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
June 30, 1999
<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 June 30, 1999
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 June 30, 1999 were outstanding 6,975,219 shares without par value, of the
registrant.
1 <PAGE>
FIRST FINANCIAL CORPORATION
FORM 10-Q
INDEX
PART I. Financial Information Page No.
Item 1. Financial Statements:
Consolidated Statements of Condition.........................3
Consolidated Statements of Income............................4
Consolidated Statements of Shareholders Equity and
Comprehensive Income.......................................5
Consolidated Statements of Cash Flows........................7
Notes to Consolidated Financial Statements...................8
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations.........9
PART II. Other Information:
Item 4. Submission of Matters to a Vote of
Security Holders.....................................15
Signatures............................ ..........................16
2 <PAGE>
<TABLE>
FIRST FINANCIAL CORPORATION
CONSOLIDATED STATEMENTS OF CONDITION
<CAPTION>
June, 30 December, 31
1999 1998
(Unaudited)
ASSETS (Amounts in thousands)
<S> <C> <C>
Cash and due from bank $63,981 $54,877
Federal funds sold and securities purchased under agreement to resell 350 450
Investments, available-for-sale 582,854 633,365
Loans:
Commercial, financial and agricultural 239,147 233,080
Real estate - construction 38,436 32,880
Real estate - mortgage 658,235 636,615
Installment 213,707 205,251
Lease financing 5,516 5,825
1,155,041 1,113,651
Less:
Unearned income 1,891 1,886
Allowance for loan losses 17,786 16,429
1,135,364 1,095,336
Accrued interest receivable 14,207 14,704
Premises and equipment, net 24,162 24,426
Other assets 25,163 26,594
TOTAL ASSETS $1,846,081 $1,849,752
LIABILITIES AND SHAREHOLDERS EQUITY
Deposits:
Noninterest-bearing $143,829 $148,747
Interest-bearing:
Certificates of deposit of $100,000 or more 227,641 196,773
Other interest-bearing deposits 895,478 914,845
1,266,948 1,260,365
Short-term borrowings:
Federal funds purchased and securities
sold under agreements to repurchase 66,206 100,571
Treasury tax and loan open-end note 6,147 3,061
Advances from Federal Home Loan Bank 207,086 185,930
279,439 289,562
Other liabilities 15,789 21,504
Long-term debt 6,612 6,619
Long-term advances from Federal Home Loan Bank 105,225 89,519
TOTAL LIABILITIES 1,674,013 1,667,569
Shareholders equity:
Common stock, $.125 stated value per share;
authorized 10,000,000 shares; issued and outstanding 903 903
7,225,483 shares for 1998 and 1999 including treasury shares of
91,093 in 1998 and 250,264 in 1999
Additional capital 66,680 66,680
Retained earnings 117,875 110,566
Accumulated other comprehensive income (loss):
Unrealized gains (losses) on investments, net of tax -1,541 8,123
Less: Treasury shares at cost -11,849 -4,089
TOTAL SHAREHOLDERS EQUITY 172,068 182,183
TOTAL LIABILITIES AND SHAREHOLDERS EQUITY $1,846,081 $1,849,752
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 Six Months Ended
June 30, June 30,
1999 1998 1999 1998
Unaudited Unaudited Unaudited Unaudited
(Amounts in thousands, except per share amounts)
<S> <C> <C> <C> <C>
INTEREST INCOME:
Loans $23,681 $23,151 $47,115 $45,755
Investment securities:
Taxable 7,226 6,659 14,225 13,272
Tax-exempt 2,030 2,072 4,029 4,036
9,256 8,731 18,254 17,308
Other interest income 148 224 482 522
TOTAL INTEREST INCOME 33,085 32,106 65,851 63,585
INTEREST EXPENSE:
Deposits 11,225 12,885 22,656 25,076
Other 5,103 3,700 9,955 7,583
TOTAL INTEREST EXPENSE 16,328 16,585 32,611 32,659
NET INTEREST INCOME 16,757 15,521 33,240 30,926
Provision for
loan losses 1,078 1,549 2,560 2,956
NET INTEREST INCOME AFTER
PROVISION FOR
LOAN LOSSES 15,679 13,972 30,680 27,970
OTHER INCOME
Trust income 589 503 1,326 1,085
Service Charges on deposit
accounts 319 325 620 645
Other service charges and fees 1,371 1,184 2,487 2,264
Investment securities gains 133 39 157 391
Other 512 274 1,181 556
2,924 2,325 5,771 4,941
OTHER EXPENSES
Salaries and employee benefits 6,195 5,983 12,259 11,977
Occupancy expense 731 684 1,466 1,388
Equipment expense 865 830 1,748 1,648
Other 3,203 3,200 6,406 6,190
10,994 10,697 21,879 21,203
INCOME BEFORE INCOME TAXES 7,609 5,600 14,572 11,708
Income Tax Expense 2,223 1,430 4,194 3,038
NET INCOME $5,386 $4,170 $10,378 $8,670
PRIMARY EARNINGS PER SHARE $0.77 $0.58 $1.48 $1.20
Weighted average number of
shares outstanding 6,975 7,217 7,010 7,221
The accompanying notes are an integral part of the consolidated financial statements.
</TABLE>
4 <PAGE>
<TABLE>
FIRST FINANCIAL CORPORATION
CONSOLIDATED STATEMENTS OF SHAREHOLDERS EQUITY
AND COMPREHENSIVE INCOME
Six Months Ended
June 30, 1999 and 1998
<CAPTION>
Accumulated
Other
(Dollar amounts in thousands, Common Additional Retained Comprehensive Treasury
except per share data) Stock Capital Earnings Income Stock Total
<S> <C> <C> <C> <C> <C> <C>
Balance, January 1, 1999 $903 $66,680 $110,566 $8,123 $- 4,089 $182,183
Comprehensive income:
Net income 10,378 10,378
Other comprehensive income,
net of tax:
Change in unrealized gains on securities,
net of tax of $-5,090 -9,453 -9,453
Less: reclassification adjustment
for gains included in net
income, net of tax of $-113 - 211 - 211
Total comprehensive income 714
Cash Dividends, $.44 per share -3,069 -3,069
Treasury stock purchase - 7,760 -7,760
__________________________________________________________________________________
Balance, June 30, 1999 $903 $66,680 $117,875 $-1,541 $-11,849 $172,068
Balance, January 1, 1998 $877 $59,787 $ 98,046 $6,770 - $165,480
Comprehensive income:
Net income 8,670 8,670
Other comprehensive income,
net of tax:
Change in unrealized gains on securities,
net of tax of $ 276 512 512
Less: reclassification adjustment
for gains included in net
income, net of tax of $-137 - 254 -254
Total comprehensive income 8,928
Issuance shares for
Morris Plan acquisition 26 6,893 6,919
Cash Dividends, $.40 per share -2,884 -2,884
Treasury stock purchase -780 - 780
__________________________________________________________________________________
Balance, June 30, 1998 $903 $66,680 $103,832 $7,028 $ -780 $177,663
The accompanying notes are an integral part of the consolidated financial statements.
</TABLE>
5 <PAGE>
<TABLE>
FIRST FINANCIAL CORPORATION
CONSOLIDATED STATEMENTS OF SHAREHOLDERS EQUITY
AND COMPREHENSIVE INCOME
Three Months Ended
June 30, 1999 and 1998
<CAPTION>
Accumulated
Other
(Dollar amounts in thousands, Common Additional Retained Comprehensive Treasury
except per share data) Stock Capital Earnings Income Stock Total
<S> <C> <C> <C> <C> <C> <C>
Balance, April 1, 1999 $903 $66,680 $115,558 $5,988 $- 11,849 $177,280
Comprehensive income:
Net income 5,386 5,386
Other comprehensive income,
net of tax:
Change in unrealized gains on securities,
net of tax of $-3,949 -7,334 -7,334
Less: reclassification adjustment
for gains included in net
income, net of tax of $-104 - 195 - 195
Total comprehensive income -2,143
Cash Dividends, $.44 per share -3,069 -3,069
______________________________________________________________________________
Balance, June 30, 1999 $903 $66,680 $117,875 $-1,541 $-11,849 $172,068
Balance, April 1, 1998 $903 $66,680 $102,546 $6,019 - $176,148
Comprehensive income:
Net income 4,170 4,170
Other comprehensive income,
net of tax:
Change in unrealized gains on securities,
net of tax of $ 557 1,034 1,034
Less: reclassification adjustment
for gains included in net
income, net of tax of $-13 - 25 -25
Total comprehensive income 5,179
Cash Dividends, $.40 per share -2,884 -2,884
Treasury stock purchase -780 - 780
_______________________________________________________________________________
Balance, June 30, 1998 $903 $66,680 $103,832 $7,028 $ -780 177,663
The accompanying notes are an integral part of the consolidated financial statements.
</TABLE>
6 <PAGE>
FIRST FINANCIAL CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Six Months Ended
June 30,
1999 1998
(Unaudited)
(Amounts in thousands)
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income $10,378 $8,670
Adjustment to reconcile net income to net cash
provided by operating activities:
Net amortization of discounts on investments -133 -706
Provision for loan losses 2,560 2,956
Investment gains -157 -391
Provision for depreciation and amortization 1,358 1,228
Provision for deferred income taxes -919 273
Net decrease (increase) in accrued interest receivable 497 -481
Other, net 3,861 -847
NET CASH PROVIDED BY OPERATING ACTIVITIES 17,445 10,702
CASH FLOWS FROM INVESTING ACTIVITIES:
Sales and maturities of available-for-sale securities 156,101 146,026
Purchases of available-for-sale securities -121,925 -178,689
Loans made to customers, net of repayments -42,602 -23,463
Net decrease in federal funds sold 100 680
Additions to premises and equipment -1,260 -929
NET CASH USED BY INVESTING ACTIVITIES -9,586 -56,375
CASH FLOWS FROM FINANCING ACTIVITIES:
Net increase from sales and
redemptions of certificates of deposit 12,624 80,492
Net decrease in other deposits -6,041 -36,818
Net (decrease) increase in short-term borrowings -10,114 6,053
Cash dividends -3,154 -2,740
Purchase of treasury stock -7,760 -780
Net increase in long-term debt and advances 15,690 4,145
NET CASH PROVIDED BY FINANCING ACTIVITIES 1,245 50,352
NET INCREASE IN CASH AND CASH EQUIVALENTS 9,104 4,679
CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR 54,877 54,285
CASH AND CASH EQUIVALENTS, END OF PERIOD $63,981 $58,964
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the period for interest $33,140 $32,190
Income taxes paid $5,267 $3,689
The accompanying notes are an integral part of the consolidated financial statements.
</TABLE>
7 <PAGE>
FIRST FINANCIAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The accompanying June 30, 1999 and 1998 consolidated financial statements
are unaudited. The December 31, 1998 consolidated financial statements are as
reported in the First Financial Corporation (the Corporation) 1998 annual
report. The following notes should be read together with notes to the
consolidated financial statements included in the 1998 annual report.
1. The significant accounting policies followed by the 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)
June 30
1999 1998
Impaired loans with related allowance for loan
losses calculated under SFAS No. 114.......... $2,902 $ 993
Interest payments on impaired loans are typically applied to principal
unless collection of the principal amount is deemed to be fully assured, in
which case interest is recognized on a cash basis.
Interest income on commercial loans and residential real estate loans is no
longer accrued 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 process of collection, or other 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 when they become 150 days delinquent. In all cases, loans must be placed on
nonaccrual status 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 status. Loans may be
returned to accrual status when all the principal and interest amounts
contractually due are paid.
3. Investments
The cost and fair value of the Corporation's investments at June 30, 1999
are shown below. All investments are classified as available-for-sale.
(000's)
June 30, 1999
Amortized Cost Fair Value
Available-For-Sale:
United States Government $193,185 $189,907
United States Government Agencies 196,153 192,920
State and Municipal 155,079 156,360
Other 44,290 43,667
$588,707 $582,854
8 <PAGE>
4. Changes in Shareholders' Equity
Under the Corporation's common stock repurchase program announced in September
1998, the Corporation has repurchased 250,264 shares as of June 30, 1999
compared to 91,903 shares as of December 31, 1998.
In March 1998, the Corporation completed its acquisition of The Morris Plan
Company of Terre Haute, Inc. (Morris Plan), whose assets total approximately
$38 million. In exchange for all of the outstanding common stock of Morris Plan,
the Corporation issued 210,000 shares of its common stock. The acquisition was
accounted for using purchase accounting and resulted in goodwill of $2.4
million, which will be amortized over approximately 15 years.
9 <PAGE>
FIRST FINANCIAL CORPORATION
ITEM 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
The purpose of this discussion is to point out key factors in the
Corporation's recent performance compared with earlier periods. The discussion
should be read in conjunction with the financial statements beginning on page
three of this report. All amounts are for the consolidated entities. It is
presumed the readers of these financial statements and the following narrative
have previously read the Corporation's annual report for 1998.
Forward-looking statements contained in the following discussion are based
on estimates and assumptions that are subject to significant business, economic
and competitive uncertainties, many of which are beyond the Corporation's
control and are subject to change. These uncertainties can affect actual results
and could cause actual results to differ materially from those expressed in any
forward-looking statements in this discussion.
Summary of Operating Results
The Corporation reported record earnings for the six month and three month
periods ended June 30, 1999. Net income for the six months ended June 30, 1999
was $10.4 million, a 19.7% increase above the same period of 1998. Earnings per
share of $1.48 for the six month period was 23.3% more than the $1.20 reported
in 1998.
For the three month period ended June 30,1999 net income of $5.4 million was
29.2% higher than the $4.2 million reported in 1998, while the $.77 earnings per
share for the second quarter was 32.8% ahead of the previous years' second
quarter.
The major reason for the growth in income, for the six month period , was a
6.4% increase in assets, primarily loans, and a reduction in the efficiency
ratio from 55.3% to 52.8%. Earnings per share growth was positively effected by
a stock repurchase plan that began in the third quarter of 1998.
Interest Income
The 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. Although net
interest income increased to $33.2 million in the first six months of 1999 from
$30.9 million in the same period of 1998, the net interest margin decreased to
4.09% for 1999 from 4.16% in the same period of 1998. This decrease was the
result of a lower yield on earning assets in 1999 than in the prior year. The
1999 second quarter net interest income also increased to $16.8 million from
$15.5 million for the same quarter of 1998 while the net interest margin
decreased to 4.11% for the second quarter of 1999 from 4.14% in the same quarter
of 1998.
Other Income
Other income for the six months of 1999, as compared to the same period of
1998, increased $.8 million or 16.8%. Trust income and other income increased to
$1.3 million and $1.2 million or 22.2% and 112.4% respectively, compared to the
same period of 1998. The main reasons for the increase of other income are the
result of realized gains from the sale of other real estate owned, sale of
mortgage loans in the secondary market, and commissions received from the
formation of a reinsurance company for $.2 million, $.1 million and $.2 million,
respectively. These increases were partially offset by the reduction in
realized gains from investment sales of $.2 million.
10 <PAGE>
Second quarter other income increased to $2.9 million from $2.3 million
compared to the same quarter of 1998. This increase is mainly from commissions
received from the reinsurance company and gains realized from sales of
investment securities for $.2 million, and $.1 million, respectively.
Other Expenses
Other expenses for the first six months of 1999, as compared to the same
period of 1998, increased slightly to $21.9 million from $21.2 million or 3.2%.
Most of the components of other expenses increased slightly and no one
significant factor contributed to this increase.
Second quarter other expenses also increased slightly to $11.0 million from
$10.7 million or 2.8% for the same quarter of 1998.
Allowance for Loan Losses
The Corporation's provision for loan losses decreased to $2.6 million from
$3.0 million for the first six months of 1999 compared to the same period a year
earlier.
At June 30, 1999, the allowance for loan losses was 1.54% of net loans. This
compares with an allowance of 1.48% at December 31, 1998. Net chargeoffs for
the first six months of 1999 were $1.2 million compared to $2.0 million for the
same period of 1998. This decrease was due to the improvements of overall loan
portfolio quality. The ratio of net chargeoffs to average loans outstanding for
the last five years ended December 31, 1998, was .33%. With this experience and
based on management's review of the portfolio, management believes the allowance
of $17.8 million at June 30, 1999 is adequate.
Under-performing Assets
Under-performing assets consist primarily of (1) nonaccrual loans and
leases on which the ultimate collectability of the full amount of interest is
uncertain, (2) loans and leases which have been renegotiated to provide for a
reduction or deferral of interest or principal because of a deterioration in
the financial position of the borrower, (3) loans and leases past due ninety
days or more as to principal or interest and (4) land sold on contract and
others. A summary of under-performing assets at June 30, 1999 and December 31,
1998 follows:
(000's) (000's)
June 30, 1999 December 31, 1998
Nonaccrual loans and leases $ 3,650 $ 4,103
Renegotiated loans and leases 1,397 70
Land sold on contract and others 2,210 1,914
Total non-performing assets $ 7,257 $ 6,087
Ninety days past due loans and leases 7,159 8,184
Total under-performing assets $14,416 $ 14,271
Ratio of the allowance for loan losses
as a percentage of non-performing assets 245% 270%
Ratio of the allowance for loan losses
as a percentage of under-performing assets 123% 115%
11 <PAGE>
The following loan categories comprise significant components of the under-
performing loans at June 30, 1999 and December 31, 1998.
Non-Accrual Loans:
(000's) (000's)
June 30, 1999 December 31, 1998
1-4 family residential $1,858 51% $1,927 47%
Commercial loans 992 27 587 14
Installment loans 775 21 879 22
Other, various 25 1 710 17
$3,650 100% $4,103 100%
Past due 90 days or more:
1-4 family residential $3,508 49% $3,456 42%
Commercial loans 2,274 32 2,963 36
Installment loans 734 10 590 7
Other, various 643 9 1,175 15
$7,159 100% $8,184 100%
There are no material industry concentrations within the under-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
June 30, 1999 the Corporation had $2.1 million of these loans which are still in
accrual status.
Interest Rate Sensitivity and Liquidity
The Corporation charges the nine subsidiary banks with monitoring and
managing their individual sensitivity to fluctuations in interest rates and
assuring that they have adequate liquidity to meet loan demand or any potential
unexpected deposit withdrawals. 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. This goal is accomplished through management of the subsidiary bank's
balance sheet liquidity and interest rate risk exposures due to the changes in
economic conditions and interest rate levels.
Interest Rate Risk
Management considers interest rate risk to be the Corporation s most
significant market risk. Interest rate risk is the exposure to changes in net
interest income as a result of changes in interest rates. Consistency in the
Corporation's net income is largely dependent on the effective management of
this risk.
The Committee reviews a series of monthly reports to ensure that
performance objectives are being met. The Committee monitors and controls
interest rate risk through earnings simulation. Simulation modeling measures
the effects of changes in interest rates, changes in the shape of the yield
curve, and changes in prepayment speeds on net interest income. The primary
measure of Interest Rate Risk is "Earnings at Risk." This measure projects the
earnings effect of various rate movements over the next three years on net
interest income. It is important to note that measures of interest rate risk
have limitations and are dependent upon certain assumptions. These assumptions
are inherently uncertain and, as a result, the model cannot precisely predict
the impact of interest rate fluctuations on net interest income. Actual results
12 <PAGE>
will differ from simulated results due to timing, frequency and amount of
interest rate changes as well as overall market conditions. The Committee has
performed a thorough analysis and believes the assumptions to be valid and
theoretically sound. The relationships are continuously monitored for
behavioral changes.
In its interest rate risk management, the Corporation currently does not
utilize any derivative products and is not engaged in securities trading
activity. The Corporation instead invests in assets whose value is derived from
an underlying asset. These assets include government agency issued mortgage-
backed securities. The performance of these assets in changing rate
environments is included in the following table.
The table below shows the Corporation's estimated earnings sensitivity
profile as of June 30, 1999. Given a 100 basis point increase in rates, net
interest income would decrease 1.07% over the next 12 months and decrease 4.44%
over the next 24 months. A 100 basis point decrease would result in a 1.67%
decrease in net interest income over the next 12 months and a 1.35% increase
over the next 24 month periods. These estimates assume all rates changed
overnight and management took no action as a result of this change.
Basis Point Percentage Change in Net Interest Income
Interest Rate Change 12 months 24 months 36 months
Down 300 -6.80% -0.72% -7.82%
Down 200 -3.85 1.34 -3.46
Down 100 -1.67 1.35 -1.12
Up 100 -1.07 -4.44 -2.00
Up 200 -2.11 -8.59 -3.52
Up 300 -2.58 -11.40 -3.27
The Corporation uses products which contain options, most notably callable
agency securities and putable Federal Home Loan Bank advances. The securities
pay a premium rate and the advances charge a discounted rate in exchange for the
option. Therefore, there is a benefit to current income by using these products.
Typical rate shock analysis does not reflect management s ability to react and
thereby reduce the effects of rate changes, and represents a worst case
scenario. The model assumes no actions are taken and prices change to the full
extent of the rate shock.
Liquidity Risk
Liquidity is measured by each bank's ability to raise funds to meet the
obligations from its customers, including deposit withdrawals and credit needs.
This is accomplished primarily by maintaining sufficient liquid assets in the
form of investment securities and core deposits. The Corporation has $11.5
million of investments that mature throughout the coming 12 months. The
Corporation also anticipates $71.1 million of principal payments from mortgage-
backed securities. Given the current interest rate environment, the Corporation
anticipates $5.1 million of securities to be called within the next 12 months.
With these sources of funds, the Corporation currently anticipates adequate
liquidity to meet the expected obligations of its customers.
Capital Adequacy
As of June 30, 1999 the Corporation's leverage ratio was 9.23% compared to
9.51% at December 31, 1998.
At June 30, 1999 the Corporation's total capital, which includes Tier II
capital, was 16.43% compared to 16.29% at December 31, 1998. These amounts
exceed minimum regulatory capital requirements.
13 <PAGE>
Year 2000
The Year 2000 problem concerns the inability of information systems to
properly recognize and process date sensitive information beginning on December
31, 1999. The Corporation has developed a Year 2000 team responsible for
ensuring that its information technology (IT) systems and software, and non-IT
systems are Year 2000 compliant in time to minimize any significant detrimental
effects on operations and service to its customers.
The Corporation is currently in the validation stage of a five step Year
2000 program. The awareness, assessment and renovation steps have been
completed for all mission critical applications. The validation stage includes
the necessary software and hardware testing that is required as well as ongoing
discussions with vendors and customers on the success of their validation
efforts. The Corporation utilizes Fiserv-CBS software for processing all of its
core applications. The testing of this software began on September 1, 1998, and
was substantially completed by the end of 1998. Currently the Corporation is
focusing on maintaining the internal core processing system s readiness and will
continue the effort until the Year 2000. In addition, the Corporation will
continue to manage third party system relationships, update disaster recovery
and contingency plans, and will also continue to test secondary computer
systems. The remainder of Year 2000 mission critial testing was completed by
June 30, 1999.
The Corporation is in the process of corresponding with its major
commercial loan customers and major suppliers and vendors to assess the credit
risk related to the Year 2000 problem as well as the risk of business
interruption. The majority of the Corporation s non-IT related systems have
been assessed as Year 2000 compliant and the final testing phase was completed
by June 30, 1999.
The total estimated cost related to the Year 2000 issue, including the cost
of replacing equipment is $622,000. Total incremental cost incurred through
June 30, 1999 is approximately $419,000. The Corporation does not expect that
the cost related to the Year 2000 project will have a material effect on the
results of its operations or financial condition.
The above expectations are subject to inherent uncertainties of the Year
2000 problem, including the readiness of third-party suppliers and regulatory
agencies that the Corporation depends upon to meet customers needs. The failure
to correct a material problem could result in an interruption or failure of
normal business activities or operations. Such failures could materially affect
the Corporation's ability to meet customers' needs and ultimately affect its
results of operations and financial condition. The Corporation believes that
with the successful completion of its Year 2000 program, the possibility of
significant interruptions will be reduced.
Concurrently with the Year 2000 program described above, the Corporation
has developed contingency plans intended to mitigate the possible disruption in
business operations that may result from the year 2000 problem and is estimating
the costs for such plans. Contingency plans include increasing cash in vault,
ordering extra forms/supplies, increasing allowance for loan loss allocation for
year 2000 credit risk, establishing trigger dates for activating alternative
solutions/vendors, identifying possible alternative vendors, preparing for some
manual preparation of checks, forms, etc., and other appropriate measures.
Contingency plans and related cost estimates are being continually refined as
information becomes available.
14 <PAGE>
FIRST FINANCIAL CORPORATION
PART II OTHER INFORMATION
ITEM 4. Submission of Matters to a Vote of Security Holders
(a) The Annual meeting of the shareholders of the Corporation was held on
April 21, 1999.
(b) The following were elected Directors of the Corporation for a three
year term: B. Guille Cox, Jr., Anton H. George, Gregory L Gibson and
John W. Ragle.
(c) The shareholders unanimously approved the annual report of the
Corporation and unanimously approved the actions of the Directors and
Officers of the Corporation for the fiscal year ended December 31,
1998.
- -----------------------------------------------------------------------
No other information is required to be filed under Part II of this form.
15 <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: August 13, 1999 By (Signature)
Donald E. Smith, President
Date: August 13, 1999 By (Signature)
John W. Perry, Secretary
Date: August 13, 1999 By (Signature)
Michael A. Carty, Treasurer
16 <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: August 13, 1999 By_________________________
Donald E. Smith, President
Date: August 13, 1999 By_________________________
John W. Perry, Secretary
Date: August 13, 1999 By_________________________
Michael A. Carty, Treasurer
17 <PAGE>
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<PERIOD-END> JUN-30-1999
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