<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, 1999 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, 2000 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 $164,285,196. (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, 2000--6,845,418
shares.
DOCUMENTS INCORPORATED BY REFERENCE
-----------------------------------
Portions of the 1999 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 19, 2000 are incorporated by
reference into Part III.
<PAGE> 2
FORM 10-K CROSS-REFERENCE INDEX
PAGE
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.....................................................5
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 1999 Annual Report to Shareholders:
1. Description of bank services,affiliations,number of employees,and
competition, on page 23.
2. Information regarding supervision of the Bank, on page 8.
3. Details regarding competition, on page 23.
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 facil-
ities in downtown Terre Haute. One is leased to another party and the other is a
50,000-square-foot building housing operations and administrative staff and
equipment. In addition,the Bank holds in fee four other branch buildings. One of
the branch buildings is a single-story 44,000-square-foot building which is
located in a Terre Haute suburban area. Six other branch bank buildings are
leased by the Bank. The expiration dates on the leases are February 14, 2011,
May 31, 2011,June 30, 2004, December 31, 2003, June 30, 2002, and September 1,
2001.
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 three branch facilities
in Cayuga and Clinton,Indiana. All four 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.
Facilities 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.
The facility of the Corporation's subsidiary, The Morris Plan
Company, includes an office facility in Terre Haute, Indiana. The building is
held in fee by The Morris Plan Company.
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 33 of the 1999 Annual Report.
ITEM 6. SELECTED FINANCIAL DATA
See "Five Year Comparison of Selected Financial Data"on page 4 of the 1999
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 23 through 31 of the
1999 Annual Report to Shareholders.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
See "Interest Rate Risk" section of "Management's Discussion and Analysis"
on pages 30 and 31 of the 1999 Annual Report to Shareholders.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
See "Consolidated Balance Sheets" on page 15, "Consolidated Statements of
Income" on page 6, "Consolidated Statements of Shareholders Equity" on page
7, "Consolidated Statements of Cash Flows" on page 8, and "Notes to Consolidated
Financial Statement" on pages 9-21. "Responsibility for Financial Statements"
and "Report of Independent Accountants" can be found on page 22. Statistical
disclosure by Bank Holding Company include the following information:
1. "Volume/Rate Analysis," on page 24.
2. "Loan Portfolio," on page 26.
3. "Allowance for Possible Loan Losses," on page 27.
4. "Under-Performing Loans," on page 28.
5. "Deposits," on page 29.
6. "Short-Term Borrowings," on page 29.
7. "Consolidated Balance Sheet-Average Balances and Interest Rates,"
on page 32.
ITEM 9. CHANGES IN AND DISAGREEMENT WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF REGISTRANT
See pages 3 and 4 of the Annual Proxy Statement of First Financial
Corporation.
ITEM 11. EXECUTIVE COMPENSATION
See pages 4 through 7 of the Annual Proxy Statement of First Financial
Corporation.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
See pages 2 and 3 of the Annual Proxy Statement of First Financial
Corporation.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
See "Certain Relationships" on page 3, and "Transactions with Management"
on page 7 of the Annual Proxy Statement of First Financial Corporation.
3
<PAGE> 5
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENTS SCHEDULES AND REPORTS ON FORM 8-K
(a)(1) The following consolidated financial statements of the Registrant
and its subsidiaries are included in the Annual Report of First
Financial Corporation attached:
Consolidated Balance Sheets--December 31, 1999 and 1998
Consolidated Statements of Income--Years ended December 31, 1999,
1998, and 1997
Consolidated Statements of Shareholders' Equity--Years ended
December 31, 1999, 1998 and 1997
Consolidated Statements of Cash Flow--Years ended December 31, 1999,
1998 and 1997
Notes to Consolidated Financial Statements
(2) Schedules to the Consolidated Financial Statements required by
Article 9 of Regulation S-X are not required,inapplicable,or the
required information has been disclosed elsewhere.
(3) Listing of Exhibits:
Exhibit Number Description
-------------- -----------
21 Subsidiaries
(b) Reports on Forms 8-K--None
(c) Exhibits--Exhibits to (a)(3) listed above are attached to this
report.
(d) Financial Statements Schedules--No schedules are required to be
submitted. See response to ITEM 14(a)(2).
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
First Financial Corporation
Michael A. Carty, Signed
-----------------------------------
Michael A. Carty, Treasurer
(Principal Financial Officer
and Principal Accounting Officer)
Date: March 21, 2000
--------------
4
<PAGE> 6
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the registrant and
in the capacities and on the dates indicated.
NAME DATE
Donald E. Smith, Signed March 21, 2000
- ------------------------------------
Donald E. Smith,President & Director
(Principal Executive Officer)
John W. Perry, Signed March 21, 2000
- ------------------------------------
John W. Perry, Secretary
Walter A. Bledsoe, Signed March 21, 2000
- ------------------------------------
Walter A. Bledsoe, Director
B. Guille Cox, Jr., Signed March 21, 2000
- ------------------------------------
B. Guille Cox, Jr., Director
Thomas T. Dinkel, Signed March 21, 2000
- ------------------------------------
Thomas T. Dinkel, Director
Anton H. George, Signed March 21, 2000
- ------------------------------------
Anton H. George, Director
Mari H. George, Signed March 21, 2000
- ------------------------------------
Mari H. George, Director
Gregory L. Gibson, Signed March 21, 2000
- ------------------------------------
Gregory L. Gibson, Director
Max Gibson, Signed March 21, 2000
- ------------------------------------
Max Gibson, Director
Norman L. Lowery, Signed March 21, 2000
- ------------------------------------
Norman L. Lowery, Director
William A. Niemeyer, Signed March 21, 2000
- ------------------------------------
William A. Niemeyer, Director
Patrick O'Leary, Signed March 21, 2000
- ------------------------------------
Patrick O'Leary, Director
John W. Ragle, Signed March 21, 2000
- ------------------------------------
John W. Ragle, Director
Chapman J. Root II, Signed March 21, 2000
- ------------------------------------
Chapman J. Root II, Director
Virginia L. Smith, Signed March 21, 2000
- ------------------------------------
Virginia L. Smith, Director
5
<PAGE> 7
FIRST FINANCIAL CORPORATION
FIVE YEAR COMPARISON OF SELECTED FINANCIAL DATA
<TABLE>
<CAPTION>
(Dollar amounts in thousands,
except per share amounts) 1999 1998 1997 1996 1995
- ----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Total assets $1,905,201 $1,849,752 $1,634,936 $1,619,642 $1,545,307
Investments 594,319 633,365 527,993 582,744 544,289
Net loans 1,191,898 1,111,765 1,005,799 918,767 879,516
Deposits 1,256,115 1,260,365 1,194,524 1,175,228 1,163,481
Borrowings 445,821 385,700 256,214 278,352 225,579
Shareholders' equity 168,682 182,183 165,480 150,377 140,075
INCOME STATEMENT DATA:
Interest income 133,576 129,137 122,372 115,836 106,330
Interest expense 66,815 66,430 62,072 57,810 54,144
Net interest income 66,761 62,707 60,300 58,026 52,186
Provision for loan losses 4,725 5,396 5,382 4,461 2,563
Other income 12,012 10,611 8,957 7,849 7,922
Other expenses 43,543 42,567 39,629 39,280 38,690
Net income 21,622 18,558 18,100 15,971 13,897
PER SHARE DATA:
Net income 3.10 2.58 2.58 2.28 1.98
Cash dividends .94 .84 .72 .61 .51
PERFORMANCE RATIOS:
Net income to average assets 1.16% 1.07% 1.11% 1.03% .97%
Net income to average
shareholders' equity 12.55 10.76 11.74 11.19 10.65
Average total capital
to average assets 10.13 10.71 10.13 9.80 9.84
Average shareholders' equity
to average assets 9.28 9.90 9.45 9.19 9.15
Dividend payout 30.10 32.54 28.06 26.85 25.58
</TABLE>
6
<PAGE> 8
CONSOLIDATED BALANCE SHEETS
December 31,
--------------------------------
(Dollar amounts in thousands,
except per share data) 1999 1998
- -------------------------------------------------------------------------------
ASSETS
Cash and due from banks $ 58,075 $ 54,877
Federal funds sold 190 450
Available-for-sale securities 594,319 633,365
Loans, net of unearned income of $1,987 in
1999 and $1,886 in 1998 1,191,898 1,111,765
Less: Allowance for loan losses 17,949 16,429
---------- ----------
TOTAL NET LOANS 1,173,949 1,095,336
Accrued interest receivable 14,703 14,704
Premises and equipment 26,095 24,426
Other assets 37,870 26,594
---------- ----------
TOTAL ASSETS $1,905,201 $1,849,752
========== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
Deposits:
Non-interest-bearing $ 148,230 $ 148,747
Interest-bearing:
Certificates of deposit of $100 or more 218,515 196,773
Other interest-bearing deposits 889,370 914,845
---------- ----------
1,256,115 1,260,365
Short-term borrowings 63,499 103,632
Other borrowings 382,322 282,068
Other liabilities 34,583 21,504
---------- ----------
TOTAL LIABILITIES 1,736,519 1,667,569
Shareholders' equity
Common stock, $.125 stated value per
share, Authorized shares -- 40,000,000
Issued shares -- 7,225,483 in 1999 and 1998
Outstanding shares-- 6,845,418 in 1999
and 7,134,390 in 1998 903 903
Additional capital 66,680 66,680
Retained earnings 125,680 110,566
Accumulated other comprehensive income:
Unrealized (losses) gains on investments,
net of tax (7,819) 8,123
Less: Treasury shares at cost-- 380,065 in
1999 and 91,093 in 1998 (16,762) (4,089)
---------- ----------
TOTAL SHAREHOLDERS' EQUITY 168,682 182,183
---------- ----------
TOTAL LIABILITIES AND SHAREHOLDERS'
EQUITY $1,905,201 $1,849,752
========== ==========
The accompanying notes are an integral part of the consolidated financial
statements.
7
<PAGE> 9
FIRST FINANCIAL CORPORATION
CONSOLIDATED STATEMENTS OF INCOME
Years Ended December 31,
-----------------------------------
(Dollar amounts in thousands,
except per share data) 1999 1998 1997
- -------------------------------------------------------------------------------
INTEREST INCOME:
Loans, including related fees $ 96,175 $ 93,579 $ 83,653
Securities:
Taxable 28,500 27,091 31,133
Tax-exempt 8,049 7,810 7,395
Other 852 657 191
--------- --------- ---------
TOTAL INTEREST INCOME 133,576 129,137 122,372
INTEREST EXPENSE:
Deposits 45,337 50,388 46,285
Short-term borrowings 3,469 2,715 2,853
Other borrowings 18,009 13,327 12,934
--------- --------- ---------
TOTAL INTEREST EXPENSE 66,815 66,430 62,072
--------- --------- ---------
NET INTEREST INCOME 66,761 62,707 60,300
Provision for loan losses 4,725 5,396 5,382
--------- --------- ---------
NET INTEREST INCOME AFTER
PROVISION FOR LOAN LOSSES 62,036 57,311 54,918
NON-INTEREST INCOME:
Trust services income 2,522 2,179 1,973
Service charges and fees on
deposit accounts 4,010 3,845 3,813
Other service charges and fees 3,763 1,679 1,358
Investment securities gains (losses) 189 905 407
Other 1,528 2,003 1,406
--------- --------- ---------
TOTAL NON-INTEREST INCOME 12,012 10,611 8,957
NON-INTEREST EXPENSES:
Salaries and employee benefits 24,558 23,519 22,041
Occupancy expense 2,887 2,823 2,870
Equipment expense 3,650 3,370 3,189
Printing and supplies expense 993 1,118 1,168
Other 11,455 11,737 10,361
--------- --------- ---------
43,543 42,567 39,629
--------- --------- ---------
INCOME BEFORE INCOME TAXES 30,505 25,355 24,246
Provision for income taxes 8,883 6,797 6,146
--------- --------- ---------
NET INCOME $ 21,622 $ 18,558 $ 18,100
========= ========= =========
EARNINGS PER SHARE:
NET INCOME $ 3.10 $ 2.58 $ 2.58
========= ========= =========
Weighted average number of shares
outstanding in thousands 6,964 7,206 7,016
========= ========= =========
The accompanying notes are an integral part of the consolidated financial
statements.
8
<PAGE> 10
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
Accumulated
Other
Common Additional Retained Comprehensive Treasury
(Dollar amounts in thousands, except per share data) Stock Capital Earnings Income Stock Total
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Balance, January 1, 1997 $ 835 $ 43,761 $101,093 $ 4,688 $ - $150,377
Comprehensive income:
Net income - - 18,100 - - 18,100
Change in net unrealized gains/losses
on available-for-sale securities net
of reclassification and tax effects - - - 2,082 - 2,082
--------
Total comprehensive income - - - - - 20,182
Stock dividend, 5% 42 16,026 (16,068) - - -
Cash dividends, $ .72 per share - - (5,079) - - (5,079)
-------- -------- -------- -------- -------- --------
Balance, December 31, 1997 877 59,787 98,046 6,770 - 165,480
Comprehensive income:
Net income - - 18,558 - - 18,558
Other comprehensive income, net of tax:
Change in net unrealized gains/losses
on available-for-sale securities net
of reclassification and tax effects - - - 1,353 - 1,353
--------
Total comprehensive income - - - - - 19,911
Treasury stock purchase (91,093 shares) - - - - (4,089) (4,089)
Morris Plan acquisition 26 6,893 - - - 6,919
Cash dividends, $.84 per share - - (6,038) - - (6,038)
-------- -------- -------- -------- -------- --------
Balance, December 31, 1998 903 66,680 110,566 8,123 (4,089) 182,183
Comprehensive income:
Net income - - 21,622 - - 21,622
Other comprehensive income, net of tax:
Change in net unrealized gains/losses
on available-for-sale securities net
of reclassification and tax effects - - - (15,942) - (15,942)
--------
Total comprehensive income - - - - - 5,680
Treasury stock purchase (288,972 shares) - - - - (12,673) (12,673)
Cash dividends, $.94 per share - - (6,508) - - (6,508)
-------- -------- -------- -------- -------- --------
Balance, December 31, 1999 $ 903 $ 66,680 $125,680 $ (7,819) $(16,762) $168,682
======== ======== ======== ======== ======== ========
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
9
<PAGE> 11
FIRST FINANCIAL CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Years Ended December 31,
------------------------------
(Dollar amounts in thousands, except per share data) 1999 1998 1997
- -----------------------------------------------------------------------------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 21,622 $ 18,558 $ 18,100
Adjustments to reconcile net income to net cash
provided by operating activities:
Net accretion (amortization) of
investment securities 348 (745) (1,978)
Provision for loan losses 4,725 5,396 5,382
Securities gains (189) (905) (407)
Depreciation and amortization 2,865 2,541 2,496
Provision for deferred income taxes (341) (1,010) (1,055)
Net change in accrued interest receivable 1 (618) 899
Other, net 14,904 723 234
-------- -------- --------
NET CASH PROVIDED BY OPERATING ACTIVITIES 43,935 23,940 23,671
-------- -------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Net change in interest-bearing deposits with
financial institutions - - 1,095
Sales of available-for-sale securities 115,794 111,496 177,802
Maturities of available-for-sale securities 114,333 107,658 51,804
Purchases of available-for-sale securities (219,117) (315,933) (170,217)
Loans made to customers, net of repayments (84,100) (77,742) (89,608)
Net change in federal funds sold 260 230 1,720
Additions to premises and equipment (4,881) (2,398) (1,591)
-------- -------- --------
NET CASH USED BY INVESTING ACTIVITIES (77,711) (176,689) (28,995)
-------- -------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net change in deposits (4,250) 33,568 19,296
Net change in other short-term borrowings (40,133) 52,335 (16,250)
Dividends paid (6,224) (5,624) (4,677)
Purchases of treasury stock (12,673) (4,089) -
Cash acquired resulting from merger - 470 -
Proceeds from other borrowings 293,000 251,637 159,831
Repayments on other borrowings (192,746) (174,486) (165,719)
-------- -------- --------
NET CASH PROVIDED (USED) BY
FINANCING ACTIVITIES 36,974 153,811 (7,519)
-------- -------- --------
NET CHANGE IN CASH AND CASH EQUIVALENTS 3,198 1,062 (12,843)
CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR 54,877 53,815 66,658
-------- -------- --------
CASH AND CASH EQUIVALENTS, END OF YEAR $ 58,075 $ 54,877 $ 53,815
======== ======== ========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the year for:
Interest $ 66,908 $ 66,233 $ 63,243
======== ======== ========
Income taxes $ 10,182 $ 7,403 $ 7,367
======== ======== ========
See also Note 1 regarding Morris Plan acquisition
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
10
<PAGE> 12
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 parent
company and its wholly-owned subsidiaries, Terre Haute First National Bank
of Vigo County, Indiana (Terre Haute First), The Morris Plan Company of
Terre Haute (Morris Plan), 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), First Crawford State Bank of Robinson, Illinois (Crawford) and
First Financial Reinsurance Company, a corporation incorporated in the
country of Turks and Caicos Islands (FFRC).
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 nine subsidiaries.
Terre Haute First is the largest bank in Vigo County. It operates eleven
full-service banking branches within the county. It also has a main office
in downtown Terre Haute and an operations center/office building on S.
Third Street in Terre Haute.
First State has five branch locations in Clay County, a county contiguous
to Vigo County. Citizens has four 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. Morris Plan has one
branch and is located in 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 36 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
USE OF ESTIMATES: To prepare financial statements in conformity with
generally accepted accounting principles, management makes estimates and
assumptions based on available information. These estimates and assumptions
affect the amounts reported in the financial statements and disclosures
provided, and future results could differ. The allowance for loan losses
and the fair values of financial instruments are particularly subject to
change.
CASH FLOWS: Cash and cash equivalents include cash and demand deposits with
other financial institutions. Net cash flows are reported for customer loan
and deposit transactions and short-term borrowings.
SECURITIES: The Corporation classifies all investment securities as
"available for sale." Securities are classified as available for sale when
they might be sold before maturity. Securities available for sale are
carried at fair value with unrealized holdings gains and losses, net of
taxes, reported in other comprehensive income and shareholders' equity.
Other securities, such as Federal Home Loan Bank stock, are carried at
cost.
Interest income includes amortization of purchase premium or discount.
Realized gains and losses on sales are based on the amortized cost of the
security sold. Securities are written down to fair value if and when a
decline in fair value is not temporary.
LOANS: Loans are reported at the principal balance outstanding, net of
unearned interest, deferred loan fees and costs, and allowance for loan
losses. Loans held for sale are reported at the lower of cost or market, on
an aggregate basis.
Interest income is reported on the interest method and includes
amortization of net deferred loan fees and costs over the loan term.
Interest income is not reported when full loan repayment is in doubt,
typically when the loan is impaired or payments are significantly past due.
Payments received on such loans are reported as principal reductions.
Allowance for Loan Losses: The allowance for loan losses is a valuation
allowance for probable credit losses, increased by the provision for loan
losses and decreased by charge-offs less recoveries. Management estimates
the allowance balance required using past loan loss experience, known and
inherent risks in the nature and volume of the portfolio, information about
specific borrower situations and estimated collateral values. Allocations
of the allowance may be made for specific loans, but the entire allowance
is available for any loan that, in management's judgment, should be charged
off.
11
<PAGE> 13
FIRST FINANCIAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
A loan is impaired when full payment under the loan terms is not expected.
Impairment is evaluated in total for smaller-balance loans of similar
nature such as residential mortgages, consumer and credit card loans, and
on an individual basis for other loans. If a loan is impaired, a portion of
the allowance is allocated so that the loan is reported, net, at the
present value of estimated future cash flows, using the loan's existing
rate, or at the fair value of collateral if repayment is expected solely
from the collateral.
FORECLOSED ASSETS: Assets acquired through or instead of loan foreclosures
are initially recorded at fair value when acquired, establishing a new cost
basis. If fair value declines, a valuation allowance is recorded through
expense. Costs after acquisition are expensed.
PREMISES AND EQUIPMENT: Premises and equipment are stated at cost less
accumulated depreciation. Depreciation is computed over the useful lives
of the assets.
SERVICING RIGHTS: Servicing rights are recognized as assets for purchased
rights and for the allocated value of retained servicing rights on loans
sold. Servicing rights are expensed in proportion to, and over the period
of, estimated net servicing revenues. Impairment is evaluated based on
the fair value of the rights, using groupings of the underlying loans as to
interest rates and then, secondarily, as to geographic and prepayment
characteristics. Any impairment of a grouping is reported as a valuation
allowance.
MORRIS PLAN ACQUISITION: In March 1998, the Corporation acquired all of the
outstanding common stock of Morris Plan in exchange for 210,000 shares of
its common stock. The acquisition was accounted for using the purchase
method of accounting and resulted in goodwill of approximately $2.4
million, which will be amortized over 15 years. Assets and liabilities
assumed upon acquisition were approximately $39 million, including cash of
$470 thousand.
REPURCHASE AGREEMENTS: Substantially all repurchase agreement liabilities
represent amounts advanced by various customers. Securities are pledged
to cover these liabilities, which are not covered by federal deposit
insurance. The Corporation maintains possession of and control over these
securities.
BENEFIT PLANS: Pension expense is the net of service and interest cost,
return on plan assets and amortization of gains and losses not immediately
recognized. The amount contributed is determined by a formula as decided by
the Board of Directors.
INCOME TAXES: Income tax expense is the total of the current year income
tax due or refundable and the change in deferred tax assets and
liabilities. Deferred tax assets and liabilities are the expected future
tax amounts for the temporary differences between carrying amounts and tax
bases of assets and liabilities, computed using enacted tax rates. A
valuation allowance, if needed, reduces deferred tax assets to the amount
expected to be realized.
FINANCIAL INSTRUMENTS: Financial instruments include credit instruments,
such as commitments to make loans and standby letters of credit, issued to
meet customer financing needs. The face amount for these items represents
the exposure to loss, before considering customer collateral or ability to
repay.
EARNINGS PER SHARE: Earnings per common share is net income divided by the
weighted average number of common shares outstanding during the period. The
Corporation does not have any potentially dilutive securities. Earnings and
dividends per share are restated for stock splits and dividends through the
date of issue of the financial statements.
COMPREHENSIVE INCOME: Comprehensive income consists of net income and other
comprehensive income. Other comprehensive income includes unrealized
gains and losses on securities available for sale which are also recognized
as separate components of equity.
NEW ACCOUNTING PRONOUNCEMENTS: Beginning January 1, 2001, a new accounting
standard will require all derivatives to be recorded at fair value. Unless
designated as hedges, changes in these fair values will be recorded in the
statements of income. Fair value changes involving hedges will generally be
recorded by offsetting gains and losses on the hedge and on the hedged
item, even if the fair value of the hedged item is not otherwise recorded.
This is not expected to have a material effect on the Corporation's results
of operations, but the effect will depend on derivative holdings when this
standard applies.
LOSS CONTINGENCIES: Loss contingencies, including claims and legal actions
arising in the ordinary course of business, are recorded as liabilities
when the likelihood of loss is probable and an amount of range of loss can
be reasonably estimated. Management does not believe there are currently
such matters that will have a material effect on the financial statements.
DIVIDEND RESTRICTION: Banking regulations require maintaining certain
capital levels and may limit the dividends paid by the bank to the holding
company or by the holding company to shareholders.
FAIR MARKET VALUE OF FINANCIAL INSTRUMENTS: Fair values of financial
instruments are estimated using relevant market information and other
assumptions, as more fully disclosed in a separate note. Fair value
estimates involve uncertainties and matters of significant judgment
regarding interest rates, credit risk, prepayments and other factors,
especially in the absence of broad markets for particular items. Changes in
assumptions or market conditions could significantly affect the estimates.
INDUSTRY SEGMENT: Internal financial information is aggregated and reported
in one line of business, which is banking.
12
<PAGE> 14
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
2. FAIR VALUES OF FINANCIAL INSTRUMENTS:
Carrying amount is the estimated fair value for cash and due from banks,
federal funds sold, short-term borrowings, Federal Home Loan Bank stock,
accrued interest receivable and payable, demand deposits, short-term debt
and variable- rate loans or deposits that reprice frequently and fully.
Security fair values are based on market prices or dealer quotes, and if no
such information is available, on the rate and term of the security and
information about the issuer. For fixed-rate loans or deposits, variable
rate loans or deposits with infrequent repricing or repricing limits, and
for longer-term borrowings, fair value is based on discounted cash flows
using current market rates applied to the estimated life and credit risk.
Fair values for impaired loans are estimated using discounted cash flow
analysis or underlying collateral values. Fair value of loans held for sale
is based on market quotes. Fair value of debt is based on current rates for
similar financing. The fair value of off-balance-sheet items is based on the
current fees or cost that would be charged to enter into or terminate such
arrangements and is nominal.
The carrying amount and estimated fair value of financial instruments are
presented in the table below and were deter- mined based on the above
assumptions:
December 31,
----------------------------------------------
1999 1998
---------------------- ----------------------
Carrying Fair Carrying Fair
(Dollar amounts in thousands) Value Value Value Value
- -------------------------------------------------------------------------------
Cash and due from banks $ 58,075 $ 58,075 $ 54,877 $ 54,877
Federal funds sold 190 190 450 450
Available-for-sale
securities 594,319 594,319 633,365 633,365
Loans 1,193,885 1,189,417 1,113,651 1,112,011
Accrued interest receivable 14,703 14,703 14,704 14,704
Deposits 1,256,115 1,257,134 1,260,365 1,270,450
Short-term borrowings 63,499 63,499 103,632 103,632
Federal Home Loan Bank
advances 375,713 374,446 275,449 277,246
Other borrowings 6,609 6,609 6,619 6,619
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 was
approximately $13.8 million and $15.4 million at December 31, 1999 and 1998,
respectively.
4. INVESTMENT SECURITIES:
The amortized cost and estimated fair value of year-end securities are as
follows:
December 31, 1999
-----------------------------------------------
Unrealized
Amortized ---------------------- Fair
(Dollar amounts in thousands) Cost Gains Losses Value
- -------------------------------------------------------------------------------
United States Government $ 178,018 $ 188 $ (6,170) $ 172,036
United States
Government agencies 215,824 241 (7,448) 208,617
Collateralized mortgage
obligations 8,187 12 (320) 7,879
State and municipal 169,040 1,100 (4,082) 166,058
Corporate obligations 40,324 - (595) 39,729
---------- ---------- ---------- ----------
TOTAL $ 611,393 $ 1,541 $ (18,615) $ 594,319
========== ========== ========== ==========
13
<PAGE> 15
FIRST FINANCIAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1998
----------------------------------------------
Unrealized
Amortized ---------------------- Fair
(Dollar amounts in thousands) Cost Gains Losses Value
- -------------------------------------------------------------------------------
United States Government $ 168,813 $ 1,981 $ (111) $ 170,683
United States Government
agencies 222,586 2,086 (139) 224,533
Collateralized mortgage
obligations 9,474 89 (8) 9,555
State and municipal 155,572 6,999 (335) 162,236
Corporate obligations 66,307 51 - 66,358
---------- ---------- ---------- ----------
TOTAL $ 622,752 $ 11,206 $ (593) $ 633,365
========== ========== ========== ==========
The Corporation invests in the equity securities of financial services
companies. These investments are considered to be available-for-sale and
are included in other assets on the consolidated balance sheet. Cost was
$3.2 million and $2.8 million, and fair value was $7.3 million and $5.7
million at December 31, 1999 and 1998, respectively. As of December 31,
1999, 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.
Investment securities with a par value amounting to approximately $66.2
million and $89.3 million at December 31, 1999 and 1998, respectively, were
pledged as collateral for borrowings and for other purposes. Below is a
summary of the gross gains and losses realized by the Corporation from
investments sold during the years ended December 31, 1999, 1998 and 1997,
respectively.
(Dollar amounts in thousands) 1999 1998 1997
- -------------------------------------------------------------------------------
Proceeds $ 115,794 $ 111,496 $ 177,802
Gross gains 627 967 722
Gross losses (438) (62) (315)
Contractual maturities of debt securities at year-end 1999 were as follows.
Securities not due at a single maturity date, primarily mortgage-backed
securities, are shown separately. Also shown are the tax equivalent yields,
computed using a 35% rate based on weighted average yields of securities
maturing during each time period.
Available-for-Sale
---------------------- Weighted
Amortized Fair Average
(Dollar amounts in thousands) Cost Value Yields
- -------------------------------------------------------------------------------
Due in one year or less $ 12,642 $ 12,672 8.07%
==========
Due after one but within five years 52,576 52,764 7.22%
==========
Due after five but within ten years 111,085 108,413 7.37%
==========
Due after ten years 147,757 142,261 7.64%
==========
Mortgage-backed securities 287,333 278,209 7.00%
---------- ---------- ==========
TOTAL $ 611,393 $ 594,319
========== ==========
5. LOANS:
Loans are summarized as follows:
December 31,
1999 1998
Carrying Carrying
(Dollar amounts in thousands) Value Value
- ------------------------------------------------------------------------------
Commercial, financial and agricultural $ 247,949 $ 233,080
Real estate - construction 44,782 32,880
Real estate - mortgage 671,972 636,615
Installment 223,459 205,251
Lease financing 5,723 5,825
---------- ----------
Total gross loans 1,193,885 1,113,651
Less: unearned income (1,987) (1,886)
allowance for loan losses (17,949) (16,429)
----------- ----------
TOTAL $1,173,949 $1,095,336
=========== ==========
14
<PAGE> 16
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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 1999 the
aggregate dollar amount of these loans to directors and executive officers
who held office at the end of the year amounted to $35.5 million at the
beginning of the year. During 1999, advances of $71.6 million and repayments
of $66.7 million were made with respect to related party loans for an
aggregate dollar amount outstanding of $40.4 million at December 31, 1999.
The amount of such loans aggregated $43.4 million at December 31, 1998.
Loans serviced for others, which are not reported as assets, total $92.5
million and $47.3 million at year-end 1999 and 1998. Capitalized mortgage
servicing rights aggregated $653 thousand and $189 thousand at year-end,
1999 and 1998.
6. ALLOWANCE FOR LOAN LOSSES:
Changes in the allowance for loan losses are summarized as follows:
December 31,
----------------------------------
(Dollar amounts in thousands) 1999 1998 1997
- ------------------------------------------------------------------------------
Balance at beginning of year $ 16,429 $ 13,503 $ 10,756
Allowance resulting from merger - 970 -
Provision for loan losses 4,725 5,396 5,382
Recoveries of loans previously
charged off 1,105 1,196 1,180
Loans charged off (4,310) (4,636) (3,815)
---------- ---------- ---------
BALANCE AT END OF YEAR $ 17,949 $ 16,429 $ 13,503
========== ========== =========
Impaired loans were as follows:
December 31,
---------------------------------
(Dollar amounts in thousands) 1999 1998
-----------------------------------------------------------------------------
Year-end loans with no allocated
allowance for loan losses $ 839 $ 182
Year-end loans with allocated
allowance for loan losses 6,670 5,987
---------- ---------
TOTAL $ 7,509 $ 6,169
=========== =========
Amount of the allowance for loan
losses allocated $ 2,312 $ 2,673
Loans past due over 90 days still
on accrual 5,229 8,184
Average of impaired loans during
the year 6,787 4,909
7. PREMISES AND EQUIPMENT:
Premises and equipment are summarized as follows:
December 31,
---------------------------------
(Dollar amounts in thousands) 1999 1998
-----------------------------------------------------------------------------
Land $ 3,678 $ 3,632
Building and leasehold improvements 27,657 24,772
Furniture and equipment 23,494 22,202
---------- ---------
54,829 50,606
Less accumulated depreciation (28,734) (26,180)
---------- ---------
TOTAL $ 26,095 $ 24,426
========== =========
15
<PAGE> 17
FIRST FINANCIAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
8. DEPOSITS AND SHORT-TERM BORROWINGS:
Scheduled maturities of time deposits for the next five years were as
follows:
2000 $ 509,992
2001 106,415
2002 39,348
2003 30,560
2004 13,965
----------
$ 700,280
==========
Year-end short-term borrowings were comprised of the following:
(Dollar amounts in thousands) 1999 1998
- ------------------------------------------------------------------------------
Federal funds purchased $ 19,559 $ 48,022
Repurchase agreements 35,718 52,549
Note payable - U.S. government 8,222 3,061
---------- ---------
$ 63,499 $ 103,632
========== =========
Federal funds purchased are generally due in one day and bear interest at
market rates. Note payable - U.S. government is due on demand, secured by
a pledge of securities and bears interest at market rates. The following
table presents information about repurchase agreements for the years
indicated:
(Dollar amounts in thousands) 1999 1998 1997
- ------------------------------------------------------------------------------
Average amount outstanding $ 41,801 $ 26,271 $ 16,894
Maximum amount outstanding at
a month end 86,845 55,331 24,764
Average interest rate during year 5.00% 5.59% 5.63%
Interest rate at year-end 5.32% 5.08% 5.67%
9. OTHER BORROWINGS:
Long-term borrowings at December 31, 1999 and 1998 are summarized as
follows:
(Dollar amounts in thousands) 1999 1998
- ------------------------------------------------------------------------------
FHLB advances $ 375,713 $ 275,449
City of Terre Haute, Indiana economic
development revenue bonds 6,600 6,600
Other 9 19
---------- ---------
TOTAL $ 382,322 $ 282,068
========== =========
The aggregate minimum annual retirements of long-term borrowings are as
follows:
2000 $ 297,089
2001 32,216
2002 6,197
2003 10,458
2004 25,144
Thereafter 11,218
----------
$ 382,322
==========
16
<PAGE> 18
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The economic development revenue bonds (bonds) require periodic interest
payments each year until maturity or redemption. The interest rate, which
was 5.35% at December 31, 1999, and 4.10% at December 31, 1998, is deter-
mined by a formula which considers rates for comparable bonds and is
adjusted periodically. The bonds are collateralized by a first mortgage
on the Corporation's headquarters building. The bonds mature December 1,
2015, but bond-holders may periodically require earlier redemption.
The Corporation maintains a letter of credit with another financial
institution, which could be used to repay the bonds, should they be called.
The letter of credit expires November 1, 2000, and will be automatically
extended for one year should the bonds still be outstanding. Assuming
redemption will be funded by the letter of credit, or by other similar
borrowings, there are no anticipated principal maturities of the bonds
within the next five years.
The above debt agreements require the Corporation to meet certain financial
covenants. The most restrictive covenants require the Corporation to
maintain a Tier I capital ratio of at least 6.2% and net income to average
assets of 0.6%. At December 31, 1999 and 1998, 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
$375.7 million at December 31, 1999, accrue interest, payable monthly, at
annual rates varying from 4.6% to 8.0%. The advances are due at various
dates through September 2017.
FHLB advances must be secured by eligible collateral as specified by the
FHLB. Accordingly, the Corporation has a blanket pledge of its eligible
mortgage loans and securities as collateral for the advances outstanding at
December 31, 1999, with a required minimum ratio of collateral to advances
of 160%.
10. INCOME TAXES:
Income tax expense is summarized as follows:
(Dollar amounts in thousands) 1999 1998 1997
- ------------------------------------------------------------------------------
Federal:
Currently payable $ 6,763 $ 5,526 $ 5,164
Deferred (256) (886) (833)
---------- ---------- ---------
6,507 4,640 4,331
State:
Currently payable 2,461 2,289 2,037
Deferred (85) (132) (222)
---------- ---------- ---------
2,376 2,157 1,815
---------- ---------- ---------
TOTAL $ 8,883 $ 6,797 $ 6,146
========== ========== =========
The reconciliation of income tax expense with the amount computed by
applying the statutory federal income tax rate of 35% to income before
income taxes is summarized as follows:
(Dollar amounts in thousands) 1999 1998 1997
- ------------------------------------------------------------------------------
Federal income taxes computed at
the statutory rate $ 10,677 $ 8,829 $ 8,486
Add (deduct) tax effect of:
Tax exempt income (2,679) (3,016) (3,081)
State tax, net of federal benefit 1,550 1,402 1,180
Affordable housing credits (565) (587) (491)
Other, net (100) 169 52
---------- ---------- ---------
TOTAL $ 8,883 $ 6,797 $ 6,146
========== ========== =========
17
<PAGE> 19
FIRST FINANCIAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The tax effects of temporary differences that give rise to significant
portions of the deferred tax assets and liabilities at December 31, 1999
and 1998, are as follows:
(Dollar amounts in thousands) 1999 1998
- ------------------------------------------------------------------------------
Deferred tax assets:
Loan losses provision $ 7,275 $ 6,646
Deferred compensation 582 588
Compensated absences 314 282
Net unrealized losses on available-for-sale
securities 5,220 -
Other 446 705
---------- ---------
TOTAL GROSS DEFERRED ASSETS $ 13,837 $ 8,221
---------- ---------
Deferred tax liabilities:
Net unrealized gains on available-for-sale
securities $ - $ (5,409)
Depreciation (1,176) (1,250)
Lease financing (182) (204)
Pensions (871) (792)
Other (379) (307)
---------- ---------
TOTAL GROSS DEFERRED LIABILITIES (2,608) (7,962)
---------- ---------
NET DEFERRED TAX ASSETS $ 11,229 $ 259
========== =========
11. FINANCIAL INSTRUMENTS WITH OFF-BALANCE-SHEET RISK:
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
stand-by 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.
The Corporation had unused lines of credit of $169.0 million and $159.0
million and commitments to extend credit of $7.1 million and $7.2 million
as of December 31, 1999 and 1998, respectively. In addition, the
Corporation had outstanding commitments of $2.6 million and $2.4 million
under standby letters of credit as of December 31, 1999 and 1998,
respectively.
18
<PAGE> 20
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
12. 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. The Corporation made contributions to the defined benefit plan
of $1,021 thousand, $350 thousand and $109 thousand in 1999, 1998 and 1997,
respectively. The Corporation contributed $873 thousand, $750 thousand and
$726 thousand to the ESOP in 1999, 1998 and 1997, respectively.
Pension expense included the following components:
(Dollar amounts in thousands) 1999 1998 1997
- ------------------------------------------------------------------------------
Service cost - benefits earned $ 927 $ 1,183 $ 1,222
Interest cost on projected
benefit obligation 1,858 2,091 1,527
Expected return on plan assets (1,900) (2,361) (1,505)
Net amortization and deferral 3 (159) (37)
---------- ---------- ---------
Total pension expense $ 888 $ 754 $ 1,207
========== ========== =========
The information below sets forth the change in benefit obligation,
reconciliation of plan assets, and the funded status of the Corporation's
retirement program. Actuarial present value of benefits is based on service
to date and present pay levels.
December 31,
---------------------------------
(Dollar amounts in thousands) 1999 1998
- ------------------------------------------------------------------------------
Change in benefit obligation:
Benefit obligation at January 1 $ 27,498 $ 29,577
Service cost 927 1,183
Interest cost 1,858 2,091
Actuarial (gain) loss 1,105 (5,075)
Benefits paid (370) (278)
---------- ---------
Benefit obligation at December 31 31,018 27,498
---------- ---------
Reconciliation of fair value of plan assets:
Fair value of plan assets at January 1 25,754 29,562
Actual return on plan assets (171) (4,605)
Employer contributions 1,894 1,075
Benefits paid (370) (278)
---------- ---------
Fair value of plan assets
at December 31 27,107 25,754
---------- ---------
Funded status:
Funded status at December 31 (3,911) (1,744)
Unrecognized transition obligation (174) (348)
Unrecognized prior service cost 48 64
Unrecognized net actuarial cost 6,185 4,017
---------- ---------
Prepaid pension asset recognized in
the consolidated balance sheets $ 2,148 $ 1,989
========== =========
Principal assumptions used:
Discount rate 7.00% 6.50%
Rate of increase in compensation levels 5.00% 5.00%
Expected long-term rate of return
on plan assets 8.00% 8.00%
19
<PAGE> 21
FIRST FINANCIAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The Corporation also provides medical benefits to its employees subsequent
to their retirement. Accrued post- retirement benefits as of December 31,
1999 and 1998 are as follows:
December 31,
---------------------------------
(Dollar amounts in thousands) 1999 1998
- ------------------------------------------------------------------------------
Change in benefit obligation:
Benefit obligation at January 1 $ 2,606 $ 2,452
Service cost 57 48
Interest cost 195 165
Plan participants' contributions 10 15
Actuarial (gain) loss 262 59
Actual benefits paid (192) (133)
---------- ---------
Benefit obligation at December 31 $ 2,938 $ 2,606
========== =========
Reconciliation of funded status:
Funded status 2,938 $ 2,606
Unrecognized transition obligation (844) (905)
Unrecognized net gain (loss) (1,022) (807)
---------- ---------
Accrued benefit cost $ 1,072 $ 894
========== =========
The post-retirement benefits paid in 1999 and 1998 of $192 thousand and
$133 thousand, respectively, were fully funded by company and participant
contributions. There were no other changes to plan assets in 1999 and 1998.
Weighted-average assumptions as of December 31:
December 31,
---------------------------------
1999 1998
- ------------------------------------------------------------------------------
Discount rate 7.00% 6.50%
Initial weighted health care cost
trend rate 10.00% 9.50%
Ultimate health care cost trend rate 5.00% 5.50%
Post-retirement health benefit expense included the following components:
Years Ended December 31,
---------------------------------
(Dollar amounts in thousands) 1999 1998 1997
- ------------------------------------------------------------------------------
Service cost $ 57 $ 48 $ 41
Interest cost 195 165 166
Amortization of transition obligation 60 60 61
Recognized actuarial loss 48 30 25
---------- ---------- ---------
Net periodic benefit cost $ 360 $ 303 $ 293
========== ========== =========
Assumed health care cost trend rates have a significant effect on the
amounts reported for the health care plans. A one-percentage-point change
in the assumed health care cost trend rates would have the following
effects:
1% Point 1% Point
Increase Decrease
- ------------------------------------------------------------------------------
Effect on total of service and interest
cost components $ 22 $ (10)
Effect of post-retirement
benefit obligation $ 301 $ (142)
20
<PAGE> 22
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
13. OTHER COMPREHENSIVE INCOME:
Other comprehensive income components and related taxes were as follows:
December 31,
---------------------------------
(Dollar amounts in thousands) 1999 1998 1997
- ------------------------------------------------------------------------------
Unrealized holding gains and losses
on available-for-sale securities $ (26,382) $ 3,160 $ 3,877
Less reclassification adjustments
for gains and losses later
recognized in income (189) (905) (407)
---------- ---------- ---------
Net unrealized gains and losses (26,571) 2,255 3,470
Tax effect 10,629 (902) (1,388)
---------- ---------
Other comprehensive income $ (15,942) $ 1,353 $ 2,082
========== ========== =========
14. REGULATORY MATTERS:
The Corporation and its bank affiliates are 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.
Further, the Corporation's primary source of funds to pay dividends to
shareholders is dividends from its subsidiary banks and compliance with
these capital requirements can affect the ability of the Corporation and
its banking affiliates to pay dividends. At December 31, 1999,
approximately $31.5 million of undistributed earnings of the subsidiary
banks, included in consolidated retained earnings, were available for
distribution to the Corporation without regulatory approval.
Under capital adequacy guidelines 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 mini- mum amounts and ratios of Total
and Tier I Capital to risk-weighted assets, and of Tier I Capital to
average assets. Management believes, as of December 31, 1999 and 1998, that
the Corporation meets all capital adequacy requirements to which it is
subject.
As of December 31, 1999, the most recent notification from the respective
regulatory agencies categorized the Corporation and its subsidiary banks as
well capitalized under the regulatory framework for prompt corrective
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 table on the following page presents the actual and required capital
amounts and related ratios for the Corporation and the lead bank, Terre
Haute First National Bank, at year end 1999 and 1998.
21
<PAGE> 23
FIRST FINANCIAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
<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>
TOTAL RISK-BASED CAPITAL
Corporation - 1999 $188,719 15.91% >$94,893 >8.0% >$118,616 >10.0%
- - - -
Corporation - 1998 185,429 16.29% > 91,077 >8.0% > 113,846 >10.0%
- - - -
Terre Haute First - 1999 117,432 15.75% > 59,468 >8.0% > 73,560 >10.0%
- - - -
Terre Haute First - 1998 109,269 14.85% > 58,884 >8.0% > 73,605 >10.0%
- - - -
TIER I RISK-BASED CAPITAL
Corporation - 1999 $173,853 14.66% >$47,446 >4.0% > $71,170 > 6.0%
- - - -
Corporation - 1998 171,171 15.04% > 45,538 >4.0% > 68,308 > 6.0%
- - - -
Terre Haute First - 1999 108,104 14.50% > 29,824 >4.0% > 44,736 > 6.0%
- - - -
Terre Haute First - 1998 100,238 13.62% > 29,442 >4.0% > 44,163 > 6.0%
- - - -
TIER I LEVERAGE CAPITAL
Corporation - 1999 $173,853 9.36% >$74,272 >4.0% > $92,840 > 5.0%
- - - -
Corporation - 1998 171,171 9.83% > 69,668 >4.0% > 87,085 > 5.0%
- - - -
Terre Haute First - 1999 108,104 9.04% > 47,837 >4.0% > 59,797 > 5.0%
- - - -
Terre Haute First - 1998 100,238 9.05% > 44,299 >4.0% > 55,374 > 5.0%
- - - -
</TABLE>
15. PARENT COMPANY CONDENSED FINANCIAL STATEMENTS:
The parent company's condensed balance sheets as of December 31, 1999 and
1998, and the related statements of income and cash flows for each of the
three years in the period ended December 31, 1999, are as follows:
BALANCE SHEETS
December 31,
---------------------
(Dollar amounts in thousands) 1999 1998
--------------------------------------------------------------------------
ASSETS
Cash deposits in affiliated banks $ 8,647 $ 11,054
Investments in bank subsidiaries 156,150 167,721
Land and headquarters building, net 6,902 7,075
Other 9,726 8,816
---------- ---------
TOTAL ASSETS $ 181,425 $ 194,666
========== =========
LIABILITIES AND SHAREHOLDERS' EQUITY
LIABILITIES
Long-term borrowings $ 6,935 $ 7,080
Dividends payable 3,442 3,154
Other liabilities 2,366 2,249
---------- ---------
TOTAL LIABILITIES 12,743 12,483
SHAREHOLDERS' EQUITY 168,682 182,183
---------- ---------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 181,425 $ 194,666
========== =========
22
<PAGE> 24
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
STATEMENTS OF INCOME
Years Ended December 31,
---------------------------------
(Dollar amounts in thousands) 1999 1998 1997
- ------------------------------------------------------------------------------
Income:
Dividends from bank subsidiaries $ 17,457 $ 17,815 $ 6,431
Other income 890 899 933
---------- ---------- ---------
Total income 18,347 18,714 7,364
Expenses:
Interest on long-term borrowings 366 335 355
Other operating expenses 1,617 1,684 1,498
---------- ---------- ---------
Total operating expenses 1,983 2,019 1,853
---------- ---------- ---------
Income before income taxes and equity
in undistributed earnings of
bank subsidiaries 16,364 16,695 5,511
Income tax credit 457 738 457
---------- ---------- ---------
Income before equity in undistributed
earnings of bank subsidiaries 16,821 17,433 5,968
Equity in undistributed earnings of
bank subsidiaries 4,801 1,125 12,132
---------- ---------- ---------
Net income $ 21,622 $ 18,558 $ 18,100
========== ========== =========
STATEMENTS OF CASH FLOWS
Years Ended December 31,
---------------------------------
(Dollar amounts in thousands) 1999 1998 1997
- ------------------------------------------------------------------------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 21,622 $ 18,558 $ 18,100
Adjustments to reconcile net income
to net cash provided by operating
activities:
Provision for depreciation
and amortization 349 172 171
Equity in undistributed earnings
of bank subsidiaries (4,801) (1,125) (12,132)
(Decrease) increase in other
liabilities (331) 286 (11)
Increase in other assets (204) (542) (282)
---------- ---------- ---------
NET CASH PROVIDED BY
OPERATING ACTIVITIES 16,635 17,349 5,846
CASH FLOWS FROM FINANCING ACTIVITIES:
Principal payments on long-term
borrowings (145) (145) (116)
Proceeds from reissuance of
treasury stock - (27) -
Purchase of treasury stock (12,673) (4,089) -
Dividends paid (6,224) (5,624) (4,677)
---------- ---------- ---------
NET CASH USED BY FINANCING
ACTIVITIES (19,042) (9,885) (4,793)
---------- ---------- ---------
NET (DECREASE) INCREASE IN CASH (2,407) 7,464 1,053
CASH, BEGINNING OF YEAR 11,054 3,590 2,537
---------- ---------- ---------
CASH, END OF YEAR $ 8,647 $ 11,054 $ 3,590
========== ========== =========
Supplemental disclosures of cash flow information:
Cash paid during the year for:
Interest $ 362 $ 311 $ 360
========== ========== =========
Income taxes $ 10,182 $ 7,403 $ 7,367
========== ========== =========
23
<PAGE> 25
FIRST FINANCIAL CORPORATION
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.
Management assessed First Financial Corporation's internal control
structure over financial reporting as of December 31, 1999. This assessment was
based on criteria for effective internal control over financial reporting
described in "Internal Control -- Integrated Framework" issued by the Committee
of Sponsoring Organizations of the Treadway Commission. Based on this
assessment, management believes that the Corporation maintained an effective
internal control structure over financial reporting as of December 31, 1999.
Crowe, Chizek and Company LLP 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 outside 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.
/s/ Donald E. Smith /s/ Michael A. Carty
- ----------------------------------- --------------------------
Donald E. Smith Michael A. Carty
President & Chief Executive Officer Treasurer
REPORT OF INDEPENDENT ACCOUNTANTS
To the Shareholders and Board of Directors of First Financial Corporation:
We have audited the accompanying consolidated balance sheet of First
Financial Corporation as of December 31, 1999, and the related consolidated
statements of income, changes in shareholders' equity and cash flows for the
year then ended. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audit. The consolidated balance sheet of First
Financial Corporation as of December 31, 1998, and the related consolidated
statements of income, changes in shareholders' equity and cash flows for the
years ended December 31, 1998 and 1997, were audited by other auditors whose
report dated January 22, 1999, expressed an unqualified opinion on those
statements.
We conducted our audit 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 audit provides a reasonable basis for our
opinion.
In our opinion, the 1999 consolidated financial statements referred to
above present fairly, in all material respects, the financial position of First
Financial Corporation as of December 31, 1999, and the results of its operations
and its cash flows for the year then ended in conformity with generally accepted
accounting principles.
Indianapolis, Indiana /s/ Crowe, Chizek and Company LLP
January 14, 2000 ---------------------------------
Crowe, Chizek and Company LLP
24
<PAGE> 26
MANAGEMENT'S DISCUSSION AND ANALYSIS
Management's discussion and analysis reviews the financial condition of First
Financial Corporation at December 31, 1999 and 1998, and the results of its
operations for the three years ended December 31, 1999. Where appropriate,
factors that may affect future financial performance are also discussed. The
discussion should be read in conjunction with the accompanying consolidated
financial statements, related footnotes and selected financial data.
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.
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 nine
subsidiaries. The Corporation's principal subsidiary is Terre Haute First
National Bank (Terre Haute First) located in Vigo County. The Corporation's
other eight 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), The Morris Plan Company of Vigo County, Indiana (Morris Plan),
First National Bank of Marshall, Illinois (Marshall), and First Crawford State
Bank of Robinson, Illinois (Crawford). The Corporation also has a fully-owned
subsidiary, First Financial Reinsurance Company, a corporation incorporated in
the country of Turks and Caicos Islands (FFRC). At the close of business in 1999
the Corporation and its subsidiaries had 701 full-time equivalent employees.
Terre Haute First is the largest bank in Vigo County. It operates eleven
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 the Corporation's
operations center and provides additional office space.
First State has five branch locations in Clay County, a county contiguous to
Vigo County. Citizens has four 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. Morris Plan has one branch and is located in 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 and Morris Plan face competition from other financial
institutions in Vigo County. These competitors consist of two 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 and two credit unions in Vermillion
County, Indiana.
- FARMERS Two commercial banks and one brokerage firm in Sullivan
County, Indiana, and three commercial banks, one savings
and loan, and one credit union in Greene County, Indiana.
- PARKE Two commercial banks, five credit unions and two brokerage
firms in Parke County, Indiana.
- RIDGE Farm Four commercial banks, three savings and loans, ten
credit unions and four brokerage firms in Vermilion
County, Illinois.
- MARSHALL Three commercial banks and one savings and loan in Clark
County, Illinois.
- CRAWFORD Four commercial banks, two credit unions and four
brokerage firms in Crawford County, Illinois, and seven
commercial banks and one credit union 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.
25
<PAGE> 27
FIRST FINANCIAL CORPORATION
RESULTS OF OPERATIONS--SUMMARY FOR 1999
Net income for 1999 increased to $21.6 million from $18.6 million in 1998
and earnings per share increased to $3.10 for 1999 from $2.58 in 1998. This
increase was primarily the result of improved net interest income and
non-interest income.
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 $1,749.9 million in 1999
from $1,641.0 million in 1998. However, the yield on these assets decreased
to 7.90% in 1999 from 8.15% in 1998. Total average interest-bearing
liabilities amounted to $1,516.9 million in 1999 compared to $1,406.8
million in 1998. However, the yield on these interest-bearing liabilities
decreased to 4.40% in 1999 from 4.72% in 1998.
On a tax equivalent basis, net interest income increased $4.2 million from
$67.3 million in 1998 to $71.5 million in 1999. The net interest margin
decreased from 4.10% in 1998 to 4.09% in 1999. This decrease is primarily
the result of declining rates earned on loans being offset by declining
costs of time and other deposits.
The following table sets forth the components of net interest income due to
changes in volume and rate. The table information compares 1999 to 1998 and
1998 to 1997.
<TABLE>
<CAPTION>
1999 Compared to 1998 1998 Compared to 1997
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) (2) $ 7,528 $ (4,574) $ (366) $ 2,588 $10,056 $ (438) $ (52) $ 9,566
Taxable investment
securities 906 487 16 1,409 (1,696) (2,481) 135 (4,042)
Tax-exempt
investment
securities ((2)) 383 (15) - 368 615 22 1 638
Federal funds sold 263 (48) (20) 195 518 (4) (14) 500
Interest-bearing
deposits:
Domestic - - - - (34) (34) 34 (34)
-------- -------- -------- -------- ------- -------- ------- --------
Total interest income $ 9,080 $ (4,150) $ (370) $ 4,560 $ 9,459 $ (2,935) $ 104 $ 6,628
-------- -------- -------- -------- ------- -------- ------- --------
Interest paid on
interest-bearing liabilities:
Savings deposits 486 (635) (33) (182) 16 (40) - (24)
Time deposits (1,602) (3,400) 133 (4,869) 3,430 638 59 4,127
Short-term borrowings 927 (130) (43) 754 (58) (82) 2 (138)
Other 5,759 (751) (326) 4,682 899 (473) (33) 393
-------- -------- -------- -------- ------- -------- ------- --------
Total interest expense 5,570 (4,916) (269) 385 4,287 43 28 4,358
-------- -------- -------- -------- ------- -------- ------- --------
Net interest income $ 3,510 $ 766 $ (101) $ 4,175 $ 5,172 $ (2,978) $ 76 $ 2,270
======== ======== ======== ======== ======= ======== ======= ========
</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%.
26
<PAGE> 28
RESULTS OF OPERATIONS--SUMMARY FOR 1999
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 $4.7 million and $5.4
million for 1999 and 1998, respectively.
Net charge-offs for 1999 decreased to $3.2 million from $3.4 million in
1998. At December 31, 1999, the resulting allowance for loan losses was
$17.9 million or 1.51% of total loans, net of unearned income. A year
earlier the allowance was $16.4 million or 1.48% of total loans.
OTHER INCOME
Other income increased 13.2% in 1999 to $12.0 million from $10.6 million
earned in 1998. Trust department income and other service charges and fees
increased $343 thousand and $2.1 million, respectively. These increases are
the result of a focused effort to increase fee-based income.
OTHER EXPENSES
Other expenses totaled $43.5 million for 1999 compared to $42.6 million for
1998. This represents an increase of $0.9 million or 2.1% for 1999.
Salaries and related benefits, the largest component of this group,
increased from $23.5 million to $24.6 million or 4.7%. All other expenses
for 1999 decreased to $11.5 million from $11.7 mil- lion as compared to
1998.
INCOME TAXES
The Corporation's federal income tax provision was $6.5 million in 1999
compared to a provision of $4.6 million in 1998. The overall effective tax
rate in 1999 of 29.1% compares to a 1998 effective rate of 26.8%.
COMPARISON OF 1998 TO 1997
Net income for 1998 was $18.6 million or $2.58 per share compared to $18.1
million in 1997 or $2.58 per share. This increased income was primarily the
result of improved net interest income and non-interest income.
Although net interest income increased $2.4 million in 1998 as compared to
1997, the net interest margin decreased slightly from 4.24% in 1997 to
4.10% in 1998. This decrease is primarily the result of the higher costs of
interest-bearing liabilities.
27
<PAGE> 29
FIRST FINANCIAL CORPORATION
FINANCIAL CONDITION--SUMMARY
The Corporation's total assets increased to a record $1,905 million at
December 31, 1999, up from $1,850 million a year earlier. Loans, net of
unearned income, increased by $80.1 million, to $1,192 million. While all
categories increased significantly, loans related to real estate mortgages
and commercial loans increased by $35.4 million and $14.9 million to $672.0
million and $247.9 million, respectively. The increase resulted primarily
because of favorable interest rates. The overall 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, 1999, were $375.7
million. Total shareholders' equity at December 31, 1999, was $168.7
million compared to $182.2 million a year earlier. This reduction is the
result of increased dividends returned to shareholders and stock repurchase
plans under which 288,972 shares were repurchased during 1999 for $12.7
million. In addition, during 1999, the Corporation recorded a net
unrealized loss on available-for-sale securities of $15.9 million. While
this fluctuation in fair value reduced shareholders' equity, no loss is
recognized in net income unless the security is actually sold. 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, 1999, are set forth in the following
analysis.
<TABLE>
<CAPTION>
(Dollar amounts in thousands) 1999 1998 1997 1996 1995
- ------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
LOAN CATEGORY
Commercial, financial and
agricultural $ 247,949 $ 233,080 $ 229,855 $ 197,449 $ 180,858
Real estate - construction 44,782 32,880 23,734 22,629 22,882
Real estate - mortgage 671,972 636,615 561,466 508,010 460,060
Installment 223,459 205,251 188,552 188,670 213,696
Lease financing 5,723 5,825 3,271 3,284 4,151
---------- ---------- ---------- --------- ---------
TOTAL $1,193,885 $1,113,651 $1,006,878 $ 920,042 $ 881,647
========== ========== ========== ========= =========
</TABLE>
After One
Within But Within After Five
(Dollar amounts in thousands) One Year Five Years Years Total
- ------------------------------------------------------------------------------
MATURITY DISTRIBUTION
Commercial, financial and
agricultural $ 149,506 $ 57,285 $ 41,158 $ 247,949
Real estate - construction 20,966 10,954 12,862 44,782
---------- ---------- --------- ----------
TOTAL $ 170,472 $ 68,239 $ 54,020 292,731
========== ========== ========= ==========
Real estate - mortgage 671,972
Installment 223,459
Lease financing 5,723
TOTAL $1,193,885
Loans maturing after one year with:
Fixed interest rates $ 35,069 $ 40,885
Variable interest rates 33,170 13,135
---------- ----------
TOTAL $ 68,239 $ 54,020
========== ==========
28
<PAGE> 30
FINANCIAL CONDITION--SUMMARY
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) 1999 1998 1997 1996 1995
- -----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Amount of loans outstanding
at December 31, $1,193,885 $1,113,651 $1,006,878 $920,042 $881,647
=========== ========== ========== ======== ========
Average amount of loans by year $1,151,968 $1,066,537 $ 953,008 $885,964 $881,559
=========== ========== ========== ======== ========
Allowance for loan losses
at beginning of year $ 16,429 $ 13,503 $ 10,756 $ 10,616 $ 10,536
Allowance resulting from acquisition - 970 - - -
Loans charged off:
Commercial, financial and agricultural 344 1,195 487 2,577 1,364
Real estate - mortgage 932 614 596 207 293
Installment 3,034 2,827 2,732 2,615 2,016
Leasing - - - 2 148
----------- ---------- ---------- -------- --------
Total loans charged off 4,310 4,636 3,815 5,401 3,821
----------- ---------- ---------- -------- --------
Recoveries of loans previously charged off:
Commercial, financial and agricultural 170 461 260 426 727
Real estate - mortgage 142 101 163 147 138
Installment 788 634 747 500 466
Leasing 5 - 10 7 7
----------- ---------- ---------- -------- --------
Total recoveries 1,105 1,196 1,180 1,080 1,338
----------- ---------- ---------- -------- --------
Net loans charged off 3,205 3,440 2,635 4,321 2,483
Provision charged to expense 4,725 5,396 5,382 4,461 2,563
----------- ---------- ---------- -------- --------
Balance at end of year $ 17,949 $ 16,429 $ 13,503 $ 10,756 $ 10,616
=========== ========== ========== ======== ========
Ratio of net charge-offs during period
to average loans outstanding .28% .32% .28% .49% .28%
=========== ========== ========== ======== ========
</TABLE>
Management anticipates $1.5 million of commercial, financial and
agricultural loans, $349 thousand of real estate-mortgage loans, $2.2
million of installment loans, and $6 thousand of leases will be charged off
for 2000.
29
<PAGE> 31
FIRST FINANCIAL CORPORATION
FINANCIAL CONDITION--SUMMARY
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 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 1999, 1998 and 1997, under the original terms of the loans is
$364 thousand, $495 thousand and $377 thousand, respectively. The
Corporation recorded interest income on such loans in the amounts of $119
thousand, $149 thousand and $135 thousand for 1999, 1998 and 1997,
respectively.
(Dollar amounts in thousands) 1999 1998 1997 1996 1995
- ------------------------------------------------------------------------------
Non-accrual loans $ 2,879 $ 4,103 $3,866 $2,504 $3,130
Restructured loans 959 7 17 34 185
-------- ------- ------ ------ ------
3,838 4,110 3,883 2,538 3,315
Accruing loans past due 5,229 8,184 4,384 5,296 5,809
-------- ------- ------ ------ ------
$ 9,067 $12,294 $8,267 $7,834 $9,124
======== ======= ====== ====== ======
The ratio of the allowance for loan losses as a percentage of
under-performing loans was 198% at December 31, 1999, compared to 134% in
1998. This increase is the result of a significant decrease in the amount
of loans past due 90 days or more, amounting to $5.2 million in 1999 as
compared to $8.2 million in 1998. This decrease is primarily due to
stricter lending standards and an overall positive economic environment
within our geographic lending area. These loans are secured and management
anticipates continued improvement in performance of the loan portfolio.
The following loan categories comprise significant components of the
under-performing loans at December 31, 1999:
(Dollar amounts in thousands)
- ------------------------------------------------------------------------------
Non-accrual loans:
1-4 family residential $ 1,617 56%
Commercial loans 697 24
Installment loans 544 19
Other, various 21 1
---------- ---------
$ 2,879 100%
========== =========
Past due 90 days or more:
1-4 family residential $ 2,927 56%
Commercial loans 1,306 25
Installment loans 830 16
Other, various 166 3
---------- ---------
$ 5,229 100%
========== =========
There are no material concentrations by industry within the
under-performing loans.
An element of the Corporation's asset quality management process is the
ongoing review and grading of each affiliate's commercial loan portfolio.
At December 31, 1999, approximately $25 million of commercial loans are
graded doubtful or substandard. The classification of these loans,
however, does not imply that management expects losses on each of these
loans, but believes that a higher level of scrutiny is prudent under the
circumstances. Many of these loans are still accruing and are, generally,
performing in accordance with their loan agreements. However, for reasons
such as previous payment history, bankruptcy proceedings, industry concerns
or information specific to that borrower, it is the opinion of management
that these loans require close monitoring.
30
<PAGE> 32
FINANCIAL CONDITION--SUMMARY
DEPOSITS
Total deposits decreased to $1,256.1 million at December 31, 1999, from
$1,260.4 million at December 31, 1998. The Corporation experienced a
fluctuation between deposit types due to a rate-sensitive market
environment. The information below presents the average amount of deposits
and rates paid on those deposits for 1999, 1998 and 1997.
<TABLE>
<CAPTION>
1999 1998 1997
------------------- ------------------ -------------------
(Dollar amounts in thousands) Amount Rate Amount Rate Amount Rate
- ---------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Non-interest-bearing
demand deposits $ 143,551 $ 133,259 $ 127,924
Interest-bearing
demand deposits 294,953 2.31% 277,051 2.43% 278,898 2.40%
Savings deposits 114,326 2.09% 112,078 2.35% 109,587 2.46%
Time deposits:
$100,000 or more 200,133 5.16% 205,028 5.69% 191,953 5.65%
Other time deposits 503,928 5.12% 527,640 5.56% 478,381 5.44%
---------- ---------- ----------
TOTAL $1,256,891 $1,255,056 $1,186,743
========== ========== ==========
</TABLE>
The maturities of certificates of deposit of $100 thousand or more
outstanding at December 31, 1999, are summarized as follows:
3 months or less $ 52,285
Over 3 through 6 months 31,066
Over 6 through 12 months 36,476
Over 12 months 98,688
--------
TOTAL $218,515
========
SHORT-TERM BORROWINGS
A summary of the carrying value of the Corporation's short-term borrowings
at December 31, 1999, 1998 and 1997 is presented below:
(Dollar amounts in thousands) 1999 1998 1997
- ------------------------------------------------------------------------------
Federal funds purchased $ 19,559 $ 48,022 $ 24,850
Repurchase agreements 35,718 52,549 22,165
Other short-term borrowings 8,222 3,061 4,282
---------- ---------- ---------
$ 63,499 $ 103,632 $ 51,297
========== ========== =========
Federal funds purchased amounted to $19.6 million in 1999 compared to $48.0
million in 1998. Repurchase agreements were $35.7 million in 1999, down
from $52.5 million a year earlier. The amounts and interest rates related
to federal funds purchased and repurchase agreements are presented below:
(Dollar amounts in thousands) 1999 1998 1997
- ------------------------------------------------------------------------------
Average amount outstanding $ 63,641 $ 45,266 $ 46,907
Maximum amount outstanding at a
month end 150,168 102,513 74,774
Average interest rate during year 5.19% 5.51% 5.68%
Interest rate at year-end 5.25% 5.60% 6.00%
31
<PAGE> 33
FIRST FINANCIAL CORPORATION
FINANCIAL CONDITION--SUMMARY
OTHER BORROWINGS
Advances from the Federal Home Loan Bank increased to $375.7 million in
1999 compared to $275.4 million in 1998. The major reasons for the increase
were temporary liquidity requirements and the arbitrage of several
investments with these funds. The difference between the investment yield
and borrowing rate provided a positive return to the Corporation. This
strategy was primarily implemented in the fourth quarter of 1995 and
continued through 1998 and 1999. As of December 31, 1999, the total
investments in such programs totaled $67.5 million. The Asset/Liability
Committee reviews these investments and considers the related strategies on
a weekly basis. See Interest Rate Sensitivity and Liquidity on the
following page for more information.
CAPITAL RESOURCES
As of December 31, 1999, the Corporation's shareholders' equity was $168.7
million, a decrease of 7.41% from the 1998 level of $182.2 million. This
reduction is the result of increased dividends returned to shareholders and
two stock repurchase plans, under which 288,972 shares were repurchased
during 1999 for $12.7 million. In addition, during 1999, the Corporation
recorded a net unrealized loss on available-for-sale securities of $15.9
million. While this fluctuation in fair value reduced shareholders' equity,
no loss is recognized in net income unless the security is sold. 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. As shown in the footnote
to the consolidated financial statements ("Regulatory Matters"), the
Corporation's capital exceeds the requirements to be considered well
capitalized at December 31, 1999.
First Financial Corporation's objective continues to be 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 1999 and 1998
was 30.1% and 32.5%, 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 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
and deposit 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 banks' 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 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.
32
<PAGE> 34
FINANCIAL CONDITION--SUMMARY
In its interest rate risk management, the Corporation currently does not
utilize any derivative products nor does it have a trading account. The
Corporation does invest in assets whose value is derived from an underlying
asset. These assets are mostly government agency issued mortgage-backed
securities and callable agency 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
December 31, 1999. Given a 100 basis point increase in rates, net interest
income would decrease 2.27% over the next 12 months and decrease 5.46% over
the next 24 months. A 100 basis point decrease would result in a .13%
increase in net interest income over the next 12 months and a 3.22% increase
over the next 24 months. These estimates assume all rates changed overnight
and management took no action as a result of this change.
Percentage Change in Net Interest Income
----------------------------------------
Basis Point
Interest Rate Change 12 months 24 months 36 months
- -------------------------------------------------------------------------------
Down 200 -0.28% 4.90% 0.42%
Down 100 0.13 3.22 0.96
Up 100 -2.27 -5.46 -3.09
Up 200 -3.77 -8.93 -3.69
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 $12.1 million of investments that mature throughout the
coming 12 months. The Corporation also anticipates $40.8 million of
principal payments from mortgage-backed securities. Given the current rate
environment, the Corporation anticipates $23.7 million in securities to be
called within 2000 or the next 12 months.
OUTLOOK
The Wabash Valley, the Corporation's primary market area, has enjoyed
economic growth similar to the national economy for 1999. Recently, the
market has seen the announcement of various plant and industrial park
expansions. As these facilities begin their operations, it is expected
that the local economy will continue to grow and that employment numbers
will increase. Many of the companies currently providing goods and services
in our market areas are experiencing increased sales and project further
growth. Management anticipates that growth in loans and deposits will
follow this economic activity.
The Corporation also continues to look for merger or acquisition
opportunities throughout the Wabash Valley that share First Financial's
mission of quality service to their customers. These smaller institutions
increasingly realize the need to align with an organization that has the
resources to compete on a regional level. With the largest retail presence
in the Wabash Valley, First Financial is poised to provide these resources.
Like most other financial institutions, the Corporation has placed a high
emphasis on marketing efforts. The goal is to attain a greater share of
each customer's financial activities, commonly called "share of the
wallet." To this end, First Financial has established a full-service
brokerage, expanded its trust activities and is currently evaluating the
delivery of certain insurance products. These activities are expected to
provide an increased amount of fee-based income in the future.
33
<PAGE> 35
FIRST FINANCIAL CORPORATION
CONSOLIDATED BALANCE SHEET - AVERAGE BALANCES AND INTEREST RATES
<TABLE>
<CAPTION>
December 31,
-----------------------------------------------------------------------------------------
1999 1998 1997
-----------------------------------------------------------------------------------------
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) $1,151,968 96,565 8.38% $1,066,537 $ 93,977 8.81% $ 953,008 $ 84,411 8.86%
Taxable investment securities 427,781 28,500 6.66 413,941 27,091 6.54 437,791 31,133 7.11
Tax-exempt investment
securities (2) 153,112 12,383 8.09 148,383 12,015 8.10 140,768 11,377 8.08
Federal funds sold 16,991 852 5.01 12,131 657 5.42 2,822 157 5.56
Interest-bearing deposits
in other banks:
Domestic - - - - - - 509 34 6.68
---------- -------- ---- ---------- --------- ---- ---------- --------- -----
Total interest-earning assets $1,749,852 $138,300 7.90% $1,640,992 $ 133,740 8.15% $1,534,898 $ 127,112 8.28%
========== ======== ==== ========== ========= ==== ========== ========= =====
Non-interest earning assets:
Cash and due from bank $ 58,212 $ 54,909 $ 49,725
Premises and equipment, net 24,847 24,723 25,515
Other assets 41,469 36,766 32,913
Less allowance for loan losses (17,585) (15,690) (12,302)
---------- ---------- ----------
TOTALS $1,856,795 $1,741,700 $1,630,749
========== ========== ==========
LIABILITIES AND
SHAREHOLDERS' EQUITY
Interest-bearing liabilities:
Savings deposits 409,279 9,193 2.25% 389,129 9,375 2.41% 388,485 9,399 2.42%
Time deposits 704,061 36,144 5.13 732,668 41,013 5.60 670,334 36,886 5.50
Short-term borrowings 66,594 3,469 5.21 49,643 2,715 5.47 50,665 2,853 5.63
Other 337,007 18,009 5.34 235,333 13,327 5.66 220,031 12,934 5.88
---------- -------- ---- ---------- --------- ---- ---------- --------- -----
Total interest-bearing
liabilities: $1,516,941 $ 66,815 4.40% $1,406,773 $ 66,430 4.72% $1,329,515 $ 62,072 4.67%
========== ======== ==== ========== ========= ==== ========== ========= ======
Non interest-bearing
liabilities:
Demand deposits 143,551 133,259 127,924
Other 23,973 29,223 19,154
1,684,465 1,569,255 1,476,593
---------- ---------- ----------
Shareholders' equity 172,330 172,445 154,156
---------- ---------- ----------
TOTALS $1,856,795 $1,741,700 $1,630,749
========== ========== ==========
Net interest earnings $ 71,485 $ 67,310 $ 65,040
======== ========= =========
Net yield on interest-earning assets 4.09% 4.10% 4.24%
==== ==== ====
</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%.
34
<PAGE> 36
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 1999 shareholders owned 6,845,418 shares of the Corporation's
common stock. The stock is traded over-the-counter under the NASDAQ National
Market System with the symbol THFF. 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 1999 and 1998.
1999 1998
-------------------------- -------------------------
Bid Quotation Cash Bid Quotation Cash
Dividends Dividends
Quarter ended High Low Declared High Low Declared
- ------------------------------------------------------------------------------
March 31 $51.50 $41.00 $56.50 $51.75
June 30 45.00 36.41 $ .44 54.00 47.13 $ .40
September 30 38.25 35.00 51.00 41.50
December 31 41.50 34.50 $ .50 49.38 38.88 $ .44
SELECTED QUARTERLY DATA
<TABLE>
<CAPTION>
1999
------------------------------------------------------------
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 $32,614 $16,283 $16,331 $1,482 $4,992 $ .71
June 30 32,897 16,328 16,569 1,078 5,386 $ .77
September 30 33,774 16,692 17,082 1,084 5,520 $ .80
December 31 34,291 17,512 16,779 1,081 5,724 $ .83
</TABLE>
<TABLE>
<CAPTION>
1998
------------------------------------------------------------
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 $31,479 $16,074 $15,405 $1,407 $4,500 $ .62
June 30 32,106 16,585 15,521 1,549 4,170 $ .58
September 30 32,589 16,768 15,821 1,345 4,860 $ .67
December 31 32,963 17,003 15,960 1,095 5,028 $ .71
</TABLE>
35
<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.
The Morris Plan Company is a wholly-owned subsidiary of the Registrant. It
is a state corporation in Indiana. The company conducts its business under the
name of The Morris Plan Company of Terre Haute,Inc.
36
<TABLE> <S> <C>
<ARTICLE> 9
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> DEC-31-1999
<CASH> 58,075
<INT-BEARING-DEPOSITS> 0
<FED-FUNDS-SOLD> 190
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 594,319
<INVESTMENTS-CARRYING> 594,319
<INVESTMENTS-MARKET> 594,319
<LOANS> 1,191,898
<ALLOWANCE> 17,949
<TOTAL-ASSETS> 1,905,201
<DEPOSITS> 1,256,115
<SHORT-TERM> 63,499
<LIABILITIES-OTHER> 34,583
<LONG-TERM> 382,322
0
0
<COMMON> 903
<OTHER-SE> 167,779
<TOTAL-LIABILITIES-AND-EQUITY> 1,905,201
<INTEREST-LOAN> 96,175
<INTEREST-INVEST> 36,549
<INTEREST-OTHER> 852
<INTEREST-TOTAL> 133,576
<INTEREST-DEPOSIT> 45,337
<INTEREST-EXPENSE> 21,478
<INTEREST-INCOME-NET> 66,761
<LOAN-LOSSES> 4,725
<SECURITIES-GAINS> 189
<EXPENSE-OTHER> 43,543
<INCOME-PRETAX> 30,505
<INCOME-PRE-EXTRAORDINARY> 30,505
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 21,622
<EPS-BASIC> 3.10
<EPS-DILUTED> 3.10
<YIELD-ACTUAL> 4.09
<LOANS-NON> 2,879
<LOANS-PAST> 5,229
<LOANS-TROUBLED> 959
<LOANS-PROBLEM> 2,681
<ALLOWANCE-OPEN> 16,429
<CHARGE-OFFS> 4,310
<RECOVERIES> 1,105
<ALLOWANCE-CLOSE> 17,949
<ALLOWANCE-DOMESTIC> 17,949
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
