ 287 12%
Commercial loans 1,603 50 1,420 57
Installment loans 369 12 469 18
Other, various 599 19 328 13
$3,181 100% $2,504 100%
====== ==== ====== ====
Past due 90 days or more:
1-4 family residential $3,415 61% $2,256 43%
Commercial loans 799 14 1,125 21
Installment loans 845 15 943 18
Non farm nonresidential properties 202 4 848 16
Other, various 346 6 124 2
$5,607 100% $5,296 100%
====== ==== ====== ====
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 the current repayment status.
Such reasons may include, but not be limited to, previous payment history,
bankruptcy proceedings, industry concerns, or information related to a specific
borrower that may result in a negative future event to that borrower. At
September 30, 1997 the Corporation had $674,000 of doubtful loans which are
still in accrual status.
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 facilitated by the Asset Liability Committee. The
primary goal of the Committee is to maximize net interest income within the
interest rate risk limits approved by the Board of Directors.
10<PAGE>
Interest Rate Risk
The Committee reviews a series of monthly reports to insure that
performance objectives are being met and monitors interest rate risk through
earnings simulation. Simulation modeling measures the effects of interest rate
changes on net interest income. The primary measure of interest rate risk is
Earnings At Risk. This measure projects the effect of various rate movements
over the next three years.
The Corporation's Earnings At Risk as of September 30, 1997 are summarized
below. Given a 100 basis point increase in rates, the simulation modeling
indicates net income would increase .04% over the next 12 months. A 100 basis
point decrease would result in a .28% decrease in net income.
Earnings At Risk
YEAR 1 YEAR 2 YEAR 3
DOWN 300 -2.45% -4.06% -7.34%
DOWN 200 - .95 -2.03 -4.30
DOWN 100 - .28 - .85 -2.00
UP 100 .04 - .09 .91
UP 200 .16 .21 2.29
UP 300 .45 .67 3.79
Liquidity Risk
Liquidity is measured by the Corporation's ability to raise funds to meet
the obligation from its customers, including deposit withdrawals and credit
needs. At September 30, 1997, the Corporation has $8,175,000 of investments that
mature throughout the coming twelve months. The Corporation also anticipates
$22,948,000 of principal from mortgage backed securities. Given the current rate
environment the Corporation anticipates $80,025,000 of Federal Agency Securities
will be called within the next year. Based on these estimates, the Corporation
anticipates it will have adequate funds to meet the needs of customers.
Capital Adequacy
As of September 30, 1997 the Corporation's leverage ratio was 9.6% which
compared to 9.35% at December 31, 1996.
At September 30, 1997, the Corporation's total capital, which includes
Tier II capital, was 16.97% compared to 16.00% at December 31, 1996. These
amounts exceed minimum regulatory capital requirements.
11<PAGE>
FIRST FINANCIAL CORPORATION
PART II OTHER INFORMATION
FORM 10-Q
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
FIRST FINANCIAL CORPORATION
(Registrant)
Date: November 13, 1997 By (Signature)
Donald E. Smith, President
Date: November 13, 1997 By (Signature)
John W. Perry, Secretary
Date: November 13, 1997 By (Signature)
Michael A. Carty, Treasurer
12<PAGE>
<TABLE> <S> <C>
<ARTICLE> 9
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> SEP-30-1997
<CASH> 65,329
<INT-BEARING-DEPOSITS> 299
<FED-FUNDS-SOLD> 0
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 565,532
<INVESTMENTS-CARRYING> 565,532
<INVESTMENTS-MARKET> 565,532
<LOANS> 980,950
<ALLOWANCE> 13,110
<TOTAL-ASSETS> 1,660,196
<DEPOSITS> 1,192,174
<SHORT-TERM> 238,174
<LIABILITIES-OTHER> 15,004
<LONG-TERM> 52,403
0
0
<COMMON> 835
<OTHER-SE> 161,606
<TOTAL-LIABILITIES-AND-EQUITY> 1,660,196
<INTEREST-LOAN> 61,764
<INTEREST-INVEST> 29,672
<INTEREST-OTHER> 100
<INTEREST-TOTAL> 91,536
<INTEREST-DEPOSIT> 34,551
<INTEREST-EXPENSE> 46,354
<INTEREST-INCOME-NET> 45,182
<LOAN-LOSSES> 3,988
<SECURITIES-GAINS> 402
<EXPENSE-OTHER> 29,261
<INCOME-PRETAX> 18,408
<INCOME-PRE-EXTRAORDINARY> 13,424
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 13,424
<EPS-PRIMARY> 2.01
<EPS-DILUTED> 2.01
<YIELD-ACTUAL> 4.32
<LOANS-NON> 3,181
<LOANS-PAST> 5,607
<LOANS-TROUBLED> 377
<LOANS-PROBLEM> 674
<ALLOWANCE-OPEN> 10,756
<CHARGE-OFFS> 2489
<RECOVERIES> 855
<ALLOWANCE-CLOSE> 13,110
<ALLOWANCE-DOMESTIC> 13,110
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
