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
March 31, 2000
<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 March 31, 2000
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 March 31, 2000 were outstanding 6,762,368 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.................5
Consolidated Statements of Cash Flows...........................6
Notes to Consolidated Financial Statements......................7
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations............9
Item 3. Quantitative and Qualitative Disclosures
About Market Risk........................................9
PART II. Other Information:
Signatures..........................................................13
2 <PAGE>
FIRST FINANCIAL CORPORATION
CONSOLIDATED STATEMENTS OF CONDITION
March, 31 December, 31
2000 1999
(Unaudited)
ASSETS (Amounts in thousands)
Cash and due from banks $58,965 $58,075
Federal funds sold and securities purchased
under agrrement to resell 11,970 190
Securities, available-for-sale 593,673 594,319
Loans:
Commercial, financial and agricultural 261,113 247,949
Real estate - construction 47,704 44,782
Real estate - mortgage 689,668 671,972
Installment 225,417 223,459
Lease financing 4,785 5,723
1,228,687 1,193,885
Less:
Unearned income -761 -1,987
Allowance for loan losses -18,684 -17,949
1,209,242 1,173,949
Accrued interest receivable 14,740 14,703
Premises and equipment, net 26,293 26,095
Other assets 38,822 37,870
TOTAL ASSETS $1,953,705 $1,905,201
LIABILITIES AND SHAREHOLDERS' EQUITY
Deposits:
Noninterest-bearing $146,741 $148,230
Interest-bearing:
Certificates of deposit of $100 or more 215,804 218,515
Other interest-bearing deposits 885,074 889,370
1,247,619 1,256,115
Short-term borrowings 93,655 63,499
Other borrowings 423,449 382,322
Other liabilities 18,633 34,583
TOTAL LIABILITIES 1,783,356 1,736,519
Shareholders' equity:
Common stock, $.125 stated value per share;
Authorized shares--40,000,000
Issued shares--7,225,483 shares in 2000 and 1999
Outstanding shares--6,762,368 in 2000 and
6,845,418 in 1999 903 903
Additional capital 66,680 66,680
Retained earnings 131,095 125,680
Accumulated other comprehensive income:
Unrealized (losses) gains on investments, net of tax -8,649 -7,819
Less: Treasury shares at cost--463,115 in 2000 and
380,065 in 1999 19,680 16,762
TOTAL SHAREHOLDERS' EQUITY 170,349 168,682
TOTAL LIABILITIES AND SHAREHOLDER'S EQUITY $1,953,705 $1,905,201
The accompanying notes are an integral part of the consolidated financial
statements.
3 <PAGE>
FIRST FINANCIAL CORPORATION
CONSOLIDATED STATEMENTS OF INCOME
Three Months Ended
March 31
2000 1999
(Unaudited)
(Amounts in thousands,
except per share data)
INTEREST INCOME:
Loans $25,256 $23,434
Investment securities:
Taxable 7,695 6,999
Tax-exempt 2,103 1,999
9,798 8,998
Other interest income 97 334
TOTAL INTEREST INCOME 35,151 32,766
INTEREST EXPENSE:
Deposits 11,565 11,431
Other 6,832 4,852
TOTAL INTEREST EXPENSE 18,397 16,283
NET INTEREST INCOME 16,754 16,483
Provision for loan losses 860 1,482
NET INTEREST INCOME AFTER
PROVISION FOR LOAN LOSSES 15,894 15,001
OTHER INCOME
Trust department 775 737
Service charges and fees on deposit accounts 1,053 872
Investment securities gains 0 24
Other 857 1,214
2,685 2,847
OTHER EXPENSES
Salaries and employee 5,899 6,064
Occupancy expense 772 735
Equipment expense 960 883
Other 3,195 3,203
10,826 10,885
INCOME BEFORE INCOME TAX EXPENSE 7,753 6,963
Income Tax Expense 2,338 1,971
NET INCOME $5,415 $ 4,992
EARNINGS PER SHARE:
NET INCOME $0.80 $ 0.71
Weighted average number of
shares outstanding 6,802 7,046
The accompanying notes are an integral part of the consolidated financial
statements.
4 <PAGE>
<TABLE>
FIRST FINANCIAL CORPORATION
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
Three Months Ended
March 31, 2000 and 1999
<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, 2000 $903 $66,680 $125,680 $-7,819 $-16,762 $168,682
Comprehensive income:
Net income 5,415 5,415
Changes in net unrealized
gains / losses on securities,
net of tax and reclassification
adjustments -830 -830
Total comprehensive income 4,585
Treasury stock purchased -2,918 2,918
__________________________________________________________________
Balance, March 31, 2000 $903 $66,680 $131,095 $-8,649 $-19,680 $170,349
Balance, January 1, 1999 $903 $66,680 $110,566 $8,123 $-4,089 $182,183
Comprehensive income:
Net income 4,992 4,992
Change in net unrealized
gains/losses on securities,
net of tax and reclassification
adjustments -2,135 -2,135
Total comprehensive income 2,857
Treasury stock purchased -7,760 -7,760
Balance, March 31, 1999 $903 $66,680 $115,558 $5,988 $-11,849 $177,280
The accompanying notes are an integral part of the consolidated financial
statements.
</TABLE>
5 <PAGE>
FIRST FINANCIAL CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
Three Months Ended
March 31,
2000 1999
(Unaudited)
(Amounts in thousands)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income $ 5,415 $4,992
Adjustment to reconcile net income to net cash
provided by operating activities:
Net amortization of discounts on investments -533 -375
Provision for loan losses 860 1,482
Securities gains 0 -24
Provision for depreciation and amortization 821 703
Other, net -13,622 3,034
NET CASH PROVIDED BY OPERATING ACTIVITIES -7,059 9,812
CASH FLOWS FROM INVESTING ACTIVITIES:
Sale of available-for-sale securities 116 11,006
Maturities of available-for-sale securities 17,213 89,899
Purchases of available-for-sale securities -17,402 -65,032
Loans made to customers, net of repayments -35,606 -7,034
Net increase in federal funds sold -11,780 -26,960
Additions to premises and equipment -1,019 -909
NET CASH PROVIDED (USED) BY INVESTING ACTIVITIES -48,478 970
CASH FLOWS FROM FINANCING ACTIVITIES:
Net change in deposits -8,496 -20,085
Net (decrease) increase in short-term borrowings 30,156 -4,279
Dividends paid -3,442 -3,154
Purchase of treasury stock -2,918 -7,760
Proceeds from other borrowings 147,491 37,099
Repayments on other borrowings -106,364 -21,271
NET CASH (USED) PROVIDED BY FINANCING ACTIVITIES 56,427 -19,450
NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS 890 -8,668
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 58,075 54,877
CASH AND CASH EQUIVALENTS, END OF PERIOD $58,965 $46,209
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the period for interest $17,978 $16,327
Income taxes paid $592 $721
The accompanying notes are an integral part of the consolidated financial
statements.
6 <PAGE>
FIRST FINANCIAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The accompanying March 31, 2000 and 1999 consolidated financial statements are
unaudited. The December 31, 1999 consolidated financial statements are as
reported in the First Financial Corporation (the Corporation) 1999 annual
report. The following notes should be read together with notes to the
consolidated financial statements included in the 1999 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. The Corporation
reports financial information for only one segment, banking.
SFAS No. 133, "Accounting for Derivative Instruments and Hedging
Activities," establishes accounting and reporting standards for derivative
instruments, including certain derivative instruments embedded in other
contracts and for hedging activities. SFAS No. 133, which will be adopted by
the Corporation in 2001, is not anticipated to have a material impact on the
Corporation's financial position or results of operations.
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)
March 31,
2000 1999
Impaired loans with related allowance for loan
losses calculated under SFAS No. 114...................$1,588 $3,033
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.
3. Securities
The cost and fair value of the Corporation's securities at March 31, 2000
are shown below. All securities are classified as available-for-sale.
(000's)
March 31, 2000
Amortized Cost Fair Value
Available-For-Sale:
United States Government $184,419 $177,007
United States Government Agencies 210,911 203,668
State and Municipal 165,036 162,667
Other 51,339 50,340
$611,705 $593,682
7 <PAGE>
4. Short-Term Borrowings
Period-end short-term borrowings were comprised of the following:
March 31, December 31,
2000 1999
Federal Funds Purchased $69,847 $19,559
Repurchase Agreements 23,123 35,718
Note Payable - U.S. Government 685 8,222
$93,655 $63,499
5. Other Borrowings
Long term borrowings at period end are summarized as follows:
March 31, December 31,
2000 1999
FHLB Advances $416,842 $375,713
City of Terre Haute, Indiana
Economic Development Revenue Bonds 6,600 6,600
Other 7 9
$423,449 $382,322
6. Changes in Shareholders' Equity
Under the Corporation's common stock repurchase program announced in November,
1999, the Corporation has repurchased 463,115 shares as of March 31, 2000
compared to 380,065 shares as of December 31, 1999.
8 <PAGE>
FIRST FINANCIAL CORPORATION
ITEM 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations and ITEM 3 Quantitative and Qualitative Disclosures
About Market Risk
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 figures are for the consolidated entities. It is
presumed the readers of these financial statements and of the following
narrative have previously read the Corporation's annual report for 1999.
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
Net income of $5.4 million was up 8.5% from the $5.0 million reported in 1999.
Basic earnings per share was up 12.7% from the $.71 reported in the first
quarter of 1999 to $.80 per share for the same period in 2000.
The increased earnings are the result of a 1.6% increase in net interest
income and a 42% decrease in the provision for loan losses from the same period
for 1999.
Net 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. Net interest
income increased to $16.8 million in the first three months of 2000 from $16.5
million in the same period of 1999 due to an increase in earning asset volume
while the net interest margin decreased to 3.99% in 2000 from 4.08% in the same
period of 1999. This decrease resulted from a shift in the liability mix to
higher cost products.
Other Income
Other income for the three month period ending March 31, 2000, as compared to
the same period of 1999 decreased $.2 million or 5.7%. The reduction was the
result of a $.4 million or 29.4% decrease in other income, primarily gains or
losses incurred in the sale of residential real estate loans.
Other Expenses
Other expenses for the first three months of 2000, as compared to the same
period of 1999, remained relatively the same with slight increases in occupancy
and equipment costs offset by a 2.7% decrease in salaries and employee benefits.
Allowance for Loan Losses
The Corporation's provision for loan losses decreased to $860 thousand for the
first three months of 2000 compared to $1.5 million in the same period of 1999.
9 <PAGE>
At March 31, 2000, the allowance for loan losses was 1.52% of net loans. This
compares with an allowance of 1.50% at December 31, 1999. Net chargeoffs for
the first three months of 1999 were $.1 million compared to $.5 million for the
same period of 1999. The ratio of net chargeoffs to average loans outstanding
for the last five years ended December 31, 1999, was .33%. With this experience
and based on management's review of the portfolio, management believes the
allowance of $18.6 million at March 31, 2000 is adequate.
Underperforming Assets
Underperforming 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 oor
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. A summary of
Underperforming assets at March 31, 2000 and December 31, 1999 follows:
(000') (000')
March 31, 2000 December 31, 1999
Nonaccrual loans and leases $ 2,570 $ 2,879
Renegotiated loans and leases 700 959
Land sold on contract and others 3,155 3,248
Total non-performing assets 6,425 7,086
Ninety days past due loans and leases 5,251 5,229
Total Underperforming assets $11,676 $12,315
Ratio of the allowance for loan losses
as a percentage of non-performing assets 291% 253%
Ratio of the allowance for loan losses
as a percentage of Underperforming assets 160% 146%
The following loan categories comprise significant components of the
under-performing loans at March 31, 2000 and December 31, 1999.
Non-Accrual Loans:
(000's) (000's)
March 31, 2000 December 31, 1999
1-4 family residential $1,235 48% $1,617 56%
Commercial loans 733 28 697 24
Installment loans 524 21 544 19
Other, various 78 3 21 1
$2,570 100% $2,879 100%
Past due 90 days or more:
1-4 family residential $1,861 35% $2,927 56%
Commercial loans 2,310 44 1,306 25
Installment loans 889 17 830 16
Other, various 191 4 166 3
$5,251 100% $5,229 100%
There are no material industry concentrations within the Underperforming
loans.
10 <PAGE>
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 and Quantitative and Qualitative
Disclosures About Market 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 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 March 31, 2000. Given a 100 basis point increase in rates, net interest
income would decrease .62% over the next 12 months and decrease 1.61% over the
second 12 month period. A 100 basis point decrease would result in a .84%
decrease in net interest income over the next 12 months and a .73% decrease over
the second 12 month period. 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 -.39% -.08% -2.23%
Down 200 .17 .35 -1.79
Down 100 -.84 -.73 -2.86
Up 100 -.62 -1.61 6.85
Up 200 -2.47 -2.68 -.54
Up 300 - 2.86 -3.20 -1.14
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.
11 <PAGE>
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 $10.7
million of investments that mature throughout the coming 12 months. The
Corporation also anticipates $31.0 million of principal payments from mortgage-
backed securities. Given the current interest rate environment, the Corporation
anticipates $1.4 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.
Financial Condition
The Corporation experienced asset growth of $48.5 million for first quarter or
2.5% since year end. This compares to the $15.7 million for the same period of
1999. This growth was the result of an increase in net loans outstanding of
$35.3 million and increased federal funds sold and securities purchased under
agreements to resell of $11.8 million. The growth was funded by a 10.7%
increase, $41.1 million, in other borrowings, Federal Home Loan Bank advances,
and a $30.1 million increase in Short-term borrowings.
Capital Adequacy
As of March 31, 2000 the Corporation's leverage ratio was 8.82% compared to
9.18% at December 31, 1999.
At March 31, 2000 the Corporation's total capital, which includes Tier II
capital, was 14.95% compared to 15.91% at December 31, 1999. These amounts
exceed minimum regulatory capital requirements.
12 <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: May 12, 2000 By (Signature)
Donald E. Smith, Chairman
Date: May 12, 2000 By (Signature)
Norman L. Lowery, Vice Chairman
Date: May 12, 2000 By (Signature)
Michael A. Carty, Treasurer
13 <PAGE>
<TABLE> <S> <C>
<ARTICLE> 9
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-2000
<PERIOD-END> MAR-31-2000
<CASH> 58,965
<INT-BEARING-DEPOSITS> 0
<FED-FUNDS-SOLD> 11,970
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 593,673
<INVESTMENTS-CARRYING> 593,673
<INVESTMENTS-MARKET> 593,673
<LOANS> 1,227,926
<ALLOWANCE> 18,684
<TOTAL-ASSETS> 1,953,705
<DEPOSITS> 1,247,619
<SHORT-TERM> 93,655
<LIABILITIES-OTHER> 18,633
<LONG-TERM> 423,449
0
0
<COMMON> 903
<OTHER-SE> 169,446
<TOTAL-LIABILITIES-AND-EQUITY> 1,953,705
<INTEREST-LOAN> 25,256
<INTEREST-INVEST> 9,798
<INTEREST-OTHER> 97
<INTEREST-TOTAL> 35,151
<INTEREST-DEPOSIT> 11,565
<INTEREST-EXPENSE> 18,397
<INTEREST-INCOME-NET> 16,754
<LOAN-LOSSES> 860
<SECURITIES-GAINS> 0
<EXPENSE-OTHER> 10,826
<INCOME-PRETAX> 7,753
<INCOME-PRE-EXTRAORDINARY> 7,753
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 5,415
<EPS-BASIC> .80
<EPS-DILUTED> .80
<YIELD-ACTUAL> 3.99
<LOANS-NON> 2,570
<LOANS-PAST> 5,251
<LOANS-TROUBLED> 700
<LOANS-PROBLEM> 1588
<ALLOWANCE-OPEN> 17,949
<CHARGE-OFFS> 810
<RECOVERIES> 685
<ALLOWANCE-CLOSE> 18,684
<ALLOWANCE-DOMESTIC> 18,684
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
