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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-KSB
(MARK ONE)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 [NO FEE REQUIRED, EFFECTIVE OCTOBER 7, 1996.]
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1996
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934 [NO FEE REQUIRED] FOR THE TRANSITION PERIOD
FROM TO
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COMMISSION FILE NUMBER: 33-42622
FIRST FINANCIAL CORPORATION
(Name of Small Business Issuer in its charter)
Tennessee 62-1474162
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1691 North Mt. Juliet Road
Mt. Juliet, Tennessee 37122
(Address of principal executive offices) (Zip Code)
Issuer's telephone number: (615) 754-2265
Securities registered pursuant to Section 12(b) of the Act:
Title of each class: Name of each exchange on
which registered:
None None
Securities registered pursuant to Section 12(g) of the Exchange Act:
NONE
(TITLE OF CLASS)
Check whether the issuer: (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such
shorter period that the registrant was required to file such reports), and (2)
has been subject to such filing requirements for the past 90 days. Yes X No
--- ---
Check if there is no disclosure of delinquent filers in response to Item
405 of Regulation S-B is not contained in this form, and no disclosure will be
contained, to the best of the registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form 10-KSB
or any amendment to this Form 10-KSB. X
---
The issuer's revenues for the year ended December 31, 1996 were
$16,368,000.
(FACING SHEET CONTINUED ON NEXT SEQUENTIAL PAGE)
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(FACING SHEET CONTINUED)
The aggregate market value based upon the estimated market value of $20.00
per share based on the last known privately negotiated transaction in the shares
(in that there exists no established trading market for registrant's shares and
no bid or asked prices of such stock are available) of the Registrant's common
voting stock held by nonaffiliates as of February 14, 1997 is approximately
$13,786,300. The market value calculation assumes that all shares beneficially
owned by members of the Board of Directors and the executive officers of the
Registrant are owned by "affiliates," a status that each of these persons
individually disclaims. This is based on an estimated 689,315 shares held by
non-affiliates at December 31, 1996 (outstanding shares of 930,988 less 241,673
shares attributed to the Directors and executive officers, not including shares
subject to options exercisable within 60 days).
The number of shares outstanding for each of the Registrant's classes of
common stock, as of February 14, 1997: 930,988.
DOCUMENTS INCORPORATED BY REFERENCE: None, except as set forth in the
Exhibit Index.
Transitional Small Business Disclosure Format (check one). Yes No X
--- ---
(END OF FACING SHEET)
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FIRST FINANCIAL CORPORATION
ANNUAL REPORT ON FORM 10-KSB
FOR THE YEAR ENDED DECEMBER 31, 1996
TABLE OF CONTENTS
<TABLE>
<S> <C>
PART I.......................................................................... 1
ITEM 1. DESCRIPTION OF BUSINESS..................................... 1
ITEM 2. PROPERTIES.................................................. 34
ITEM 3. LEGAL PROCEEDINGS........................................... 34
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS......... 34
PART II......................................................................... 34
ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.... 34
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION... 38
ITEM 7. FINANCIAL STATEMENTS........................................ 48
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
AND FINANCIAL DISCLOSURE................................... 48
PART III........................................................................ 48
ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL
PERSONS; COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE
ACT........................................................ 48
ITEM 10. EXECUTIVE COMPENSATION...................................... 50
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT................................................. 54
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.............. 56
ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K............................ 57
Signatures............................................................ 58
Supplemental Information.............................................. 60
Exhibit Index......................................................... 63
Index To Financial Statements......................................... F-1
</TABLE>
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PART I
ITEM 1. DESCRIPTION OF BUSINESS.
(A) BUSINESS DEVELOPMENT.
First Financial Corporation (the "Company" or "Registrant") is a financial
services corporation incorporated under the laws of the State of Tennessee in
1991 for the purpose of becoming a bank holding company by acquiring all issued
and outstanding common stock of First Bank & Trust ("First Bank" or the "Bank").
The Company is a bank holding company within the meaning of the Bank Holding
Company Act of 1956, as amended (the "Bank Holding Company Act").
The Company's principal business is the ownership of the Bank. During the
past four years the Company and First Bank have focused on developing the
financial services of the Bank in Wilson, Rutherford and Davidson Counties in
Tennessee and in other areas (generally, in those counties reasonably close to
Wilson County). Expansion continues in Wilson, Rutherford, and Davidson
Counties, Tennessee. At December 31, 1996, the Company had total assets of
$183,973,000 and First Bank had total deposits of $167,445,000. The Company
reported net earnings of approximately $2,350,000 in 1996. Additional
information concerning the general development of the Company's business during
the past three years is set forth in Item 6, "Management's Discussion and
Analysis or Plan of Operation," and in Item 7, "Financial Statements," in this
Annual Report on Form 10-KSB ("Report").
The principal executive offices of the Company and First Bank are located
at 1691 North Mt. Juliet Road, Box 355, Mt. Juliet, Wilson County, Tennessee
37122, telephone (615) 754-2265.
Please refer to "Business of the Company" below and to the consolidated
financial statements for the year ended December 31, 1996 (the "Consolidated
Financial Statements").
(B) BUSINESS OF THE COMPANY.
The Company's principal business is the ownership of First Bank and all
material operations of the Company are currently conducted through First Bank,
its wholly owned subsidiary. The Company and the Bank concentrate on developing
the financial service business of the Bank in Wilson, Davidson and Rutherford
Counties in Tennessee and in other trade areas (generally, in those counties
reasonably close to Wilson County). First Bank is a Tennessee banking
corporation originally established in 1989. The Bank conducts a full-service
commercial banking business centered principally in Wilson County, Tennessee,
with one full-service banking office located in Smyrna, Rutherford County,
Tennessee and two full-service banking offices located in Hermitage and Old
Hickory, respectively, in Davidson County, Tennessee.
The Company's principal source of income in 1996 was the earnings of First
Bank. First Bank's earnings are primarily derived from interest income from
loans and returns from its investment portfolio. The Company may in the future
engage in various business activities permitted of bank holding companies,
either directly, through newly formed subsidiaries, or through acquisitions. The
Company intends to provide banking and financial services in Middle Tennessee,
with a principal focus in the Wilson, Rutherford, and Davidson County trade
areas, through the operations of First Bank.
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First Bank has its principal office in Mt. Juliet, Tennessee and additional
banking offices in Hermitage, Lebanon, and Smyrna, Tennessee. The Bank provides
banking and financial services throughout the Middle Tennessee markets of
Wilson, Davidson, Rutherford and other contiguous counties. For retail
customers, the Bank offers a full range of depository products including regular
and money market checking accounts; regular, special, and money market savings
accounts; various types of certificates of deposit and Individual Retirement
Accounts, as well as safe deposit facilities. First Bank also offers its retail
customers consumer and other installment loans and credit services. The Bank
makes available to local businesses and institutions traditional lending
services, such as lines of credit, accounts receivable and floor plan loans, and
real estate and real estate construction loans, as well as standard depository
services. The Bank's principal source of income is from interest earned on
personal, commercial, agricultural, and real estate loans of various types; and
from fees earned on the origination and sale of mortgage loans. First Bank is a
correspondent bank of Sun Trust Bank, N.A., Nashville,Tennessee, First American
National Bank, Nashville, Tennessee, and Simmons First National Bank, Pine
Bluff, Arkansas. First Bank has no active trust department. The Company and
First Bank intend for the foreseeable future to concentrate their efforts in
Middle Tennessee.
The Company had at December 31, 1996 an annually renewable line of credit
in an amount not to exceed $1.5 million with an unaffiliated commercial bank.
The principal use of this line is the acquisition of shares of the Company's
Common Stock with a view to fostering some liquidity in the shares. The line is
secured by a pledge of all of the stock of First Bank, which is the Company's
primary asset. The line is available to purchase and retire stock of the Company
as it becomes available or to meet other cash needs of the Company. The line has
been extended for one year periods from time to time and is currently scheduled
to mature on or before November 30, 1997. At maturity, the line may be converted
to a term note for a period not to exceed ten (10) years. At December 31, 1996
the interest rate was 7.75%. Beginning March 1, 1997, the Company has the
option, prior to the beginning of the following month, to select either the
prime rate of the lender or a fixed three month rate of 2.25% over the London
Interbank Offered Rate. Under the loan terms, First Bank must maintain capital
ratios equal to or greater than 7.0% through December 31, 1997. Thereafter the
Bank must maintain ratios greater than or equal to those of a "well capitalized"
bank as defined by the regulatory authorities. The outstanding balance at
December 31, 1996 and 1995 was $800,000 and $996,000, respectively.
In addition, the Company has certain long-term debt. The Company originally
executed a 7.0% promissory note in the amount of $400,000 on October 26, 1994.
At December 31, 1996, the outstanding principal balance of this debt was
approximately $391,000. The promissory note is payable in monthly principal and
interest installments of $2,661, with the remaining balance due October 26,
2004. This note is secured by a first mortgage deed of trust lien on land
originally purchased for a future branch site. Construction of this branch was
completed in 1996 and this branch is now open for business. Maturities for the
years 1997 through 2001 are $5,000, $5,000, $5,000, $6,000 and $6,000,
respectively, with the remaining balance of $364,000 due in later years.
The Company also has available to it the ability to obtain certain advances
from the Federal Home Loan Bank. At December 31, 1996, the Company had
outstanding advances from that bank of approximately $993,000. The advances bear
different interest rates, varying from 7.05% to 7.65%. These advances were
collateralized at December 31, 1996, by first mortgage loans from First Bank's
mortgage loan portfolio aggregating an estimated $1,489,000.
Please refer also to the Consolidated Financial Statements.
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The Company and the Bank are subject to extensive supervision and
regulation by federal banking agencies. Their respective operations are subject
to a wide array of federal and state laws applicable to banking and to bank
holding companies. Certain of the laws and regulations that affect these
operations are outlined briefly below.
FINANCIAL SUMMARY OF THE COMPANY
A financial summary of the Company and its consolidated Subsidiary is
DETAILED BELOW (AMOUNTS ARE ROUNDED):
<TABLE>
<CAPTION>
DECEMBER 31
-----------------------------------------------------------------------
1996 1995 1994 1993 1992
------------ ------------ ------------ ------------ -----------
<S> <C> <C> <C> <C> <C>
Total Assets................ $183,973,000 $157,755,000 $125,589,000 $108,520,000 $87,580,000
Deposits.................... 167,445,000 142,922,000 113,038,000 98,617,000 78,547,000
Shareholders' Equity........ 13,173,000 11,047,000 8,885,000 8,584,000 7,945,000
</TABLE>
SUBSIDIARY
First Bank is the Company's sole subsidiary (the "Subsidiary").
SERVICES AND TRANSACTIONS WITH SUBSIDIARY
Intercompany transactions between the Company and its Subsidiary are
subject to restrictions of existing banking laws (such as Sections 23A and 23B
of the Federal Reserve Act) and accepted principles of fair dealing. The Company
can provide the Bank with advice and specialized services in the areas of
accounting and taxation, budgeting and strategic planning, employee benefits and
human resources, auditing, trust, and banking and corporate law. The Company may
elect to charge a fee for these services from time to time. The responsibility
for the management of the Bank, however, remains with its Board of Directors and
with the officers elected by the Bank's Board.
SUPERVISION AND REGULATION
The operations of any bank holding company and banking subsidiary are
affected by various requirements and restrictions imposed by the laws of the
United States and the State of Tennessee, including requirements to maintain
reserves against deposits, limitations on the interest rates that may be charged
on various types of loans, and restrictions on the nature and amount of loans
that may be granted and on the types of investments which may be made. The
operations of bank holding companies and banks are also affected by various
consumer laws and regulations, including those relating to equal credit
opportunity, truth in savings disclosures, and regulation of consumer lending
practices. Congress and state legislatures periodically propose new legislation
affecting the operations of bank holding companies and banks, so no assurance
can be given that the statutes and regulations described below will remain in
effect or that the Company and its Subsidiary will remain in compliance with
applicable laws and regulations. The Company and the Bank are subject also to
extensive regulation under state and federal
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statutes and regulations. The discussion in this section, which briefly
summarizes certain of such statutes, does not purport to be complete, and it is
qualified in its entirety by reference to such statutes and regulations.
BANK HOLDING COMPANY ACT
As a registered bank holding company, the financial condition and
operations of the Company as well as those of its subsidiary are subject to
examination and supervision by the Board of Governors of the Federal Reserve
System (the "Federal Reserve Board"). The Bank Holding Company Act requires
prior Federal Reserve Board approval for bank acquisitions and prohibits a bank
holding company from engaging in any business other than banking or bank-related
activities. Specifically, the Bank Holding Company Act requires that a bank
holding company obtain prior approval of the Federal Reserve Board before (1)
acquiring, directly or indirectly (except in certain limited circumstances),
ownership or control of more than 5% of the voting stock of a bank, (2)
acquiring all or substantially all of the assets of a bank, or (3) merging or
consolidating with another bank holding company. The Bank Holding Company Act
also generally limits the business in which a bank holding company may engage to
banking, managing or controlling banks, and furnishing or performing services
for the banks that it controls.
In addition, pursuant to the Bank Holding Company Act, a bank holding
company may engage in nonbanking activities, or may acquire shares in a company
engaged in nonbanking activities provided that the Federal Reserve Board has
determined by regulation or order that the activity is so closely related to
banking or managing or controlling banks as to be a proper incident thereto.
Except in certain circumstances, the Bank Holding Company Act has
historically prohibited a bank holding company from acquiring a bank outside the
state where the bank holding company's banking business is principally
conducted, unless the laws of the state where the bank is located specifically
authorize such acquisitions by out-of-state bank holding companies. Effective
September 29, 1995, the Riegle-Neal Interstate Banking and Branching Efficiency
Act of 1994, which is discussed below, removed most restrictions to the
expansion of interstate banking. The Interstate Banking Act is likely to have
far-reaching effects on the historical rules applicable to interstate banking
and interstate branching.
FEDERAL RESERVE ACT
The Federal Reserve Act imposes strict limitations on investments by
subsidiary banks in the stock or other securities of their parent bank holding
company or any of its other subsidiaries and on the taking of such stock or
securities as collateral for loans to any borrowers. In addition, the Federal
Reserve Act imposes strict limitations on extensions of credit and other
transactions by and between subsidiary banks and their parent bank holding
company or any of its other subsidiaries or corporate affiliates. As a
subsidiary of the Company, First Bank is subject to limitations under Sections
23A and 23B of the Federal Reserve Act with respect to extensions of credit to,
investments in, and certain other transactions with the Company. Further, any
loans and extensions of credit from First Bank to the Company also would be
subject to various loan-to-value collateral requirements. The Bank Holding
Company Act and regulations of the Federal Reserve Board prohibit a bank holding
company and its subsidiaries from engaging in certain (but not all) tie-in
arrangements in connection with any extension of credit, lease, or sale of
property or the furnishing of services.
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Capital Adequacy. The Federal Reserve Board has issued standards for
measuring capital adequacy for bank holding companies. These standards are
designed to provide risk-responsive capital guidelines and to incorporate a
consistent framework for use by financial institutions operating in major
international financial markets. The banking regulators have issued standards
for banks that are similar to, but not identical with, the standards for bank
holding companies. In general, the risk-related standards require financial
institutions and financial institution holding companies to maintain certain
capital levels based on "risk-adjusted" assets, so that categories of assets
with potentially higher credit risk will require more capital backing than
categories with lower credit risk. In addition, banks and bank holding companies
are required to maintain capital to support off-balance-sheet activities such as
loan commitments. The Company and each of its subsidiary financial institutions
exceed all applicable capital adequacy standards.
Support of Subsidiary Banks. Under Federal Reserve Board policy, the
Company is expected to act as a source of financial strength to its Subsidiary
and to commit resources to support the Subsidiary in circumstances where it
might not choose to do so absent such a policy. This support may be required at
times when the Company may not find itself able to provide it. In addition, any
capital loans by the Company to its Subsidiary would also be subordinate in
right of payment to depositors and certain other indebtedness of such
Subsidiary. Consistent with this policy regarding bank holding companies serving
as a source of financial strength for their subsidiary banks, the Federal
Reserve Board has stated that, as a matter of prudent banking, a bank holding
company generally should not maintain a rate of cash dividends unless its net
income available to common shareholders has been sufficient to fully fund the
dividends, and the prospective rate of earnings retention appears consistent
with the bank holding company's capital needs, asset quality and over all
financial condition.
FIRREA AND FDICIA.
The Financial Institutions Reform, Recovery and Enforcement Act of 1989
("FIRREA") contains a cross-guarantee provision which could result in insured
depository institutions owned by the Company being assessed for losses incurred
by the FDIC in connection with assistance provided to, or the failure of, any
other insured depository institution owned by the Company. Under FIRREA, failure
to meet the capital guidelines could subject a banking institution to a variety
of enforcement remedies available to federal regulatory authorities, including
the termination of deposit insurance by the FDIC. The Federal Deposit Insurance
Corporation Improvement Act of 1991 ("FDICIA") made extensive changes to the
federal banking laws. FDICIA instituted certain changes to the supervisory
process, including provisions that mandate certain regulatory agency actions
against undercapitalized institutions within specified time limits. FDICIA
contains various other provisions that may affect the operations of banks and
savings institutions.
The prompt corrective action provision of FDICIA requires the federal
banking regulators to assign each insured institution to one of five capital
categories ("well capitalized," "adequately capitalized" or one of three
"undercapitalized" categories) and to take progressively more restrictive
actions based on the capital categorization, as specified below. Under FDICIA,
capital requirements would include a leverage limit, a risk-based capital
requirement and any other measure of capital deemed appropriate by the federal
banking regulators for measuring the capital adequacy of an insured depository
institution. All institutions, regardless of their capital levels, are
restricted from making any capital distribution or paying any management fees
that would cause the institution to fail to satisfy the minimum levels for any
relevant capital measure.
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The FDIC and the Federal Reserve Board adopted capital-related regulations
under FDICIA. Under those regulations, a bank will be well capitalized if it:(i)
had a risk-based capital ratio of 10% or greater; (ii) had a ratio of Tier I
capital to risk-adjusted assets of 6% or greater; (iii) had a ratio of Tier I
capital to adjusted total assets of 5% or greater; and (iv) was not subject to
an order, written agreement, capital directive, or prompt corrective action
directive to meet and maintain a specific capital level for any capital measure.
An association will be adequately capitalized if it was not "well capitalized"
and: (i) had a risk-based capital ratio of 8% or greater; (ii) had a ratio of
Tier I capital to risk-adjusted assets of 4% or greater; and (iii) had a ratio
of Tier I capital to adjusted total assets of 4% or greater (except that certain
associations rated "Composite 1" under the federal banking agencies' CAMEL(S)
rating system may be adequately capitalized if their ratios of core capital to
adjusted total assets were 3% or greater). The Company's Subsidiary financial
institution as of December 31, 1996 was categorized as "well capitalized".
FDICIA made extensive changes in then-existing rules regarding audits,
examinations and accounting. It generally requires annual on-site, full scope
examinations by each bank's primary federal regulator. It also imposed new
responsibilities on management, the independent audit committee and outside
accountants to develop or approve reports regarding the effectiveness of
internal controls, legal compliance and off-balance-sheet liabilities and
assets.
Depositor Preference Statute. Legislation enacted in August 1993 provides a
preference for deposits and certain claims for administrative expenses and
employee compensation against an insured depository institution in the
liquidation or other resolution of such an institution by any receiver. Such
obligations would be afforded priority over other general unsecured claims
against such an institution, including federal funds and letters of credit, as
well as any obligation to shareholders of such an institution in their capacity
as such.
FDIC Insurance Assessments. The subsidiary depository institutions of the
Company are subject to FDIC deposit insurance assessments. The FDIC has adopted
a risk-based premium schedule. Each financial institution is assigned to one of
three capital groups--well capitalized, adequately capitalized or
undercapitalized--and further assigned to one of three subgroups within a
capital group, on the basis of supervisory evaluations by the institution's
primary federal and, if applicable, state supervisors, and on the basis of other
information relevant to the institution's financial condition and the risk posed
to the applicable insurance fund. The actual assessment rate applicable to a
particular institution will, therefore, depend in part upon the risk assessment
classification so assigned to the institution by the FDIC. See "FIRREA and
FDICIA."
FIRREA, adopted in August 1989 to provide for the resolution of insolvent
savings associations, required the FDIC to establish separate deposit insurance
funds--the Bank Insurance Fund ("BIF") for banks and the Savings Association
Insurance Fund ("SAIF") for savings associations. FIRREA also required the FDIC
to set deposit insurance assessments at such levels as would cause BIF and SAIF
to reach their "designated reserve ratios" of 1.25 percent of the deposits
insured by them within a reasonable period of time. Due to low costs of
resolving bank insolvencies in the last few years, BIF reached its designated
reserve ratio in May 1995. As a result, effective January 1, 1996, the FDIC
eliminated deposit insurance assessments (except for the minimum $2,000 payment
required by law) for banks that are well capitalized and well managed and
reduced the deposit insurance assessments for all other banks. As of January 1,
1996, the SAIF had not reached the designated reserve ratio. The Company has not
acquired any SAIF-insured deposits during the years from 1989 to the present,
and as of December 31, 1996, none of the Company's banking Subsidiary's deposits
were insured by the SAIF.
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The Deposit Insurance Funds Act of 1996 (the "Funds Act"), enacted as part
of the Omnibus Appropriations Bill on September 30, 1996, required the FDIC to
take immediate steps to recapitalize the SAIF and to change the basis on which
funds are raised to make the scheduled payments on the FICO bonds issued in 1987
to replenish the Federal Savings and Loan Insurance Corporation. The new
legislation, combined with regulations issued by the FDIC immediately after
enactment of the Funds Act, provided for a special assessment in the amount of
65.7 basis points per $100 of insured deposits on SAIF-insured deposits held by
depository institutions on March 31, 1995 (the special assessment was required
by the Funds Act to recapitalize the SAIF to the designated reserve ratio of
1.25 percent of the deposits insured by SAIF). Payments of this assessment were
made in November 1996, but were accrued by financial institutions in the third
calendar quarter of 1996.
Institutions that have deposits insured by both the BIF and the SAIF
("Oakar Banks") were required to pay the special assessment on 80% of their
"adjusted attributable deposit amounts"("AADA"). In addition, for purposes of
future regular deposit insurance assessments, the AADA on which Oakar Banks pay
assessments to SAIF was also reduced by 20%. Commencing January 1, 1997, BIF
insured institutions are responsible for a portion of the annual carrying costs
of the FICO bonds. Such institutions will be assessed at 80% of the rate
applicable to SAIF-insured institutions until December 31, 1999. Effective
January 1, 1997, the Funds Act also reduced ongoing SAIF deposit insurance
assessment rates to a range from 6.4 cents to 23 cents (from previous rates of
23 cents to 31 cents) per $100 of insured deposits and increased ongoing BIF
deposit insurance assessment rates to a range from zero to 1.3 cents per $100 of
insured deposits. Additionally, pursuant to the Funds Act, if the reserves in
the BIF at the end of any semiannual assessment period exceed 1.25% of insured
deposits, the FDIC is required to refund the excess to the BIF-insured
institutions.
The Funds Act contemplates the merger of the SAIF and BIF by 1999, provided
the consolidation/merger of federal bank and thrift charters under applicable
law and regulation has been achieved by that time. Until such time, however,
depository institutions will continue to be prohibited from shifting deposits
from SAIF insurance coverage to BIF insurance coverage in an attempt to avoid
the higher SAIF assessments. The FDIC is required to issue regulations to guard
against the shifting of deposits from SAIF to BIF. A report to Congress
regarding the merger of the SAIF and the BIF is required from the Treasury
Department by March 31, 1997. As of December 31, 1996, none of the Company's
banking Subsidiary's deposits were insured by the SAIF.
Please refer to the section hereinbelow entitled "Restrictions on Dividends
Paid by the Bank as a Company Subsidiary" and to Item 5(c) "Dividends" and to
the Consolidated Financial Statements.
Interstate Banking and Other Recent Legislation. In September 1994,
legislation was enacted that is expected to have a significant effect in
restructuring the banking industry in the United States. The Riegle-Neal
Interstate Banking and Branching Efficiency Act of 1994 ("Riegle-Neal")
facilitates the interstate expansion and consolidation of banking organizations
by permitting (i) bank holding companies that are adequately capitalized and
managed to acquire banks located in states outside their home states regardless
of whether such acquisitions are authorized under the law of the host state,
(ii) interstate merger of banks after June 1, 1997, subject to the right of
individual states to "opt in" or to "opt out" of this authority before that
date, (iii) banks to establish new branches on an interstate basis provided that
such action is specifically authorized by the law of the host state, (iv)
foreign banks to establish, with approval of the regulators in the United
States, branches outside their home states to the same extent that national or
state banks located in the home state would be authorized to do so, and (v)
banks to receive deposits, renew time deposits, close loans, service loans and
receive payments on loans and other
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obligations as agent for any bank or thrift affiliate, whether the affiliate is
located in the same state or a different state. One effect of Riegle-Neal is to
permit the Company to acquire banks located in any state and to permit bank
holding companies located in any state to acquire banks and bank holding
companies in Tennessee. Overall, Riegle-Neal is expected to have the effect of
increasing competition and promoting geographic diversification in the banking
industry.
In addition, the Funds Act contains a variety of regulatory relief measures
affecting banks and thrifts, including provisions modifying some of the more
onerous requirements imposed under federal banking laws passed in the late 1980s
and early 1990s. Among the measures are provisions reducing certain regulatory
burdens imposed upon bank holding companies. For example, the Funds Act
eliminates the requirement that a bank holding company file an application with
the OTS to (i) acquire control of a thrift, or (ii) become a unitary savings and
loan holding company as a result of such acquisition.
The law requires each Federal banking agency to prescribe uniform
regulations including guidelines ensuring that interstate branches operated by
out-of-State banks are reasonably helping to meet the credit needs of
communities where they operate. These agencies are required to conduct
evaluations of overall Community Reinvestment Act performance of institutions
with interstate branches. New procedural requirements are also required of the
Federal banking agencies pertaining to agency preemption opinion letters and
interpretive rules in connection with community reinvestment, consumer
protection, fair lending and establishment of intrastate branches.
Revival of Statute of Limitations. The Act permits the FDIC or Resolution
Trust Corporation, in certain circumstances, acting as conservator or receiver
of a failed depository institution to "revive" tort claims that had expired
under a State statute of limitations within five years of the appointment of a
receiver or conservator.
The Funds Act also provides that a bank holding company owning or
controlling a thrift will no longer be subject to the supervision and regulation
of the OTS. The OTS will continue to regulate and supervise all thrifts acquired
in such transactions.
Riegle-Neal provided also for certain community investment and development
programs. The "Community Development Financial Institutions Fund" portion of the
legislation is supposed to promote economic revitalization and community
development through investment in "Community Development Financial
Institutions." Subtitle B, entitled "The Home Ownership and Equity Protection
Act of 1994," has the stated purpose of increasing the protections afforded to
individuals most at risk from abusive lending practices. This section applies
particularly to high-interest mortgages secured by the borrowers' homes.
In addition, Riegle-Neal contains provisions intended to enhance small
business capital formation. In part, the law seeks to remove impediments in
existing law to the securitization of small business loans and leases. The Small
Business Loan Securitization and Secondary Market Enhancement Act of 1994
creates a secondary market framework for small business related securities, with
the goal of stimulating the flow of funds to small businesses, thus creating new
jobs and stimulating economic growth. The Small Business Capital Enhancement Act
provides for the use of $50 million in Federal funds to encourage and expand
certain defined Capital Access Programs administered by states and other
localities.
8
<PAGE> 12
Finally, Riegle-Neal contained a number of initiatives to lessen the
regulatory burden placed upon depository institutions, to improve consumer
protection areas of advertizing, to deal further with money laundering and to
improve the financial condition of the National Flood Insurance Program (the
"NFIP"). This legislation is designed to improve compliance with the mandatory
purchase requirements of the NFIP by lenders and secondary market purchasers,
which is anticipated to increase participation nationally by individuals with
mortgaged homes or businesses in special flood hazard areas.
Various proposed new laws have been (and will likely be) introduced in the
Tennessee General Assembly in response to the Interstate Banking Act.
TENNESSEE BANK AND BANK HOLDING COMPANY REGULATION
Subject to certain exceptions and the ultimate impact of the Interstate
Banking Act, a Tennessee bank holding company is prohibited under Tennessee law
from acquiring a bank outside the four major metropolitan areas (Shelby,
Davidson, Knox, and Hamilton Counties in which Memphis, Nashville, Knoxville,
and Chattanooga are located, respectively), unless the bank has been in
operation for at least five (5) years. A bank or bank holding company is
prohibited from acquiring any bank in Tennessee if the bank or bank holding
company (including all insured depository institutions which are affiliates of
the bank or bank holding company), upon consummation of the acquisition, would
control thirty percent (30%) or more of the total amount of the deposits of the
insured depository institutions in Tennessee. Under Tennessee law, any Tennessee
bank that has been in operation for at least five years may be acquired, under
certain circumstances, by banks and bank holding companies from outside
Tennessee. Acquisitions are subject to the approval of the Commissioner of the
Tennessee Department of Financial Institutions (the "TDFI"), the FDIC, and the
Federal Reserve Board based upon a variety of statutory and regulatory criteria.
Branching is regulated generally by the TDFI and the FDIC pursuant to certain
state and federal law requirements.
A bank chartered under the laws of the State of Tennessee, such as First
Bank, is subject to the applicable provisions of that the Tennessee Banking Act
and to other matters of Tennessee law (such as, solely by way of example and not
limitation, in respect of usury and branching). All national banks, all
subsidiary banks of a bank holding company, and (as a practical matter) all
banks chartered under Tennessee law must become and remain insured banks under
the Federal Deposit Insurance Act ("FDIA"). As a state chartered bank, First
Bank is not required to be a member of the Federal Reserve System and it is not
a member. First Bank is subject to the provisions of FDIA and to supervision and
regular examination by the FDIC. Such examinations, however, are for the
protection of the bank insurance fund and, indirectly depositors, and are not
for the protection of investors and shareholders. Certain provisions of
Tennessee law may be preempted by the Interstate Banking Act and no prediction
can be made as to its impact on Tennessee law or the Company's regulation
thereunder.
First Bank is limited in the amount of dividends that it may declare under
federal law. Prior regulatory approval must be obtained before declaring any
dividends if the amount of capital, and surplus is below certain statutory
limits. Please refer to the Consolidated Financial Statements and to Item 5 of
this Report, "Market for Registrant's Common Equity and Related Stockholder
Matters," for additional information on dividends.
From time to time the Federal Reserve Board asserts or seeks to assert its
supervisory and regulatory control over banks (and their subsidiaries) where the
banks are neither national banks nor members of the Federal Reserve System. An
important result of this apparent extension of the Federal
9
<PAGE> 13
Reserve Board's authority could be that these subsidiary banks would be unable
to take advantage of the powers granted to state banks and their subsidiaries
under state law. The Bank, as a Tennessee state-chartered bank that is not a
member of the Federal Reserve System, could be affected by such limitations and
regulatory control.
TENNESSEE BANK AND BANK HOLDING COMPANY REGULATION
Subject to certain exceptions, a Tennessee bank holding company is
prohibited under Tennessee law from acquiring a bank outside the four major
metropolitan areas (Shelby, Davidson, Knox, and Hamilton Counties in which
Memphis, Nashville, Knoxville, and Chattanooga are located, respectively),
unless the bank has been incorporated more than five years. A bank holding
company is prohibited from acquiring any Tennessee bank if it directly or
indirectly controls as much as 30% of total deposits in Tennessee. Under
Tennessee law, any Tennessee bank that has been in operation for five years may
be acquired, under certain circumstances, by banks and bank holding companies
from outside Tennessee. Acquisitions are subject to the approval of the
Commissioner of the Tennessee Department of Financial Institutions (the "DOFI"),
the FDIC, and the Federal Reserve Board based upon a variety of statutory and
regulatory criteria. Branching is regulated generally by the DOFI and by the
FDIC.
A bank chartered under the banking laws of Tennessee is subject to the
applicable provisions of Tennessee's laws. All Tennessee banks, and all
subsidiary banks of a bank holding company, must become and remain insured banks
under the FDIA. Tennessee banks are now required to maintain certain cash
reserves. As a member of the FDIC, First Bank is subject to the provisions of
FDIA and to supervision and regular examination by the FDIC and the DOFI. Such
examinations, however, are for the protection of the bank insurance fund and,
indirectly depositors, and are not for the protection of investors and
shareholders.
Certain provisions of Tennessee law may be preempted by the Interstate
Banking Act and no prediction can be made as to its impact on Tennessee law or
the Company's regulation thereunder.
BUSINESS COMBINATION ACT
The Tennessee Business Combination Act (the "Business Combination Act")
limits the ability of Tennessee corporations to engage in business combinations
with "interested shareholders". The Business Combination Act may significantly
impede, delay or prevent a purchaser's ability to acquire a significant equity
interest in the Company. In general, the Business Combination Act prevents an
"interested shareholder" (generally, a shareholder beneficially owning 10% or
more of a corporation's outstanding voting stock) or an affiliate or associate
thereof from engaging in a "business combination" (defined as a variety of
transactions including a merger as described generally below) with a Tennessee
corporation for a period of five years following the date on which the
shareholder became an interested shareholder. The Company's Common Stock may
become registered with the Securities and Exchange Commission pursuant to
Section 12(g) of the Securities Exchange Act of 1934. Hence, in the future, the
Company may become subject to the provisions of the Business Combination Act.
Constitutional questions may serve to limit the effect of the Business
Combinations Act and, accordingly, the effect of the Business Combination Act on
the Company and the Company's Common Stock (if any) is uncertain.
10
<PAGE> 14
USURY PROVISIONS
The Constitution of the State of Tennessee requires the state legislature
to fix interest rates in the state, and the legislature has adopted statutes to
accomplish this purpose. The general interest rate statutes currently in effect
establish a maximum "formula rate" of interest at 4% above the average prime
loan rate (or the average short-term business average rate, however denominated)
for the most recent week for which such average rate has been published by the
Federal Reserve Board, or 24% per annum, whichever is lower. In the event that
the Federal Reserve Board fails to publish the average rate for four consecutive
weeks or the maximum effective rate should be adjudicated or become inapplicable
for any reason whatsoever, the maximum effective rate is deemed to be 24% per
annum until the Tennessee General Assembly otherwise provides. As of February
14, 1997, the maximum "formula rate" of interest was approximately 12.25%.
Specific usury laws may apply also to particular classes of lenders (e.g.,
credit unions and savings and loan associations) and transactions (e.g., bank
installment loans and home mortgages). The maximum possible nominal rate of
interest under these laws generally cannot exceed (and may be less than) 24% per
annum.
The relative importance of the usury laws to the financial operations of
the Company and its subsidiary varies from time to time, depending on a number
of factors, including conditions in the money markets, the cost and the
availability of funds, and prevailing interest rates. The management of the
Company is unable to state whether existing usury laws have had or will have a
material adverse effect on its businesses or earnings.
RESTRICTIONS ON DIVIDENDS PAID BY THE BANK AS A COMPANY SUBSIDIARY
The Company has derived and expects to continue to derive most of its funds
for operations and substantially all funds available for the payment of
dividends from First Bank. Both federal and state laws impose restrictions on
the ability of banks to pay dividends. State law restricts the ability of
corporations to pay dividends, as is more fully discussed in Item 5 of this
Report. The Company and First Bank, its wholly-owned bank subsidiary, are
subject to regulatory capital requirements administered by the FDIC, the Federal
Reserve Board and the DOFI. Failure to meet capital requirements can initiate
certain mandatory -- and possibly additional discretionary -- actions by
regulators that could, in that event, have a direct material effect on the
institution's financial statements. The relevant regulations require First Bank
to meet specific capital adequacy guidelines that involve quantitative measures
of the Bank's assets and liabilities as calculated under regulatory accounting
principles. The regulations also require the regulators to make qualitative
judgments about the Company and First Bank. Those qualitative judgments could
also affect the Company's and First Bank's capital status and the amounts of
dividends the subsidiary bank may distribute. At December 31, 1996, management
believes that the Company and the Bank meet all such capital requirements to
which they are, respectively, subject. Please refer to the Consolidated
Financial Statements for additional information.
COMPETITION
The banking business in the areas served by the Company and First Bank is
highly competitive. Many of the Company's competitors are more established and
have greater financial and other resources than the Company. Competition exists
with other area state and national banks for deposits, loans, and, with larger
banks located in some of the principal cities within Tennessee, for commercial
loans. First Bank also competes for funds with savings and loan associations,
credit unions, certain government agencies and in the open money market.
Competition also exists for loans from other financial
11
<PAGE> 15
institutions, such as savings and loan associations, insurance companies, small
loan companies, credit unions, and certain governmental agencies. The
deregulation of depository institutions, as well as the increased ability of
nonbanking financial institutions to provide services previously reserved for
commercial banks, has intensified competition. Because nonbanking financial
institutions are not subject to the same regulatory restrictions as banks and
bank holding companies, in many instances they may operate with greater
flexibility because they may not be subject to the same types of regulatory
applications and processes as are the Company and First Bank.
The principal geographic area of the Company and First Bank's operations
encompasses Mt. Juliet, Hermitage, Lebanon, Old Hickory, Smryna and surrounding
areas of Tennessee, principally in Wilson, Davidson, and Rutherford Counties and
in other counties contiguous to Wilson County. In this area, at least twelve
commercial banks and two credit unions have more than thirty separate offices as
of February 14, 1997. The Company competes with some of the largest bank holding
companies in Tennessee, which have or control banks or branches in the area,
including First American National Bank, NationsBank, SunTrust Bank, N.A., First
Tennessee Bank, N.A., Union Planters National Bank, Wilson Bank and Trust, and
Liberty State Bank. Old Hickory Credit Union is also a large, established
competitor.
To compete with major financial institutions in its service area, the
Company and First Bank rely, in part, on specialized services, local promotional
activity, and personal contacts with customers by its officers, directors, and
employees. For customers whose loan demands exceed First Bank's lending limit,
First Bank seeks to arrange for loans on a participation basis with
correspondent banks. First Bank also assists customers requiring services not
offered by First Bank in obtaining those services from its correspondent banks.
EMPLOYEES
The Company and First Bank have 90 full-time employees and 20 part-time
employees at February 14, 1997. None of these employees is covered by a
collective-bargaining agreement. Group life, health, and disability insurance
are maintained for or made available to employees by First Bank, as is a 401(k)
profit-sharing plan adopted by First Bank. The Company believes its relations
with its employees are satisfactory.
ENVIRONMENTAL MATTERS
The Company is subject to various federal, state and local statutes and
ordinances regulating the discharge of materials into the environment. The
Company does not believe that it will be required to expend any material amounts
in order to comply with these laws and regulations by virtue of its and First
Bank's activities. However, such laws may from time to time affect the Company
and First Bank in the context of lending activities to borrowers who may
themselves engage in activities or encounter circumstances in which the
environmental laws, rules, and regulations are implicated.
RESEARCH
The Company makes no material expenditures for research and development.
12
<PAGE> 16
DEPENDENCE UPON A SINGLE CUSTOMER
The Bank's principal customers are generally located in the Middle
Tennessee area with a concentration in Wilson County, Tennessee. Neither the
Company nor First Bank is dependent upon a single customer or a very few
customers.
LINE OF BUSINESS
The Company operates under the Bank Holding Company Act of 1956 in the area
of finance. The Company derived 100% of its consolidated total operating income
from the commercial banking business in 1996.
STATISTICAL INFORMATION AND SELECTED FINANCIAL DATA
The following section presents certain statistical data concerning the
Company, and certain selected financial data, that should be read in conjunction
with the portion of this Report known as the "Management's Discussion and
Analysis or Plan of Operation" and with information contained in the
Consolidated Financial Statements.
Remainder of Page left blank intentionally.
13
<PAGE> 17
SELECTED FINANCIAL DATA (UNAUDITED)
The following schedule presents the results of operations, cash dividends
declared, total assets, stockholders' equity and per share information for the
Company for each of the five years ended December 31, 1996.
<TABLE>
<CAPTION>
IN THOUSANDS, EXCEPT PER SHARE INFORMATION
---------------------------------------------------------------------
YEAR ENDED DECEMBER 31,
---------------------------------------------------------------------
1996 1995 1994 1993 1992
----------------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Interest income................................. $ 14,629 12,381 8,846 7,309 6,796
Interest expense................................ 6,656 5,793 3,790 2,822 2,761
-------- ------- ------- ------- ------
Net interest income........................... 7,973 6,588 5,056 4,487 4,035
Provision for possible loan losses.............. (310) (356) (325) (311) (502)
-------- ------- ------- ------- ------
Net interest income after provision for possible
loan losses................................... 7,663 6,232 4,731 4,176 3,533
Non-interest income............................. 1,739 1,538 1,889 1,600 1,154
Non-interest expense............................ (5,855) (5,149) (4,588) (4,060) (3,147)
-------- ------- ------- ------- ------
Earnings before income taxes.................. 3,547 2,621 2,032 1,716 1,540
Income taxes.................................... 1,197 880 702* 599 552
-------- ------- ------- ------- ------
Net earnings.................................. $ 2,350 1,741 1,330 1,117 988
======== ======= ======= ======= ======
Cash dividends declared......................... $ 186 161 159 147 132
======== ======= ======= ======= ======
Total assets end of year........................ $183,973 157,755 125,589 108,520 87,580
======== ======= ======= ======= ======
Stockholders' equity end of year................ $ 13,173 11,047 8,885 8,584 7,945
======== ======= ======= ======= ======
Per share information:
Earnings per share**.......................... $ 2.49 1.87 1.43 1.13 0.95
======== ======= ======= ======= ======
Dividends per share**......................... $ 0.20 0.175 0.175 0.15 0.125
======== ======= ======= ======= ======
Book value per share end of year**............ $ 14.15 11.97 9.63 8.84 7.89
======== ======= ======= ======= ======
</TABLE>
* Includes cumulative effect adjustment of $8,000 related to the adoption of
Statement of Financial Accounting Standards No. 109, "Accounting for Income
Taxes"
** On April 18, 1996, the stockholders approved a two-for-one stock split. All
data with respect to earnings per share has been adjusted to reflect this
transaction.
14
<PAGE> 18
FIRST FINANCIAL CORPORATION
FORM 10-KSB
DECEMBER 31, 1996
I. DISTRIBUTION OF ASSETS, LIABILITIES AND STOCKHOLDERS' EQUITY:
Interest Rate and Interest Differential
The Schedule which follows indicates the average balances for each major
balance sheet item, an analysis of net interest income and the change in
interest income and interest expense attributable to changes in volume and
changes in rates.
The difference between interest income on interest-earning assets and
interest expense on interest-bearing liabilities is net interest income, which
is the Company's gross margin. Analysis of net interest income is more
meaningful when income from tax-exempt earning assets is adjusted to a tax
equivalent basis. Accordingly, the following schedule includes a tax-equivalent
adjustment of tax-exempt earning assets, assuming a weighted average Federal
income tax rate of 34%.
In this schedule "change due to volume" is the change in volume multiplied
by the interest rate for the prior year. "Change due to rate" is the change in
interest rate multiplied by the volume for the current year. Changes in interest
income and expense not due solely to volume or rate changes are included in the
"change due to rate" category.
Non-accrual loans have been included in their respective loan categories.
Loan fees of $716,000, $466,000 and $279,000 for 1996, 1995 and 1994,
respectively, are included in loan income and represent an adjustment of the
yield on these loans.
15
<PAGE> 19
FIRST FINANCIAL CORPORATION
FORM 10-KSB
DECEMBER 31, 1996
<TABLE>
<CAPTION>
IN THOUSANDS, EXCEPT INTEREST RATES
------------------------------------------------------------
1996 1995 1996/1995 CHANGE
----------------------------- ---------------------------- -----------------------
AVERAGE INTEREST INCOME/ AVERAGE INTEREST INCOME/ DUE TO DUE TO
BALANCE RATE EXPENSE BALANCE RATE EXPENSE VOLUME RATE TOTAL
-------- -------- ------- ------- -------- ------- ------ ------ -----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Taxable loans......................... $114,519 10.35% 11,858 90,531 10.77% 9,749 2,583 (474) 2,109
-------- ----- ------ ------- ----- ------ -----
Tax exempt loans...................... 571 6.13 35 616 6.17 38 (3) -- (3)
Taxable equivalent adjustment......... -- -- 19 -- -- 20 (1) -- (1)
-------- ----- ------ ------- ----- ------ -----
Total tax-exempt loans.............. 571 9.46 54 616 9.42 58 (4) -- (4)
-------- ----- ------ ------- ----- ------ -----
Total loans......................... 115,090 10.35 11,912 91,147 10.76 9,807 2,576 (471) 2,105
-----
Less allowance for possible loan
losses.............................. (1,409) -- -- (1,083) -- -- --
-------- ----- ------ ------- ----- ------ -----
Net loans........................... 113,681 10.48 11,912 90,064 10.89 9,807 2,572 (467) 2,105
-------- ----- ------ ------- ----- ------ -----
Investment securities -- taxable...... 31,791 6.40 2,036 30,078 6.44 1,938 110 (12) 98
-----
Investment securities -- tax exempt... 8,920 4.89 436 7,301 4.93 360 80 (4) 76
Taxable equivalent adjustment......... -- -- 225 -- -- 185 -- -- 40
-------- ----- ------ ------- ----- ------ -----
Total tax-exempt investment
securities........................ 8,920 7.41 661 7,301 7.46 545 121 (5) 116
-------- ----- ------ ------- ----- ------ -----
Total investment securities......... 40,711 6.62 2,697 37,379 6.64 2,483 221 (7) 214
-------- ----- ------ ------- ----- ------ -----
Loans held for sale................... 1,733 7 119 1,518 4.94 75 11 33 44
Federal funds sold.................... 3,119 4.39 137 4,032 5.18 209 (47) (25) (72)
Interest-bearing deposits in financial
institutions........................ 95 8.42 8 180 6.67 12 (6) 2 (4)
-------- ----- ------ ------- ----- ------ -----
Total earning assets, net of
allowance for possible loan
losses............................ 159,339 9.33 14,873 133,173 9.45 12,586 2,473 (186) 2,287
-------- ----- ------ ------- ----- ------ -----
Cash and due from banks............... 4,369 3,501
Other assets.......................... 7,186 6,364
-------- -------
Total assets........................ $170,894 143,038
======== =======
</TABLE>
16
<PAGE> 20
FIRST FINANCIAL CORPORATION
FORM 10-KSB
DECEMBER 31, 1996
<TABLE>
<CAPTION>
IN THOUSANDS, EXCEPT INTEREST RATES
------------------------------------------------------------
1996 1995 1996/1995 CHANGE
----------------------------- ---------------------------- -----------------------
AVERAGE INTEREST INCOME/ AVERAGE INTEREST INCOME/ DUE TO DUE TO
BALANCE RATE EXPENSE BALANCE RATE EXPENSE VOLUME RATE TOTAL
-------- -------- ------- ------- -------- ------- ------ ------ -----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Deposits:
Negotiable order of withdrawal...... $ 16,046 2.50% 401 12,841 2.66% 341 85 (25) 60
Money market demand accounts........ 19,680 4.04 795 13,898 4.01 558 232 5 237
Savings accounts.................... 8,121 2.76 224 7,995 2.64 211 3 10 13
Individual retirement savings
accounts.......................... 1,737 4.61 80 1,789 4.58 82 (2) -- (2)
Certificates of deposit, $100,000
and over.......................... 24,766 5.70 1,412 21,461 6.05 1,299 200 (87) 113
Certificates of deposit under
$100,000.......................... 64,109 5.54 3,553 53,628 5.74 3,077 602 (126) 476
Other borrowings.................... 2,580 7.40 191 2,940 7.65 225 (27) (7) (34)
-------- ---- ----- ------- ---- ----- ---
Total interest-bearing
liabilities..................... 137,039 4.86 6,656 114,552 5.06 5,793 1,138 (275) 863
---
Demand................................ 20,861 -- -- 17,908 -- -- --
-------- ---- ----- ------- ---- ----- ---
Total liabilities................. 157,900 4.22 6,656 132,460 4.37 5,793 1,112 (249) 863
-------- ---- ----- ------- ---- ----- ---
Other liabilities..................... 1,260 909
Stockholder's equity.................. 11,734 9,669
-------- -------
Total liabilities and
stockholders' equity............ $170,894 143,038
======== =======
Net interest income................... 8,217 6,793
===== =====
Net yield on earning assets........... 5.16 5.10
==== ====
Net interest spread................... 5.11 5.08
==== ====
</TABLE>
17
<PAGE> 21
FIRST FINANCIAL CORPORATION
FORM 10-KSB
DECEMBER 31, 1996
<TABLE>
<CAPTION>
IN THOUSANDS, EXCEPT INTEREST RATES
------------------------------------------------------------
1995 1994 1995/1994 CHANGE
----------------------------- ---------------------------- -----------------------
AVERAGE INTEREST INCOME/ AVERAGE INTEREST INCOME/ DUE TO DUE TO
BALANCE RATE EXPENSE BALANCE RATE EXPENSE VOLUME RATE TOTAL
-------- -------- ------- ------- -------- ------- ------ ------ -----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Taxable loans......................... $ 90,531 10.77% 9,749 71,690 9.47% 6,792 1,784 1,173 2,957
Tax exempt loans...................... 616 6.17 38 576 5.73 33 2 3 5
Taxable equivalent adjustment......... -- 20 -- -- 17 1 2 3
-------- ----- ------ ------- ---- ----- -----
Total tax-exempt loans.............. 616 9.42 58 576 8.68 50 3 5 8
-------- ----- ------ ------- ---- ----- -----
Total loans......................... 91,147 10.76 9,807 72,266 9.47 6,842 1,788 1,177 2,965
-----
Less allowance for possible loan
losses.............................. (1,083) -- -- (877) -- -- --
-------- ----- ------ ------- ---- ----- -----
Net loans........................... 90,064 10.89 9,807 71,389 9.58 6,842 1,789 1,176 2,965
-------- ----- ------ ------- ---- ----- -----
Securities -- taxable................. 30,078 6.44 1,938 27,003 5.77 1,559 177 202 379
-----
Securities -- tax-exempt.............. 7,301 4.93 360 5,114 4.60 235 101 24 125
Taxable equivalent adjustment......... -- -- 185 -- -- 121 51 13 64
-------- ----- ------ ------- ---- ----- -----
Total tax-exempt investment
securities........................ 7,301 7.46 545 5,114 6.96 356 152 37 189
-------- ----- ------ ------- ---- ----- -----
Total securities.................... 37,379 6.64 2,483 32,117 5.96 1,915 314 254 568
-------- ----- ------ ------- ---- ----- -----
Loans held for sale................... 1,518 4.94 75 2,211 4.66 103 (32) 4 (28)
Federal funds sold.................... 4,032 5.18 209 2,569 4.24 109 62 38 100
Interest-bearing deposits in financial
institutions........................ 180 6.67 12 221 6.79 15 (3) -- (3)
-------- ----- ------ ------- ---- ----- -----
Total earning assets, net of
allowance for possible loan
losses............................ 133,173 9.45 12,586 108,507 8.28 8,984 2,042 1,560 3,602
-------- ----- ------ ------- ---- ----- -----
Cash and due from banks............... 3,501 2,870
Other assets.......................... 6,364 5,238
-------- -------
Total assets........................ $143,038 116,615
======== =======
</TABLE>
18
<PAGE> 22
FIRST FINANCIAL CORPORATION
FORM 10-KSB
DECEMBER 31, 1996
<TABLE>
<CAPTION>
IN THOUSANDS, EXCEPT INTEREST RATES
------------------------------------------------------------
1995 1994 1995/1994 CHANGE
----------------------------- ---------------------------- -----------------------
AVERAGE INTEREST INCOME/ AVERAGE INTEREST INCOME/ DUE TO DUE TO
BALANCE RATE EXPENSE BALANCE RATE EXPENSE VOLUME RATE TOTAL
-------- -------- ------- ------- -------- ------- ------ ------ -----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Deposits:
Negotiable order of withdrawal...... $ 12,841 2.66% 341 9,593 2.35% 225 76 40 116
Money market demand accounts........ 13,898 4.01 558 12,008 2.74 329 52 177 229
Savings accounts.................... 7,995 2.64 211 5,853 2.44 143 52 16 68
Individual retirement savings
accounts.......................... 1,789 4.58 82 1,936 3.82 74 (6) 14 8
Certificates of deposit, $100,000
and over.......................... 21,461 6.05 1,299 19,336 4.89 946 104 249 353
Certificates of deposit under
$100,000.......................... 53,628 5.74 3,077 40,972 4.72 1,935 597 545 1,142
Other borrowings.................... 2,940 7.65 225 1,798 7.68 138 88 (1) 87
-------- ----- ------ ------- ----- ------ -----
Total interest-bearing
liabilities..................... 114,552 5.06 5,793 91,496 4.14 3,790 955 1,048 2,003
Demand................................ 17,908 -- -- 15,795 -- -- --
-------- ----- ------ ------- ----- ------ -----
Total liabilities................. 132,460 4.37 5,793 107,291 3.53 3,790 888 1,115 2,003
-------- ----- ------ ------- ----- ------ -----
Other liabilities..................... 909 612
Stockholder's equity.................. 9,669 8,712
-------- -------
Total liabilities and
stockholders' equity............ 143,038 116,615
======== =======
Net interest income................... 6,793 5,194
====== ======
Net yield on earning assets........... 5.10 4.79
===== =====
Net interest spread................... 5.08 4.75
===== =====
</TABLE>
19
<PAGE> 23
FIRST FINANCIAL CORPORATION
FORM 10-KSB
DECEMBER 31, 1996
II. INVESTMENT PORTFOLIO
A. Securities at December 31, 1996 are as follows:
<TABLE>
<CAPTION>
SECURITIES AVAILABLE-FOR-SALE
-----------------------------------------------
GROSS GROSS ESTIMATED
AMORTIZED UNREALIZED UNREALIZED MARKET
COST GAINS LOSSES VALUE
--------- ---------- ---------- ---------
IN THOUSANDS
<S> <C> <C> <C> <C>
U.S. Government obligations............................ $ 6,195 24 14 6,205
Securities of U.S. government agencies and
corporations......................................... 9,932 54 56 9,930
Obligations of state and political subdivisions........ 10,562 135 77 10,620
Collateralized mortgage obligations.................... 3,601 -- 59 3,542
Federal Home Loan Bank Stock........................... 498 -- -- 498
Mortgage-backed securities............................. 11,639 105 66 11,678
------- --- --- ------
$42,427 318 272 42,473
======= === === ======
</TABLE>
Securities at December 31, 1995 are as follows:
<TABLE>
<CAPTION>
SECURITIES AVAILABLE-FOR-SALE
-----------------------------------------------
GROSS GROSS ESTIMATED
AMORTIZED UNREALIZED UNREALIZED MARKET
COST GAINS LOSSES VALUE
--------- ---------- ---------- ---------
IN THOUSANDS
<S> <C> <C> <C> <C>
U.S. Government obligations............................ $ 5,981 58 18 6,021
Securities of U.S. government agencies and
corporations......................................... 8,847 46 30 8,863
Obligations of state and political subdivisions........ 7,936 270 19 8,187
Corporate and other securities......................... 499 -- 5 494
Mortgage-backed securities............................. 12,435 149 75 12,509
Collateralized mortgage obligations.................... 7,229 56 114 7,171
Federal Home Loan Bank Stock........................... 418 -- -- 418
------- --- --- ------
$43,345 579 261 43,663
======= === === ======
</TABLE>
20
<PAGE> 24
FIRST FINANCIAL CORPORATION
FORM 10-KSB
DECEMBER 31, 1996
II. INVESTMENT PORTFOLIO, CONTINUED:
B. The following schedule details the maturities and weighted average
yields of securities of the Company at December 31, 1996.
<TABLE>
<CAPTION>
ESTIMATED WEIGHTED
AMORTIZED MARKET AVERAGE
SECURITIES AVAILABLE-FOR-SALE COST VALUE YIELDS
- ----------------------------- --------- --------- --------
IN THOUSANDS
<S> <C> <C> <C>
Securities of U.S. Government obligations:
Less than one year........................................ $ 253 251 4.8%
One to five years......................................... 5,942 5,954 5.8
Five to ten years......................................... -- -- --
More than ten years....................................... -- -- --
------- ------ -----
Total securities of U.S. Government obligations........ 6,195 6,205 5.8
------- ------ -----
Securities of U.S. Government agencies and corporations:
Less than one year........................................ 481 477 5.0
One to five years......................................... 3,196 3,185 6.0
Five to ten years......................................... 2,625 2,631 6.9
More than ten years....................................... 3,630 3,637 6.7
------- ------ -----
Total securities of U.S. Government agencies and
corporations......................................... 9,932 9,930 6.4
------- ------ -----
Obligations of states and political subdivisions*:
Less than one year........................................ 380 380 5.8
One to five years......................................... 4,603 4,592 6.7
Five to ten years......................................... 2,441 2,433 7.1
More than ten years....................................... 3,138 3,215 7.9
------- ------ -----
Total obligations of states and political subdivisions.... 10,562 10,620 7.2
------- ------ -----
Corporate and other:
Deposit notes and corporate bonds......................... 498 498 7.0
------- ------ -----
Mortgage-backed securities................................ 11,639 11,678 6.9
------- ------ -----
Collateralized mortgage obligations....................... 3,601 3,542 5.6
------- ------ -----
Total available-for-sale securities.................... $42,427 42,473 6.6
======= ====== =====
</TABLE>
*Weighted average yield is stated on a tax-equivalent basis, assuming a weighted
average Federal income tax rate of 34%.
21
<PAGE> 25
FIRST FINANCIAL CORPORATION
FORM 10-KSB
DECEMBER 31, 1996
III. LOAN PORTFOLIO:
A. Loan Types
The following schedule details the types of loans of the Company at
December 31, 1996 and 1995.
<TABLE>
<CAPTION>
IN THOUSANDS
----------------------
1996 1995
-------- -------
<S> <C> <C>
Commercial, financial and agricultural...................... $ 36,311 30,859
Real estate -- construction................................. 11,724 8,412
Real estate -- mortgage..................................... 65,204 51,180
Consumer.................................................... 12,190 11,788
-------- -------
Gross loans............................................... 125,429 102,239
Less unearned interest...................................... (1,117) (1,257)
-------- -------
Total loans, net of unearned interest..................... 124,312 100,982
Less allowance for possible loan losses..................... (1,541) (1,246)
-------- -------
Net loans................................................. $122,771 99,736
======== =======
</TABLE>
22
<PAGE> 26
FIRST FINANCIAL CORPORATION
FORM 10-KSB
DECEMBER 31, 1996
III. LOAN PORTFOLIO, CONTINUED:
B. MATURITIES AND SENSITIVITIES OF LOANS TO CHANGES IN INTEREST RATES
The following schedule details maturities and sensitivity to interest rates
changes for commercial loans of the Company at December 31, 1996.
<TABLE>
<CAPTION>
IN THOUSANDS
----------------------------------------
1 YEAR TO
LESS THAN LESS THAN AFTER 5
1 YEAR* 5 YEARS YEARS TOTAL
--------- --------- ------- ------
<S> <C> <C> <C> <C>
Maturity Distribution:
Commercial, financial and agricultural................... $27,387 8,924 -- 36,311
Real estate -- construction.............................. 10,863 861 -- 11,724
------- ----- --- ------
$38,250 9,785 -- 48,035
======= ===== === ======
Interest-Rate Sensitivity:
Fixed interest rates..................................... $26,943 9,785 -- 36,728
Floating or adjustable interest rates.................... 11,307 -- -- 11,307
------- ----- --- ------
Total commercial, financial and agricultural loans and
real estate -- construction loans................... $38,250 9,785 -- 48,035
======= ===== === ======
</TABLE>
*Includes demand loans, bankers acceptances, commercial paper and deposit notes.
23
<PAGE> 27
FIRST FINANCIAL CORPORATION
FORM 10-KSB
DECEMBER 31, 1996
III. LOAN PORTFOLIO, CONTINUED:
C. RISK ELEMENTS
The following schedule details selected information as to non-performing
loans of the Company at December 31, 1996 and 1995.
<TABLE>
<CAPTION>
IN THOUSANDS
---------------------
1996 1995
-------- -------
<S> <C> <C>
Non-accrual loans:
Commercial, financial and agricultural.................... $ -- --
Real estate -- construction............................... -- --
Real estate -- mortgage................................... 88 --
Consumer.................................................. -- --
Lease financing receivable................................ -- --
-------- -------
Total non-accrual......................................... $ 88 --
======== =======
Loans 90 days past due:
Commercial, financial and agricultural.................... $ 139 13
Real estate -- construction............................... -- --
Real estate -- mortgage................................... 74 48
Consumer.................................................. 14 18
Lease financing receivable................................ -- --
-------- -------
Total loans 90 days past due.............................. $ 227 79
======== =======
Renegotiated loans:
Commercial, financial and agricultural.................... $ 92 303
Real estate -- construction............................... -- --
Real estate -- mortgage................................... 231 269
Consumer.................................................. -- 15
Lease financing receivable................................ -- --
-------- -------
Total renegotiated loans.................................. $ 323 587
======== =======
Loans current -- considered uncollectible................... $ -- --
======== =======
Total non-performing loans................................ $ 638 666
======== =======
Total loans, net of unearned interest..................... $124,312 100,982
======== =======
Percent of total loans outstanding, net of unearned
interest.................................................. $ .51% .66%
======== =======
Other real estate........................................... $ 2 305
======== =======
</TABLE>
24
<PAGE> 28
FIRST FINANCIAL CORPORATION
FORM 10-KSB
DECEMBER 31, 1996
III. Loan Portfolio, Continued:
C. Risk Elements, Continued
The accrual of interest income is discontinued, and previously
accrued interest is reversed, when it is determined that
collection of interest is less than probable or the collection of
any amount of principal is doubtful. The decision to place a loan
on a non-accrual status is based on an evaluation of the
borrower's financial condition, collateral liquidation value,
economic and business conditions and other factors that affect
the borrower's ability to pay. At the time a loan is placed on a
non-accrual status, the accrued but unpaid interest is also
evaluated as to collectibility. If collectibility is doubtful,
the unpaid interest is charged off. Thereafter, interest on
non-accrual loans is recognized only as received. Non-accrual
loans were $88,000 at December 31, 1996. Had interest been
accrued on these loans, net earnings in 1996 would have been
increased by approximately $4,000. Total interest income would
have increased from $14,629,000 to $14,633,000 in 1996. There
were no non-accrual loans at December 31, 1995.
Nonperforming loans have decreased by $28,000 from December 31,
1995 to December 31, 1996. The decrease resulted from an increase
in non-accrual loans of $88,000, an increase in loans ninety-days
or more past due of $148,000, and a decrease in renegotiated
loans of $264,000. The decrease in renegotiated loans from 1995
to 1996 resulted primarily from the pay down of loans between
years. Three of these loans amounting to $231,000 are included
within real estate -- mortgage and one loan amounting to $92,000
is included within commercial loans.
At December 31, 1996 loans totaling $1,634,000 were included in
the Company's internal classified loan list. Of these loans
$742,000 are consumer, $586,000 are commercial and $306,000 are
real estate loans. The collateral values securing these loans
total approximately $2,883,000 based on management estimates,
($1,410,000 related to consumer loans, $1,151,000 related to
commercial loans and $322,000 related to real estate loans). Such
loans are listed as classified when information obtained about
possible credit problems of the borrower has prompted management
to question the ability of the borrower to comply with the
repayment terms of the loan.
At December 31, 1996 there were no loan concentrations within a
single industry segment that exceeded ten percent of total loans
other than as included in the preceding table of types of loans.
Loan concentrations are amounts loaned to a multiple number of
borrowers engaged in similar activities which would cause them to
be similarly impacted by economic or other conditions.
25
<PAGE> 29
FIRST FINANCIAL CORPORATION
FORM 10-KSB
DECEMBER 31, 1996
III. Loan Portfolio, Continued:
C. Risk Elements, Continued
At December 31, 1996, other real estate totaled $2,000 and
consisted of one property. The balance at December 31, 1996
decreased from December 31, 1995 by $303,000. This decrease
results from the sale of the properties. Of the amount sold
$69,000 was financed by the subsidiary bank.
Management is attempting to sell the properties included within
other real estate at December 31, 1996 and does not expect to
incur any losses.
D. Other Interest-Bearing Assets
There were no material amounts of other interest-bearing assets
(interest-bearing deposits with other banks, municipal bonds,
etc.) at December 31, 1996 which would be required to be
disclosed as past due, nonaccrual, restructured or potential
problem loans, if such interest-bearing assets were loans.
26
<PAGE> 30
FIRST FINANCIAL CORPORATION
FORM 10-KSB
DECEMBER 31, 1996
IV. SUMMARY OF LOAN LOSS EXPERIENCE
The following schedule details selected information related to the
allowance for possible loan loss account of the Company at December 31, 1996 and
1995 and the years then ended.
<TABLE>
<CAPTION>
1996 1995
-------- -------
<S> <C> <C>
Allowance for loan losses at beginning of period............ $ 1,246 932
Less: net loan charge-offs:
Charge-offs:
Commercial, financial and agricultural................. (20) (24)
Real estate -- construction............................ -- --
Real estate -- mortgage................................ (13) --
Consumer............................................... (65) (55)
Lease financing........................................ -- --
-------- -------
(98) (79)
-------- -------
Recoveries:
Commercial, financial and agricultural.................... 53 15
Real estate -- construction............................... -- --
Real estate -- mortgage................................... 10 --
Consumer.................................................. 20 22
Lease financing........................................... -- --
-------- -------
83 37
-------- -------
Net loan charge-offs................................. (15) (42)
-------- -------
Provision for loan losses charged to expense................ 310 356
-------- -------
Allowance for loan losses at end of period.................. $ 1,541 1,246
======== =======
Total loans, net of unearned interest, at end of year....... $124,312 100,982
======== =======
Average total loans outstanding, net of unearned interest,
during year............................................... $115,090 91,147
======== =======
Net charge-offs as a percentage of average total loans
outstanding, net of unearned interest, during year........ .01% .05%
======== =======
Ending allowance for loan losses as a percentage of total
loans outstanding net of unearned interest, at end of
year...................................................... 1.24 1.23%
======== =======
</TABLE>
27
<PAGE> 31
FIRST FINANCIAL CORPORATION
FORM 10-KSB
DECEMBER 31, 1996
IV. SUMMARY OF LOAN LOSS EXPERIENCE, CONTINUED
The following detail provides a breakdown of the allocation of the
allowance for possible loan losses:
<TABLE>
<CAPTION>
DECEMBER 31, 1996 DECEMBER 31, 1995
--------------------- ---------------------
PERCENT PERCENT
OF LOANS OF LOANS
IN EACH IN EACH
CATEGORY CATEGORY
IN TO TOTAL IN TO TOTAL
THOUSANDS LOANS THOUSANDS LOANS
--------- -------- --------- --------
<S> <C> <C> <C> <C>
Total
Commercial, financial and agricultural........... $ 280 29% 246 30%
Real estate construction......................... -- 9 -- 8
Real estate mortgage............................. 714 52 583 50
Consumer......................................... 547 10 417 12
------ --- ----- ---
$1,541 100% 1,246 100%
====== === ===== ===
</TABLE>
The allowance for possible loan losses is an amount that management
believes will be adequate to absorb possible losses on existing loans or
loan commitments that may become uncollectible. The provision for possible
loan losses charged to operating expense is based on past loan loss
experience and other factors which, in management's judgment, deserve
current recognition in estimating possible loan losses. Such other factors
considered by management include growth and composition of the loan
portfolio, review of specific loan problems, the relationship of the
allowance for possible loan losses to outstanding loans, adverse situations
that may affect the borrower's ability to repay, the estimated value of any
underlying collateral and current economic conditions that may affect the
borrower's ability to pay.
Management conducts a continuous review of all loans that are
delinquent, previously charged down or loans which are determined to be
potentially uncollectible. Loan classifications are also reviewed by a
person independent of the lending function. The Board of Directors
periodically reviews the adequacy of the allowance for possible loan losses.
The breakdown of the allowance by loan category is based in part on
evaluations of specific loans, past history and economic conditions within
specific industries or geographic areas. Accordingly, since all of these
conditions are subject to change, the allocation is not necessarily
indicative of the breakdown of the future losses.
28
<PAGE> 32
FIRST FINANCIAL CORPORATION
FORM 10-KSB
DECEMBER 31, 1996
V. DEPOSITS
The average amounts and average interest rates for deposits for 1996 and
1995 are detailed in the following schedule:
<TABLE>
<CAPTION>
1996 1995
------------------- -------------------
AVERAGE AVERAGE
BALANCE BALANCE
--------- ---------
IN AVERAGE IN AVERAGE
THOUSANDS RATE THOUSANDS RATE
--------- ------- --------- -------
<S> <C> <C> <C> <C>
Non-interest bearing deposits............................. $ 20,861 --% $ 17,908 --%
Negotiable order of withdrawal accounts................... 16,046 2.50 12,841 2.66
Money market demand accounts.............................. 19,680 4.04 13,898 4.01
Savings accounts.......................................... 8,121 2.76 7,995 2.64
Individual retirement savings accounts.................... 1,737 4.61 1,789 4.58
Certificates of deposit $100,000 and over................. 24,766 5.70 21,461 6.05
Certificates of deposit under $100,000.................... 64,109 5.54 53,628 5.74
-------- ---- -------- ----
$155,320 4.16% $129,520 4.30%
======== ==== ======== ====
</TABLE>
The following schedule details the maturities of certificates of deposit
and individual retirement accounts of $100,000 and over at December 31,
1996.
<TABLE>
<CAPTION>
IN THOUSANDS
------------
<S> <C>
Less than three months...................................... $12,915
Three to six months......................................... 5,003
Six to twelve months........................................ 6,818
More than twelve months..................................... 4,073
------------
$28,809
============
</TABLE>
29
<PAGE> 33
FIRST FINANCIAL CORPORATION
FORM 10-KSB
DECEMBER 31, 1996
VI. RETURN ON EQUITY AND ASSETS
The following schedule details selected key ratios of the Company at
December 31, 1996, 1995 and 1994.
<TABLE>
<CAPTION>
1996 1995 1994
----- ----- -----
<S> <C> <C> <C>
Return on assets
(Net income divided by average total assets).............. 1.38% 1.22% 1.14%
Return on equity
(Net income divided by average equity).................... 20.02% 18.01% 15.27%
Dividend payout ratio
(Dividends declared per share divided by net income per
share)................................................. 8.03% 9.36% 12.28%
Equity to assets ratio
(Average equity divided by average total assets).......... 6.87% 6.76% 7.47%
Leverage capital ratio
(Equity divided by fourth quarter average total
assets -- excluding the effect of the adoption of SFAS
No. 115)............................................... 7.14% 6.86% 7.42%
</TABLE>
The minimum leverage capital ratio required by the regulatory agencies is
4%.
Beginning January 1, 1991, new risk-based capital guidelines were
adopted by regulatory agencies. Under these guidelines, a credit risk is
assigned to various categories of assets and commitments ranging from 0% to
100% based on the risk associated with the asset.
The following schedule details the Company's risk-based capital at December
31, 1996 (excluding the effect of the adoption of SFAS No. 115):
<TABLE>
<CAPTION>
IN THOUSANDS
------------
<S> <C>
Tier I capital:
Stockholders' equity, excluding net unrealized gains on
available-for-sale securities.......................... $ 13,144
Tier II capital:
Allowable allowance for loan losses (limited to 1.25% of
risk weighted assets).................................. 1,541
--------
Total capital..................................... $ 14,685
========
Risk-weighted assets........................................ $130,485
========
Risk-based capital ratios:
Tier I capital ratio...................................... 10.07%
========
Total risk-based capital ratio............................ 11.25%
========
</TABLE>
The Company is required to maintain a total risk-based capital to risk
weighted asset ratio of 8% and a Tier I capital to risk weighted asset ratio
of 4%. At December 31, 1996, the Company and its subsidiary bank were in
compliance with these requirements.
30
<PAGE> 34
FIRST FINANCIAL CORPORATION
FORM 10-KSB
DECEMBER 31, 1996
VI. RETURN ON EQUITY AND ASSETS, CONTINUED
If all negotiable order of withdrawal accounts, money market demand
accounts and savings accounts had been included in the 0-30 days category
above, the cumulative gap as a percentage of total assets would have
been negative (25.2%), (24.0%), (27.9%), and (32.0%), respectively for the
0-30 days, 31-90 days, 91-180 days and 181-365 days at December 31, 1996.
The Company presently maintains a liability sensitive position over the
next twelve months. The repricing schedule for investment securities does
not necessarily reflect the cash flows management expects from the
portfolio. Management expects that approximately 11% of the portfolio will
cash flow in the next 12 months. In addition, management expects that
liabilities of a short-term nature such as negotiable order of withdrawal,
money market accounts and savings accounts will renew and that it will not
be necessary to replace them with significantly higher cost funds.
VII. OTHER BORROWINGS
The Company has entered into a loan agreement with a commercial bank.
The agreement extends a line of credit to the Company in an amount not to
exceed $1,500,000. The line is available to purchase and retire stock of
the Company as it becomes available and to meet other cash needs of the
Company. The line matures on or before November 30, 1996 and at the
maturity may be converted to a term note for a period not to exceed ten
(10) years. The stock of the subsidiary company collateralizes the line. At
December 31, 1996, the interest rate was 7.75%. Beginning March 1, 1996,
the Company has the option, prior to the beginning of the following month,
to select either the prime rate of the lender or a fixed three month rate
of 2.25% over the London Interbank Offered Rate ("Libor"). The subsidiary
bank must maintain a total capital to total tangible asset ratio equal to
or greater than 7.0 through December 31, 1996. Thereafter, the Bank must
maintain ratios greater than or equal to those of a "well capitalized" bank
as defined by the regulatory authorities. The outstanding balance at
December 31, 1996 and 1995 was $800,000 and $996,000, respectively.
The advances from the Federal Home Loan Bank at December 31, 1996 consist
of the following:
<TABLE>
<CAPTION>
INTEREST RATE IN THOUSANDS
- ------------- ------------
<S> <C>
7.05%.................................................. $650
7.65%.................................................. 343
----
$993
====
</TABLE>
31
<PAGE> 35
FIRST FINANCIAL CORPORATION
FORM 10-KSB
DECEMBER 31, 1996
VI. RETURN ON EQUITY AND ASSETS, CONTINUED
The following schedule details the Company's interest rate sensitivity at
December 31, 1996 (In Thousands):
<TABLE>
<CAPTION>
181-365
TOTAL 0-30 DAYS 31-90 DAYS 91-180 DAYS DAYS OVER 1 YEAR
-------- --------- ---------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
Earning assets:
Taxable loans, net......................... $123,852 10,088 15,642 16,583 1,316 60,223
Tax exempt loans........................... 460 1 1 2 -- 456
Loans held for sale........................ 1,723 1,723 -- -- -- --
Securities taxable......................... 31,853 -- 165 -- 1,113 30,575
Securities -- tax exempt................... 10,620 -- 190 -- 25 10,405
Federal funds sold......................... 3,725 3,725 -- -- -- --
-------- ------ ------ ------ ------- -------
Total earning assets..................... $172,233 15,537 15,998 16,585 22,454 101,659
======== ====== ====== ====== ======= =======
Interest-bearing liabilities:
Deposits:
Negotiable order of withdrawal account... $ 16,305 -- -- -- -- 16,305
Money market demand account.............. 21,381 -- -- -- -- 21,381
Savings account.......................... 8,156 -- -- -- -- 8,156
Individual retirement savings accounts... 1,772 1,772 -- -- -- --
Certificates of deposit, $100,000 and
over................................... 28,809 10,251 2,665 5,003 6,818 4,072
Certificates of deposit, under
$100,000............................... 70,375 4,046 11,009 18,879 22,287 14,154
Other borrowings......................... 2,184 4 14 28 828 1,310
-------- ------ ------ ------ ------- -------
Total interest bearing liabilities... $148,982 16,073 13,688 23,910 29,933 65,378
======== ====== ====== ====== ======= =======
Interest-sensitivity gap..................... $ 23,251 (536) 2,310 (7,325) (7,479) 36,281
======== ====== ====== ====== ======= =======
Cumulative gap............................... (536) 1,774 (5,551) (13,030) 23,251
====== ====== ====== ======= =======
Interest-sensitivity gap as % of total
assets..................................... (0.3)% 1.3% (4.0)% (4.1)% 19.7%
====== ====== ====== ======= =======
Cumulative gap as % of total assets.......... (0.3)% 1.0% (3.0)% (7.1)% 12.6%
====== ====== ====== ======= =======
</TABLE>
Negotiable order of withdrawal accounts, money market demand accounts and
savings accounts have no contractual maturities. Management believes these
accounts are not necessarily interest rate sensitive and has included them
in the interest rate sensitivity table above in the period over one year.
32
<PAGE> 36
FIRST FINANCIAL CORPORATION
FORM 10-KSB
DECEMBER 31, 1996
VII. OTHER BORROWINGS, CONTINUED
Advances from the Federal Home Loan Bank are to mature as follows at
December 31, 1996:
<TABLE>
<CAPTION>
YEAR ENDING DECEMBER 31, AMOUNT
- ------------------------ --------------
(IN THOUSANDS)
<S> <C>
1997........................................................ $ 55
1998........................................................ 58
1999........................................................ 603
2000........................................................ 25
2001........................................................ 28
Later years................................................. 224
------
$ 993
======
</TABLE>
These advances are collateralized by approximately $1,489,000 of the
Subsidiary Bank's mortgage loan portfolio.
VII. Other Borrowings, Continued
On October 26, 1994, the Company executed a 7.0% promissory note in the
amount of $400,000. The promissory note is payable in monthly principal
and interest installments of $2,661, with the remaining balance due
October 26, 2004. This note is secured by a first mortgage Deed of Trust
on land purchased for a branch site which was opened during 1996.
The balance of the note at December 31, 1996 and 1995 was $391,000 and
$395,000, respectively.
Maturities for the years ending 1997 through 2001 are $5,000, $5,000,
$5,000, $6,000 and $6,000, respectively, with the remaining balance of
$364,000 due in later years.
33
<PAGE> 37
ITEM 2. PROPERTIES.
The Main Office of the Company and First Bank is a two-story bank building
in Mt. Juliet, Tennessee. In addition, First Bank has five Branches located in
Lebanon, Hermitage, and Smyrna, Tennessee, all of which are located in Wilson,
Davidson and Rutherford Counties in Tennessee. First Bank owns all of its
offices with the exception of two offices. (The Bank leases the land and
building in one location and it leases only the land in another location.) The
Bank operates seven automated teller machines.
In the judgment of management, the facilities of the Company and First Bank
are generally suitable and adequate for the current and reasonably foreseeable
needs of the Company and First Bank. However, new office sites, and further
geographic expansion, have been and likely will be considered from time to time.
ITEM 3. LEGAL PROCEEDINGS.
Various actions and proceedings are expected to be pending or threatened
against or involve the Company and First Bank from time to time. In the opinion
of management, the ultimate resolution of any foreseeable or known proceedings
will not have a material effect on the Company's or First Bank's financial
position or results of operations.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
No matters were submitted to a vote of security holders in the fourth
quarter of 1996.
PART II
ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.
(A) MARKET INFORMATION
There is no established public trading market in the Company's Common
Stock. Management, however, believes that Middle Tennessee is the principal
market area for the Common Stock. The following table sets forth the high and
low sales prices per share of the Common Stock for each quarter of fiscal year
1996. (Unless otherwise expressly stated, all per share data have been adjusted
to give retroactive, as well as prospective, effect, to the two-for-one stock
split that was approved by the Company's Shareholders on April 18, 1996.) During
1996, the Company did not redeem any shares of its Common Stock. In calendar
1995 the Company redeemed 468 shares of its Common Stock in a single transaction
for $13.00 per share. The Company repurchases its own shares from time to time,
generally on an ad hoc basis principally to assist in providing some liquidity
in the stock. The other information included below has been reported to the
Company by certain selling or purchasing shareholders in privately negotiated
transactions during the periods indicated. Although management believes that the
information supplied by purchasers and sellers concerning their respective
transactions is generally reliable, it has not been verified. Such information
may not include all transactions in the
34
<PAGE> 38
Company's Common Stock for the respective periods shown, and it is possible that
transactions occurred during the periods reflected or discussed at prices higher
or lower than the prices set forth below. Some of the transactions may have
involved the Company or its principals.
<TABLE>
<CAPTION>
COMMON STOCK
---------------
CALENDAR QUARTER HIGH LOW
- ---------------- ------ ------
<S> <C> <C>
1996
Fourth Quarter.............................................. $19.00 $18.50
Third Quarter............................................... $18.50 $16.50
Second Quarter.............................................. $16.50 $16.50
First Quarter............................................... $16.50 $16.00
1995
Fourth Quarter.............................................. $15.00 $14.00
Third Quarter............................................... $15.00 $14.00
Second Quarter.............................................. $ N/A $ N/A
First Quarter............................................... $13.00 $12.50
</TABLE>
The last trade known to management involved 232 shares at $20.00 per share
in early 1997. Because there is no established trading market for the Company's
Common Stock, and because the Company and its directors, officers, and/or
employees may be involved, the prices shown above may not necessarily be
indicative of the fair market value of the Common Stock or of the prices at
which the Company's Common Stock would trade if there were an established
market. Accordingly, there can be no assurance that the Common Stock will
subsequently be purchased or sold at prices comparable to the prices set forth
above.
THE COMPANY'S COMMON STOCK
The Company is authorized by its Charter to issue 5,000,000 shares of
Common Stock, par value of $2.50 per share. In connection with the acquisition
of First Bank, effective January 1, 1992, the Company issued (adjusted to
reflect the two-for-one stock split that occurred in 1996) 1,060,000 shares of
the Common Stock. At February 14, 1997, the Company had 930,988 shares
outstanding (not including the shares reserved for options which have been or
may be granted under existing plans).
Holders of the Company's Common Stock are entitled to cast one vote for
each share held of record on all matters submitted to a vote of shareholders and
are not entitled to cumulate votes for the election of directors. Holders of the
Common Stock have no preemptive rights to subscribe for or to purchase any
additional shares of the Company's Common Stock. In the event of liquidation,
holders of the Company's Common Stock are entitled to share in the distribution
of assets remaining after payment of debts and expenses. Holders of the Common
Stock are entitled to receive dividends when declared by the Company's Board of
Directors out of funds legally available therefor. Under its Charter, the
Company is required to indemnify its directors and officers for acts on behalf
of the Company to the fullest extent permitted under applicable law.
35
<PAGE> 39
The Company is a legal entity separate and distinct from First Bank. There
are various legal and regulatory limitations under federal and state law on the
extent to which a bank holding company subsidiary such as First Bank can finance
or otherwise supply funds to the Company. First Bank is also subject to
limitations under Section 23A of the Federal Reserve Act with respect to
extensions of credit to, investments in, and certain other transactions with,
the Company. Furthermore, loans and extensions of credit are also subject to
various collateral requirements.
FFC PREFERRED STOCK
The Company's Charter authorizes the issuance by the company of up to
5,000,000 shares of its preferred stock (the "FFC Preferred Stock"), none of
which have been issued or authorized (or committed) for issuance. The FFC
Preferred Stock may be issued by vote of the Board of Directors without
shareholder approval. The FFC Preferred Stock may be issued in one or more
classes and series, with such designations, full or limited voting rights (or
without voting rights), redemption, conversion, or sinking fund provisions,
dividend liquidation rights, and other preferences and limitations as the Board
of Directors may determine in the exercise of its business judgment. The FFC
Preferred Stock may be issued by the Board of Directors for a variety of
reasons.
The FFC Preferred Stock could be issued in public or private transactions
in one or more (isolated or series of) issues. The shares of any series of FFC
Preferred Stock could be issued with rights, including voting, dividend, and
liquidation features, superior to those of any issue or class of the Company's
Common Stock. The issuance of shares of the FFC Preferred Stock could serve to
dilute the voting rights or ownership percentage of holders of shares of the
Company's Common Stock. The issuance of shares of the FFC Preferred Stock might
also serve to deter or block any attempt to obtain control of the company, or to
facilitate any such attempt. The Company has no present plans or commitments to
issue any FFC Preferred Stock.
(B) HOLDERS
The approximate number of record holders, including those shares held in
"nominee" or "street name," of the Company's Common Stock at February 14, 1997
was approximately 460.
(C) DIVIDENDS
The Company commenced business for all practical purposes on January 1,
1992. The Company declared and paid cash dividends on its Common Stock of $0.20
per share in 1996 and $0.175 per share in 1995 and 1994. Future dividends may be
paid as determined by the Company's Board of Directors from time to time in
accordance with federal and state law. The Company presently intends to pay
dividends in accordance with past practices; however, any dividends that may be
declared and paid by the Company in the future will depend upon earnings,
financial condition, regulatory and prudential considerations, and or other
factors affecting the Company that cannot be reliably predicted.
The Company, as a corporation governed in part by the Tennessee Business
Corporation Act ("TBCA"), as amended, is subject to the limitations on dividends
and other distributions set forth in the TBCA. The TBCA contains certain
statutory restrictions on the ability to make distributions, including the
payment of dividends. Tennessee law allows a for-profit corporation to pay
dividends under certain circumstances that might preclude payments of dividends
by a state bank. Under state law, a bank holding company may declare and pay
dividends provided that (1) the payment of dividends would not
36
<PAGE> 40
render the corporation unable to pay its debts as they become due in the usual
course of business; (2) the corporation's total assets are less than the sum of
its total liabilities plus (unless the charter permits otherwise) the amount
that would be needed, if the corporation were to be dissolved at the time of the
distribution, to satisfy upon dissolution the preferential rights of
shareholders whose preferential rights are superior to those receiving the
distribution; or (3) the payment of dividends would not be contrary to any
restriction contained in the corporation's charter. At present, the Company's
charter does not expressly permit distributions described in (2) above, nor does
the Company have any shareholders with rights preferential to holders of the
Company's common equity. The Company has no restriction in its charter
concerning the payment of dividends.
The Company expects that funds for the payment of dividends and expenses
(including organizational expenses) of the Company initially will come from
dividends paid to the Company by First Bank. If the Company requires additional
funds for acquisitions or investments, it may be able to obtain those funds from
additional dividends paid by First Bank or from external financing.
Tennessee banking statutes provide that the directors of a state bank,
after making proper deduction for all expenditures, expenses, taxes, losses, bad
debts, and any write-offs or other deductions required by the DOFI, may credit
net profits to the bank's undivided profits account. Directors of a state bank
may quarterly, semiannually, or annually declare a dividend from the undivided
profits account in an amount as they shall judge expedient after deducting any
net loss from the undivided profits account to its capital surplus account (1)
the amount (if any) required to raise the capital surplus to 50% of the capital
stock and (2) the amount required (if any), not less than 10% of net profits,
until the capital surplus equals the capital stock, provided that the bank has
adequately reserved against deposits and such reserve will not be impaired by
the declaration of the dividend. A state bank, with the approval of the DOFI,
may transfer funds from its capital surplus account to its undivided profits
account or any part of its capital stock account.
The payment of dividends by any bank is, of course, dependent upon its
earnings and financial condition and, in addition to the limitations discussed
above, is subject to the statutory power of certain federal and state regulatory
agencies to act to prevent unsafe or unsound banking practices. Please refer
also to the discussion of "Restrictions on Dividends Paid by Subsidiary Bank"
set forth in Item 1 of this Report, to"Management's Discussion and Analysis or
Plan of Operation", in this Report, and to the Consolidated Financial
Statements.
(D) FFC DIVIDEND REINVESTMENT PLAN
In 1996 the Company established a dividend reinvestment plan (the "1996 FFC
Dividend Reinvestment Plan") for those Shareholders who desire to reinvest their
cash dividends in Company Common Stock. Pursuant to the 1996 FFC Dividend
Reinvestment Plan, the Company can purchase shares of the Common Stock in the
open market or issue authorized but previously unissued shares to meet the
requirements of this plan. During 1996, the Company issued 7,224 original shares
to participants in the plan.
(E) SALES OF UNREGISTERED SECURITIES
The Company has not sold any unregistered securities that were not
previously reported in a quarterly report on its quarterly Report on Form
10-QSB. No shares were issued by the Company in the fourth quarter pursuant to
the 1996 FFC Dividend Reinvestment Plan or pursuant to any options.
37
<PAGE> 41
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION.
The purpose of the discussion that begins on the next page is to provide
insight into the financial condition and results of operations of the Company
and its subsidiary. This discussion should be read in conjunction with the
consolidated financial statements.
[REMAINDER OF PAGE LEFT BLANK INTENTIONALLY.]
38
<PAGE> 42
LIQUIDITY AND INTEREST RATE SENSITIVITY MANAGEMENT
The concept of liquidity involves the ability of the Company and its
subsidiary to meet future cash flow requirements, particularly those of
customers who are either withdrawing funds from their accounts or borrowing to
meet their credit needs.
Proper asset/liability management is necessary to maintain stability in the
balance of interest-sensitive assets to interest-sensitive liabilities in order
to provide a stable growth in net interest margins. Earnings on
interestsensitive assets such as loans tied to the prime rate of interest and
federal funds sold, may vary considerably from fixed rate assets such as
long-term debt and equity securities and fixed rate loans. Interest-sensitive
liabilities such as large certificates of deposit and money market certificates,
generally require higher costs than fixed rate instruments such as passbook
savings.
Banks, in general, must maintain large cash balances to meet day-to-day
cash flow requirements as well as maintaining required reserves for regulatory
agencies. The cash balances maintained are the primary source of liquidity.
Federal funds sold, which are basically overnight or short-term loans to other
banks that increase the other bank's required reserves, are also a major source
of liquidity.
The Company's investment portfolio consists of earning assets that provide
interest income. Securities classified as available-for-sale include securities
intended to be used as a part of the Company's asset/liability strategy and/or
securities that may be sold in response to changes in interest rate, prepayment
risk, the need or desire to increase capital and similar economic factors. The
Company has $6,961,000 of securities scheduled to mature or reprice in the next
twelve months.
A secondary source of liquidity is the Company's loan portfolio. At
December 31, 1996 commercial loans of approximately $27 million and other loans
(real estate construction, real estate mortgage and consumer) of approximately
$37 million which either will become due or will be subject to rate adjustments
within the next twelve months. Continued emphasis will be placed on structuring
adjustable rate loans.
39
<PAGE> 43
LIQUIDITY AND INTEREST RATE SENSITIVITY MANAGEMENT, CONTINUED
As for liabilities, certificates of deposit of $100,000 or greater of
approximately $25 million will become due during the next twelve months. The
Company's deposit base has shown continued growth, increasing by approximately
$25 million or 17.2% in 1996. During 1995 deposits increased by approximately
$30 million or 26.4%.
The Company also has the ability to meet its liquidity needs through
advances from the Federal Home Loan Bank. At December 31, 1996 and 1995, the
Company had $993,000 and $1,331,000, respectively, of these advances.
As of December 31, 1996 the Bank's liability sensitivity was .7% (the
excess of interest sensitive liabilities over earning assets divided by total
assets at the one year threshold). Management estimates an increase or decrease
in interest rates of 1% would have an immaterial impact on earnings.
Management works diligently to maintain proper liquidity. Given present
maturities, the anticipated growth in deposit base, and the efforts of
management in its asset/liability management program, it is anticipated that
liquidity will not pose a problem in the foreseeable future. At the present
time, there are no known trends or any known commitments, demands, events or
uncertainties that are anticipated to result in or that are reasonably likely to
result in the Company's liquidity changing in any material way. Liquidity was
22.9% at December 31, 1996 and 28.5% at December 31, 1995.
The Company presently maintains a liability sensitive position over the
1997 year or a negative gap. Liability sensitivity means that more of the
Company's liabilities are capable of repricing over certain time frames than
assets. The interest rates associated with these liabilities may not actually
change over this period but are capable of changing. For example, the six month
gap is a picture of the possible repricing over a six month period.
The following table shows the rate sensitivity gaps for different time
periods as of December 31, 1996:
<TABLE>
<CAPTION>
INTEREST RATE SENSITIVITY GAPS:
DECEMBER 31, 1996 REPRICE 1-90 91-180 181-365 ONE YEAR
(IN THOUSANDS) IMMEDIATELY DAYS DAYS DAYS AND LONGER TOTAL
- ---------------------------------------------------------- ----------- ------ ------ ------- ---------- -------
<S> <C> <C> <C> <C> <C> <C>
Interest-earning assets................................... $15,537 15,998 16,585 22,454 101,659 172,233
Interest-bearing liabilities.............................. 16,073 13,688 23,910 29,933 65,378 148,982
------- ------ ------ ------- ------- -------
Interest-rate sensitivity gap............................. $ (536) 2,310 (7,325) (7,479) 36,281 23,251
======= ====== ====== ======= ======= =======
Cumulative gap............................................ $ (536) 1,774 (5,551) (13,030) 23,251
======= ====== ====== ======= =======
Interest-rate sensitivity gap as a % of total
assets.................................................. (0.3)% 1.3% (4.0)% (4.1)% 19.7%
======= ====== ====== ======= =======
Cumulative gap as a % of total assets..................... (0.3)% 1.0% (3.0)% (7.1)% 12.6%
======= ====== ====== ======= =======
</TABLE>
40
<PAGE> 44
LIQUIDITY AND INTEREST RATE SENSITIVITY MANAGEMENT, CONTINUED
For purposes of presentation management considers negotiable order of
withdrawal accounts, money market demand accounts and savings accounts totaling
$45,842,000 at December 31, 1996 not necessarily interest rate sensitive and has
included them in the above table in the over one year period. The cumulative gap
would be decreased by $45,842,000 for all periods through 365 days if the
accounts with no contractual maturities had been included in the 1-90 day
maturity category.
CAPITAL RESOURCES
A primary source of capital is internal growth through retained earnings.
The ratio of stockholders' equity to total assets was 7.2% at December 31, 1996,
7.0% at December 31, 1995 and 7.1% at December 31, 1994. Total assets increased
16.6% from $157,755,000 to $183,973,000 during the year ended December 31, 1996.
During 1995 total assets increased from $125,589,000 to $157,755,000 or 25.6%.
Management has anticipated an annual growth rate of 10% to 14% for 1997 compared
to the annual growth rates of 16.6% for 1996 and 25.6% for 1995. No material
changes in the mix or cost of capital is anticipated in the foreseeable future.
At the present time there are no material commitments for capital
expenditures.
The FDIC, which is the subsidiary's primary Federal regulatory agency, has
specified guidelines for purposes of evaluating a bank's capital adequacy. Under
these guidelines, a credit risk is assigned to various categories of assets and
commitments ranging from 0% to 100% based on the risk associated with the asset
or commitment.
The following schedule details the Company's risk-based capital at
December 31, 1996 (excluding the effect of the adoption of SFAS No. 115):
<TABLE>
<CAPTION>
IN THOUSANDS
------------
<S> <C>
Tier I capital:
Stockholders' equity...................................... $ 13,144
Tier II capital:
Allowable allowance for loan losses (limited to 1.25% of
risk-weighted assets).................................. 1,541
--------
Total risk-based capital............................... $ 14,685
========
Risk-weighted assets........................................ $130,485
========
Risk-based capital ratios:
Tier I capital ratio...................................... 10.07%
========
Total risk-based capital ratio............................ 11.25%
========
</TABLE>
The Company is required to maintain a total risk-based capital to risk
weighted asset ratio of 8% and a Tier I capital to risk weighted asset ratio of
4%. At December 31, 1996, the Company and its subsidiary bank were in compliance
with these requirements.
41
<PAGE> 45
CAPITAL RESOURCES, CONTINUED
In addition, the Company and its subsidiary are required to maintain a
leverage ratio (defined as equity divided by the most recent quarter average
total assets -- excluding the effect of the adoption of SFAS No. 115) of 4%. The
Company's leverage ratio at December 31, 1996 was 7.14% as compared to 6.86% at
December 31, 1995 and 7.42% at December 31, 1994.
Management intends to maximize the leverage position of the Company
consistent with safe and sound business practices and the current regulatory
environment. Past decisions by management have committed the Company to a path
of growth to achieve the strategic goals of maximum leverage. Management is
cognizant of the pressures of this philosophy but believes various combinations
of retained earnings, additional capital stock issues, preferred stock
offerings, and other avenues will be or become available to maintain a capital
position consistent with sound banking principles and at the same time reward
stockholders with significant earnings per share.
Effective January 1, 1992, the Company acquired 100% of the common stock of
First Bank and Trust ("the Bank") and, accordingly, became a one bank holding
company. The Board of Directors and management believe that the holding company
structure permits greater flexibility in the expansion of the Bank's present
business and allows the Bank to be more responsive to its customers' broadening
and changing financial needs. In particular, the holding company structure will
provide greater flexibility in raising additional capital for the Bank. Greater
flexibility in raising capital is necessary in order to insure that the growth
of the Bank's capital will keep pace with its asset growth.
There is no established trading market for the Company's stock. From time
to time the Company may acquire shares of its stock to provide liquidity in the
shares. During the twelve months ended December 31, 1996, the Company did not
redeem any of its common voting stock. During the year ended December 31, 1995,
the Company redeemed 468 shares of its voting common stock at $13.00 per share
in an aggregate amount of $5,000. During the year ended December 31, 1994, the
Company redeemed 48,654 shares of its voting common stock at prices ranging from
$10.00 per share to $11.50 per share in an aggregate amount of $487,000. All
shares of common stock have been retroactively adjusted for a two-for-one stock
split approved on April 18, 1996. The Company will continue to be a source of
liquidity for its stock, however, at least in the near term, it will not be an
aggressive purchaser.
In April, 1993, the stockholders approved a stock option whereby 159,000
shares of the Company's stock is available for issuance to directors, officers
and employees of the Company. At December 31, 1996, 79,400 shares of the options
had been granted at $10.00 per share, 2,000 shares were granted at $12.00 per
share, 4,000 shares were granted at $13.00 per share, 29,792 shares were granted
at $15.00 per share and 528 shares were granted in 1996 at $19.00 per share. The
options are granted at the estimated market price of the stock at the date the
option was granted. At December 31, 1996 there were 114,030 options granted but
not exercised. The options are generally exercisable ratably over a ten year
period from the date granted. At December 31, 1996 options to purchase 43,280
common shares were available for grant in future years.
42
<PAGE> 46
CAPITAL RESOURCES, CONTINUED
At present, the net book value of premises and equipment is 41.4% of the
Company's capital. The subsidiary bank now has a significant presence in the
Wilson County market with offices in Mt. Juliet, Tennessee, Hermitage, Tennessee
and Lebanon, Tennessee. The new facility in Smyrna, Rutherford County, Tennessee
was recently opened. Management believes that expansion into these different
markets diversifies its risk and provides increased opportunity for generating
growth and profits. At present the ratio of fixed assets to capital at the
subsidiary bank level is 39.3%. Investment in fixed assets can have a
detrimental impact on profits particularly in the short term; however, the
Company's profits have continued to steadily increase even though the investment
in facilities continues to grow.
RESULTS OF OPERATIONS
Net earnings were $2,350,000 in 1996 as compared to $1,741,000 in 1995 and
$1,330,000 in 1994. Net earnings per share increased from $1.43 in 1994 to $1.87
in 1995 to $2.49 in 1996.
As in most financial institutions, a major element in analyzing the
statement of earnings is net interest income, i.e., the excess of interest
earned over interest paid. This is particularly true with the volatility in
interest rates encountered in recent years.
The Company's total interest income, excluding tax equivalent adjustments,
increased by $2,248,000 or 18.2% in 1996, $3,535,000 or 40.0% in 1995, and
$1,537,000 or 21.0% in 1994. The increases were primarily attributable to higher
volumes of earning assets in 1996, 1995, and 1994 offset by slight declines in
interest rates. The ratio of average earning assets to total average assets was
93.2% for the year ended December 31, 1996, 93.1% for 1995 and 93.0% for 1994.
Interest expense increased by $863,000 in 1996 or 14.9%, increased
$2,003,000 or 52.8% in 1995, and increased $968,000 or 34.3% in 1994. The
increase in 1996 can be attributed generally to an increase in volume which was
partially offset by a decrease in weighted average interest rates and a decrease
in overall borrowings. The increase in 1995 and 1994 can be attributed generally
to the increases in volume and an increase in weighted average interest rates as
well as increases in the outstanding balance on the line of credit, advances
from the Federal Home Loan Bank and long-term debt.
The foregoing resulted in an increase in net interest income of $1,385,000
or 21.0% during 1996, $1,532,000 or 30.3% in 1994, and $569,000 or 12.7% in
1994.
For the year ended December 31, 1996, the Company had interest income, on a
tax-equivalent adjusted basis, as a percent of average earning assets, of 9.3%,
compared with 9.4% for the year ended December 31, 1995 and 8.3% for 1994.
Interest expense as a percentage of average interest bearing liabilities
increased from 4.1% in 1994 to 5.1% in 1995 and decreased slightly to 4.9% in
1996. Net interest spread, which is defined as the excess of the percentage of
tax equivalent interest income to average earning assets over the percentage of
interest expense to average interest bearing liabilities, increased from 4.8% in
1994 to 5.1% in 1995 remained level at 5.1% in 1996. The increase in spread was
an industry wide phenomenon. During 1996 rates fell slightly.
43
<PAGE> 47
RESULTS OF OPERATIONS, CONTINUED
Since assets are more sensitive to movements in rates this should favor the
income statement. Should loan demand not increase, and competition, intent on
increasing market share, drive interest expenses up, the net interest margin
will decline.
The provision for loan losses was $310,000 in 1996, compared to $356,000 in
1995 and $325,000 in 1994. The provision for possible loan losses is based on
past loan experience and other factors which, in management's judgment, deserve
current recognition in estimating possible loan losses. Such other factors
considered by management include growth and composition of the loan portfolio,
review of specific loan problems, the relationship of the allowance for possible
loan losses to outstanding loans, adverse situations that may affect the
borrower's ability to repay, the estimated value of any underlying collateral
and current economic conditions that may affect the borrower's ability to repay.
Management has in place a system for identifying and monitoring problem loans on
a timely basis.
The following schedule details selected information as to nonperforming
loans of the Company's subsidiary at December 31, 1996 and 1995:
<TABLE>
<CAPTION>
1996 1995
---- ----
(DOLLARS IN
THOUSANDS)
<S> <C> <C>
Loans past due 90 days or more and still accruing:
Commercial, financial and agricultural loans........... $139 13
Real estate -- construction............................ -- --
Real estate -- mortgage loans.......................... 74 48
Consumer loans......................................... 14 18
---- ----
227 79
---- ----
Non-accrual loans:
Commercial, financial and agricultural loans.............. -- --
Real estate -- construction loans......................... -- --
Real estate -- mortgage loans............................. 88 --
Consumer loans............................................ -- --
---- ----
88 --
---- ----
Renegotiated loans:
Commercial, financial and agricultural loans.............. 92 303
Real estate -- construction loans......................... -- --
Real estate -- mortgage loans............................. 231 269
Consumer loans............................................ -- 15
---- ----
323 587
---- ----
Total non-performing loans............................. $638 666
==== ====
</TABLE>
Banking regulators define highly leveraged transactions to include
leveraged buy-outs, acquisition loans, and recapitalization loans of an existing
business. Under the regulatory definition, at December 31, 1996, the Company had
no highly leveraged transactions, and there were no foreign loans outstanding
during any of the reporting periods.
44
<PAGE> 48
RESULTS OF OPERATIONS, CONTINUED
Nonperforming loans have decreased by $28,000 from December 31, 1995 to
December 31, 1996 and represent .51% and .66% of total loans, respectively. The
decrease resulted from an increase in non-accrual loans of $88,000, an increase
in loans ninety-days or more past due of $148,000, and a decrease in
restructured loans of $264,000. The decrease in restructured loans from 1995 to
1996 resulted primarily from the paydown of loans between years. Three of these
loans amounting to $231,000 are included within real estate -- mortgage and one
loan amounting to $92,000 is included within commercial loans.
At December 31, 1996 loans totaling $1,634,000 were included in the
Company's internal classified loan list. Of these loans $742,000 are consumer,
$586,000 are commercial loans and $306,000 are real estate loans. The collateral
values securing these loans total approximately $2,883,000 based on management
estimates ($1,410,000 related to consumer loans, $1,151,000 related to
commercial loans and $322,000 related to real estate loans). At December 31,
1995, the Company's internally classified loans totaled $1,419,000. Such loans
are listed as classified when information obtained about possible credit
problems of the borrower has prompted management to question the ability of the
borrower to comply with the repayment terms of the loan agreement. The loan
classifications do not represent or result from trends or uncertainties which
management expects will materially and adversely affect future operating
results, liquidity or capital resources.
Non-interest income increased $201,000 or 13.1% in 1996, and decreased
$351,000 or 18.6% in 1995, and increased $298,000 or 18.1% in 1994. Included in
the year ended December 31, 1996 is a net security gain of $11,000. Exclusive of
this transaction, non-interest income increased $190,000 or 12.4% in 1996. There
were no securities gains during the years ended December 31, 1995 and 1994. The
increase in non-interest income in 1996 includes a $60,000 increase in service
charges on deposits, a $86,000 increase in other fees and a $44,000 increase in
gains on sales of loans. The overall decline for the year ended 1995 is
generally a result of decreases in the gain on sale of loans and other fees
offset to some degree by a continued increase in service charges on deposits.
The increases in 1994 resulted principally from increased service charges on
deposits, primarily for demand deposit and NOW accounts and the addition of a
mortgage loan department, whereby the loans are sold into the secondary market.
Gain on sale of loans increased from $869,000 in 1994 to $556,000 in 1995 and
increased to $600,000 in 1996. Additionally, gains relating to other real estate
sold during the year ended December 31, 1994 amounted to $142,000. Commissions
and service charges are monitored continually to insure maximum return based on
costs and competition.
Non-interest expense increased $706,000 or 13.7% in 1996, $561,000 or 12.2%
in 1995, and $528,000 or 13.0% in 1994. Included in the years ended December 31,
1995 and 1994 are net security losses of $62,000 and $18,000, respectively,
related to sales of available-for-sale securities. Exclusive of these
transactions, non-interest expense increased $768,000 or 15.1% and $517,000 or
11.3%, respectively. The increases in 1996, 1995, and 1994 were primarily
attributable to increases in salaries and employee benefits which is due to an
increased number of employees, locations, and increases in annual compensation;
increases in occupancy expenses and increases in FDIC insurance and state
banking fees in 1994. Employee salaries and benefits increased $509,000 or 18.3%
in 1996, $283,000 or 11.3% in 1995 and $392,000 or 18.6% in 1994. The FDIC
insurance premiums and state banking fees decreased from
45
<PAGE> 49
RESULTS OF OPERATIONS, CONTINUED
$249,000 in 1994 to $160,000 in 1995 and declined to $34,000 in 1996. The
decrease in 1995 FDIC premiums resulted from a reduction in the assessment rate
from .23% to .04% of eligible deposits (the lowest rate under the newly enacted
risk based assessment regulations) effective June 1, 1995 and effective January
1, 1996, the FDIC premiums were reduced to the annual minimum of $2,000.
The Company adopted the provisions of Statement of Financial Accounting
Standards No. 115 (SFAS No. 115), "Accounting for Certain Investments in Debt
and Equity Securities," effective January 1, 1994. Under the provisions of the
Statement, securities are to be classified in three categories and accounted for
as follows:
-- Debt securities that the enterprise has the positive intent and
ability to hold to maturity are classified as held-to-maturity
securities and reported at amortized cost.
-- Debt and equity securities that are bought and held principally
for the purpose of selling them in the near term are classified
as trading securities and reported at fair value, with unrealized
gains and losses included in earnings.
-- Debt and equity securities not classified as either
held-to-maturity securities or trading securities are classified
as available-for-sale securities and reported at fair value, with
unrealized gains and losses excluded from earnings and reported
in a separate component of shareholders' equity.
The classification of the entire securities portfolio at December 31, 1996
and 1995 as available-for-sale was made to provide for more flexibility in
asset/liability management and capital management.
The effect of the adoption of SFAS No. 115 as of January 1, 1994 was to
decrease the capital of the Company by $7,000 which represents the unrealized
depreciation in securities available-for-sale of $12,000, net of applicable
taxes of $5,000. The net increase in capital at December 31, 1995 totaled
$197,000 which represents the unrealized losses in securities available-for-sale
of $318,000 less applicable tax benefit of $121,000. At December 31, 1996, the
net increase in capital totaled $29,000 which represents the unrealized
appreciation in securities available-for-sale of $47,000 less applicable tax
deductions of $18,000.
In November, 1995 the Financial Accounting Standards Board issued "A Guide
to Implementation of Statement 115 on Accounting for Certain Investments in Debt
and Equity Securities" which permits the reassessment of the appropriateness of
the classifications of all securities by December 31, 1995. Reclassifications
from the held-to-maturity classification that result from this one-time
reassessment will not call into question the intent of an entity to hold other
debt securities to maturity in the future. The Company transferred securities
with an amortized cost of $20,155,000 (market value -- $20,307,000) to the
available-to-sale classification in December, 1995 pursuant to these provisions.
Management is not aware of any known trends, events or uncertainties that
will have or reasonably likely to have a material effect on the Company's
liquidity, capital resources or operations of the Company. The Company is not
aware of any current recommendations, which, if they were to be implemented,
would have a material effect on liquidity, capital resources or operations.
46
<PAGE> 50
RESULTS OF OPERATIONS, CONTINUED
Branch operations contributed 66.6% of the Bank's total deposits by year
end as compared to 62.3% in 1995, as well as 42.2% of the loans as compared to
39.0% in 1995. The origination and sale of loans net of allocated expenses
contributed $86,000 in pretax income in 1996 and $118,000 in 1995. Management
will continue to investigate potential opportunities to offer new products as
well as opportunities to increase market share through geographical expansion.
IMPACT OF INFLATION
The primary impact which inflation has on the results of the Company's
operations is evidenced by its effects on interest rates. Interest rates tend to
reflect, in part, the financial market's expectations of the level of inflation
and, therefore, will generally rise or fall as the level of expected inflation
fluctuates. To the extent interest rates paid on deposits and other sources of
funds rise or fall at a faster rate than the interest income earned on funds,
loans or investments, net interest income will vary. Inflation also impacts on
non-interest expenses as goods and services are purchased, although this has not
had a significant effect on net earnings. If the inflation rate stays flat or
increases slightly, management believes that the effect on profits will not be
significant.
47
<PAGE> 51
ITEM 7. FINANCIAL STATEMENTS.
The following consolidated financial statements of the Company and
subsidiary (commencing at page F-1) are included in this Report:
- Independent Auditors' Report;
- Consolidated Balance Sheets -- December 31, 1996 and 1995;
- Consolidated Statements of Earnings -- Three years ended December 31,
1996;
- Consolidated Statements of Changes in Stockholders' Equity -- Three years
ended December 31, 1996;
- Consolidated Statements of Cash Flows -- Three years ended December 31,
1996; and all
- Notes to Consolidated Financial Statements.
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
None.
PART III
ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS; COMPLIANCE
WITH SECTION 16(A) OF THE EXCHANGE ACT.
(a) IDENTIFICATION OF DIRECTORS AND EXECUTIVE OFFICERS
IDENTIFICATION OF DIRECTORS.
The following tables identify the directors and executive officers of the
Company, the year first elected to the Board of the Bank, and their business
experience during the past five years. (All of the Directors serve also on the
Board of First Bank.) Directors are elected to serve one year terms and until
their successors have been elected and duly qualified. Certain of the named
Directors are also executive officers of First Bank.
48
<PAGE> 52
DIRECTORS OF THE REGISTRANT
<TABLE>
<CAPTION>
PREVIOUS FIVE YEARS BUSINESS DIRECTOR
NAME (AGE) EXPERIENCE SINCE
- ----------------------------- ---------------------------------------------------- --------
<S> <C> <C>
Harold Gordon Bone (55) President, Horizon Concrete; Partner/Co-Manager, BnB 1992
Enterprises (Building and rental property).
Robert L. Callis (51) Attorney at Law; Secretary to the Board of 1992
Directors.
Morris D. Ferguson, M.D. (64) Physician. 1992
Arthur P. Gardner (60) Senior vice president, S & S Industries, Inc. 1992
(Manufacturing).
M. Dale McCulloch (46) President, Jones Bros., Inc. (Construction). 1992
David Major (48) Chairman, President, and Chief Executive First 1992
Financial Corporation and First Bank & Trust;
Director, Plateau Insurance Company,
1991 -- present.
Dan E. Midgett (53) President, Dan E. Midgett & Co., Inc. 1992
Monty Mires (51) Real estate investor. 1992
James S. Short (46) Executive Vice President, First Financial 1992
Corporation and First Bank & Trust.
Harold W. Sutton (65) Owner, Harold Sutton Realty, Inc. 1992
</TABLE>
IDENTIFICATION OF EXECUTIVE OFFICERS.
EXECUTIVE OFFICERS OF THE REGISTRANT
The following are the executive officers of the Company and/or First Bank.
Unless otherwise indicated, these officers have served in the indicated
capacities during the last five years.
<TABLE>
<CAPTION>
NAME AGE OFFICE AND BUSINESS EXPERIENCE
- ------------------ --- ------------------------------------------------------------
<S> <C> <C>
David Major 48 Chairman, Director, President and Chief Executive Officer,
First Financial Corporation, and First Bank.
James S. Short 46 Director and Executive Vice President, First Financial
Corporation, and First Bank.
</TABLE>
49
<PAGE> 53
<TABLE>
<CAPTION>
NAME AGE OFFICE AND BUSINESS EXPERIENCE
- ------------------ --- ------------------------------------------------------------
<S> <C> <C>
Sally P. Kimble 43 Treasurer, Chief Financial and Accounting Officer, First
Financial Corporation; Senior Vice President of Operations,
Cashier, Chief Financial and Accounting Officer, First Bank.
Allen M. Henson 55 Senior Vice President, First Bank.
David B. Penuel 57 Senior Vice President, First Bank.
D. Edwin Davenport 46 Senior Vice President, First Bank, 1994 -- present; Vice
President, Cavalry Banking, 1980 -- 1994.
</TABLE>
Officers are elected annually and serve at the pleasure of the Board of
Directors.
(b) Identification of Significant Employees
Significant employees are identified in the preceding section under
the caption "Identification of Executive Officers."
(c) Family Relationships. Director Midgett is a first cousin of David
Grandstaff, who is a Vice President of First Bank. Director-Executive
Vice President Short is a first cousin of Joy Leonard, an officer of
First Bank.
(d) Involvement in Certain Legal Proceedings.
None.
(e) Compliance with Section 16(a) of the Securities Exchange Act
The Company is not registered pursuant to Section 12 of the
Securities Exchange Act of 1934, as amended, is not a closed-end
investment company registered under the Investment Company Act of 1940,
and is not a holding company registered pursuant to the Public Utility
Holding Company Act of 1935. Accordingly, the Company is not subject to
Section 16(a) of the Securities Exchange Act.
ITEM 10. EXECUTIVE COMPENSATION
REMUNERATION OF DIRECTORS AND OFFICERS
No chief executive or other executive officer ceased to serve as such at
any time during the last fiscal year. The following table sets forth the
compensation for the services in all capacities to the Company for the fiscal
year ended December 31, 1996, of those persons who were the Company's Chief
Executive Officer at any time during the 1996 fiscal year and the other four
most highly compensated executive officers as of December 31, 1996 whose total
annual salary and bonus equal or exceed $100,000:
50
<PAGE> 54
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
ANNUAL COMPENSATION LONG-TERM COMPENSATION
----------------------------------------- ----------------------------
AWARDS
----------------------------
RESTRICTED SECURITIES
OTHER STOCK UNDERLYING
NAME AND ANNUAL AWARD(S) OPTIONS/SARS
PRINCIPAL POSITION YEAR SALARY($) BONUS($) COMPENSATION($)(1) ($) (#)(2)
- --------------------- ---- --------- -------- ------------------ -------------- ------------
<S> <C> <C> <C> <C> <C> <C>
David Major, 1996 $126,880 $ 3,952 $21,512 N/A -0-
President/CEO 1995 122,000 -0- 14,170 N/A 4,864
1994 118,450 -0- 15,964 N/A -0-
<CAPTION>
LONG-TERM COMPENSATION
-------------------------------
PAYOUTS
-------------------------------
NAME AND LTIP ALL OTHER
PRINCIPAL POSITION PAYOUTS($) COMPENSATION($)(3)
- --------------------- ---------- ------------------
<S> <C> <C>
David Major, $-0- $3,649
President/CEO -0- 3,665
-0- 3,721
</TABLE>
NOTES TO SUMMARY COMPENSATION TABLE
(1) This amount includes Director's fees, automobile usage, insurance
premiums, sales pay, and club dues.
(2) The amounts in this column reflect the number of unexercised options
granted to the named person(s) in the year(s) indicated.
(3) This amount represents the Company's contribution to the Company's 401(k)
plan on behalf of the named executive(s).
STOCK OPTION GRANTS
The Company granted no stock options under its existing stock option plan
during 1996 to the named executive officer(s). In 1995, the Company granted
4,864 stock options to the executive officer(s) named in the Summary
Compensation Table (with per share data adjusted to reflect the two-for-one
stock split that occurred in 1996). Of these, twelve and one-half percent are
exercisable during any twelve month period, subject to certain specified
limitations. All options granted in 1995 were granted at the then estimated fair
market value of $15.00 per share at the date of grant. In 1993, the Company
granted such named executive officer(s) 20,640 stock options, of which ten
percent are exercisable during any twelve month period, subject to certain
specified limitations. All shares were granted at the then estimated fair market
value of $10.00 per share at the date of grant. The Company has granted no stock
appreciation rights to the executive officer(s) named in the Summary
Compensation Table.
1996 STOCK EXERCISES
The table below provides information as to exercises of options under the
Company's stock option plan by the named executive officer(s) reflected in the
Summary Compensation Table and the year-end value of unexercised options held by
such officer(s). (The Company grants no stock appreciation rights.)
AGGREGATED OPTION/SAR EXERCISES IN LAST FISCAL
YEAR AND FISCAL YEAR END OPTION/SAR VALUES(1)
<TABLE>
<CAPTION>
NUMBER OF
SECURITIES UNDERLYING VALUE OF UNEXERCISED
SHARES UNEXERCISED IN-THE MONEY
ACQUIRED OPTIONS/SARS OPTIONS/SARS
ON AT FISCAL YEAR END (#) AT FISCAL YEAR END ($)
EXERCISE VALUE -------------------------- -----------------------------
NAME (#) REALIZED ($) EXERCISABLE/NONEXERCISABLE EXERCISABLE/NONEXERCISABLE(2)
- ---------------------------- ----------- ------------ -------------------------- -----------------------------
<S> <C> <C> <C> <C>
David Major, -0- $-0- 9,472/16,032 $79,168/$126,048
President/CEO
</TABLE>
51
<PAGE> 55
NOTES TO PRECEDING TABLE
(1) Unless otherwise expressly stated, all per share data in this Report on
Form 10-KSB have been adjusted to reflect the two-for-one stock split approved
by the Shareholders on April 18, 1996.
(2) This amount represents the difference between the estimated market
price on December 31, 1996 of $19.00 per share and the respective exercise
price(s) of the options at the date(s) of grant. Such amounts may not
necessarily be realized. Actual values that may be realized, if any, upon the
exercise of such options will be based on the market price of the Common Stock
at the time of any such exercise(s) and thus are dependent upon future
performance of the Common Stock.
The Company has concluded that it cannot determine without unreasonable
effort and expense the specific cash value of all noncash benefits that it and
First Bank provided to the named executive officer(s) above during 1996. Noncash
compensation provided to certain of these individuals for their service to the
Company and to First Bank in 1996 included an expense account, the use of a car
provided and maintained by the Company, certain insurance benefits, and paid
annual membership in a country club. The cars were available for use of other
employees during regular business hours.
BENEFITS
In April 1993, the stockholders of the Company approved the 1993 First
Financial Corporation Stock Option Plan (the "Stock Option Plan"). The Stock
Option Plan provides for the granting of stock options, and authorizes the
issuance of common stock upon the exercise of such options, for up to 106,000
shares of common stock, to employees, nonemployee directors and advisors of the
Company and up to 53,000 shares of common stock to the Directors of the Company.
Under the Stock Option Plan, stock option awards may be granted in the form
of incentive stock options or nonstatutory stock options, and are generally
exercisable for up to ten years following the date such option awards are
granted. Exercise prices of incentive stock options must be equal to or greater
than 100% of the fair market value of common stock on the grant date.
The Stock Option Committee designated by the Board administers the Stock
Option Plan. The Stock Option Plan may be terminated at any time by the Board of
Directors. Options granted under the Stock Option Plan are exercisable as
determined by the Board of Directors and generally are expected to vest
approximately 10% per year over a ten year period and expire after ten years,
although this period may be shortened by the Board of Directors. (Most of the
options granted in 1995 vest in equal increments over 8 years; the remainder
vest in equal increments over 10 years.) The Stock Option Plan provides that
options must be exercised no later than ten years after being granted (five
years in the case of incentive Stock Options granted to an employee who owns
more than 10% of the voting power of all stock).
The Stock Option Plan provides that the Board of Directors shall approve
the exercise price of options on the date of grant, which for incentive stock
options cannot be less than the fair market value of the Common Stock on that
date (110% of the fair market value for Incentive Stock Options granted to any
employee who owns more than 10% of the voting stock). The number of shares which
may be issued under the Stock Option Plan and the exercise prices for
outstanding options are subject to adjustment in the event that the number of
outstanding shares of Common Stock are changed by reason of stock splits, stock
dividends, reclassifications or recapitalizations. In addition, upon a merger or
consolidation involving the Company, participants may be entitled to shares in
the surviving corporation upon the terms set forth in the Stock Option Plan.
52
<PAGE> 56
Options granted under the Stock Option Plan are nontransferable, other than
by will, the laws of descent and distribution or, for nonstatutory stock
options, pursuant to certain domestic relations orders. Payment for shares of
Common Stock to be issued upon exercise of an Option may, if permitted in the
option agreement, be made in cash, by delivery of Common Stock valued at its
fair market value on the date of exercise or delivery of a promissory note as
specified in the option agreement.
Beginning January 1, 1993, the Company put into effect a 401(k)
profit-sharing plan for the benefit of its employees. Employees eligible to
participate in the plan are those at least 21 years old, who have worked one
year, and who have completed 1,000 hours of service. The provisions of the plan
provide for both employee and employer contributions. For the year ended
December 31, 1996, the employer matched fifty cents ($.50) per dollar of
employee contributions up to a maximum of 6% of the employee's compensation. The
Company's contribution for the year, including administrative fees, totaled
$55,000 as compared with $45,000 for 1995.
All Shareholders, including Officers and Directors, are eligible to
participate in the 1996 First Financial Corporation Dividend Reinvestment Plan
in accordance with its terms.
Please refer to the Consolidated Financial Statements for additional
information concerning all of the various benefit plans of the Company and First
Bank.
DIRECTOR COMPENSATION
Each Director receives $1,000 for each regularly scheduled meeting of the
Board of Directors ($500 for specially called meetings). Each non-employee
Director receives $100 for each specially called Committee Meeting that the
Director attends. Directors were paid in 1996 a retainer of $4,000 each for the
year 1997. Directors participate also in the Stock Option Plan. See "Benefits"
elsewhere in this Report.
Beginning in 1993, the Company provided it directors with the opportunity
to participate in an unfunded, deferred compensation program (the "Program").
The Program provides also for death and disability benefits. There were six
participants in the Program at year end 1996 and 1995. Under the Program,
participants may defer up to 100% of their yearly total cash compensation. The
amounts deferred remain the sole property of the Company, which uses them
together with additional corporate funds, to purchase either insurance policies
on the lives of the participants or other investments. The insurance policies,
which remain the sole property of the Company, are payable to the Company upon
the death or permanent disability of the participant. The Company separately
contracts with the participants to pay benefits based upon the deferred amount
compounded at a floating interest rate of prime as reported in the Wall Street
Journal plus two percent. At December 31, 1996, the deferred compensation
liability totaled $100,000 (compared to $71,000 at December 31, 1995). The cash
surrender value of life insurance was $163,000 at December 31, 1996 (compared to
$120,000 at December 31, 1995). The face amount of the insurance policies in
force at December 31, 1996 approximated $1,058,000. The Program is not qualified
under Section 401 of the Internal Revenue Code.
EMPLOYMENT AGREEMENTS
Neither the Company nor First Bank has any employment agreements at
December 31, 1996.
53
<PAGE> 57
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
The Company is authorized to issue 5,000,000 shares of its Common Stock and
5,000,000 shares of FFC Preferred Stock. (Please refer to Item 5 of this Report
for additional discussion of the Company's authorized classes of securities.) As
of February 14, 1997 there were 930,988 shares of the Company's Common Stock
issued and outstanding exclusive of shares reserved for options. No shares of
the FFC Preferred Stock were issued and outstanding or committed for issuance at
said date.
The following table sets forth certain information regarding the beneficial
ownership of the Common Stock by (1) directors of the Company, and (2) the
directors and executive officers of the Company as a group. No person known to
the Company is the beneficial owner of more than 5% of the issued and
outstanding shares of the Company's Common Stock. This information is based on
information filed with or provided to and by the Company as of February 14,
1997. This table includes, in the ownership and percentage calculations, shares
subject to options which may be exercised within the next sixty days by all
Directors and Executive Officers who are option holders in accordance with Rule
13d-3(d)(1) under the Securities Exchange Act of 1934, as amended. However, each
Director's percentage of ownership is based on such Director's pro forma
ownership (including shares subject to being obtained by the exercise of options
within the next 60 days) and the actual number of shares outstanding (930,988)
at said date.
<TABLE>
<CAPTION>
AMOUNT AND
NATURE OF PERCENT
NAME AND ADDRESS BENEFICIAL OF
OF BENEFICIAL OWNER OWNERSHIP CLASS(1)
------------------------------------------------------------ ---------- --------
<S> <C> <C> <C>
(1) Harold G. Bone 31,977(2) 3.44%
2145 Carthage Hwy.
Lebanon, TN 37087
Robert L. Callis 28,692(3) 3.08%
2745 No Mt Juliet Rd
Mt. Juliet, TN 37122
Morris D. Ferguson 13,396 1.44%
1932 Arlington Drive
Lebanon, TN 37087
Arthur P. Gardner 5,612(4) *
154 Spring Valley Road
Nashville, TN 37214
</TABLE>
54
<PAGE> 58
<TABLE>
<CAPTION>
AMOUNT AND
NATURE OF PERCENT
NAME AND ADDRESS BENEFICIAL OF
OF BENEFICIAL OWNER OWNERSHIP CLASS(1)
------------------------------------------------------------ ---------- --------
<S> <C> <C> <C>
M. Dale McCulloch 44,060(5) 4.73%
818 Moreland Hills Drive
Mt. Juliet, TN 37122
David Major 23,199(6) 2.49%
1691 North Mt. Juliet Road
Mt. Juliet, TN 37122
Dan E. Midgett 18,296(7) 1.97%
4138 Andrew Jackson Parkway
Hermitage, TN 37076
Monty Mires 21,885(8) 2.35%
5361 Stewarts Ferry Pike
Mt. Juliet, TN 37122
James S. Short 23,642(9) 2.54%
1691 North Mt. Juliet Road
Mt. Juliet, TN 37122
Harold W. Sutton 18,939(10) 2.03%
489 Wilson Drive
Mt. Juliet, TN 37122
(2) Directors and Executive 275,399(11) 29.58%
Officers as a Group (14 individuals)
</TABLE>
- ---------------
* Less than 1%.
NOTES TO PRECEDING TABLE
(1) The percentages shown are based on 930,988 total shares outstanding as
of February 14, 1997. The shares shown in each Director's column, and in the
group total, include shares beneficially owned at February 14, 1997 by the named
individual and those obtainable by the exercise of shares by such person within
the next 60 days. The percentages include, as to each individual and group
listed, the number of shares of Common Stock deemed to be owned by such holder
pursuant to Rule 13d-3(d)(1) of the Exchange Act. Unless otherwise indicated, a
shareholder possesses sole voting and investment power with respect to all of
the shares shown opposite her or his name, including shares held in her or his
individual retirement account. Each Director (in the capacity of Director) has
been granted options to acquire 4,000 shares, of which 1,396 are subject to
exercise within sixty days and which 1,396 options for shares have been included
in each Director's total on a pro forma basis. Directors Gardner and Midgett
have exercised 264 of the options available to each of them, and Director
McCulloch has exercised 962 of the options granted to him. Shares held in
self-directed Individual Retirement Accounts have been shown in each Director's
total classified as sole voting and dispositive authority.
55
<PAGE> 59
NOTES TO PRECEDING TABLE (CONT'D)
(2) This Director has voting and investment authority with respect to
15,412 of the shares indicated as custodian for his children.
(3) This Director disclaims voting and investment authority as to 4,089
shares controlled by his spouse. This Director also shares voting and
dispositive authority as to 400 of the shares that are part of a trust.
(4) This Director shares voting and investment authority as to 1,679 shares
held jointly with his spouse and disclaims voting and investment authority as to
700 shares controlled by his spouse.
(5) This Director disclaims voting and investment authority as to 1,812
shares registered to minor children or to their custodian(s).
(6) This Director holds options to acquire shares of the Company as an
officer and as a Director, of which 9,472 (inclusive of the above-referenced
1,396 options held as a Director) are exercisable within the next sixty days and
which are included within the individual's totals.
(7) A plan of this Director's company (within the meaning of the Employee
Retirement Income Security Act of 1974), owns 4,700 of the shares indicated.
This Director disclaims voting and investment authority as to 900 shares
controlled by his spouse.
(8) This Director shares voting and investment authority as to 16,000
shares held jointly with his spouse.
(9) This Director holds options to acquire shares of the Company as an
officer and as a Director, of which 7,624 (inclusive of the above-referenced
1,396 options held as a Director) are exercisable within the next sixty days and
which are included within the individual's totals.
(10) This Director shares voting and investment authority as to 16,295
shares held jointly with his spouse and disclaims voting and investment
authority as to 297 shares controlled by his spouse.
(11) This total includes all options attributable to such Executive
Officers and Directors as well as shares as to which such persons might disclaim
voting or investment authority.
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
First Bank's directors and principal officers, as well as business
organizations and individuals associated with them, are customers of the Bank
and had normal banking transactions with the Bank during 1996. All loan
transactions were made in the ordinary course of business and on substantially
the same terms, including interest rates and collateral, as those prevailing at
the time for comparable transactions with unrelated borrowers and did not
involve more than the normal risk of collectibility or present other unfavorable
features. In addition, Mr. Callis provides certain legal services to the Company
and to First Bank, for which he receives compensation. In 1996, this amounted to
approximately $39,700 in direct fees. Additional fees resulted from referrals.
56
<PAGE> 60
ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K.
(A) THE FOLLOWING DOCUMENTS ARE FILED AS A PART OF THIS REPORT:
(1) The following statements and the Report of Maggart & Associates, P.C.,
Independent Certified Public Accountants, are on pages F-1
through F-41 of this Report.
(a) Consolidated Balance Sheets as of December 31, 1996 and 1995;
(b) Consolidated Statements of Earnings for the three years ended
December 31, 1996;
(c) Consolidated Statements of Changes in Stockholders' Equity for the
three years ended December 31, 1996;
(d) Consolidated Statements of Cash Flows for the three years ended
December 31, 1996;
(e) Notes to the foregoing Consolidated Financial Statements.
(2) Listing of Exhibits:
3(i) Charter, as amended.
3(ii) Bylaws*.
10.1 First Financial Corporation Stock Option Plan.**
10.2 First Financial Corporation 1996 Dividend Reinvestment Plan.
11 Statement of computation re per share earnings.
21 Subsidiaries of the Registrant for the year ended December
31, 1996.
27 Financial Data Schedule (for SEC use only)***.
(B) NO REPORTS ON FORM 8-K WERE FILED FOR THE QUARTER ENDED DECEMBER 31, 1996.
(c) Exhibits -- The exhibits required to be filed with this Annual Report
are attached hereto as a separate section of this report.
(d) Financial Statements Schedules -- All schedules have been omitted since
the required information is either not applicable, is disclosed in Item 1 of
this Report, or is disclosed in the consolidated financial statements or related
notes.
* Incorporated herein by reference to exhibits filed with Annual Report on
Form 10-K under the Securities Exchange Act of 1934 for the fiscal year ended
December 31, 1992.
** Incorporated herein by reference to Exhibit 10 filed with the Annual
Report on Form 10-K under the Securities Exchange Act of 1934 for the fiscal
year ended December 31, 1993.
*** This Exhibit is solely for the use of the United States Securities and
Exchange Commission. No paper copy is being filed. This Schedule, filed only in
electronic format, contains summary financial information extracted from the
financial statements of the Company at December 31, 1996 and is qualified in its
entirety by reference to such financial statements as set forth in the Company's
Annual Report on Form 10-KSB for the period ending on December 31, 1996.
57
<PAGE> 61
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
(REGISTRANT)
By: /s/ DAVID MAJOR
------------------------------------
David Major
Chairman, President and
Chief Executive Officer
Pursuant to the requirements of the Securities 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.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
/s/ DAVID MAJOR Chairman, President, Chief
- --------------------------------------------------- Executive Officer and Director
David Major March 20, 1997
/s/ ROBERT L. CALLIS Secretary and Director
- ---------------------------------------------------
Robert L. Callis March 20, 1997
/s/ SALLY P. KIMBLE Chief Financial Officer, Chief
- --------------------------------------------------- Accounting Officer, and Treasurer
Sally P. Kimble March 17, 1997
/s/ HAROLD GORDON BONE Director
- ---------------------------------------------------
Harold Gordon Bone March 20, 1997
/s/ MORRIS D. FERGUSON Director
- ---------------------------------------------------
Morris D. Ferguson March 20, 1997
/s/ ARTHUR P. GARDNER Director
- ---------------------------------------------------
Arthur P. Gardner March 20, 1997
/s/ M. DALE MCCULLOCH Director
- ---------------------------------------------------
M. Dale McCulloch March 20, 1997
</TABLE>
[Signatures continued on following page(s).]
<PAGE> 62
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
[Signatures continued from preceding page(s).]
/s/ DAN E. MIDGETT Director
- ---------------------------------------------------
Dan E. Midgett March 20, 1997
/s/ MONTY MIRES Director
- ---------------------------------------------------
Monty Mires March 20, 1997
/s/ JAMES S. SHORT Executive Vice President and
- --------------------------------------------------- Director
James S. Short March 20, 1997
/s/ HAROLD W. SUTTON Director
- ---------------------------------------------------
Harold W. Sutton March 20, 1997
</TABLE>
<PAGE> 63
SUPPLEMENTAL INFORMATION TO BE FURNISHED WITH
REPORTS FILED PURSUANT TO SECTION 15(D) OF THE
ACT BY REGISTRANTS WHICH HAVE NOT REGISTERED
SECURITIES PURSUANT TO SECTION 12 OF THE ACT
(A) ANNUAL REPORTS, PROXY STATEMENTS, AND FORM OF PROXY.
(1) A copy of the annual report to security holders for the Company's
last fiscal year is furnished herewith to the Commission for its information,
pursuant to the instructions to Form 10-KSB, but not incorporated by reference.
(2) A copy of the form of proxy to be sent to security holders in
respect of the Company's 1997 Annual Meeting of Shareholders is furnished
herewith to the Commission for its information for its information, pursuant to
the instructions to Form 10-KSB, but not incorporated by reference.
(These items appear at the end of this Document in both the Paper and
Electronic Formats.)
<PAGE> 64
FIRST FINANCIAL CORPORATION
ANNUAL REPORT ON FORM 10-KSB
FOR THE FISCAL YEAR
ENDED DECEMBER 31, 1996
<PAGE> 65
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
FIRST FINANCIAL CORPORATION PAGE
- ------------------------------------------------------------ ----
<S> <C>
Independent Auditor's Report................................ F-3
Consolidated Balance Sheets................................. F-4
December 31, 1996 and 1995
Consolidated Statements of Earnings......................... F-5
Three Years Ended December 31, 1996
Consolidated Statement of Changes in Stockholders' Equity... F-6
Three Years Ended December 31, 1996
Consolidated Statements of Cash Flows....................... F-7
Three Years Ended December 31, 1996
Notes to Consolidated Financial Statements.................. F-9
</TABLE>
F-1
<PAGE> 66
FIRST FINANCIAL CORPORATION
MT. JULIET, TENNESSEE
CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1996 AND 1995
(WITH INDEPENDENT AUDITORS' REPORT THEREON)
F-2
<PAGE> 67
INDEPENDENT AUDITORS' REPORT
THE BOARD OF DIRECTORS
FIRST FINANCIAL CORPORATION:
We have audited the accompanying consolidated balance sheets of First
Financial Corporation and Subsidiary as of December 31, 1996 and 1995, and the
related consolidated statements of earnings, changes in stockholders' equity and
cash flows for each of the three years in the period ended December 31, 1996.
These financial statements are the responsibility of the Company's management.
Our responsibility is to express an opinion on these financial statements based
on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial position of
First Financial Corporation and Subsidiary as of December 31, 1996 and 1995, and
the results of their operations and their cash flows for each of the three years
in the period ended December 31, 1996, in conformity with generally accepted
accounting principles.
As discussed in note 1 to the consolidated financial statements, effective
January 1, 1994, the Company changed its method of accounting for debt and
equity securities to comply with the provisions of Statement of Financial
Accounting Standards No. 115, "Accounting for Certain Investments in Debt and
Equity Securities".
MAGGART & ASSOCIATES, P.C.
NASHVILLE, TENNESSEE
JANUARY 10, 1997
F-3
<PAGE> 68
FIRST FINANCIAL CORPORATION
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1996 AND 1995
<TABLE>
<CAPTION>
IN THOUSANDS
-------------------
1996 1995
-------- --------
<S> <C> <C>
Assets
Loans, less allowance for possible loan losses of $1,541,000
and $1,246,000, respectively.............................. $122,771 99,736
Securities available-for-sale, at market (amortized cost
$42,427,000 and $43,345,000, respectively)................ 42,473 43,663
Loans held for sale......................................... 1,723 1,812
Interest-bearing deposits in financial institutions......... -- 203
Federal funds sold.......................................... 3,725 1,365
-------- --------
Total earning assets...................................... 170,692 146,779
-------- --------
Cash and due from banks..................................... 5,412 4,268
Premises and equipment, net................................. 5,457 4,471
Other real estate........................................... 2 305
Accrued interest receivable................................. 1,638 1,463
Other assets................................................ 772 469
-------- --------
Total assets.............................................. $183,973 157,755
======== ========
Liabilities and Stockholders' Equity
Deposits:
Demand deposits........................................... $ 20,647 19,690
Negotiable order of withdrawal deposits................... 16,305 14,483
Money market account deposits............................. 21,381 17,227
Savings accounts.......................................... 9,928 10,447
Certificates of deposits.................................. 99,184 81,075
-------- --------
Total deposits......................................... 167,445 142,922
Income taxes payable........................................ 90 101
Accrued interest payable.................................... 882 804
Other liabilities........................................... 199 159
Short-term borrowings....................................... 800 996
Advances from Federal Home Loan Bank........................ 993 1,331
Long-term debt.............................................. 391 395
-------- --------
Total liabilities...................................... 170,800 146,708
-------- --------
Stockholders' equity:
Preferred stock, no par value, authorized 5,000,000
shares, no shares issued............................... -- --
Common stock, $2.50 par value, authorized 5,000,000
shares, issued 1,068,914 and 1,060,728 shares,
respectively........................................... 2,672 2,651
Additional paid-in capital................................ 3,850 3,741
Retained earnings......................................... 7,879 5,715
Net unrealized gains on available-for-sale securities, net
of applicable income taxes of $18,000 and $121,000,
respectively........................................... 29 197
Less cost of 137,926 shares of treasury stock............. (1,257) (1,257)
-------- --------
Total stockholders' equity............................. 13,173 11,047
-------- --------
COMMITMENTS AND CONTINGENCIES
Total liabilities and stockholders' equity............. $183,973 157,755
======== ========
</TABLE>
See accompanying notes to consolidated financial statements.
F-4
2
<PAGE> 69
FIRST FINANCIAL CORPORATION
CONSOLIDATED STATEMENTS OF EARNINGS
THREE YEARS ENDED DECEMBER 31, 1996
<TABLE>
<CAPTION>
IN THOUSANDS,
EXCEPT PER SHARE AMOUNT
------------------------------
1996 1995 1994
-------- -------- --------
<S> <C> <C> <C>
Interest income:
Interest and fees on loans................................ $ 11,893 9,787 6,825
Interest and dividends on securities:
Taxable securities..................................... 2,036 1,938 1,559
Exempt from Federal income taxes....................... 436 360 235
Interest on loans held for sale........................... 119 75 103
Interest on federal funds sold............................ 137 209 109
Interest on interest-bearing deposits in financial
institutions........................................... 8 12 15
-------- -------- --------
Total interest income.................................. 14,629 12,381 8,846
-------- -------- --------
Interest expense:
Interest on negotiable order of withdrawal accounts....... 401 341 225
Interest on money market demand accounts.................. 795 558 329
Interest on savings deposits.............................. 224 211 143
Interest on individual retirement savings accounts........ 80 82 74
Interest on certificates of deposit....................... 4,965 4,376 2,881
Interest on short-term borrowings......................... 76 89 88
Interest on advances from Federal Home Loan Bank.......... 88 108 50
Interest on long-term debt................................ 27 28 --
-------- -------- --------
Total interest expense................................. 6,656 5,793 3,790
-------- -------- --------
Net interest income before provision for possible loan
losses.................................................... 7,973 6,588 5,056
Provision for possible loan losses.......................... (310) (356) (325)
-------- -------- --------
Net interest income after provision for possible loan
losses.................................................... 7,663 6,232 4,731
Non-interest income......................................... 1,739 1,538 1,889
Non-interest expense........................................ (5,855) (5,149) (4,588)
-------- -------- --------
Earnings before income taxes........................... 3,547 2,621 2,032
Income taxes................................................ 1,197 0 702
-------- -------- --------
Net earnings........................................... $ 2,350 1,741 1,330
======== ======== ========
Net earnings per common share............................... $ 2.49 1.87 1.43
======== ======== ========
Weighted average number of common and common equivalent
shares outstanding........................................ 943,415 930,626 933,626
======== ======== ========
</TABLE>
See accompanying notes to consolidated financial statements.
F-5
3
<PAGE> 70
FIRST FINANCIAL CORPORATION
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
THREE YEARS ENDED DECEMBER 31, 1996
<TABLE>
<CAPTION>
IN THOUSANDS, EXCEPT SHARES
---------------------------------------------------------------
NET
UNREALIZED
GAINS
(LOSSES)
ON
ADDITIONAL AVAILABLE-
COMMON PAID-IN RETAINED FOR-SALE TREASURY
STOCK CAPITAL EARNINGS SECURITIES STOCK TOTAL
------ ---------- -------- ---------- -------- ------
<S> <C> <C> <C> <C> <C> <C>
Balance December 31, 1993................................... $2,650 3,735 2,964 -- (765) 8,584
Net earnings for year....................................... -- -- 1,330 -- -- 1,330
Cash dividends declared ($.175 per share)................... -- -- (159) -- -- (159)
Issuance of 264 shares of common stock...................... 1 4 -- -- -- 5
Effect of change to market value method of accounting for
debt and equity securities as of January 1, 1994.......... -- -- -- (7) -- (7)
Net change in unrealized loss during the year, net of tax
benefits of $239,000...................................... -- -- -- (381) -- (381)
Cost of 48,654 shares of treasury stock..................... -- -- -- -- (487) (487)
------ ----- ----- ---- ------ ------
Balance December 31, 1994................................... 2,651 3,739 4,135 (388) (1,252) 8,885
Net earnings for year....................................... -- -- 1,741 -- -- 1,741
Cash dividends declared ($.175 per share)................... -- -- (161) -- -- (161)
Issuance of 200 shares of common stock...................... -- 2 -- -- -- 2
Net change in unrealized appreciation during the year, net
of taxes of $360,000...................................... -- -- -- 585 -- 585
Cost of 468 shares of treasury stock........................ -- -- -- -- (5) (5)
------ ----- ----- ---- ------ ------
Balance December 31, 1995................................... 2,651 3,741 5,715 197 (1,257) 11,047
Net earnings for year....................................... -- -- 2,350 -- -- 2,350
Cash dividends declared ($.20 per share).................... -- -- (186) -- -- (186)
Issuance of 962 shares of common stock...................... 3 8 -- -- -- 11
Issuance of 7,224 shares of common stock pursuant to
dividend reinvestment plan................................ 18 101 -- -- -- 119
Net change in unrealized appreciation during the year, net
of taxes of $103,000...................................... -- -- -- (168) -- (168)
------ ----- ----- ---- ------ ------
Balance December 31, 1996................................... $2,672 3,850 7,879 29 (1,257) 13,173
====== ===== ===== ==== ====== ======
</TABLE>
See accompanying notes to consolidated financial statements.
F-6
4
<PAGE> 71
FIRST FINANCIAL CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
THREE YEARS ENDED DECEMBER 31, 1996
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
<TABLE>
<CAPTION>
IN THOUSANDS
------------------------------
1996 1995 1994
-------- -------- --------
<S> <C> <C> <C>
Cash flows from operating activities:
Interest received......................................... $ 14,463 11,962 8,660
Fees received............................................. 1,128 982 878
Interest paid............................................. (6,578) (5,484) (3,699)
Cash paid to suppliers and employees...................... (5,544) (4,711) (4,362)
Proceeds from loan sales.................................. 34,603 27,913 40,074
Originations of loans held for sale....................... (33,914) (28,073) (36,860)
Income taxes paid......................................... (1,330) (950) (881)
-------- -------- --------
Net cash provided by operating activities.............. 2,828 1,639 3,810
-------- -------- --------
Cash flows from investing activities:
Proceeds from sales of available-for-sale securities...... 10,711 3,685 1,382
Proceeds from maturities of available-for-sale
securities............................................. 4,321 1,746 2,023
Purchase of available-for-sale securities................. (14,112) (12,483) (3,718)
Proceeds from maturities of held-to-maturity securities... -- 1,903 1,933
Purchase of held-to-maturity securities................... -- (3,344) (2,573)
Loans made to customers, net of repayments................ (23,276) (21,719) (16,275)
Proceeds from sale of equipment........................... -- -- 12
Purchase of premise and equipment......................... (1,300) (532) (920)
Proceeds from maturities of interest-bearing deposits in
financial institutions................................. 203 -- --
Proceeds from maturities of (purchase of) interest-bearing
deposits in financial institutions..................... -- (3) 100
Proceeds from sale of other real estate................... 239 -- --
Increase in other real estate............................. (5) (13) (232)
Purchase of other assets.................................. (34) -- --
-------- -------- --------
Net cash used in investing activities.................. (23,253) (30,760) (18,268)
-------- -------- --------
Cash flows from financing activities:
Net increase in non-interest bearing, demand savings and
NOW deposit accounts................................... 6,414 13,220 4,232
Net increase in time deposits............................. 18,109 16,664 10,189
Proceeds from (repayments of) short-term borrowings,
net.................................................... (196) (90) 385
Proceeds from advances from Federal Home Loan Bank........ -- -- 1,577
Repayment of advances from Federal Home Loan Bank......... (338) (246) --
Repayment of long-term debt............................... (4) (5) --
Issuance of common stock.................................. 130 2 5
Dividends paid............................................ (186) (161) (159)
Purchase of treasury stock................................ -- (5) (487)
-------- -------- --------
Net cash provided by financing activities.............. 23,929 29,379 15,742
-------- -------- --------
Net increase in cash and cash equivalents................... 3,504 258 1,284
Cash and cash equivalents at beginning of year.............. 5,633 5,375 4,091
-------- -------- --------
Cash and cash equivalents at end of year.................... $ 9,137 5,633 5,375
======== ======== ========
</TABLE>
See accompanying notes to consolidated financial statements.
F-7
5
<PAGE> 72
FIRST FINANCIAL CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS, CONTINUED
THREE YEARS ENDED DECEMBER 31, 1996
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
<TABLE>
<CAPTION>
IN THOUSANDS
---------------------------
1996 1995 1994
------ ------- --------
<S> <C> <C> <C>
Reconciliation of net earnings to net cash provided by
operating activities:
Net earnings.............................................. $2,350 1,741 1,330
Adjustments to reconcile net earnings to net cash provided
by operating activities:
Depreciation and amortization.......................... 324 297 359
Amortization of organization expense................... 9 9 8
Loss on sale of equipment.............................. -- -- 3
Loss (gain) on securities.............................. (11) 62 18
Provision for possible loan losses..................... 310 356 325
Gain on sale of other real estate...................... -- -- (142)
Provision for losses on other real estate.............. -- 2 29
Provision for deferred taxes........................... (123) (126) (44)
Decrease (increase) in loans held for sale............. 89 (716) 2,242
Increase in accrued interest receivable................ (175) (413) (207)
Increase in other assets............................... (52) (34) (96)
Increase (decrease) in taxes payable................... (11) 56 (135)
Increase in interest payable........................... 78 309 91
Increase in accrued expenses........................... 40 96 29
------ ------- --------
Total adjustments...................................... 478 (102) 2,480
------ ------- --------
Net cash provided by operating activities.............. $2,828 1,639 3,810
====== ======= ========
Supplemental Schedule of Noncash Activities:
Land acquisition and recording of long-term debt.......... $ -- -- 400,000
====== ======= ========
Investment securities transferred to available-for-sale... $ -- 20,155 24,429
====== ======= ========
Investment securities transferred to held-to-maturity..... $ -- -- 8,872
====== ======= ========
Change in unrealized gain (loss) in value of securities
available-for-sale, net of taxes of $103,000 in 1996
and $360,000 in 1995 and a tax benefit of $239,000 in
1994................................................... $ (168) 585 (388)
====== ======= ========
</TABLE>
See accompanying notes to consolidated financial statements.
F-8
6
<PAGE> 73
FIRST FINANCIAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1996, 1995 AND 1994
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The accounting and reporting policies of First Financial Corporation
and Subsidiary are in accordance with generally accepted accounting
principles and conform to general practices within the banking industry.
The following is a brief summary of the more significant policies.
(a) Principles of Consolidation
The consolidated financial statements include the accounts of
the Company and its wholly-owned subsidiary, First Bank & Trust. All
significant intercompany accounts and transactions have been eliminated
in consolidation.
(b) Nature of Operations
First Bank & Trust operates under a state bank charter and
provides full banking services. As a state bank, the subsidiary bank is
subject to regulation of the Tennessee Department of Financial
Institutions and the Federal Deposit Insurance Corporation. The area
served by First Bank & Trust is Wilson County, Tennessee and surrounding
counties in Middle Tennessee. Services are provided at the main office
and five branch offices
(c) Estimates
The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the
date of the financial statements and the reported amounts of revenues
and expenses during the reporting period. Actual results could differ
from those estimates.
(d) Loans and Allowance for Possible Loan Losses
Loans are stated at the principal amount outstanding. Unearned
interest on loans, which relates principally to installment loans, is
shown as a reduction of loans. Interest income on installment loans is
recognized by the sum of the months' digits method, which approximates
the interest method. Interest on other loans is computed on the
outstanding loan balance. Fees and incremental direct costs associated
with the loan origination and pricing process are deferred and amortized
as yield adjustments over the respective loan lives.
F-9
7
<PAGE> 74
FIRST FINANCIAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1996, 1995 AND 1994
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, CONTINUED
(d) Loans and Allowance for Possible Loan Losses, Continued
The allowance method is used by the Company to provide for
possible loan losses. Accordingly, all loan losses are charged to the
allowance for possible loan losses and all recoveries are credited to
it. Loans are charged against the allowance when management believes
that the collectibility of the principal is unlikely. The allowance is
an amount that management believes will be adequate to absorb possible
losses on existing loans that may become uncollectible. Management's
periodic evaluation of the adequacy of the allowance is based on past
loan loss experience and other factors which, in management's judgment,
deserve current recognition in estimating possible loan losses. Such
other factors considered by management include growth and composition of
the loan portfolio, the relationship of the allowance for possible loan
losses to outstanding loans, adverse situations that may affect the
borrower's ability to repay, the estimated value of any underlying
collateral and current economic conditions that may affect the
borrower's ability to repay. Impaired loans that are within the scope of
Statement of Financial Accounting Standards (SFAS) No. 114, "Accounting
by Creditors for Impairment of a Loan", as amended by SFAS No. 118, are
measured based on the present value of expected future cash flows
discounted at the loan's effective interest rate or, as a practical
expedient, at the loan's observable market price or the fair value of
the collateral if the loan is collateral dependent.
The accrual of interest income is discontinued, and previously
accrued interest is reversed, when it is determined that collection of
interest is less than probable or the collection of any amount of
principal is doubtful, after considering economic and business
conditions and collection efforts. Management may elect to continue the
accrual of interest when the estimated net realizable value of
collateral is sufficient to cover the principal balance and accrued
interest.
F-10
8
<PAGE> 75
FIRST FINANCIAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1996, 1995 AND 1994
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, CONTINUED
(e) Debt and Equity Securities
The Company adopted the provision of Statement of Financial
Accounting Standards No. 115 (SFAS No. 115), "Accounting for Certain
Investments in Debt and Equity Securities", effective January 1, 1994.
Under the provisions of the Statement, securities are classified in
three categories and accounted for as follows:
- Securities Held-to-Maturity
Debt securities that the enterprise has the positive intent and
ability to hold to maturity are classified as held-to-maturity
securities and reported at amortized cost. Amortization of
premiums and accretion of discounts are calculated by the
interest method.
- Trading Securities
Debt and equity securities that are bought and held principally
for the purpose of selling them in the near term are classified
as trading securities and reported at fair value, with unrealized
gains and losses included in earnings.
- SECURITIES AVAILABLE-FOR-SALE
Debt and equity securities not classified as either
held-to-maturity securities or trading securities are classified
as available-for-sale securities and reported at estimated fair
value, with unrealized gains and losses excluded from earnings
and reported in a separate component of stockholders' equity.
Premiums and discounts are recognized in interest income using
the interest method.
No securities have been classified as trading securities or securities
held-to-maturity.
On January 1, 1994, the Company transferred $24,429,000 (market
value -- $24,417,000) of investment securities to the available-for-sale
classification and $8,872,000 (market value -- $8,872,000) of investment
securities to the held-to-maturity classification. The effect of the
adoption of SFAS No. 115 was to decrease the capital of the Company as of
January 1, 1994 by $7,000 which represents the net unrealized losses on
available-for-sale securities of $12,000 net of applicable taxes of $5,000.
F-11
9
<PAGE> 76
FIRST FINANCIAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1996, 1995 AND 1994
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, CONTINUED
(e) Debt and Equity Securities, Continued
In November, 1995 the Financial Accounting Standards Board
issued "A Guide to Implementation of Statement 115 on Accounting for
Certain Investments in Debt and Equity Securities" which permitted the
reassessment of the appropriateness of the classifications of all
securities by December 31, 1995. Reclassifications from the
held-to-maturity classification that result from this one-time
reassessment will not call into question the intent of an entity to hold
other debt securities to maturity in the future. The Company transferred
securities with an amortized cost of $20,155,000 (market value
-$20,307,000) to the available-for-sale classification in December, 1995
pursuant to the provisions of this pronouncement.
Realized gains or losses from the sale of securities are recognized
upon realization based upon the specific identification method.
(f) Loans Held-for-Sale
Mortgage loans held for sale are reported at the lower of cost or
market value, determined by outstanding commitments from investors at
the balance sheet date. These loans are valued on an aggregate basis.
(g) Premises and Equipment, Net
Premises and equipment are stated at cost. Depreciation is computed
primarily by the straight-line method over the estimated useful lives of
the related assets. Gain or loss on items retired and otherwise disposed
of is credited or charged to operations and cost and related accumulated
depreciation are removed from the asset and accumulated depreciation
accounts.
Expenditures for major renewals and improvements of premises and
equipment are capitalized and those for maintenance and repairs are
charged to earnings as incurred.
F-12
10
<PAGE> 77
FIRST FINANCIAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1996, 1995 AND 1994
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, CONTINUED
(h) Long-Lived Assets
In March, 1995, Statement of Financial Accounting Standards (SFAS) No.
121, "Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to be Disposed Of," was issued. SFAS No. 121 requires
that long-lived assets and certain identifiable intangibles to be held
and used or disposed of by an entity be reviewed for impairment whenever
events or changes in circumstances indicate that the carrying amount of
an asset may not be recoverable. During 1996, the Company adopted this
statement and determined that no impairment loss need be recognized for
its long-lived assets.
(i) Other Real Estate
Real estate acquired in settlement of loans is initially recorded at
the lower of cost (loan value of real estate acquired in settlement of
loans plus incidental expense) or estimated fair value less estimated
cost to sell. Based on periodic evaluations by management, the carrying
values are reduced by a direct charge to earnings when they exceed net
realizable value. Costs relating to the development and improvement of
the property are capitalized, while holding costs of the property are
charged to expense in the period incurred.
(j) Cash and Cash Equivalents
For purposes of reporting cash flows, cash and cash equivalents include
cash on hand, amounts due from banks and Federal funds sold. Generally,
Federal funds sold are purchased and sold for one-day periods. The Bank
maintains deposits with other financial institutions in excess of the
Federal insurance amounts. Management makes deposits only with financial
institutions it considers to be financially sound.
(k) Income Taxes
Provisions for income taxes are based on taxes payable or refundable
for the current year (after exclusion of non-taxable income such as
interest on state and municipal securities) and deferred taxes on
temporary differences between the amount of taxable and pretax financial
income and between the tax bases of assets and liabilities and their
reported amounts in the financial statements. Deferred tax assets and
liabilities are included in the financial statements at currently
enacted income tax rates applicable to the period in which the deferred
tax asset and liabilities are expected to be realized or settled as
prescribed in SFAS 109, "Accounting for Income Taxes." As changes in tax
laws or rates are enacted, deferred tax assets and liabilities are
adjusted through the provision of income taxes.
F-13
11
<PAGE> 78
FIRST FINANCIAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1996, 1995 AND 1994
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, CONTINUED
(k) Income Taxes, Continued
The Company and its subsidiary file a consolidated Federal income tax
return. Its subsidiary provides for income taxes on a separate-return
basis.
(l) Earnings Per Share
The computation of earnings per common share and common equivalent
share is based upon the weighted average number of common shares
outstanding during the period plus the effect of common shares
contingently issuable from stock options. On April 18, 1996, the
stockholders approved a two-for-one stock split effective for
shareholders of record on May 1, 1996. The weighted average number of
shares outstanding used in the computation of earnings per share and
dividends per share have been retroactively adjusted to reflect the
stock split.
(m) Reclassification
Certain reclassifications have been made to the 1995 and 1994 figures
to conform to the presentation for 1996.
(n) Off-Balance-Sheet Financial Instruments
In the ordinary course of business the subsidiary bank has entered
into off-balance-sheet financial instruments consisting of commitments
to extend credit, commitments under credit card arrangements, commercial
letters of credit and standby letters of credit. Such financial
instruments are recorded in the financial statements when they are
funded or related fees are incurred or received.
F-14
12
<PAGE> 79
FIRST FINANCIAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1996, 1995 AND 1994
(2) LOANS AND ALLOWANCE FOR POSSIBLE LOAN LOSSES
Loans and allowance for possible loan losses at December 31, 1996 and 1995
are summarized as follows:
<TABLE>
<CAPTION>
IN THOUSANDS
-------------------
1996 1995
-------- --------
<S> <C> <C>
Commercial, financial and agricultural...................... $ 36,311 30,859
Real estate -- construction................................. 11,724 8,412
Real estate -- mortgage..................................... 65,204 51,180
Consumer.................................................... 12,190 11,788
-------- --------
125,429 102,239
Less unearned interest...................................... (1,117) (1,257)
Less allowance for possible loan losses..................... (1,541) (1,246)
-------- --------
$122,771 99,736
======== ========
</TABLE>
The principal maturities on loans at December 31, 1996 are as follows:
<TABLE>
<CAPTION>
IN THOUSANDS
-----------------------------------------------------------
COMMERCIAL,
FINANCIAL REAL
AND REAL ESTATE ESTATE
MATURITY AGRICULTURAL CONSTRUCTION MORTGAGE CONSUMER TOTAL
- -------- ------------ ------------ -------- -------- -------
<S> <C> <C> <C> <C> <C>
3 months or less............................. $15,396 6,848 21,373 1,984 45,601
3 to 12 months............................... 11,991 4,016 17,621 1,015 34,643
1 to 5 years................................. 8,924 860 23,611 9,039 42,434
Over 5 years................................. -- -- 2,599 152 2,751
------- ------ ------ ------ -------
$36,311 11,724 65,204 12,190 125,429
======= ====== ====== ====== =======
</TABLE>
At December 31, 1996, variable rate and fixed rate loans total
approximately $97,364,000 and $28,065,000. Variable and fixed rate loans at
December 31, 1995 were $26,231,000 and $76,008,000, respectively.
F-15
13
<PAGE> 80
FIRST FINANCIAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1996, 1995 AND 1994
(2) LOANS AND ALLOWANCE FOR POSSIBLE LOAN LOSSES, CONTINUED
In the normal course of business, the Company's subsidiary has made loans at
prevailing interest rates and terms to directors and officers of the
Company, and to their affiliates. At December 31, 1996 and 1995, the
aggregate dollar amount of these loans was $2,753,000 and $2,439,000,
respectively. As of December 31, 1996, none of these loans were
restructured, nor were any related party loans charged-off during the most
recent three years.
An analysis of the activity with respect to such loans to related parties
is as follows:
<TABLE>
<CAPTION>
IN THOUSANDS
----------------
DECEMBER 31,
----------------
1996 1995
------- ------
<S> <C> <C>
Balance, January 1.......................................... $ 2,439 2,799
New loans during the year................................... 1,487 1,867
Repayments during the year.................................. (1,173) (2,227)
------- ------
Balance, December 31........................................ $ 2,753 2,439
======= ======
</TABLE>
At December 31, 1996, loans which had been placed on non-accrual status
totaled $88,000. Had interest been accrued on these loans, net earnings
would have been increased by approximately $4,000 in 1996. At December 31,
1995 no loans had been placed on nonaccrual status.
Transactions in the allowance for possible loan losses for the years
ended December 31, 1996, 1995 and 1994 are summarized as follows:
<TABLE>
<CAPTION>
IN THOUSANDS
---------------------
1996 1995 1994
------ ----- ----
<S> <C> <C> <C>
Balance -- beginning of year................................ $1,246 932 801
Provision charged to operating expenses..................... 310 356 325
Loans charged-off........................................... (98) (79) (241)
Recoveries.................................................. 83 37 47
------ ----- ----
Balance -- end of year...................................... $1,541 1,246 932
====== ===== ====
</TABLE>
The Company's principal customers are basically in the Middle
Tennessee area with a concentration in Wilson County, Tennessee. Credit is
extended to businesses and individuals and is evidenced by promissory notes.
The terms and conditions of the loans including collateral varies depending
upon the purpose of the credit and the borrower's financial condition.
F-16
14
<PAGE> 81
FIRST FINANCIAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1996, 1995 AND 1994
(2) LOANS AND ALLOWANCE FOR POSSIBLE LOAN LOSSES, CONTINUED
In 1996, 1995 and 1994, the Company originated for sale in the
secondary market loans of $33,914,000, $28,073,000 and $36,860,000,
respectively. Under normal terms, the Company may be required, in the event
of default, to repurchase loans sold for a period of ninety days. At
December 31, 1996, the subsidiary Bank had repurchased six loans in the
aggregate principal amount of $542,000 which had been originated by the
Subsidiary Bank and sold in the secondary market. The subsidiary Bank's
allowance for loan losses is available to absorb losses related to the loan
portfolio, including off-balance sheet credit exposures. Management expects
no significant loss of income to result from these recourse provisions. The
gain on sale of these loans totaled $600,000 in 1996, $556,000 in 1995 and
$869,000 in 1994.
(3) DEBT AND EQUITY SECURITIES
Debt and equity securities have been classified in the balance sheet
according to management's intent. The amortized cost (carrying value) and
the estimated market values of securities at December 31 was as follows:
<TABLE>
<CAPTION>
SECURITIES AVAILABLE-FOR-SALE
IN THOUSANDS
1996
-----------------------------------------------
GROSS GROSS ESTIMATED
AMORTIZED UNREALIZED UNREALIZED MARKET
COST GAINS LOSSES VALUE
--------- ---------- ---------- ---------
<S> <C> <C> <C> <C>
U.S. Government obligations.......................... $ 6,195 24 14 6,205
Securities of U.S. government agencies and
corporations...................................... 9,932 54 56 9,930
Obligations of state and political subdivisions...... 10,562 135 77 10,620
Mortgage-backed securities........................... 11,639 105 66 11,678
Collateralized mortgage obligations.................. 3,601 -- 59 3,542
Federal Home Loan
Bank stock........................................ 498 -- -- 498
------- --- --- ------
$42,427 318 272 42,473
======= === === ======
</TABLE>
The effective yield at December 31, 1996 on the collateralized mortgage
obligations was 5.62%.
F-17
15
<PAGE> 82
FIRST FINANCIAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1996, 1995 AND 1994
(3) DEBT AND EQUITY SECURITIES, CONTINUED
<TABLE>
<CAPTION>
SECURITIES AVAILABLE-FOR-SALE
IN THOUSANDS
1995
-----------------------------------------------
GROSS GROSS ESTIMATED
AMORTIZED UNREALIZED UNREALIZED MARKET
COST GAINS LOSSES VALUE
--------- ---------- ---------- ---------
<S> <C> <C> <C> <C>
U.S. Government obligations.......................... $ 5,981 58 18 6,021
Securities of U.S. government agencies and
corporations...................................... 8,847 46 30 8,863
Obligations of state and political subdivisions...... 7,936 270 19 8,187
Corporate and other securities....................... 499 -- 5 494
Mortgage-backed securities........................... 12,435 149 75 12,509
Collateralized mortgage obligations.................. 7,229 56 114 7,171
Federal Home Loan Bank stock......................... 418 -- -- 418
------- --- --- ------
$43,345 579 261 43,663
======= === === ======
</TABLE>
The effective yield at December 31, 1995 on the collateralized mortgage
obligations was 5.56%.
The Company periodically applies the stress test to its securities
portfolio. To satisfy the stress test a security's estimated market value
should not decline more than certain percentages given certain assumed
interest rate increases. The Company had no securities that failed to meet
the stress test as of December 31, 1996.
Included in the securities are $9,062,000 (market value of $9,046,000) and
$7,936,000 (market value of $8,187,000) at December 31, 1996 and 1995,
respectively, in obligations of political subdivisions located within the
State of Tennessee. Management purchases only obligations of such political
subdivisions it considers to be financially sound.
F-18
16
<PAGE> 83
FIRST FINANCIAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1996, 1995 AND 1994
(3) DEBT AND EQUITY SECURITIES, CONTINUED
The amortized cost and estimated market value of debt and equity securities
at December 31, 1996, by contractual maturity, are shown below. Expected
maturities will differ from contractual maturities because borrowers may
have the right to call or prepay obligations with or without call or
prepayment penalties.
<TABLE>
<CAPTION>
IN THOUSANDS
---------------------
ESTIMATED
AMORTIZED MARKET
SECURITIES AVAILABLE-FOR-SALE COST VALUE
- ------------------------------------------------------------ --------- ---------
<S> <C> <C>
Due in one year or less..................................... $ 1,114 1,109
Due after one year through five years....................... 14,722 14,696
Due after five years through ten years...................... 7,185 7,145
Due after ten years......................................... 7,269 7,347
------- ------
30,290 30,297
Mortgage-backed securities.................................. 11,639 11,678
Federal Home Loan Bank stock................................ 498 498
------- ------
$42,427 42,473
======= ======
</TABLE>
Included within the securities portfolio is stock of the Federal Home
Loan Bank amounting to $498,000. The stock can be sold back only at par and
only to the Federal Home Loan Bank or to another member institution.
Proceeds and realized gains and losses on sales of debt and equity
securities for the year ended December 31 are summarized as follows:
<TABLE>
<CAPTION>
IN THOUSANDS
-----------------------
FOR THE YEAR ENDED
DECEMBER 31,
-----------------------
1996 1995 1994
------- ----- -----
<S> <C> <C> <C>
Gross proceeds from sales................................... $10,711 3,685 1,382
======= ===== =====
Gross realized gains........................................ $ 57 -- --
Gross realized losses....................................... (46) (62) (18)
------- ----- -----
Net realized gains (losses)............................... $ 11 (62) (18)
======= ===== =====
</TABLE>
Investment securities carried in the balance sheet at $16,054,000
(approximate market value of $16,030,000) as of December 31, 1996 were
pledged to secure public and trust deposits and for other purposes as
required or permitted by law. At December 31, 1995, the carrying value of
pledged securities was $10,804,000 with an approximate market value of
$10,938,000.
F-19
17
<PAGE> 84
FIRST FINANCIAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1996, 1995 AND 1994
(4) PREMISES AND EQUIPMENT
The detail of premises and equipment at December 31, 1996 and 1995 is as
follows:
<TABLE>
<CAPTION>
IN THOUSANDS
----------------
1996 1995
------- ------
<S> <C> <C>
Land........................................................ $ 972 973
Land improvements........................................... 118 113
Buildings................................................... 3,714 3,023
Leasehold improvements...................................... 73 81
Construction in process..................................... 432 62
Furniture and equipment..................................... 1,804 1,561
Autos....................................................... 38 38
------- ------
7,151 5,851
Less accumulated depreciation............................... (1,694) (1,380)
------- ------
$ 5,457 4,471
======= ======
</TABLE>
(5) CERTIFICATES OF DEPOSIT
Principal maturities of certificates of deposit and individual
retirement accounts at December 31, 1996 are as follows:
<TABLE>
<CAPTION>
IN THOUSANDS
------------------------------------------
SINGLE DEPOSITS
UNDER SINGLE DEPOSITS
MATURITY $100,000 OVER $100,000 TOTAL
- ----------------------------------------------------------- --------------- --------------- ------
<S> <C> <C> <C>
3 months or less........................................... $15,055 12,915 27,970
3 to 6 months.............................................. 18,878 5,003 23,881
6 to 12 months............................................. 22,287 6,818 29,105
1 to 5 years............................................... 14,155 4,073 18,228
------- ------ ------
$70,375 28,809 99,184
======= ====== ======
</TABLE>
The subsidiary bank is required to maintain cash balances or balances with
the Federal Reserve Bank or other correspondent banks based on certain
percentages of deposit types. The average required amounts for the years
ended December 31, 1996 and 1995 were approximately $874,000 and $726,000,
respectively.
At December 31, 1995 certificates of deposit and other deposits in
denominations of $100,000 or more amounted to $44,514,000 as compared to
$48,764,000 at December 31, 1996.
F-20
18
<PAGE> 85
FIRST FINANCIAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1996, 1995 AND 1994
(6) SHORT-TERM BORROWINGS
The Company has entered into a loan agreement with a commercial bank. The
agreement extends a line of credit to the Company in an amount not to
exceed $1,500,000. The line is available to purchase and retire stock of the
Company as it becomes available or to meet other cash needs of the Company.
The line matures on or before November 30, 1997 and at the maturity may be
converted to a term note for a period not to exceed ten (10) years. The
stock of the subsidiary company collateralizes the line. At December 31,
1996 the interest rate was 7.75%. Beginning March 1, 1997, the Company has
the option, prior to the beginning of the following month, to select either
the prime rate of the lender or a fixed three month rate of 2.25% over the
London Interbank Offered Rate ("Libor"). The subsidiary bank must maintain a
total capital to total tangible asset ratio equal to or greater than 7.0%
through December 31, 1997. Thereafter the Bank must maintain ratios greater
than or equal to those of a "well capitalized" bank as defined by the
regulatory authorities. The outstanding balance at December 31, 1996 and
1995 was $800,000 and $996,000, respectively.
(7) ADVANCES FROM FEDERAL HOME LOAN BANK
The advances from the Federal Home Loan Bank at December 31, 1996 and 1995
consist of the following:
<TABLE>
<CAPTION>
IN THOUSANDS
-----------------
INTEREST RATE 1996 1995
------------- ---- -----
<S> <C> <C>
7.05% $650 824
7.65% 343 507
---- -----
$993 1,331
==== =====
</TABLE>
Advances from the Federal Home Loan Bank are to mature as follows at
December 31, 1996:
<TABLE>
<CAPTION>
AMOUNT
YEAR ENDING DECEMBER 31, (IN THOUSANDS)
------------------------ --------------
<S> <C>
1997 $ 55
1998 58
1999 603
2000 25
2001 28
Later years 224
----
$993
====
</TABLE>
These advances are collateralized by approximately $1,489,000 of the
subsidiary bank's mortgage loan portfolio.
F-21
19
<PAGE> 86
FIRST FINANCIAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
DECEMBER 31, 1996, 1995 AND 1994
(8) LONG-TERM DEBT
On October 26, 1994, the Company executed a 7.0% promissory note in the
amount of $400,000. The promissory note is payable in monthly principal and
interest installments of $2,661, with the remaining balance due October 26,
2004. This note is secured by a first mortgage Deed of Trust on land
purchased for a branch site. The balance of the note at December 31, 1996
and 1995 was $391,000 and $395,000, respectively.
Principal maturities at December 31, 1996 for the years 1997 through
2001 are $5,000, $5,000, $5,000, $6,000 and $6,000, respectively, with the
remaining balance of $364,000 due in later years.
(9) NON-INTEREST INCOME AND NON-INTEREST EXPENSE
<TABLE>
<CAPTION>
1996 1995 1994
---- ---- ----
(IN THOUSANDS)
<S> <C> <C> <C>
Non-interest income:
Service charges on
deposits................................................ $ 836 776 727
Other fees................................................ 292 206 293
Gains on sales of loans................................... 600 556 869
Security gains............................................ 11 -- --
------------- ----------- ----------
$ 1,739 1,538 1,889
============= =========== ==========
Non-interest expense:
Employee salaries and
benefits................................................ $ 3,286 2,777 2,494
Occupancy expenses........................................ 384 300 219
Furniture and equipment
expense................................................. 409 363 278
FDIC insurance and State
Banking fees............................................ 34 160 249
Cost of operation of
other real estate....................................... 3 12 38
Data processing fees...................................... 202 177 142
Security losses........................................... -- 62 18
Other operating expenses.................................. 1,537 1,298 1,150
------------- ----------- ----------
$ 5,855 5,149 4,588
============= =========== ==========
</TABLE>
F-22
20
<PAGE> 87
FIRST FINANCIAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
DECEMBER 31, 1996, 1995 AND 1994
(10) INCOME TAXES
The components of the net deferred tax asset which are included in
other assets in the consolidated balance sheet are as follows:
<TABLE>
<CAPTION>
DECEMBER 31
--------------
1996 1995
---- ----
(IN THOUSANDS)
<S> <C> <C>
Deferred tax asset:
Federal................................................... $ 432 326
State..................................................... 81 61
----------- ---------
513 387
----------- ---------
Deferred tax liability:
Federal................................................... (87) (171)
State..................................................... (16) (32)
----------- ---------
(103) (203)
----------- ---------
$ 410 184
=========== =========
</TABLE>
The tax effects of each type of significant item that gave rise to deferred
taxes at December 31 are:
<TABLE>
<CAPTION>
1996 1995
---- ----
(IN THOUSANDS)
<S> <C> <C>
Financial statement allowance for loan losses in excess of
the tax allowance......................................... $ 476 360
Financial statement deduction for deferred compensation in
excess of the deduction for tax purposes.................. 37 27
Excess of depreciation deducted for tax purposes over the
amounts deducted in the financial statements.............. (85) (82)
Excess of market value over estimated book value related to
securities available-for-sale............................. (18) (121)
---------- ---------
$ 410 184
========== =========
</TABLE>
F-23
21
<PAGE> 88
FIRST FINANCIAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
DECEMBER 31, 1996, 1995 AND 1994
(10) INCOME TAXES, CONTINUED
The components of income tax expense (benefit) are summarized as follows:
<TABLE>
<CAPTION>
IN THOUSANDS
-----------------------------------------------
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Current:
Federal................................. $ 1,102 828 617
State................................... 218 178 129
---------- -------- --------
1,320 1,006 746
---------- -------- --------
Deferred:
Federal................................. (104) (106) (37)
State................................... (19) (20) (7)
---------- -------- --------
(123) (126) (44)
---------- -------- --------
Total income taxes........................ $ 1,197 880 702
========== ======== ========
</TABLE>
A reconciliation of income taxes in the consolidated statements of earnings
with the "expected" tax expense computed by applying the statutory Federal
income tax rate of 34% to earnings before income taxes is as follows:
<TABLE>
<CAPTION>
IN THOUSANDS
-------------------------------------
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Computed "expected" tax expense............................. $ 1,206 891 691
State income taxes, net of Federal income tax benefit....... 127 109 81
Tax exempt interest, net of interest expense exclusion...... (140) (114) (79)
Other....................................................... 4 (6) 9
---------- ------- --------
Actual tax expense........................................ $ 1,197 880 702
========== ======= ========
</TABLE>
Total income tax expense includes a tax expense of $4,000 in 1996, tax
benefits of $24,000 in 1995 and $7,060 in 1994 related to security
transactions.
(11) COMMITMENTS AND CONTINGENCIES
The Company is party to litigation and claims arising in the normal
course of business. Management, after consultation with legal counsel,
believes that the liabilities, if any, arising from such litigation and
claims will not be material to the consolidated financial position.
F-24
22
<PAGE> 89
FIRST FINANCIAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
DECEMBER 31, 1996, 1995 AND 1994
(11) COMMITMENTS AND CONTINGENCIES, CONTINUED
Additionally, the Company's subsidiary leases property for two of its
branch locations. The first lease is adjusted annually based on the
consumer price index. The lease expires December 31, 1999, however, it
contains an option to renew the lease for four five-year consecutive
increments. The second lease expires April 30, 1998. The lease payments are
adjusted annually. Based upon the rates in effect at December 31, 1996,
future minimum lease commitments are as follows:
<TABLE>
<S> <C>
1997 $ 42
1998 26
1999 22
2000 22
2001 --
------
$ 112
======
</TABLE>
Rentals which are included in occupancy expense amount to $68,000, $57,000,
and $30,000 in 1996, 1995 and 1994, respectively.
(12) FINANCIAL INSTRUMENTS WITH OFF-BALANCE-SHEET RISK
The Company is 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 consist primarily of commitments to
extend credit. These instruments involve, to varying degrees, elements of
credit risk in excess of the amount recognized in the consolidated balance
sheets. The contract or notional amounts of those instruments reflect the
extent of involvement the Company has in particular classes of financial
instruments.
The Company's exposure to credit loss in the event of nonperformance by the
other party to the financial instrument for commitments to extend credit
is represented by the contractual notional amount of those instruments. The
Company uses the same credit policies in making commitments and conditional
obligations as it does for on-balance-sheet instruments.
<TABLE>
<CAPTION>
IN THOUSANDS
------------------------------
CONTRACT OR
NOTIONAL AMOUNT
------------------------------
1996 1995
---- ----
<S> <C> <C>
Financial instruments whose contract amounts represent
credit risk:
Commercial loan commitments............................... $ 12,105 9,649
Unfunded lines-of-credit.................................. 9,613 8,633
Letter of credit.......................................... 2,974 2,515
------------ ------------
Total.................................................. $ 24,692 20,797
============ ============
</TABLE>
F-25
23
<PAGE> 90
FIRST FINANCIAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
DECEMBER 31, 1996, 1995 AND 1994
(12) FINANCIAL INSTRUMENTS WITH OFF-BALANCE-SHEET RISK, CONTINUED
Commitments to extend credit are agreements to lend to a customer as
long as there is no violation of any condition established in the contract.
Commitments generally have fixed expiration dates or other termination
clauses and may require payment of a fee. Since many of the commitments are
expected to be drawn upon, the total commitment amounts generally represent
future cash requirements. The Company evaluates each customer's
credit-worthiness on a case-by-case basis. The amount of collateral, if
deemed necessary by the Company upon extension of credit, is based on
management's credit evaluation of the counterparty. Collateral normally
consists of real property.
(13) CONCENTRATION OF CREDIT RISK
Practically all of the Company's loans, commitments, and commercial
and standby letters of credit have been granted to customers in the
Company's market area. Practically all such customers are depositors of the
subsidiary bank. Investment in state and municipal securities also include
governmental entities within the Company's market area. The concentrations
of credit by type of loan are set forth in note 2 to the consolidated
financial statements.
In addition, Federal funds sold were deposited with three banks.
(14) PROFIT-SHARING PLAN
The Company has in effect a 401(K) profit sharing plan for the benefit
of its employees. Employees eligible to participate in the plan are those
at least 21 years old and who have completed 1,000 hours of service. The
provisions of the plan provide for both employee and employer
contributions. For the years ended December 31, 1996, 1995 and 1994 the
employer matched .50 cents per dollar of employee contributions up to a
maximum of 6% of the employee compensation. The Company's contribution for
the year, including administrative fees, totaled $55,000 for 1996, $45,000
for 1995, and $38,000 for 1994.
F-26
24
<PAGE> 91
FIRST FINANCIAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
DECEMBER 31, 1996, 1995 AND 1994
(15) REGULATORY MATTERS AND RESTRICTIONS ON DIVIDENDS
The Company and its wholly-owned bank subsidiary are subject to regulatory
capital requirements administered by the Federal Deposit Insurance
Corporation, the Federal Reserve and the Tennessee Department of Financial
Institutions. 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
Company's financial statements. The Company's capital classifications are
also subject to qualitative judgments by the regulators about components,
risk weightings, and other factors. Those qualitative judgments could also
affect the Company's and subsidiary bank's capital status and the amounts
of dividends the subsidiary may distribute. At December 31, 1996,
management believes that the Company and its subsidiary meet all such
capital requirements to which they are subject.
The Company and its subsidiary bank are required to maintain minimum
amounts of capital to total "risk weighted" assets, as defined by the
banking regulators. At December 31, 1996, the Company and its bank
subsidiary are required to have minimum Tier I and Tier II (total capital)
ratios of 4.0% and 8.0%, respectively. The actual ratios at that date were
10.1% and 11.2%, respectively. The subsidiary bank's Tier I ratio was 10.6%
and the Tier II ratio was 11.8% at December 31, 1996. The leverage ratios
at December 31, 1996 were 7.1% for the Company and 7.5% for the subsidiary
bank and the minimum requirements were 4.0%.
(16) DIVIDEND REINVESTMENT PLAN
Under the terms of the Company's dividend reinvestment plan holders of
common stock may elect to automatically reinvest cash dividends in
additional shares of common stock. The Company may elect to sell original
issue shares or to purchase shares in the open market for the account of
participants. Original issue shares of 7,224 in 1996 were sold to
participants under the terms of the plan.
(17) STOCK OPTION PLAN
In April, 1993, the stockholders of the Company approved the 1993 Stock
Option Plan (the "Stock Option Plan"). The Stock Option Plan provides for
the granting of stock options, and authorizes the issuance of common stock
upon the exercise of such options, for up to 106,000 shares of common
stock, to employees, nonemployee directors and advisors of the Company and
up to 53,000 shares of common stock to the Directors of the Company.
F-27
25
<PAGE> 92
FIRST FINANCIAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
DECEMBER 31, 1996, 1995 AND 1994
(17) STOCK OPTION PLAN, CONTINUED
Under the Stock Option Plan, stock option awards may be granted in the
form of incentive stock options or nonstatutory stock options, and are
generally exercisable for up to ten years following the date such option
awards are granted. Exercise prices of incentive stock options must be
equal to or greater than 100% of the fair market value of the common stock
on the grant date.
In 1995, SFAS 123 "Accounting for Stock Based Compensation" (SFAS 123)
changed the method for recognition of cost of plans similar to those of
the Company. As is permitted, management has elected to continue
accounting for the plan under APB Opinion 25 and related Interpretations
in accounting for its plan. Accordingly, no compensation cost has been
recognized for the stock option plan. However, under SFAS 123, the Company
is required to make proforma disclosures as if cost had been recognized
in accordance with the pronouncement. Had compensation cost for the
Company's stock option plan been determined based on the fair value at the
grant dates for awards under the plan consistent with the method of SFAS
No. 123, the Company's net earnings and net earnings per common share
would have been reduced to the proforma amounts indicated below:
<TABLE>
<CAPTION>
1996 1995 1994
---- ---- ----
<S> <C> <C> <C> <C>
Net income.................................. As Reported $ 2,350 $ 1,741 $ 1,330
Proforma $ 2,337 $ 1,728 $ 1,329
Earnings Per Share.......................... As Reported $ 2.49 $ 1.87 $ 1.43
Proforma $ 2.48 $ 1.86 $ 1.42
</TABLE>
Accordingly, due to the initial phase-in period, the effects of applying
this statement for proforma disclosures are not likely to be representative
of the effects on reported net income for future years.
A summary of the stock option activity for 1996, 1995 and 1994 is as
follows:
<TABLE>
<CAPTION>
1996 1995 1994
--------------------- ---------------------- ----------------------
Weighted Weighted Weighted
Average Average Average
Exercise Exercise Exercise
Shares Price Shares Price Shares Price
-------- --------- -------- --------- ------- ---------
<S> <C> <C> <C> <C> <C> <C>
Outstanding at beginning of year 114,464 11.44 80,672 10.05 79,400 10.00
Granted 528 19.00 33,792 14.76 2,000 12.00
Exercised (962) 10.88 (200) 12.00 (526) 10.00
Forfeited -- -- -- -- -- --
------- ----- ------- ----- ------ -----
Outstanding at end of year 114,030 11.40 114,464 11.44 80,072 10.05
------- ----- ------- ----- ------ -----
Options exercisable at year end 38,993 27,616 15,552
======= ======= ======
</TABLE>
F-28
26
<PAGE> 93
FIRST FINANCIAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
DECEMBER 31, 1996, 1995 AND 1994
(17) STOCK OPTION PLAN, CONTINUED
The following table summarizes information about fixed stock options
outstanding at December 31, 1996:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
---------------------------------------- -------------------------------
WEIGHTED
NUMBER WEIGHTED AVERAGE NUMBER WEIGHTED
RANGE OF OUTSTANDING AVERAGE REMAINING EXERCISABLE AVERAGE
EXERCISE AT EXERCISE CONTRACTUAL AT EXERCISE
PRICES 12/31/96 PRICE LIFE 12/31/96 PRICE
- ---------- ----------- ------------ ----------- ----------- -------------
<S> <C> <C> <C> <C> <C>
$10 to $13 83,880 $ 10.19 6.1 years 31,640 $ 10.10
$15 to $19 30,150 $ 15.07 6.0 years 7,353 $ 15.04
</TABLE>
(18) DEFERRED COMPENSATION PLAN
The Company provides its directors with the opportunity to participate in
an unfunded, deferred compensation program, which also provides for death
and disability benefits. There were six participants in the program at
December 31, 1996 and 1995. Under the program, participants may defer up to
100% of their yearly total cash compensation. The amounts deferred remain
the sole property of the Company, which uses them together with additional
corporate funds, to purchase either insurance policies on the lives of the
participants or other investments. The insurance policies, which remain the
sole property of the Company, are payable to the Company upon the death or
permanent disability of the participant. The Company separately contracts
with the participants to pay benefits based upon the deferred amount
compounded at a floating interest rate of prime as reported in the Wall
Street plus two percent. At December 31, 1996, the deferred compensation
liability totaled $100,000 as compared to $71,000 at December 31, 1995. The
cash surrender value of life insurance was $163,000 and $120,000 at
December 31, 1996 and 1995, respectively. The face amount of the insurance
policies in force at December 31, 1996 approximated $1,058,000. The program
is not qualified under Section 401 of the Internal Revenue Code.
F-29
27
<PAGE> 94
FIRST FINANCIAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
DECEMBER 31, 1996, 1995 AND 1994
(19) FIRST FINANCIAL CORPORATION -
Parent Company Financial Information
FIRST FINANCIAL CORPORATION
(PARENT COMPANY ONLY)
BALANCE SHEETS
DECEMBER 31, 1996 AND 1995
<TABLE>
<CAPTION>
IN THOUSANDS
-------------------------------------------
ASSETS 1996 1995
---- ----
<S> <C> <C>
Cash ....................................................... $ 42* 83*
Investment in commercial bank subsidiary.................... 13,893* 11,923*
Due from commercial bank subsidiary......................... 9* 36*
Other assets................................................ 34 9
------------- -----------
Total assets.............................................. $ 13,978 12,051
============= ===========
Liabilities and Stockholders' Equity
Short-term borrowings....................................... $ 800 996
Accrued interest payable.................................... 5 8
------------- -----------
805 1,004
------------- -----------
Stockholders' equity:
Preferred stock, no par value, authorized 5,000,000
shares, no shares issued............................... -- --
Common stock, $2.50 par value, authorized 5,000,000
shares, issued 1,068,914 and 1,060,728 shares,
respectively........................................... 2,672 2,651
Additional paid-in capital................................ 3,850 3,741
Retained earnings......................................... 7,879 5,715
Net unrealized gains on available-for-sale securities, net
of applicable income taxes of $17,000 and $121,000,
respectively........................................... 29 197
------------- -----------
14,430 12,304
Less cost of 137,926 shares of treasury stock............. (1,257) (1,257)
------------- -----------
Total stockholders' equity............................. 13,173 11,047
------------- -----------
Total liabilities and stockholders' equity............. $ 13,978 12,051
============= ===========
</TABLE>
*Eliminated in consolidation.
F-30
28
<PAGE> 95
FIRST FINANCIAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
DECEMBER 31, 1996, 1995 AND 1994
(19) FIRST FINANCIAL CORPORATION -
Parent Company Financial Information
FIRST FINANCIAL CORPORATION
(PARENT COMPANY ONLY)
STATEMENTS OF EARNINGS
FOR THE THREE YEARS ENDED DECEMBER 31, 1996
<TABLE>
<CAPTION>
In Thousands
----------------------------------------------
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Income:
Dividends from commercial bank subsidiary........ $ 285* 360* 360*
---------- ----- -----
Expenses:
Interest expense................................. 69 87 80
Amortization of organization costs............... 9 9 8
Other expenses................................... 39 26 27
---------- ----- -----
117 122 115
---------- ----- -----
Earnings before Federal income tax benefits
and equity in undistributed earnings of
commercial bank subsidiary.................. 168 238 245
Federal income tax benefit......................... 44 46 44
Equity in undistributed earnings of commercial bank
subsidiary....................................... 2,138* 1,457* 1,041*
---------- ----- -----
Net earnings................................ $ 2,350 1,741 1,330
========== ===== =====
</TABLE>
*Eliminated in consolidation.
F-31
29
<PAGE> 96
FIRST FINANCIAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
DECEMBER 31, 1996, 1995 AND 1994
(19) FIRST FINANCIAL CORPORATION -
Parent Company Financial Information
FIRST FINANCIAL CORPORATION
(PARENT COMPANY ONLY)
STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
FOR THE THREE YEARS ENDED DECEMBER 31, 1996
<TABLE>
<CAPTION>
IN THOUSANDS, EXCEPT SHARES
-------------------------------------------------------------------------------------
NET
UNREALIZED
GAINS
(LOSSES)
ON
ADDITIONAL AVAILABLE-
COMMON PAID-IN RETAINED FOR-SALE TREASURY
STOCK CAPITAL EARNINGS SECURITIES STOCK TOTAL
--------------------- ---------- --------- ---------- ---------- -----------
<S> <C> <C> <C> <C> <C> <C>
Balance December 31, 1993.................... $2,650 3,735 2,964 - (765) 8,584
Net earnings for year........................ - - 1,330 - - 1,330
Cash dividends declared, ($.175 per
share)..................................... - - (159) - - (159)
Issuance of common stock..................... 1 4 - - - 5
Effect of change to market value method
of accounting for debt and equity
securities as of January 1, 1994........... - - - (7) - (7)
Net change in unrealized loss during the
year, net of tax benefits of $234,000...... - - - (381) - (381)
Cost of 48,654 shares of treasury
stock...................................... - - - - (487) (487)
------ ----- ----- ---- ------ ------
Balance December 31, 1994.................... 2,651 3,739 4,135 (388) (1,252) 8,885
Net earnings for year........................ - - 1,741 - - 1,741
Cash dividends declared ($.175 per
share)..................................... - - (161) - - (161)
Issuance of 200 shares of common stock....... - 2 - - - 2
Net change in unrealized appreciation
during the year, net of taxes of
$360,000 .................................. - - - 585 - 585
Cost of 468 shares of treasury stock......... - - - - (5) (5)
------ ----- ----- ---- ------ ------
Balance December 31, 1995.................... 2,651 3,741 5,715 197 (1,257) 11,047
Net earnings for year........................ - - 2,350 - - 2,350
Cash dividends declared ($.20 per
share)..................................... - - (186) - - (186)
Issuance of 962 shares of common stock....... 3 8 - - - 11
Issuance of 7,224 shares of common stock
pursuant to dividend reinvestment
plan....................................... 18 101 - - - 119
Net change in unrealized appreciation
during the year, net of taxes of
$103,000 .................................. - - - (168) - (168)
------ ----- ----- ---- ------ ------
Balance December 31, 1996.................... $2,672 3,850 7,879 29 (1,257) 13,173
====== ===== ===== ==== ====== ======
</TABLE>
F-32
30
<PAGE> 97
FIRST FINANCIAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
DECEMBER 31, 1996, 1995 AND 1994
(19) FIRST FINANCIAL CORPORATION -
Parent Company Financial Information
FIRST FINANCIAL CORPORATION
(PARENT COMPANY ONLY)
STATEMENTS OF CASH FLOWS
FOR THE THREE YEARS ENDED DECEMBER 31, 1996
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
<TABLE>
<CAPTION>
In Thousands
-----------------------------------------------------
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Cash flows from operating activities:
Cash paid to suppliers.................................... $(39) (26) (27)
Interest paid............................................. (72) (87) (75)
Income taxes received..................................... 71 77 -
---- ---- ----
Net cash used in operating
activities............................................ (40) (36) (102)
---- ---- ----
Cash flows from investing activities:
Dividend received from commercial
bank subsidiary......................................... 285 360 360
Purchase of other assets.................................. (34) - -
---- ---- ----
Net cash provided by
investing activities.................................. 251 360 360
---- ---- ----
Cash flows from financing activities:
Proceeds from (repayments of) short-term
borrowings.............................................. (196) (90) 385
Dividends paid............................................ (186) (161) (159)
Payments made to acquire treasury
stock................................................... - (5) (487)
Issuance of common stock.................................. 130 2 5
---- ---- ----
Net cash used in financing
activities............................................ (252) (254) (256)
---- ---- ----
Net increase (decrease) in cash and cash
equivalents............................................... (41) 70 2
Cash and cash equivalents at beginning of
year...................................................... 83 13 11
---- ---- ----
Cash and cash equivalents at end of year.................... $ 42 83 13
==== ==== ====
</TABLE>
F-33
31
<PAGE> 98
FIRST FINANCIAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
DECEMBER 31, 1996, 1995 AND 1994
(19) FIRST FINANCIAL CORPORATION -
Parent Company Financial Information, Continued
FIRST FINANCIAL CORPORATION
(PARENT COMPANY ONLY)
STATEMENTS OF CASH FLOWS, CONTINUED
FOR THE THREE YEARS ENDED DECEMBER 31, 1996
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
<TABLE>
<CAPTION>
In Thousands
-------------------------------------
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Reconciliation of net earnings to net cash used in operating
activities:
Net earnings.............................................. $ 2,350 1,741 1,330
Adjustments to reconcile net earnings to net cash used in
operating activities:
Equity in earnings of commercial bank subsidiary..... (2,423) (1,817) (1,401)
Amortization of organization costs..................... 9 9 8
Decrease (increase) in due from bank subsidiary........ 27 31 (44)
Increase (decrease) in accrued interest................ (3) -- 5
------- ------ ------
Total adjustments.................................... (2,390) (1,777) (1,432)
------- ------ ------
Net cash used in operating activities................ $ (40) (36) (102)
======= ====== ======
</TABLE>
F-34
32
<PAGE> 99
FIRST FINANCIAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
DECEMBER 31, 1996, 1995 AND 1994
(20) DISCLOSURES ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS
Statement of Financial Accounting Standards No. 107, Disclosures about Fair
Value of Financial Instruments (SFAS No. 107), requires that the Company
disclose estimated fair values for its financial instruments. Fair value
estimates, methods, and assumptions are set forth below for the Company's
financial instruments.
Cash and short-term investments
For these short-term instruments, the carrying amount is a
reasonable estimate of fair value.
Securities
The carrying amounts for short-term securities approximate fair
value because they mature in 90 days or less and do not present
unanticipated credit concerns. The fair value of longer-term
securities and mortgage-backed securities, except certain state
and municipal securities, is estimated based on bid prices
published in financial newspapers or bid quotations received from
securities dealers. The fair value of certain state and municipal
securities is not readily available through market sources other
than dealer quotations, so fair value estimates are based on
quoted market prices of similar instruments, adjusted for
differences between the quoted instruments and the instruments
being valued.
SFAS No. 107 specifies that fair values should be calculated
based on the value of one unit without regard to any premium or
discount that may result from concentrations of ownership of a
financial instrument, possible tax ramifications, or estimated
transaction costs. Accordingly, these considerations have not
been incorporated into the fair value estimates.
Loans
Fair values are estimated for portfolios of loans with similar
financial characteristics. Loans are segregated by type such as
commercial, mortgage, credit card and other consumer. Each loan
category is further segmented into fixed and adjustable rate
interest terms.
F-33
33
<PAGE> 100
FIRST FINANCIAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
DECEMBER 31, 1996, 1995 AND 1994
(20) DISCLOSURES ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS, CONTINUED
Loans, Continued
The fair value of the various categories of loans is estimated by
discounting the future cash flows using the current rates at
which similar loans would be made to borrowers with similar
credit ratings and for the same remaining average estimated
maturities.
The estimated maturity for mortgages is modified from the
contractual terms to give consideration to management's
experience with prepayments. Management has made estimates of
fair value discount rates that it believes to be reasonable.
However, because there is no market for many of these financial
instruments, management has no basis to determine whether the
fair value presented below would be indicative of the value
negotiated in an actual sale.
The value of the loan portfolio is also discounted in
consideration of the credit quality of the loan portfolio as
would be the case between willing buyers and sellers. Particular
emphasis has been given to loans on the subsidiary bank's
internal watch list. Valuation of these loans is based upon
borrower performance, collateral values (including external
appraisals), etc.
Deposit Liabilities
The fair value of demand deposits, savings accounts and certain
money market deposits is the amount payable on demand at the
reporting date. The fair value of fixed-maturity certificates of
deposit is estimated using the rates currently offered for
deposits of similar remaining maturities. Under the provision of
SFAS No. 107 the fair value estimates for deposits does not
include the benefit that results from the low cost funding
provided by the deposit liabilities compared to the cost of
borrowing funds in the market.
Short-Term Borrowings
For these short-term instruments, the carrying amount is a reasonable
estimate of fair value.
Advances From Federal Home Loan Bank
The fair value of these advances is estimated by discounting the
future payments using the current rates at which similar advances
could be obtained for the same remaining average maturities.
Long-Term Debt
The fair value of this instrument is estimated by discounting future
payments using the Company's current incremental borrowing rate for a
similar instrument.
F-36
34
<PAGE> 101
FIRST FINANCIAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
DECEMBER 31, 1996, 1995 AND 1994
(20) DISCLOSURES ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS, CONTINUED
Commitments to Extend Credit, Standby Letters of Credit and Financial
Guarantees Written
Loan commitments are made to customers generally for a period not
to exceed one year and at the prevailing interest rates in effect
at the time the loan is closed. Commitments to extend credit
related to construction loans are made for a period not to exceed
six months with interest rates at the current market rate at the
date of closing. In addition, standby letters of credit are
issued for periods up to three years with rates to be determined
at the date the letter of credit is funded. Fees are only charged
for the construction loans and the standby letters of credit and
the amounts unearned at December 31, 1996 are insignificant.
Accordingly, these commitments have no carrying value and
management estimates the commitments to have no significant fair
value.
The carrying value and estimated fair values of the Company's
financial instruments at December 31, 1996 are as follows:
<TABLE>
<CAPTION>
IN THOUSANDS
-------------------------
1996
-------------------------
CARRYING FAIR
AMOUNT VALUE
------ -----
<S> <C> <C>
Financial assets:
Cash and short-term investments ....... $ 9,137 9,137
Securities ............................ 42,473 42,473
Loans ................................. 124,312
Less: allowance for loan losses ....... (1,541)
---------
Loans, net of allowance ............... 122,771 122,729
---------
Loans held for sale ................... 1,723 1,723
Financial liabilities:
Deposits .............................. 167,445 168,029
Short-term borrowings ................. 800 800
Advances from Federal Home Loan Bank... 993 995
Long-term debt ........................ 391 381
Unrecognized financial instruments:
Commitments to extend credit .......... -- --
Standby letters of credit ............. -- --
</TABLE>
F-37
35
<PAGE> 102
FIRST FINANCIAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
DECEMBER 31, 1996, 1995 AND 1994
(20) DISCLOSURES ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS, CONTINUED
Limitations
Fair value estimates are made at a specific point in time, based
on relevant market information and information about the
financial instruments. These estimates do not reflect any premium
or discount that could result from offering for sale at one time
the Company's entire holdings of a particular financial
instrument. Because no market exists for a significant portion of
the Company's financial instruments, fair value estimates are
based on judgments regarding future expected loss experience,
current economic conditions, risk characteristics of various
financial instruments, and other factors. These estimates are
subjective in nature and involve uncertainties and matters of
significant judgment and therefore cannot be determined with
precision. Changes in assumptions could significantly affect the
estimates.
Fair value estimates are based on estimating on-and-off-balance
sheet financial instruments without attempting to estimate the
value of anticipated future business and the value of assets and
liabilities that are not considered financial instruments. For
example, the subsidiary Bank has a mortgage department that
contributes net fee income annually. The mortgage department is
not considered a financial instrument, and its value has not been
incorporated into the fair value estimates. Other significant
assets and liabilities that are not considered financial assets
or liabilities include deferred tax assets and liabilities and
property, plant and equipment. In addition, the tax ramifications
related to the realization of the unrealized gains and losses can
have a significant effect on fair value estimates and have not
been considered in the estimates.
F-38
36
<PAGE> 103
SUPPLEMENTAL INFORMATION
<PAGE> 104
FIRST FINANCIAL CORPORATION
1691 NORTH MT. JULIET ROAD
MT. JULIET, TENNESSEE 37122
March 19, 1997
Dear Shareholder:
You are cordially invited to attend the Annual Meeting of Shareholders of
First Financial Corporation (the "Company") to be held on April 17, 1997, at
2:00 o'clock p.m., local time, in the community room of First Bank & Trust, 1691
North Mt. Juliet Road, Mt. Juliet, Tennessee. At the Annual Meeting,
Shareholders of record as of April 8, 1997, will be entitled to vote upon the
election of directors who will serve until their successors have been elected
and duly qualified. In addition, the Shareholders will vote upon the
ratification of the directors' appointment of Maggart & Associates, P.C. as the
Company's independent auditors for the fiscal year ending December 31, 1997, as
well as any other business that may properly come before the Annual Meeting.
The enclosed Proxy Statement describes the proposed election of directors
and ratification of appointment of independent auditors, and it contains other
information about the Annual Meeting. Please read these materials carefully. IT
IS IMPORTANT THAT YOUR SHARES BE REPRESENTED WHETHER OR NOT YOU PLAN TO ATTEND
THE ANNUAL MEETING. PLEASE COMPLETE THE ENCLOSED PROXY CARD AND RETURN IT IN THE
ENCLOSED ENVELOPE WITHOUT DELAY. IF YOU ATTEND THE ANNUAL MEETING, YOU MAY
WITHDRAW YOUR PROXY AND VOTE IN PERSON IF YOU WISH AS SET FORTH IN THE
ACCOMPANYING PROXY STATEMENT BY GIVING APPROPRIATE NOTICE ANY TIME BEFORE THE
VOTE IN RESPECT OF THE ELECTION OF DIRECTORS IS TAKEN.
On behalf of your Board of Directors, I urge you to vote FOR Proposals 1
and 2 which are described in the Proxy Statement and set forth on the Proxy
Card. I look forward to seeing you at the Annual Meeting.
Sincerely,
FIRST FINANCIAL CORPORATION
/s/ David Major
---------------------
David Major
Chairman of the Board
<PAGE> 105
FIRST FINANCIAL CORPORATION
1691 NORTH MT. JULIET ROAD
MT. JULIET, TENNESSEE 37122
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD ON APRIL 17, 1997
Notice is hereby given that the Annual Meeting (the "Annual Meeting") of
the Shareholders of First Financial Corporation (the "Company") will be held in
the Community Room of First Bank & Trust, 1691 North Mt. Juliet Road, Mt.
Juliet, Tennessee, on April 17, 1997, at 2:00 o'clock p.m. local time. A Proxy
Statement and a Proxy Card are included with these materials.
The purposes of the Annual Meeting are to consider and to act upon the
following matters:
1. The election of a Board of Directors whose members will serve until
their successors have been elected and have duly qualified;
2. The ratification of the appointment of the firm of Maggart & Associates,
P.C. as the Company's independent auditors for the fiscal year ending December
31, 1997; and
3. The transaction of such other business as may properly come before the
Annual Meeting or any adjournment(s) thereof or postponements. The Board of
Directors is unaware of any other business to come before the Annual Meeting at
the present time.
Any action may be taken on any of these items of business at the Annual
Meeting on its scheduled date or at any one or more adjournments or
postponements thereof. Only Shareholders of record of the Company's Common Stock
at the close of business on April 8, 1997, will be entitled to notice of and to
vote at the Annual Meeting and any adjournment(s) or postponement(s) thereof.
By Order of the Board of Directors
/s/ Robert L. Callis
----------------------
Robert L. Callis
Secretary to the Board
Mt. Juliet, Tennessee
March 19, 1997
YOUR VOTE IS IMPORTANT. WHETHER OR NOT YOU PLAN TO ATTEND IN PERSON, THE BOARD
OF DIRECTORS REQUESTS THAT YOU COMPLETE, DATE, SIGN, AND RETURN THE ENCLOSED
PROXY CARD AND USE THE ENCLOSED PRE-ADDRESSED ENVELOPE THAT REQUIRES NO POSTAGE
IF MAILED IN THE UNITED STATES. IF YOU ATTEND IN PERSON, YOU MAY REVOKE YOUR
PROXY AND VOTE YOUR SHARES AT ANY TIME PRIOR TO THE VOTE IN RESPECT OF THE
ELECTION OF DIRECTORS IN PERSON BY NOTIFYING THE SECRETARY OR CHAIRPERSON OF THE
ANNUAL MEETING THAT YOU INTEND SO TO DO (AND AS OTHERWISE PROVIDED IN THE PROXY
STATEMENT).
<PAGE> 106
PROXY STATEMENT
OF
FIRST FINANCIAL CORPORATION
1691 NORTH MT. JULIET ROAD
MT. JULIET, TENNESSEE 37122
ANNUAL MEETING OF SHAREHOLDERS
APRIL 17, 1997
2:00 O'CLOCK P.M.
THIS PROXY IS BEING SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS.
This Proxy Statement is being furnished to the Shareholders of First
Financial Corporation (the "Company") in connection with the Annual Meeting of
Shareholders of the Company (the "Annual Meeting"). The proxies are to be used
at the Annual Meeting, which is scheduled to be held in the Community Room of
First Bank & Trust, 1691 North Mt. Juliet Road, Mt. Juliet, Tennessee on April
17, 1997, at 2:00 o'clock p.m. local time, and any adjournments or postponements
thereof. The purpose of the Annual Meeting is to elect ten Directors for
one-year terms to serve until their successors are elected and duly qualified,
and to approve the selection of Maggart & Associates, P.C., as the Company's
independent auditors for the fiscal year ending December 31, 1997. The enclosed
Notice of Annual Meeting and this Proxy Statement are being first mailed to
Shareholders on or about March 19, 1997.
Each copy of this Proxy Statement mailed to Shareholders is accompanied by
a form of proxy solicited by the Board of Directors of the Company for use at
the Annual Meeting and at any adjournment(s) or postponement(s) thereof.
REVOCABILITY OF PROXY
A Shareholder of record who signs and returns a proxy in the accompanying
form may revoke the same at any time before the authority granted thereby is
exercised by attending the Annual Meeting and electing to vote in person, by
filing with the Secretary of the Company a written revocation, or by duly
executing a proxy bearing a later date. (Such later executed and dated proxy, to
be effective, must be delivered to the Chairperson of the Annual Meeting before
the vote in respect of Proposal No. 1 is taken.) Unless so revoked, the shares
represented by the proxy will be voted at the Annual Meeting. Where a choice is
specified on the proxy, the shares represented thereby will be voted in
accordance with such specifications. If no specification is made, such shares
will be voted for the election of all Director nominees and for the approval of
Maggart & Associates, P.C., as the Company's independent auditors for the 1997
fiscal year. Abstentions and broker non-votes will not be counted as affirmative
votes. Neither the Tennessee Business Corporation Act, nor the Company's Charter
or Bylaws, address the treatment of abstentions and broker non-votes.
VOTING SECURITIES AND PRINCIPAL HOLDERS THEREOF
The securities entitled to vote at the Annual Meeting are the Company's
common voting shares, par value $2.50 (the "Common Stock"), the Company's only
outstanding class of securities. The Board of Directors has fixed the close of
business on April 8, 1997, as the record date and, accordingly, only holders of
record of shares of the Common Stock at the close of business on April 8, 1997,
are entitled to receive notice of, and to vote at, the Annual Meeting. As of
February 28, 1997, there were 930,988 shares of the Common Stock outstanding and
entitled to vote, with each share entitled to one vote as to all matters. The
presence in person or by proxy of at least a majority of the total number of
outstanding
<PAGE> 107
shares of the Common Stock entitled to vote is necessary to constitute a quorum
at the Annual Meeting. Once a quorum is present, the affirmative vote of at
least a plurality of the outstanding shares of the Common Stock is necessary to
elect directors and to approve any other item of business planned to be voted
upon at the Annual Meeting. A share, once represented for any purpose at the
Annual Meeting, is deemed present for purposes of determining a quorum for the
Annual Meeting (unless the Annual Meeting is adjourned and a new record date is
set for the adjourned meeting), even if the holder of the share abstains from
voting with respect to any matter brought before the Annual Meeting.
The Company is authorized to issue 5,000,000 shares of its Common Stock and
5,000,000 shares of FFC Preferred Stock. The 930,988 shares of the Company's
Common Stock issued and outstanding at February 28, 1997, are exclusive of
shares reserved for options. No shares of the FFC Preferred Stock were issued
and outstanding or committed for issuance at that date.
The following table sets forth certain information regarding the beneficial
ownership of the Common Stock by (1) directors of the Company, and (2) the
directors and executive officers of the Company as a group. No person known to
the Company is the beneficial owner of more than 5% of the issued and
outstanding shares of the Company's Common Stock. This information is based on
information filed with or provided to and by the Company as of February 14,
1997. This table includes, in the ownership and percentage calculations, the
shares subject to options which may be exercised within the next sixty days by
all Directors and Executive Officers who are option holders in accordance with
Rule 13d-3(d)(1) under the Securities Exchange Act of 1934, as amended (the
"Exchange Act"). However, each Director's percentage of ownership is based on
such Director's pro forma ownership (including shares subject to being obtained
by the exercise of options within the next 60 days) and the actual number of
shares outstanding (930,988) at said date.
<TABLE>
<CAPTION>
AMOUNT AND
NATURE OF PERCENT
NAME AND ADDRESS OF BENEFICIAL OF
OF BENEFICIAL OWNER OWNERSHIP CLASS(1)
------------------- --------- --------
<S> <C> <C> <C>
(1) Harold G. Bone.............................................. 31,977(2) 3.44%
2145 Carthage Hwy.
Lebanon, TN 37087
Robert L. Callis............................................ 28,692(3) 3.08%
2745 No Mt Juliet Rd
Mt. Juliet, TN 37122
Morris D. Ferguson.......................................... 13,396 1.44%
1932 Arlington Drive
Lebanon, TN 37087
Arthur P. Gardner........................................... 5,612(4) *
154 Spring Valley Road
Nashville, TN 37214
</TABLE>
(TABLE CONTINUED ON FOLLOWING PAGE.)
2
<PAGE> 108
<TABLE>
<CAPTION>
AMOUNT AND
NATURE OF PERCENT
NAME AND ADDRESS OF BENEFICIAL OF
OF BENEFICIAL OWNER OWNERSHIP CLASS(1)
------------------- ------------- --------
<S> <C> <C> <C>
M. Dale McCulloch........................................... 44,060(5) 4.73%
818 Moreland Hills Drive
Mt. Juliet, TN 37122
David Major................................................. 23,199(6) 2.49%
1691 North Mt. Juliet Road
Mt. Juliet, TN 37122
Dan E. Midgett.............................................. 18,296(7) 1.97%
4138 Andrew Jackson Parkway
Hermitage, TN 37076
Monty Mires................................................. 21,885(8) 2.35%
5361 Stewarts Ferry Pike
Mt. Juliet, TN 37122
James S. Short.............................................. 23,642(9) 2.54%
1691 North Mt. Juliet Road
Mt. Juliet, TN 37122
Harold W. Sutton............................................ 18,939(10) 2.03%
489 Wilson Drive
Mt. Juliet, TN 37122
2) Directors and Executive..................................... 275,399(11) 29.58%
Officers as a Group (14 individuals)
</TABLE>
- -----------------------
* LESS THAN 1%.
NOTES TO TABLE
(1) The percentages shown are based on 930,988 total shares outstanding as
of February 14, 1997. The shares shown in each Director's column, and in the
group total, include shares beneficially owned at February 14, 1997 by the named
individual and those obtainable by the exercise of shares by such person within
the next 60 days. The percentages include, as to each individual and group
listed, the number of shares of Common Stock deemed to be owned by such holder
pursuant to Rule 13d-3(d)(1) of the Exchange Act. Unless otherwise indicated, a
shareholder possesses sole voting and investment power with respect to all of
the shares shown opposite her or his name, including shares held in her or his
individual retirement account. Each Director (in the capacity of Director) has
been granted options to acquire 4,000 shares, of which 1,396 are subject to
exercise within sixty days and which 1,396 options for shares have been included
in each Director's total on a pro forma basis. Directors Gardner and Midgett
have exercised 264 of the options available to each of them, and Director
McCulloch has exercised 962 of the options granted to him. Shares held in
self-directed Individual Retirement Accounts have been shown in each Director's
total classified as sole voting and dispositive authority.
3
<PAGE> 109
NOTES TO TABLE (CONT'D)
(2) This Director has voting and investment authority with respect to
15,412 of the shares indicated as custodian for his children.
(3) This Director disclaims voting and investment authority as to 4,089
shares controlled by his spouse. This Director also shares voting and
dispositive authority as to 400 of the shares that are part of a trust.
(4) This Director shares voting and investment authority as to 1,679 shares
held jointly with his spouse and disclaims voting and investment authority as to
700 shares controlled by his spouse.
(5) This Director disclaims voting and investment authority as to 1,812
shares registered to minor children or to their custodian(s).
(6) This Director holds options to acquire shares of the Company as an
officer and as a Director, of which 9,472 (inclusive of the above-referenced
1,396 options held as a Director) are exercisable within the next sixty days and
which are included within the individual's totals.
(7) A plan of this Director's company (within the meaning of the Employee
Retirement Income Security Act of 1974), owns 4,700 of the shares indicated.
This Director disclaims voting and investment authority as to 900 shares
controlled by his spouse.
(8) This Director shares voting and investment authority as to 16,000
shares held jointly with his spouse.
(9) This Director holds options to acquire shares of the Company as an
officer and as a Director, of which 7,624 (inclusive of the above-referenced
1,396 options held as a Director) are exercisable within the next sixty days and
which are included within the individual's totals.
(10) This Director shares voting and investment authority as to 16,295
shares held jointly with his spouse and disclaims voting and investment
authority as to 297 shares controlled by his spouse.
(11) This total includes all options attributable to such Executive
Officers and Directors as well as shares as to which such persons might disclaim
voting or investment authority.
==================
4
<PAGE> 110
EXECUTIVE OFFICERS
The following are the executive officers of the Company and/or First Bank.
Unless otherwise indicated, these officers have served in the indicated
capacities during the last five years through the date hereof.
<TABLE>
<CAPTION>
NAME AGE OFFICE AND BUSINESS EXPERIENCE
- --------------------- ---- ----------------------------------------------------------------------------------
<S> <C> <C>
David Major.......... 48 Chairman, Director, President and Chief Executive Officer, First Financial
Corporation and First Bank.
James S. Short....... 46 Director and Executive Vice President, First Financial Corporation and First
Bank.
Sally P. Kimble...... 43 Treasurer, Chief Financial and Accounting Officer, First Financial
Corporation; Senior Vice President of Operations, Cashier, Chief Financial and
Accounting Officer, First Bank.
Allen M. Henson...... 55 Senior Vice President.
David B. Penuel...... 57 Senior Vice President.
D. Edwin Davenport... 46 Senior Vice President, First Bank, 1994 -- present; Vice President, Cavalry
Banking, 1980 -- 1994.
</TABLE>
Officers are elected annually and serve at the pleasure of the Board
of Directors.
*****
PROPOSAL NUMBER 1--ELECTION OF DIRECTORS
The Company's Board of Directors consists currently of ten (10) members.
Each director is elected for a one-year term to serve until his or her successor
is elected and has duly qualified. The Board of Directors has nominated for
reelection the currently serving slate of the Board of Directors. (If any
Nominee is unable to serve, the shares represented by all valid proxies will be
voted for the election of the other Director-Nominees.) At this time the Board
of Directors has no knowledge of any reason that any incumbent Director-Nominee
might be unavailable to serve if elected.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" ALL OF THE INDIVIDUALS NAMED
IN THE FOLLOWING TABLE AS DIRECTORS OF THE COMPANY.
The following table sets forth the names of the incumbent Director-Nominees
of the Board of Directors. Information is provided concerning each such person's
age, principal occupation(s) during the past five years, and the year that such
person first became a Director(1). (Information concerning each such person's
ownership of the Common Stock is set forth elsewhere in this Proxy Statement.)
5
<PAGE> 111
<TABLE>
<CAPTION>
YEAR POSITION
POSITION AND FIRST ELECTED AND OFFICE
OFFICE HELD TO SERVE HELD WITH
NAME AGE WITH FIRST BANK FIRST BANK THE COMPANY
---- --- --------------- ------------- -----------
<S> <C> <C> <C> <C>
Harold G. Bone(2)......................... 55 Director 1990 Director
Robert L. Callis(3)....................... 51 Director & Secretary 1989 Director & Secretary
Morris D. Ferguson, M.D.(4)............... 64 Director 1990 Director
Arthur P. Gardner(5)...................... 60 Director 1990 Director
M. Dale McCulloch(6)...................... 46 Director 1989 Director
David Major(7)............................ 48 Chairman, President, 1989 Chairman,
CEO & Director President, CEO
& Director
Dan E. Midgett(8)......................... 53 Director 1989 Director
Monty Mires(9)............................ 51 Director 1989 Director
James S. Short(10)........................ 46 Executive Vice 1989 Executive Vice
President and President and
Director Director
Harold W. Sutton(11)...................... 65 Director 1989 Director
</TABLE>
=====
NOTES
=====
(1) The following Notes contain a brief summary of the business experience
of each of the directors and executive officers of the Company. Except as set
forth in these Notes, the named individuals have held the positions set forth in
the Table and the Notes during the last five years as their primary occupations
and no non-officer of the Company is employed by a parent, subsidiary, or other
affiliate of the Company.
(2) Mr. Bone serves as president of Community Progress Committee, Inc., a
not-for-profit company and he is a partner in the construction and farming firm
of Bone & Bone. Mr. Bone is also co-owner and manager of Horizon Concrete &
Rock, a partner of B and B Enterprises, a building and rental property, and a
partner in Hawkins & Bone, a building and rental property.
(3) Mr. Callis is an attorney and was the sole proprietor of a law practice
from 1973 through 1995. Since January 1, 1996, Mr. Callis has been a partner of
Callis & Hershey. Mr. Callis provides certain legal services to the Company and
to First Bank as described under the discussion of "Certain Relationships and
Related Transactions."
6
<PAGE> 112
(4) Dr. Ferguson is a physician and is the sole proprietor of his medical
practice.
(5) Mr. Gardner serves as senior vice president of S & S Industries, Inc.,
a manufacturing company, where his duties include finance and administrative
management.
(6) Mr. McCulloch is the president and managing partner of Jones Bros.,
Inc., a construction company. He is an investor, officer, and/or partner in
various other businesses.
(7) Mr. Major serves as president, chief executive officer, and a Director
of First Bank and the Company. Mr. Major is a founder of First Bank. Since 1991,
he has served as a director of Plateau Insurance Company.
(8) Mr. Midgett is the owner and president of Dan E. Midgett & Co., Inc., a
management and financial consulting firm.
(9) Mr. Mires is a self-employed real estate investor. He served previously
as the elected representative of the local district of the House of
Representatives of the Tennessee General Assembly for one term. Mr. Mires owns
the Pine Creek Golf Course.
(10) Mr. Short serves as executive vice president and a Director of First
Bank and the Company. Mr. Short is a founder of First Bank.
(11) Mr. Sutton is owner and manager of Harold Sutton Realty, Inc. He is an
investor in construction and other types of businesses.
=========================
MEETINGS AND COMMITTEES OF THE BOARD OF DIRECTORS;
ELECTION OF DIRECTORS AND APPOINTMENT OF OFFICERS
The Company's bylaws provide for a Board of Directors of not fewer than 5
nor more than 25 persons. There are currently 10 members of the Board of
Directors. All Directors hold office for one year (until the next Annual Meeting
of the Company's Shareholders) and until their successors are duly elected and
qualified. The entire Board of Directors is elected at each Annual Meeting by
the Shareholders of the Company. The Directors serve also as the Directors of
First Bank.
The Board of Directors of the Company meets annually and on call. During
the fiscal year ended December 31, 1996, the Board of Directors met eight times
(seven were special meetings). No Director attended fewer than 75% of the total
of (i) the meetings of the Board of Directors of the Company and (ii) the
meetings of the committees of the Board of Directors of the Company of which the
Director is a member.
The executive officers are appointed by, and serve at the discretion of,
the Company's Board of Directors. These officers are subject to reelection by
the Company's Board of Directors annually, and it is anticipated that all such
officers will be reelected to their current positions. No officer or employee
has an employment agreement with First Bank or the Company.
7
<PAGE> 113
The Board of Directors has established various committees, including the
Executive Committee, the Audit Committee, the Compensation Committee, the Stock
Option Committee, and the Nominating Committee. These committees meet at call.
The reports and minutes of these committees are received and considered by the
Company's Board of Directors at its regular meetings. Generally these committees
are joint with First Bank.
The Executive Committee performs, to the extent practicable, a wide variety
of functions for the Board of Directors and acts for and on behalf of the full
Board of Directors when the Board of Directors is not in session. The Audit
Committee is a joint committee of the Company and First Bank. It is composed of
all Directors other than the officer-Directors (Messrs. Major and Short), none
of whom is an employee of the Company or any of the Company's corporate
affiliates. Audit Committee Responsibilities include engagement of independent
auditors, review of audit fees, supervision of matters relating to audit
functions, review and setting of internal policies and procedures regarding
audits, accounting and other financial controls, and reviewing related party
transactions.
EXECUTIVE COMPENSATION
REMUNERATION OF DIRECTORS AND OFFICERS
No chief executive or other executive officer ceased to serve as such at
any time during the last fiscal year. The following table sets forth the
compensation for the services in all capacities to the Company for the fiscal
year ended December 31, 1996, of those persons who were the Company's Chief
Executive Officer at any time during the 1996 fiscal year and the other four
most highly compensated executive officers as of December 31, 1996 whose total
annual salary and bonus equals or exceeds $100,000:
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
Annual Compensation Long-Term Compensation
--------------------------------------- ----------------------------------------------------
Awards Payouts
--------------------- -----------------------------
Securities
Restricted Underlying
Name and Other Stock Options/
Principal Annual Awards(s) SARs LTIP All Other
Position Year Salary($) Bonus($) Compensation($)(2) ($) (#)(2) Payouts($) Compensation($)(6)
-------- ---- --------- -------- ------------------ --- ------ ---------- ------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
David Major, 1996 $126,880 $3,952 $21,512 N/A - 0- $ -0- $3,649
President/CEO 1995 122,000 - 0- 14,170 N/A 4,864 -0- 3,665
1994 118,450 - 0- 15,964 N/A - 0- -0- 3,721
</TABLE>
NOTES TO SUMMARY COMPENSATION TABLE
(1) This amount includes Director's fees, automobile usage, insurance
premiums, sales pay, and club dues.
(2) The amounts in this column reflect the number of unexercised options
granted to the named person(s) in the year(s) indicated.
(3) This amount represents the Company's contribution to the Company's 401(k)
plan on behalf of the named executive(s).
-----------
8
<PAGE> 114
STOCK OPTION GRANTS
The Company granted no stock options under its existing stock option plan
to the named executive officer(s) during 1996. In 1995, the Company granted
4,864 stock options to the executive officer(s) named in the Summary
Compensation Table (with per share data adjusted to reflect the two-for-one
stock split that occurred in 1996). Of these, twelve and one-half percent are
exercisable during any twelve month period, subject to certain specified
limitations. All options granted in 1995 were granted at the then estimated fair
market value of $15.00 per share at the date of grant. In 1993, the Company
granted such named executive officer(s) 20,640 stock options, of which ten
percent are exercisable during any twelve month period, subject to certain
specified limitations. All shares were granted at the then estimated fair market
value of $10.00 per share at the date of grant. The Company has granted no stock
appreciation rights to the executive officer(s) named in the Summary
Compensation Table.
1996 STOCK EXERCISES
The table below provides information as to exercises of options under the
Company's stock option plan by the named executive officer(s) reflected in the
Summary Compensation Table and the year-end value of unexercised options held by
such officer(s). (The Company grants no stock appreciation rights.)
AGGREGATED OPTION/SAR EXERCISES IN LAST FISCAL
YEAR AND FISCAL YEAR END OPTION/SAR VALUES(1)
<TABLE>
<CAPTION>
NUMBER OF VALUE OF
SECURITIES UNDERLYING UNEXERCISED
UNEXERCISED IN-THE MONEY
SHARES OPTIONS/SARS OPTIONS/SARS
ACQUIRED AT FISCAL YEAR END (#) AT FISCAL YEAR END
ON REALIZED ($) ($)
EXERCISE VALUE ------------ ---
NAME (#) REALIZED ($) EXERCISABLE/NONEXERCISABLE EXERCISABLE/NONEXERCISABLE(2)
---- --- ------------ -------------------------- -----------------------------
<S> <C> <C> <C> <C>
David Major, -0- $ -0- 9,472/16,032 $79,168/126,048
President/CEO
</TABLE>
NOTES TO PRECEDING TABLE
(1) Unless otherwise expressly stated, all per share data in this Report on
Form 10-KSB have been adjusted to reflect the two-for-one stock split approved
by the Shareholders on April 18, 1996.
(2) This amount represents the difference between the estimated market
price on December 31, 1996 of $19.00 per share and the respective exercise
price(s) of the options at the date(s) of grant. Such amounts may not
necessarily be realized. Actual values that may be realized, if any, upon the
exercise of such options will be based on the market price of the Common Stock
at the time of any such exercise(s) and thus are dependent upon future
performance of the Common Stock.
------------
The Company has concluded that it cannot determine without unreasonable
effort and expense the specific cash value of all noncash benefits that it and
First Bank provided to the named executive officer(s) above during 1996. Noncash
compensation provided to certain of these individuals for their service to the
Company and to First Bank in 1996 included an expense account, the use of a car
provided and maintained by the Company, certain insurance benefits, and paid
annual membership in a country club. The cars were available for use of other
employees during regular business hours.
9
<PAGE> 115
BENEFITS
In April 1993, the stockholders of the Company approved the 1993 First
Financial Corporation Stock Option Plan (the "Stock Option Plan"). The Stock
Option Plan provides for the granting of stock options, and authorizes the
issuance of common stock upon the exercise of such options, for up to 106,000
shares of common stock, to employees, nonemployee directors and advisors of the
Company and up to 53,000 shares of common stock to the Directors of the Company.
Under the Stock Option Plan, stock option awards may be granted in the form
of incentive stock options or nonstatutory stock options, and are generally
exercisable for up to ten years following the date such option awards are
granted. Exercise prices of incentive stock options must be equal to or greater
than 100% of the fair market value of common stock on the grant date.
The Stock Option Committee designated by the Board administers the Stock
Option Plan. The Stock Option Plan may be terminated at any time by the Board of
Directors. Options granted under the Stock Option Plan are exercisable as
determined by the Board of Directors and generally are expected to vest
approximately 10% per year over a ten year period and expire after ten years,
although this period may be shortened by the Board of Directors. (Most of the
options granted in 1995 vest in equal increments over 8 years; the remainder
vest in equal increments over 10 years.) The Stock Option Plan provides that
options must be exercised no later than ten years after being granted (five
years in the case of incentive Stock Options granted to an employee who owns
more than 10% of the voting power of all stock).
The Stock Option Plan provides that the Board of Directors shall approve
the exercise price of options on the date of grant, which for incentive stock
options cannot be less than the fair market value of the Common Stock on that
date (110% of the fair market value for Incentive Stock Options granted to any
employee who owns more than 10% of the voting stock). The number of shares which
may be issued under the Stock Option Plan and the exercise prices for
outstanding options are subject to adjustment in the event that the number of
outstanding shares of Common Stock are changed by reason of stock splits, stock
dividends, reclassifications or recapitalizations. In addition, upon a merger or
consolidation involving the Company, participants may be entitled to shares in
the surviving corporation upon the terms set forth in the Stock Option Plan.
Options granted under the Stock Option Plan are nontransferable, other than
by will, the laws of descent and distribution or, for nonstatutory stock
options, pursuant to certain domestic relations orders. Payment for shares of
Common Stock to be issued upon exercise of an Option may, if permitted in the
option agreement, be made in cash, by delivery of Common Stock valued at its
fair market value on the date of exercise or delivery of a promissory note as
specified in the option agreement.
Beginning January 1, 1993, the Company put into effect a 401(k)
profit-sharing plan for the benefit of its employees. Employees eligible to
participate in the plan are those at least 21 years old, who have worked one
year, and who have completed 1,000 hours of service. The provisions of the plan
provide for both employee and employer contributions. For the year ended
December 31, 1996, the employer matched fifty cents ($.50) per dollar of
employee contributions up to a maximum of 6% of the employee's compensation. The
Company's contribution for the year, including administrative fees, totaled
$55,000 as compared with $45,000 for 1995.
All Shareholders, including Officers and Directors, are eligible to
participate in the 1996 First Financial Corporation Dividend Reinvestment Plan
in accordance with its terms.
10
<PAGE> 116
Please refer to the Consolidated Financial Statements for additional
information concerning all of the various benefit plans of the Company and First
Bank.
DIRECTOR COMPENSATION
Each Director receives $1,000 for each regularly scheduled meeting of the
Board of Directors ($500 for specially called meetings). Each non-employee
Director receives $100 for each specially called Committee Meeting that the
Director attends. Directors were paid in 1996 a retainer of $4,000 each for the
year 1997. Directors participate also in the Stock Option Plan. See "Benefits"
elsewhere in this Report.
Beginning in 1993, the Company provided it directors with the opportunity
to participate in an unfunded, deferred compensation program (the "Program").
The Program provides also for death and disability benefits. There were six
participants in the Program at year end 1996 and 1995. Under the Program,
participants may defer up to 100% of their yearly total cash compensation. The
amounts deferred remain the sole property of the Company, which uses them
together with additional corporate funds, to purchase either insurance policies
on the lives of the participants or other investments. The insurance policies,
which remain the sole property of the Company, are payable to the Company upon
the death or permanent disability of the participant. The Company separately
contracts with the participants to pay benefits based upon the deferred amount
compounded at a floating interest rate of prime as reported in the Wall Street
Journal plus two percent. At December 31, 1996, the deferred compensation
liability totaled $100,000 (compared to $71,000 at December 31, 1995). The cash
surrender value of life insurance was $163,000 at December 31, 1996 (compared to
$120,000 at December 31, 1995). The face amount of the insurance policies in
force at December 31, 1996 approximated $1,058,000. The Program is not qualified
under Section 401 of the Internal Revenue Code.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Certain Directors and officers of the Company, businesses with which they
are associated, and members of their immediate families are customers of First
Bank and have had transactions with First Bank in the ordinary course of First
Bank's business. All material transactions involving loans and commitments to
such persons and businesses have been made on substantially the same terms,
including interest rates and collateral, as those prevailing at the time for
comparable transactions with other borrowers. The indebtedness of management
(including the Directors and their respective interests) and these related
parties to First Bank was approximately $2,753,000 at December 31, 1996 and thus
equal to an estimated 20.9% of the Company's total Shareholders' equity at
December 31, 1996. This indebtedness comprised approximately 2.2% of the total
currently outstanding First Bank loans (net of loan loss reserve) as of December
31, 1996. In the opinion of the Board of Directors, such transactions have not
involved more than a normal risk of collectibility nor presented other
unfavorable features.
Certain officers receive commissions or incentives in respect of credit
life sold through First Bank. The following officers received the following
amounts from such sales during 1996: D. Edwin Davenport ($89.99); David
Grandstaff ($625.16); Allen M. Henson ($345.41); Joy Leonard ($8.78); David
Major ($22.79); Willadeen Miller ($1,507.40); Betty Parks ($25.20); David B.
Penuel ($2,009.01); James S. Short ($134.16); Phil Smartt ($1,069.80); Vondie
Smith ($6.86), Adeline Smotherman ($25.06); Charles Styles ($3,413.96) Jeanetta
Watson ($27.58); Barbara Wilkerson ($160.01); and Ron Wright ($885.43), for a
total of $10,356.60.
11
<PAGE> 117
Director Robert L. Callis is an attorney who represents the Company and
First Bank on an ongoing basis. First Bank paid Mr. Callis approximately
$39,700.00 for services rendered in fiscal 1996. The Bank also referred business
to Mr. Callis (which was generally not paid by the Bank). In the opinion of
management, Mr. Callis' charges have been consistent with market prices for such
services and fair to First Bank and the Company. The Company and First Bank
expect to continue to utilize Mr. Callis as their attorney in the future.
Director Midgett is a first cousin of David Grandstaff, who is a Vice
President of First Bank. Director and Executive Vice President Short is a first
cousin of First Bank officer Joy Leonard.
*****
PROPOSAL NUMBER 2--RATIFICATION OF APPOINTMENT OF AUDITORS
The Board of Directors has appointed Maggart & Associates, P.C. to continue
as independent auditors for the Company for the fiscal year that ends December
31, 1997, subject to ratification of such appointment by the Shareholders.
Maggart & Associates, P.C. served as the Company's independent auditors for the
1996 fiscal year. A representative of Maggart & Associates, P.C. is expected to
be present at the Annual Meeting to respond to Shareholders' questions and will
have the opportunity to make a statement if she or he desires.
To be approved, the appointment of the auditors requires ratification by a
majority of the votes cast by the Shareholders at the Annual Meeting. THE BOARD
OF DIRECTORS RECOMMENDS THAT THE SHAREHOLDERS VOTE "FOR" THE RATIFICATION OF THE
APPOINTMENT OF MAGGART & ASSOCIATES, P.C. AS THE COMPANY'S INDEPENDENT AUDITORS.
*****
OTHER MATTERS
The Board of Directors is not aware of any other business that might
properly come before the Annual Meeting than those matters that are discussed in
this Proxy Statement and matters incident to the conduct of the Annual Meeting.
If any other matters should properly come before the Annual Meeting, however, it
is intended that all validly executed and unrevoked proxies should be voted in
the discretion of the proxy holder.
COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE ACT
The Company is not registered pursuant to Section 12 of the Exchange Act,
is not a closed-end investment company registered under the Investment
Corporation Act of 1940, and is not a holding company registered pursuant to the
Public Utility Holding Company Act of 1935. Accordingly, the Company is not
subject to Section 16(a) of the Exchange Act.
12
<PAGE> 118
MISCELLANEOUS MATTERS
All properly executed proxies received by the Company will be voted at the
Annual Meeting in accordance with the specifications contained thereon.
The Company will bear the expense of solicitation of the proxies for the
Annual Meeting. The Company will reimburse brokerage firms and other custodians,
nominees, and fiduciaries for their reasonable expenses incurred in sending
proxy materials to the beneficial owners of the Common Stock in connection with
the Annual Meeting. In addition to solicitations by the mails, the Company's
directors, officers, and regular employees may solicit proxies personally or by
telephonic or telegraphic means, for which they will receive no additional
compensation. The Company does not intend to employ or to compensate any other
persons or entities to solicit proxies in connection with the Annual Meeting.
A COPY OF THE COMPANY'S ANNUAL REPORT ON FORM 10-KSB FOR THE FISCAL YEAR
ENDED DECEMBER 31, 1996 (WITHOUT CERTAIN EXHIBITS), AS FILED WITH THE SECURITIES
AND EXCHANGE COMMISSION, WILL BE FURNISHED WITHOUT CHARGE TO SHAREHOLDERS OF
RECORD ON THE RECORD DATE UPON WRITTEN REQUEST THEREFORE DIRECTED TO: CHIEF
FINANCIAL OFFICER, FIRST FINANCIAL CORPORATION, 1691 NORTH MT. JULIET ROAD, MT.
JULIET, TENNESSEE 37122. COPIES OF THE EXHIBITS CAN BE OBTAINED FROM: CHIEF
FINANCIAL OFFICER, FIRST FINANCIAL CORPORATION, 1691 NORTH MT. JULIET ROAD, MT.
JULIET, TENNESSEE 37122 FOR A REASONABLE COPYING CHARGE.
FINANCIAL INFORMATION
The Company's Annual Report to Shareholders, including financial
statements, for the fiscal year ended December 31, 1996, is being sent to
Shareholders contemporaneously. In no event shall any person or entity be
entitled to assume that the Annual Report to Shareholders has been or will be
incorporated (by reference or otherwise) into this Proxy Statement. The Company
does not incorporate the Annual Report of Shareholders into this Proxy
Statement.
SHAREHOLDER PROPOSALS
In order to be eligible for inclusion in the Company's proxy statement and
form of proxy for the 1998 Annual Meeting of Shareholders, any Shareholder
proposal to take action at such 1998 Annual Meeting must be received by the
Company at its Main Office, at 1691 North Mt. Juliet Road, Mt. Juliet, Tennessee
37122, no later than December 31, 1997. Unless otherwise required by law,
including the Exchange Act, the inclusion of any such Shareholder proposal(s)
shall be subject to the requirements of the proxy and other rules adopted
pursuant to the Exchange Act and will be included only in the discretion of the
Board of Directors.
13
<PAGE> 119
PROXY
THIS PROXY IS SOLICITED BY THE BOARD OF DIRECTORS
FIRST FINANCIAL CORPORATION
1691 NORTH MT. JULIET ROAD
MT. JULIET, TENNESSEE 37122
The undersigned hereby appoint(s) David Major and Robert L. Callis, and
each of them, as Proxies, each with full power to appoint his substitute, and
hereby authorize(s) either of them to represent and to vote, as designated
below, all of the shares of Common Stock of First Financial Corporation held of
record by the undersigned at the close of business on April 8, 1997, at the
Annual Meeting of Shareholders to be held on April 17, 1997, or any
adjournment(s) or postponements thereof.
1. TO ELECT AS DIRECTORS THE NOMINEES LISTED BELOW:
[ ] FOR all nominees listed below [ ] WITHHOLD AUTHORITY to vote
(except as marked to the contrary for all Nominees listed
below below)
(INSTRUCTIONS: To withhold authority for any individual Nominee, strike a
line through the Nominee's name in the list below.)
Harold G. Bone, Robert L. Callis, Morris D. Ferguson, Arthur P. Gardner,
David Major, M. Dale McCulloch, Dan E. Midgett, Monty Mires, James S.
Short, Harold W. Sutton
2. To ratify the appointment of the firm of Maggart and Associates, P.C., as
the Company's independent auditors for the fiscal year ending December 31,
1997.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
3. In his discretion, each Proxy is authorized to vote upon such other
business as properly may come before the Annual Meeting.
THIS PROXY WHEN PROPERLY EXECUTED WILL BE VOTED IN THE MANNER DIRECTED
ABOVE BY THE UNDERSIGNED SHAREHOLDER(S). IF NO DIRECTION IS MADE, THIS
PROXY WILL BE VOTED FOR PROPOSALS 1 AND 2 AND IN THE DISCRETION OF THE
PROXY AS TO OTHER BUSINESS (IF ANY).
When shares are held by joint tenants, both should sign. When signing as
attorney, executor, administrator, trustee, or guardian, please give full title
as such. If a corporation, please sign in full corporate name by the president
or other authorized officer. If a partnership, please sign in partnership name
by an authorized person.
DATE: , 1997
------------
---------------------------------------
Signature
---------------------------------------
Signature, if held jointly
<PAGE> 120
EXHIBIT INDEX
<TABLE>
<CAPTION>
SEQUENTIAL
NUMBERED
EXHIBIT DESCRIPTION PAGE
- ------- ------------------------------------------------------------ ----------
<S> <C> <C>
3(i) Charter of First Financial Corporation 64
3(ii) Bylaws of First Financial Corporation *
4.1 Charter of First Financial Corporation (See Exhibit 3(i)) *
4.2 Bylaws of First Financial Corporation (See Exhibit 3(ii)) *
10.1 First Financial Corporation Stock Option Plan** **
10.2 First Financial Corporation 1996 Dividend Reinvestment Plan 69
11 Statement re computation of per share earnings 77
21 Subsidiary of First Financial Corporation 79
27 Financial Data Schedule (for SEC use only) ***
</TABLE>
- ---------------
* Incorporated by reference to First Financial Corporation's Annual Report
on Form 10-K for the year ended December 31, 1992.
** Incorporated by reference to First Financial Corporation's Annual Report
on Form 10-K for the year ended December 31, 1993.
*** This Exhibit is solely for the use of the United States Securities and
Exchange Commission. No paper copy is being filed. This Schedule, filed only in
electronic format, contains summary financial information extracted from the
financial statements of the Company at December 31, 1996 and is qualified in its
entirety by reference to such financial statements as set forth in the Company's
Annual Report on Form 10-KSB for the period ending on December 31, 1996.
<PAGE> 1
EXHIBIT 3(I)
CHARTER OF FIRST FINANCIAL CORPORATION
<PAGE> 2
CHARTER
OF
FIRST FINANCIAL CORPORATION
Pursuant to Section 48-20-107 of the Tennessee Business Corporation Act,
the undersigned corporation hereby adopts the following as its Charter:
ARTICLE I
The name of the corporation is FIRST FINANCIAL CORPORATION.
ARTICLE II
The maximum number of shares that the corporation shall have the authority
to issue is (i) five million (5,000,000) shares of common stock, $5.00 par
value, that have unlimited voting rights and that are entitled to receive the
net assets of the corporation upon dissolution, and (ii) five million
(5,000,000) shares of preferred stock, no par value. The preferred stock, and
any series of the preferred stock, may be redeemable or convertible for cash,
indebtedness, securities, or other property in a designated amount, or in an
amount determined in accordance with a designated formula or by reference to
extrinsic data or events, as established by the Board of Directors. The Board of
Directors is vested with the authority to issue the preferred stock in one or
more series and to determine, to the extent permitted by law prior to the
issuance of the preferred stock, or any series of the preferred stock, the
relative rights, limitations, and preferences of the preferred stock or any such
series, including, but not limited to:
(i) the rate of dividend of any such share;
(ii) whether the shares would be callable, and, if so, the price, terms,
and conditions of call;
(iii) the amount payable upon the shares in the event of voluntary or
involuntary liquidation;
(iv) the terms and conditions on which the shares might be converted
into common stock of the Corporation;
(v) the voting rights, if any, of the shares; and
(vi) whether the shares would be cumulative, noncumulative, or partially
cumulative as to dividends and the dates as to which any cumulative dividends
are to accumulate.
ARTICLE III
The street address of the registered office of the corporation shall be 172
Second Avenue, North, Nashville, Davidson County, Tennessee 37201. The name of
the corporation's initial registered agent at its registered office is Daniel W.
Small, Esq.
ARTICLE IV
The address of the principal office of the corporation is 1691 North Mt.
Juliet Road, Mt. Juliet, Wilson County, Tennessee 37122.
ARTICLE V
The corporation shall have the power and authority to carry on any business
permitted by, and to have and exercise all of the powers and rights conferred
by, the Tennessee Business Corporation Act as amended from time to time or any
successor provisions thereto. The corporation is for profit. The duration of the
corporation is perpetual.
ARTICLE VI
The business and affairs of the corporation shall be managed by a Board of
Directors.
a. The number of directors and their terms shall be as specified in the
By-Laws of the Corporation.
b. The Board of Directors is expressly authorized to make, alter, or repeal
the By-Laws of the Corporation by a vote of the majority of the Board of
Directors.
c. Whenever the Board of Directors is required or permitted to take any
action by vote, such action may be taken without a meeting on written consent,
setting forth the action so taken, if all of the directors entitled to vote
thereon consent to the taking of action on written consent without a meeting;
any such action shall be as valid and effective as any resolution duly adopted
at an annual or regularly scheduled or special meeting of the Board of
Directors.
d. Any or all of the directors may be removed either with or without cause
by a proper vote of the shareholders and may be removed with cause by a majority
vote of the entire Board of Directors.
ARTICLE VII
Whenever the Shareholders are required or permitted to take any action by
vote, such action may be taken without a meeting on written consent, setting
forth the action so taken, if all of the Shareholders entitled to vote thereon
consent to the taking of action on written consent without a meeting; any such
action shall be as valid and effective as any resolution duly adopted at an
annual or regularly scheduled or special meeting of the Shareholders.
ARTICLE VIII
a. To the fullest extent that the Tennessee Business Corporation Act as it
exists on the date hereof or as it may hereafter be amended permits the
limitation or elimination of the liability of directors, a director of the
corporation shall not be personally liable to the corporation or its
shareholders for monetary damage for a breach of fiduciary duty as a director,
except for liability (i) for any breach of the director's duty of loyalty to the
corporation or its shareholders, (ii)
<PAGE> 3
for acts or omissions not in good faith or which involve intentional misconduct
or a knowing violation of law, or (iii) under Section 48-18-304 of the Tennessee
Business Corporation Act, as the same exists or hereafter may be amended. If the
Tennessee Business Corporation Act hereafter is amended to authorize the further
elimination or limitation of the liability of directors, then the liability of a
director of the corporation, in addition to the limitation on personal liability
provided herein, shall be limited to the fullest extent permitted by the amended
Tennessee Business Corporation Act. This Article VIII shall not eliminate or
limit the liability of a director for any act or omission occurring prior to the
date when this Article VIII became effective, if such a limitation or
elimination of liability of a director for such acts or omission is prohibited
by the Tennessee Business Corporation Act as then in effect. Any repeal or
modification of this Article VIII by the shareholders of the corporation shall
be prospective only, and shall not adversely affect any limitation on the
personal liability of a director of the corporation existing at the time of such
repeal or modification.
b. The corporation shall have the power to indemnify any director, officer,
employee, agent of the corporation, or any other person who is serving at the
request of the corporation in any such capacity with another corporation,
partnership, joint venture, trust, or other enterprise (including, without
limitation, any employee benefit plan) to the fullest extent permitted by the
Tennessee Business Corporation Act as it exists on the date hereof or as it may
hereafter be amended, and any such indemnification may continue as to any person
who has ceased to be a director, officer, employee, or agent and may inure to
the benefit of the heirs, executors, and administrators of such a person.
c. By action of its Board of Directors, notwithstanding any interest of the
directors in the action, the corporation may purchase and maintain insurance, in
such amounts as the Board of Directors deems appropriate, to protect any
director, officer, employee, or agent of the corporation or any other person who
is at the request of the corporation in any such capacity with another
corporation, partnership, joint venture, trust, or other enterprise (including,
without limitation, any employee benefit plan) against any liability asserted
against him or her or incurred by him or her in any such capacity or arising out
of his or her status as such (including, without limitation, expenses,
judgments, fines, and amounts paid in settlement) to the fullest extent
permitted by the Tennessee Business Corporation Act as it exists on the date
hereof or as it may hereafter be amended, and whether or not the corporation
would have the power or would be required to indemnify such person under the
terms of any agreement or by-law or the Tennessee Business Corporation Act. For
purposes of this paragraph (c), "fines" shall include any excise taxes assessed
on a person with respect to any employee benefit plan.
Date: August 26, 1991
FIRST FINANCIAL CORPORATION
/s/ Daniel W. Small
Daniel W. Small, Incorporator
172 Second Avenue, North
Nashville, Tennessee 37201
<PAGE> 4
ARTICLES OF AMENDMENT TO THE CHARTER
OF
FIRST FINANCIAL CORPORATION
First Financial Corporation, does hereby amend its Charter and provides the
following information pursuant to TCA 48-20-106:
1. The name of the corporation is First Financial Corporation.
2. The text of the amendment adopted is as follows:
"RESOLVED, that ARTICLE III of the Corporation's Charter
designating the Initial Registered Agent and Registered Office for the
Corporation is hereby deleted in its entirety."
3. The Amendment does not provide for an exchange, reclassification or
cancellation of issued shares.
4. The Amendment was duly adopted by the Board of Directors of the
Corporation on April 16, 1992.
5. The Amendment was duly adopted by the Board of Directors of the
Corporation without shareholder action. Shareholder action was
required in that Amendment by the Board of Directors is permitted under
the provisions of TCA 48-20-102.
THESE ARTICLES OF AMENDMENT EXECUTED ON THIS 28TH DAY OF MAY, 1992, PURSUANT TO
RESOLUTION OF THE BOARD OF DIRECTORS.
FIRST FINANCIAL CORPORATION
By:/s/David Major
DAVID MAJOR, President and
Chief Executive Officer
<PAGE> 5
ARTICLES OF AMENDMENT TO THE CHARTER
OF
FIRST FINANCIAL CORPORATION
Pursuant to the provisions of Section 48-20-106 of the Tennessee Business
Corporation Act, the undersigned corporation adopts the following articles of
amendment to its charter:
1. The name of the corporation is FIRST FINANCIAL CORPORATION
2. The amendment as adopted is:
The Charter of FIRST FINANCIAL CORPORATION is hereby amended and as
follows:
ARTICLE II. The par value referred to in Article II is amended
to read instead of "Five Dollars par value" "Two and 50/100 Dollars
($2.50) par value." In all other respects (including all other parts of
Article II) the Charter remains unchanged, in full force and effect.
3. The corporation is a for-profit corporation.
4. The amendment was duly adopted by the unanimous vote of the directors
of the Corporation on January 18, 1996 and approved by the
Shareholders on April 18, 1996.
5. The amendment shall be effective when these Articles are filed with the
Secretary of State.
Dated: April 18, 1996.
FIRST FINANCIAL CORPORATION
By:/s/David Major
Chairman, President and CEO
<PAGE> 1
EXHIBIT 10.2
FIRST FINANCIAL CORPORATION
1996 DIVIDEND REINVESTMENT PLAN
<PAGE> 2
FIRST FINANCIAL CORPORATION
1996 DIVIDEND REINVESTMENT PLAN
JUNE 1, 1996
TABLE OF CONTENTS
<TABLE>
<S> <S> <C>
1. Certain Terms and Definitions............................... 4
2. Eligibility................................................. 5
3. Election to Participate; Account Authorization Form......... 5
4. Participant Accounts........................................ 6
5. Cash Dividends, Purchases, Etc.............................. 6
6. Timing of Dividends......................................... 6
7. Limitations on Purchases, Etc............................... 7
8. Joining the Plan; the Account Authorization Form............ 7
9. Notice of Purchases......................................... 7
10. Nominee Name(s), Book Entry, Etc............................ 7
11. Tax Matters................................................. 8
12. Proxy Materials, Votes, Etc................................. 8
13. Termination by Participant.................................. 8
14. Loss of Eligibility......................................... 8
15. Notices, Changes of Address, Etc............................ 8
16. No Pledges, Etc............................................. 9
17. Costs of Administration..................................... 9
18. Discretion of Plan Administrator, Etc....................... 9
19. Hold Harmless, Etc.......................................... 9
20. Plan Administrator Acting As Agent, Etc..................... 9
21. Termination................................................. 9
22. Governing Law............................................... 10
</TABLE>
(ii)
<PAGE> 3
FIRST FINANCIAL CORPORATION
1996 DIVIDEND REINVESTMENT PLAN
JUNE 1, 1996
This is the First Financial Corporation 1996 Dividend Reinvestment Plan
("Plan"). The purpose of the Plan is to provide the holders of record of at
least one whole share of the common voting stock, $2.50 par value (the "Common
Stock"), of First Financial Corporation, Mt. Juliet, Tennessee (the "Company")
with a simple and convenient method of investing cash dividends in shares of the
Common Stock of the Company. The Plan has the following terms and conditions:
1. Certain Terms and Definitions. The following terms and definitions apply
to the Plan:
a. "Act" means the Securities Exchange Act of 1934, as amended.
b. "Average Trade Value" means the weighted average of the three most
recent transactions in the Common Stock as known to the
Company's Chief Executive Officer. However, for a particular
transaction to be included in the Average Trade Value in respect of the
next payment of cash dividends, the transactions must have occurred and
the price per share communicated to the attention of the Plan
Administrator at least fifteen (15) days prior to the Dividend Record
Date and must not be subject to certain other limitations as set in
this Plan and in the Question and Answer Format.
c. "Book Value" means the book value per share as reasonably determined
by the Board of Directors (or by a formula established by the
Board). Such Book Value shall be as of the most recent calendar month
end next preceding the applicable Dividend Record Date.
d. "Certificate" means a stock certificate evidencing shares of the Common
Stock.
e. "Commission" means the United States Securities and Exchange Commission.
f. "Common Stock" means the common voting stock, $2.50 par value, of the
Company.
g. "Company" means First Financial Corporation, a registered bank
holding company with offices in Mt. Juliet, Tennessee.
h. "Dividend Payment Date" means the dates on which cash dividends on
the Company's Common Stock are paid to the Plan Administrator.
i. "Dividend Record Date" means each of the record dates established by
the Company's Board of Directors as the record date for the
payment of cash dividends on the Company's Common Stock.
j. "Effective Date" means the date that the Plan is effective, which is
June 1, 1996, unless delayed by the Plan Administrator at the
Company's request.
k. "Eligible Holder" or "Eligible Participant" means a holder of at least
one whole share of Common Stock.
l. The "Estimated Market Price" is the price at which shares of the
Common Stock will be purchased by the Plan. Because the Common
Stock is not traded on any recognized or established securities market
or exchange, the Plan Administrator must establish a price to be paid
for
<PAGE> 4
purchases under the Plan. Accordingly, under the Plan, the
price to be paid for shares of the Common Stock to be purchased into
the Plan will be the greater of the Average Trade Value or the Book
Value. Gifts and transfers deemed not to be at arms-length may be, but
are not required to be, ignored by the Plan Administrator. Only
transactions that the Plan Administrator deems clear and reliable as to
actual stock price will be included.
m. "Investment Date" means the first business day of each month
following the payment of a cash dividend, which is the date
that any cash dividends on shares of Common Stock will be applied to
the purchase of additional shares of Common Stock pursuant to the Plan.
Although participants will become owners of the shares purchased for
them under the Plan on the Investment Date, for Federal and state
income tax purposes, the holding period is expected to commence on the
day following the Investment Date.
n. "Participant" means an Eligible Holder whose Account Authorization
Form has been received by the Plan Administrator.
o. "Person" means any person or entity, including any corporation,
partnership, government agency, business trust, or other legal
entity of any nature.
p. "Plan" means the First Financial Corporation 1996 Dividend Reinvestment
Plan.
q. "Plan Administrator" means First Financial Corporation or its designee.
r. "Plan Shares" mean any shares held in the Plan.
s. "Securities Act" means the Securities Act of 1933, as amended.
2. Eligibility. All record holders of a one or more whole shares of the
Common Stock of the Company are eligible to participate in the Plan (an
"Eligible Participant"). Beneficial owners of Common Stock whose shares are held
for them in registered names other than their own, such as in the names of
brokers, bank nominees or trustees, can participate in the Plan if they either
arrange for the holder of record to join the Plan or have the shares they wish
to enroll for participation in the Plan transferred to their own names.
3. Election to Participate; Account Authorization Form. Any Eligible
Participant may elect to become a participant in the Plan ("Participant") by
returning to First Financial Corporation as Plan Administrator ("Plan
Administrator") a properly completed Account Authorization Form as attached
hereto. The completed Account Authorization Form appoints First Financial
Corporation as agent in the capacity of Plan Administrator for the Participant
and:
(a) authorizes the Company to pay to the Plan Administrator for the
Participant's account all cash dividends payable on the Common Stock
registered in the Participant's name;
(b) authorizes the Plan Administrator as agent to retain for credit to
the Participant's account any cash dividends and any shares of Common Stock
distributed as a non-cash dividend or otherwise on the shares of Common
Stock purchased pursuant to the Plan ("Plan Shares") and credited to the
Participant's account and to distribute to the Participant any other
non-cash dividend paid on such Plan Shares; and
(c) authorizes the Plan Administrator as agent to apply cash dividends
to the purchase of shares of Common Stock in accordance with the terms and
conditions of the Plan.
2
<PAGE> 5
4. Participant Accounts. After receipt of a properly completed Account
Authorization Form, the Plan Administrator will open an account under the Plan
as Plan Administrator and agent for the Participant or in the Participant's name
on the stock records of the Company and will credit to such account:
(a) all cash dividends received by the Plan Administrator from the
Company on shares of Common Stock registered in the Participant's name,
commencing with the first such dividends paid after receipt of the Account
Authorization Form by the Plan Administrator, provided that the Account
Authorization Form is received at least fifteen (15) days prior to the
Dividend Record Date:
(b) all full Plan Shares purchased for the Participant's account after
making appropriate deduction for the purchase price of such shares;
(c) all cash dividends received by the Plan Administrator on any full
Plan Shares credited to Participant's account; and
(d) any shares of Common Stock distributed by the Company as a
dividend or otherwise on Plan Shares credited to the Participant's account.
5. Cash Dividends, Purchases, Etc. Cash dividends credited to a
Participant's account will be applied to the purchase of whole shares of Common
Stock of the Company. The price at which the Plan Administrator shall be deemed
to have acquired shares for the Participant's account shall be Estimated
Purchase Price paid in connection with each cash dividend. A Participant's
account will NOT be credited with fractional shares under any circumstances. The
Plan Administrator will make every reasonable effort to reinvest all dividends,
and to pay to the Participant any unused cash, promptly after receipt. All
dividends will be held pending investment in a non-interest bearing account
maintained by the Plan Administrator. If whole shares are not available for
purchase under the terms of this Plan, the uninvested cash dividends will be
distributed to Plan participants forty-five (45) days after the Dividend Payment
Date.
All holders of the Company's Common Stock who own at least one whole share
of the Common Stock are eligible to participate in the Plan (an "Eligible
Shareholder"). Shareholders may participate with respect to less than all of
their shares, in which case they should enter the percentage of their shares as
to which they wish to participate on the Account Authorization Form. If no
designation is made as to the percentage of shares, all shares (100%) will be
deemed included. However, a Participant may change the percentage of shares
designated, or withdraw from the Plan at any time prior to fifteen (15) days
before the next succeeding Dividend Record Date.
Shareholders not wishing to participate in the Plan need take no action to
elect not to participate. Unless an Account Authorization Form is actually
received by the Plan Administrator, the Shareholder will not be deemed to be a
Participant until after such time as an Account Authorization Form is actually
received by the Plan Administrator.
6. Timing of Dividends. Of course, the frequency and timing of dividends,
and the dates on which any dividends may actually be declared and/or paid, may
vary from time to time. There is no assurance that cash (or any other) dividends
will be declared in the future.
7. Limitations on Purchases, Etc. Although an Eligible Shareholder may join
the Plan at any time, there are limitations as to participation in particular
cash dividends. Thus if an Account Authorization Form specifying reinvestment of
dividends is received by the Plan Administrator at least fifteen (15) days
before the record date established for payment of a particular dividend (the
"Dividend Record Date"), reinvestment will commence with the next cash dividend
payment. If, instead, the Account Authorization Form is received after less than
fifteen (15) days prior to the Dividend Record Date, the reinvestment of cash
dividends through the Plan will begin with the next succeeding dividend if and
when declared and paid.
3
<PAGE> 6
Further, although a Shareholder may join in the Plan at any time, the Plan
Administrator will not purchase shares for such Participant's account if the
cash dividends being paid to the Shareholder in connection with the Shares that
the Participant has enrolled in the Plan if such a purchase would result in the
purchase of a fractional share. Thus, if the amount of a cash dividend being
paid to a Participant is less than the amount required to purchase a single
share, the Plan Administrator will not make any purchase with such dividend but
will, rather, pay the entire cash dividend amount to the Participant. In that
case, the Participant will receive the cash dividend but will not experience any
increase in such Participant's share ownership. If the amount of cash dividend
being paid to a Participant's account exceeds the exact amount needed to buy one
or more shares at the price being paid at the time for shares, then the excess
over such exact amount will be paid to the Participant in cash and not used to
purchase shares. IN NO EVENT WILL FRACTIONAL SHARES BE PURCHASED BY THE PLAN
ADMINISTRATOR OR ISSUED TO ANY PARTICIPANT. No interest will be paid for cash
held in the Plan pending its return to the Participants as their interests may
appear.
8. Joining the Plan; the Account Authorization Form. An eligible
Shareholder may join in the Plan by signing the Account Authorization Form and
returning it to the Plan Administrator. A postage-paid envelope is provided for
this purpose. One Account Authorization Form is enclosed with this Prospectus
and additional forms may be obtained at any time by written request to the FFC
Plan Administrator, at the Company's address and telephone number: Attention:
FFC Plan Administrator, P.O. Box 355, Mt. Juliet, Tennessee 37122-0355;
Telephone: (615) 754-2265.
Dividends paid other than in the form of cash (such as dividends of shares
of the Common Stock) are made outside the Plan.
9. Notice of Purchases. The Plan Administrator will mail to each
Participant as soon as practicable a statement confirming each purchase of
Common Stock made for his account.
10. Nominee Name(s), Book Entry, Etc. The Plan Administrator may hold the
Plan Shares of all Participants together in its name, in the name of its nominee
or may register them as uncertificated shares on the stock records of the
Company. No certificates will be delivered to a Participant for Plan Shares
except upon written request or upon termination of the account. No purchases
will be made of, and no certificates will be delivered for, fractional shares.
Accounts under the Plan will be maintained in the name in which the
Participant's certificates are registered when the Participant enrolls in the
Plan, and certificates for full shares will be similarly registered when issued
to the Participants. Certificates will be issued and registered in names other
than the account name, subject to compliance with applicable laws and payment by
the Participant of any applicable fees and taxes, provided that the Participant
makes a written request therefor in accordance with the usual requirements of
the Company for the registration of a transfer of the Common Stock of the
Company.
11. Tax Matters. It is understood that the automatic reinvestment of
dividends does not relieve the Participant of any income tax which may be
payable on such dividends. The Plan Administrator will comply with all
applicable Internal Revenue Service requirements concerning the filing of
information returns for dividends credited to each account under the Plan and
such information will be provided to the Participants by a duplicate of that
form or in a final statement of account for each calendar year. The Plan
Administrator is deemed to be authorized to comply with all applicable Internal
Revenue Service requirements. ALL PARTICIPANTS ARE REFERRED TO THEIR OWN TAX,
ACCOUNTING, LEGAL AND OTHER ADVISORS FOR TAX, LEGAL, INVESTMENT, ACCOUNTING OR
OTHER ADVICE. NONE OF THE COMPANY, THE PLAN, OR THE PLAN ADMINISTRATOR IS
AUTHORIZED TO OFFER ANY SUCH ADVICE TO ANY PERSON OR ENTITY AT ANY TIME AND ANY
ADVICE BY ANY PERSON OR ENTITY IS HEREBY EXPRESSLY DISCLAIMED BY THE PLAN, THE
PLAN ADMINISTRATOR, AND THE COMPANY.
4
<PAGE> 7
12. Proxy Materials, Votes, Etc. The Plan Administrator will forward, as
soon as practicable, any proxy solicitation materials to the Participants. If
the shares purchased through the Plan are not voted directly by the Participant,
the Plan Administrator will vote any Plan Shares that it holds for the
Participant's account in accordance with the Participant's directions. If a
Participant does not return a signed proxy, the Plan Administrator will not vote
such shares.
13. Termination by Participant. A Participant may terminate the
Participant's account at any time by giving a written notice of termination to
the Plan Administrator. Any such notice of withdrawal received by the Plan
Administrator less than fifteen (15) days prior to a dividend record date will
not become effective until dividends paid on the dividend payment date have been
invested. The Company may terminate the Plan at any time. Participants will be
notified of any suspension, termination or any modification which materially
affects their rights under the Plan.
In all terminations or withdrawals, interests held in the Participant's
account and not otherwise aggregated and sold will be paid for in cash to the
Participant in an amount equal to the Estimated Market Price as of the most
recent calendar month end.
14. Loss of Eligibility. If at any time a Participant ceases to be a record
holder of a minimum of at least one whole share of Common Stock of record, the
Plan Administrator will notify the Participant of that fact and permit the
Participant thirty (30) calendar days to notify the Plan Administrator that the
Participant has obtained such whole share in the Participant's name of record.
Unless this time frame is met, the Plan Administrator will terminate the
Participant's account and distribute any full shares held in his account in the
Plan plus any cash (such as from a recent sale or from a recent cash dividend).
15. Notices, Changes of Address, Etc. The Participant shall notify the Plan
Administrator promptly in writing of any change in address. Notices or
statements from the Plan Administrator to the Participant may be given or made
by letter addressed to the Participant at his last address of record with the
Plan Administrator, and any such notice or statement shall be deemed given or
made when received by the Participant or five days after mailing whichever
occurs first.
16. No Pledges, Etc. The Participant shall not sell, pledge, hypothecate,
assign or transfer any Plan Shares held for his account by the Plan
Administrator, nor shall the Participant have any right to draw checks or drafts
against his account. The Plan Administrator has no obligation to follow any
instructions of the Participant with respect to the Plan Shares or any cash held
in his account except as expressly provided under the terms and provisions of
this Plan.
17. Costs of Administration. The Company will pay the cost of administering
the Plan, including but not limited to the cost of printing and distributing
Plan literature to record holders of at least one whole share of the Company's
Common Stock, forwarding proxy solicitation materials to Participants, and
mailing confirmations of account transactions, account statements and other
notices to Participants and reasonable clerical expenses associated therewith.
Expenses not related to the Plan, such as an individual Participant's costs of
enrolling her or his own Individual Retirement Account in the Plan, will NOT be
paid by the Plan.
18. Discretion of Plan Administrator, Etc. A determination made by the Plan
Administrator shall be final and binding on the Plan and the Plan Participants
unless determined by a court of competent jurisdiction to have been made
maliciously and in violation of either applicable law and/or the Plan itself.
19. Hold Harmless, Etc. Neither the Plan Administrator, nor the Company's
Chairman, nor its nominee(s) shall be liable hereunder for any act or omission
to act by the Company or for any action taken in good faith or for any good
faith omission to act, including, without limitation, a,ny claims of liability
(a) arising out of failure to terminate the Participant's account upon the
Participant's death prior to receipt of written notice of such death accompanied
by documentation satisfactory to the Plan Administrator; or (b) with respect to
the prices at
5
<PAGE> 8
which Plan Shares are either purchased or sold for the Participant's account or
the timing of, or terms on which, such purchases or sales are made; or (c) for
the market value or fluctuations in market value after purchase of Plan Shares
credited to the Participant's account. The Company further agrees to indemnify
and hold harmless the Plan Administrator and its nominee(s) from all taxes,
charges, expenses, assessments, claims and liabilities, and any cost incident
thereto, arising under federal or state law from the Plan Administrator's or the
Company's acts or omissions to act in connection with this Plan; provided that
neither the Plan Administrator nor its nominee(s) shall be indemnified against
any liabilities or costs incident thereto arising out of the Plan
Administrator's or its nominee's own willful misfeasance, bad faith, gross
negligence or reckless disregard of its duty under this Plan.
20. Plan Administrator Acting As Agent, Etc. It is understood that all
purchases of Common Stock pursuant to the Plan will be made by the Plan
Administrator as the agent of the Participant and that neither the Company nor
any of its affiliates shall have any authority or power to direct the time and
price at which securities may be purchased pursuant to the Plan, the amount of
securities to be purchased, or to direct the selection of any broker or dealer
through whom purchases are to be made.
21. Termination of the Plan, Etc. The Plan Administrator or the Company may
terminate, modify, suspend, or otherwise change or discontinue the Plan at any
time by written notice to the Participant. The Company, in its discretion, may
at any time appoint another entity to serve as Plan Administrator. The terms and
conditions of this Plan may be amended by the Company at any time by mailing of
an appropriate notice at least thirty days prior to the effective date thereof
to the Participant at his last address of record with the Plan Administrator.-
No waiver or modification of the terms or conditions of the Plan shall be
deemed to be made by the Company unless in writing signed by an authorized
representative of the Company, and any waiver or modification shall apply only
to the specific instance involved.
22. Governing Law. This Plan, the Account Authorization Form incorporated
herein and made a part hereof, and the accounts of Participants maintained by
the Plan Administrator under this Plan shall be governed by and construed in
accordance with the laws of the State of Tennessee. In addition, the Plan is
hereby amended to conform to the requirements of the Exchange Act and the
Securities Act.
23. Absence of Insurance Coverage. Securities held pursuant to the Plan are
not insured pursuant to the Federal Deposit Insurance Act, the Securities
Investor Protection Act, or by any other Person or act.
24. Questions and Answer Format. The Question and Answer format attached
hereto as Exhibit A is incorporated herein by reference and, where different
from this Plan, the terms stated in the Question and Answer format shall govern.
DATED: JUNE 1, 1996
6
<PAGE> 1
EXHIBIT 11
STATEMENT RE COMPUTATION OF PER SHARE EARNINGS
<PAGE> 2
FIRST FINANCIAL CORPORATION
STATEMENT OF COMPUTATION OF EARNINGS PER SHARE
The computation of earnings per share in each year is based on the weighted
average number of common shares outstanding. When dilutive, stock options are
included as share equivalents using the treasury stock method. The calculation
of the weighted average number of common and common equivalent shares
outstanding in each year is as follows:
<TABLE>
<CAPTION>
1996 1995 1994
---------- --------- ---------
<S> <C> <C> <C>
1. Weighted average common shares outstanding
during the year, net of treasury stock $ 927,064 922,768 931,068
---------- --------- ---------
Common stock equivalents calculated by the
treasury stock method;
2. Shares exercised at December 31 38,993 27,616 15,552
---------- --------- ---------
3. Estimated proceeds upon exercise of options
at exercise prices ranging from $10 to $19
per share 430,195 296,380 155,920
---------- --------- ---------
4. Number of shares which could be acquired into
treasury at market values of $19 per share, $15 per
share and $12 per share, respectively
(line 3 divided by $19, $15 and $12, respectively) 22,642 19,758 12,994
---------- --------- ---------
5. Common stock equivalents (line 2 minus line 4) 16,351 7,858 2,558
---------- --------- ---------
6. Weighted average number of common and
common equivalent shares outstanding
(line plus line 5) $ 943,415 930,626 933,626
========== ========= =========
7. Net earnings $2,350,000 1,741,000 1,330,000
========== ========= =========
Divided by weighted average number of
common and common equivalent shares
outstanding (line 6) equals per share amount
of -- $ 2.49 1.87 1.43
========== ========= =========
</TABLE>
* On April 18, 1996, the stockholders approved a two for one stock split.
All data with respect to earnings per share has been adjusted to
reflect this transaction.
<PAGE> 1
EXHIBIT 21
SUBSIDIARY OF THE REGISTRANT
<PAGE> 2
EXHIBIT 21
SUBSIDIARY OF THE REGISTRANT
The following sets forth the subsidiary of First Financial Corporation at
December 31, 1996. Such subsidiary is wholly owned by the Company and it is
included in the Company's consolidated financial statements:
<TABLE>
<CAPTION>
JURISDICTION PERCENTAGE OF
OF VOTING SECURITIES
SUBSIDIARY INCORPORATION OWNED
- ------------------------------------------------------------ ------------- -----------------
<S> <C> <C>
First Bank & Trust.......................................... Tennessee 100%
First Southern Finance...................................... Tennessee 100%
(Subsidiary of First Bank & Trust)
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 9
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
FINANCIAL STATEMENTS OF FIRST FINANCIAL CORPORATION FOR THE YEAR ENDED DECEMBER
31, 1996 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> DEC-31-1996
<CASH> 5,412
<INT-BEARING-DEPOSITS> 0
<FED-FUNDS-SOLD> 3,725
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 42,473
<INVESTMENTS-CARRYING> 0
<INVESTMENTS-MARKET> 0
<LOANS> 124,312
<ALLOWANCE> 1,541
<TOTAL-ASSETS> 183,973
<DEPOSITS> 167,445
<SHORT-TERM> 800
<LIABILITIES-OTHER> 1,171
<LONG-TERM> 1,384
0
0
<COMMON> 2,672
<OTHER-SE> 10,501
<TOTAL-LIABILITIES-AND-EQUITY> 183,973
<INTEREST-LOAN> 11,893
<INTEREST-INVEST> 2,472
<INTEREST-OTHER> 264
<INTEREST-TOTAL> 14,629
<INTEREST-DEPOSIT> 6,465
<INTEREST-EXPENSE> 6,656
<INTEREST-INCOME-NET> 7,973
<LOAN-LOSSES> 310
<SECURITIES-GAINS> 11
<EXPENSE-OTHER> 5,855
<INCOME-PRETAX> 3,547
<INCOME-PRE-EXTRAORDINARY> 3,547
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,350
<EPS-PRIMARY> 2.49
<EPS-DILUTED> 2.49
<YIELD-ACTUAL> 5.16
<LOANS-NON> 88
<LOANS-PAST> 227
<LOANS-TROUBLED> 323
<LOANS-PROBLEM> 1,634
<ALLOWANCE-OPEN> 1,246
<CHARGE-OFFS> 98
<RECOVERIES> 83
<ALLOWANCE-CLOSE> 1,541
<ALLOWANCE-DOMESTIC> 1,541
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
