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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM 10-KSB
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(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, 1997
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, 1997 were $18,742,000.
The aggregate market value based upon the estimated market value of $25.00 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 1, 1998 is approximately
$17,220,400. 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 688,816 shares held by
non-affiliates at December 31, 1997 (outstanding shares of 941,646 less 252,830
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 1, 1998: 941,646.
DOCUMENTS INCORPORATED BY REFERENCE: None, except as set forth in the Exhibit
Index.
Transitional Small Business Disclosure Format (check one). Yes No X
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<PAGE> 2
FIRST FINANCIAL CORPORATION
ANNUAL REPORT ON FORM 10-KSB
FOR THE YEAR ENDED DECEMBER 31, 1997
TABLE OF CONTENTS
<TABLE>
<S> <C>
PART I......................................................................... 1
ITEM 1. DESCRIPTION OF BUSINESS............................ 1
ITEM 2. PROPERTIES......................................... 13
ITEM 3. LEGAL PROCEEDINGS.................................. 13
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF
SECURITY HOLDERS................................... 13
PART II........................................................................ 13
ITEM 5. MARKET FOR COMMON EQUITY AND
RELATED STOCKHOLDER MATTERS........................ 13
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS
OR PLAN OF OPERATION............................... 17
ITEM 7. FINANCIAL STATEMENTS............................... 45
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH
ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE............................... 45
PART III....................................................................... 45
ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND
CONTROL PERSONS; COMPLIANCE WITH SECTION
16(a) OF THE EXCHANGE ACT. ........................ 45
ITEM 10. EXECUTIVE COMPENSATION..............................48
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL
OWNERS AND MANAGEMENT.............................. 51
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS .... 53
ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K................... 54
Signatures........................................................ 56
Supplemental Information.......................................... 57
Exhibit Index..................................................... 58
Index To Financial Statements.....................................F-1
</TABLE>
(ii)
<PAGE> 3
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. 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, 1997, the Company had total assets of $212,492,000 and First Bank had total
deposits of $193,260,000. The Company reported net earnings of $2,604,000 in
1997. 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, 1997 (the "Consolidated
Financial Statements"). CERTAIN OF THE STATEMENTS IN THIS REPORT AND IN THE
CONSOLIDATED FINANCIAL STATEMENTS ARE FORWARD LOOKING, AND THE COMPANY'S ACTUAL
COSTS, EXPERIENCE, AND RESULTS MAY DIFFER DUE TO, AMONG OTHER THINGS, ACTUAL
EXPERIENCE, GOVERNMENTAL REGULATIONS, OVERALL ECONOMIC CONDITIONS, AND OTHER
FACTORS THAT, AS TO OCCURRENCE OR IMPACT, CANNOT BE RELIABLY PREDICTED.
(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 full-service banking offices located also in Smyrna, Rutherford County,
Tennessee and in Davidson County, Tennessee.
The Company's principal source of income in 1997 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.
First Bank has its principal office in Mt. Juliet, Tennessee and
additional banking offices in Hermitage, Donelson, Lebanon, Old Hickory, 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
<PAGE> 4
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, 1997 an annually renewable line of
credit in an amount not to exceed five million dollars 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 principal of this line is to provide capital if necessary to the
Bank. The line can also be used to provide liquidity to the Bank and to acquire
shares of the Company's Common Stock. The line has been extended for one year
periods from time to time and is currently scheduled to mature on or before
February 28, 1999. At maturity, the line may be converted to a term note for a
period not to exceed ten (10) years. At December 31, 1997 the interest rate was
8.152%. Beginning March 1, 1998, 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, 1997 and
1996 was $600,000 and $800,000, 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, 1997, the outstanding principal balance of this debt
was approximately $386,000. 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. Principal maturities
for the years 1998 through 2002 are $5,000, $5,000, $6,000, $6,000 and $7,000,
respectively, with the remaining balance of $357,000 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, 1997, the Company had
outstanding advances from that bank of approximately $942,000. The advances bear
different interest rates, varying from 7.05% to 7.65%. These advances were
collateralized at December 31, 1997, by first mortgage loans from First Bank's
mortgage loan portfolio aggregating an estimated $1,413,000.
The Company recognizes the need to ensure its operations will not be
adversely impacted by Year 2000 software failures. Potential software failures
due to processing errors arising from calculations using the Year 2000 date are
a known risk. Further discussion of this issue is presented below in this Item
under "Computers and the Year 2000" and in "Item 7. Management's Discussion and
Analysis" appearing later in this Report.
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 in this Item and in other portions of this
Report.
Please refer also to the Consolidated Financial Statements for
additional, important information concerning the Company and First Bank.
<PAGE> 5
FINANCIAL SUMMARY OF THE COMPANY
A financial summary of the Company and its consolidated subsidiary,
First Bank, is detailed below (amounts are rounded):
<TABLE>
<CAPTION>
DECEMBER 31
(Dollars in Thousands except Per Share)
-----------------------------------------------------------------------------------
1997 1996 1995 1994 1993
<S> <C> <C> <C> <C> <C>
Total Assets $212,492 $183,973 $157,755 $125,589 $108,520
Deposits 193,260 167,445 142,922 113,038 98,617
Stockholders' Equity 15,962 13,173 11,047 8,885 8,584
Gross Revenues 18,742 16,368 13,919 10,735 8,909
Net Earnings 2,604 2,350 1,741 1,330 1,117
Basis Earnings Per Share $2.78 $2.53 $1.89 $1.43 $1.13
Diluted Earnings Per Share $2.71 $2.50 $1.88 $1.43 $1.13
</TABLE>
SUBSIDIARY
First Bank is the Company's sole direct subsidiary. An organizational
chart of the Company and its subsidiary, and First Bank and its subsidiary,
appears as part of Exhibit 21.
SERVICES AND TRANSACTIONS WITH FIRST BANK
Intercompany transactions between the Company and First Bank, its
wholly-owned 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 any of its banking
subsidiaries 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, debt collection laws, 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 First Bank
will remain at all times in compliance with all applicable laws and regulations.
The Company and the Bank are subject also to extensive regulation
<PAGE> 6
under state and federal 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, First Bank, 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 ("Riegle-Neal"), which is discussed below, removed most restrictions
to the expansion of interstate banking. Riegle-Neal 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 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.
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 its subsidiary financial institution, First
Bank, exceed all applicable capital adequacy minimums.
<PAGE> 7
Please refer to the Consolidated Financial Statements (Item 7 of this Report)
and to the Section entitled "Management's Discussion and Analysis or Plan of
Operation," which appears as Item 6 of this Report, for additional information.
Support of Subsidiary Banks. Under Federal Reserve Board policy, the
Company is expected to act as a source of financial strength to its Subsidiary
First Bank and to commit resources to support First Bank 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 First Bank would also be subordinate in
right of payment to depositors and certain other indebtedness of such subsidiary
Bank. 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.
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). Management
believes that as of December 31, 1997, First Bank, the Company's subsidiary
financial institution, met all of the financial criteria to be 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.
<PAGE> 8
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 shareholders.
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, 1997, none of the First Bank's deposits were
insured by the SAIF.
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 Financing
Corporation ("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. For 1997, the
effective BIF and SAIF assessment rates ranged from zero basis points for
well-capitalized institutions displaying little risk, to twenty-seven basis
points for undercapitalized institutions displaying high risk. Both BIF insured
banks and SAIF insured thrift institutions are also required to pay interest on
FICO bonds issued in connection with the federal government's bail out program
in connection with the thrift industry.
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.
<PAGE> 9
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. As noted above, as of
December 31, 1997, none of the Bank's deposits were insured by the SAIF.
Please refer to the Section of this Report entitled "Restrictions on
Dividends Paid by the Bank as a Company Subsidiary," 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 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
<PAGE> 10
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.
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, as
well as in response to other legal, regulatory, interest group, and economic
developments, the form or impact of which cannot be reliably predicted.
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 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 Riegle-Neal 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 and state 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.
<PAGE> 11
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 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.
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 has recently filed a
registration statement in respect of its Common Stock with the Securities and
Exchange Commission (the "Commission") pursuant to Section 12(g) of the
Securities Exchange Act of 1934, as amended (the "Exchange Act"). 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.
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 10, 1998, the maximum "formula rate"
of interest was approximately 12.5%. 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 First Bank 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 TDFI. 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
<PAGE> 12
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, 1997, 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 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, Donelson,
Smryna and surrounding areas of Tennessee, principally in Wilson, Davidson, and
Rutherford Counties and in other counties contiguous to Wilson County. In this
area, various commercial banks and two credit unions have more than thirty
separate offices as of February 1, 1998. 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., and Union Planters National
Bank, as well as with other highly competitive national, regional, and local
financial institutions and "nonbank" competitors.
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 105 full-time employees and 19
part-time employees at January 27, 1998. 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.
ECONOMIC CONDITIONS AND GOVERNMENTAL POLICY
The Company's earnings are affected not only by the extensive
regulation described above, but also by general economic conditions. These
economic conditions influence, and are themselves influenced, by the monetary
and fiscal policies of the United States government and its various agencies,
particularly the FRB. The Registrant cannot predict changes in monetary policies
or their impact on its operations and earnings.
<PAGE> 13
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. However, the reader is referred to the following section on
"Computers and the Year 2000."
COMPUTERS AND THE YEAR 2000
The Company recognizes the need to ensure its operations will not be
adversely impacted by Year 2000 software failures. Potential software failures
due to processing errors arising from calculations using the Year 2000 date are
a known risk. The Company has appointed its own task force (designated an
"Action Team"), and it is working with outside vendors, to evaluate and manage
the risks, solutions, and costs associated with addressing this issue. The
Company is coordinating closely with its outside electronic data processing
vendor to assure that both it and the Company are as adequately prepared as is
possible to deal with computer and data-processing issues related to the Year
2000. Of course, the Company must not only address the impact of these issues on
its own operations, but also on the operations and prospects of customers,
vendors, and other financial institutions and companies.
The costs incurred, except property and equipment writedowns, in
addressing the Year 2000 problem will be expensed as incurred in compliance with
generally accepted accounting principles. Management estimates the cost of
achieving Year 2000 compliance to be approximately $150,000 (pre-tax) over the
cost of normal software upgrades and replacements that would have been incurred
through the year 1999. (Of course, this number is subject to change to change.)
The Company anticipates that it will complete its own operational changes,
including its data processing changes, by December 31, 1998. Testing of software
and hardware will likely continue throughout calendar 1999.
The Company is actively working with its software and hardware
suppliers, as well as with those who supply data-processing services to the
Company, in connection with Year 2000 issues. Management believes, based on its
inquiries to them, that those vendors which are material to the Company are
generally on schedule to meet their and the Company's Year 2000 goals. The
Company assumes, but cannot be assured, that all applicable federal and state
governmental agencies, especially those which are important to the banking and
payment systems, will achieve Year 2000 compliance on time.
The Company's credit customers are also subject to potential loses as a
result of Year 2000 issues relating to their own businesses, computers,
customers, and vendors. The Company is studying this issue and expects to work
with its customers in addressing Year 2000 issues that could reasonably be
expected adversely to affect the Company. Any exposure that, in the opinion of
management of the Company, is not adequately addressed to management's
satisfaction, will be taken into consideration in assessing the risk and/or loss
potential, if any, associated with that credit relationship.
The Company does not anticipate that its expenditures in connection
with the remediation of Year 2000 issues will be material to its results of
operations, liquidity, and capital resources taken as a whole. The preceding
statements in this paragraph are forward looking, and the Company's actual
costs, experience, and results may differ due to, among other things, the
conversion of various data-processing systems, additional system testing, vendor
contract negotiations, and technological developments.
<PAGE> 14
In October 1997, the Accounting Standards Executive Committee of the
AICPA voted to issue a final Statement of Position ("Position Statement"),
"Accounting for the Costs of Computer Software Developed or Obtained for
Internal Use." However, the issuance of this Position Statement is subject to
approval by the Financial Accounting Standards Board ("FASB"). The AICPA has
expressed a hope to issue a final Position Statement in the first quarter of
1998. The Position Statement would be effective for financial statements for
fiscal years beginning after December 15, 1998, with earlier application
encouraged.
In summary, the Position Statement states that the following costs
incurred in developing internal-use software should be capitalized: direct costs
for materials and services paid to external parties for developing or obtaining
the software; payroll and payroll-related costs for employees' time spent
directly on the project; and interest costs incurred in developing the software.
Currently, banks must expense such costs, which can be material to the
results of operation, in accordance with the guidance provided by banking
regulators such as the Office of the Comptroller of the Currency. The impact of
this Position Statement to the Company's results is currently being evaluated
and cannot currently be estimated.
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 1997.
FORWARD-LOOKING STATEMENTS
Management's discussion of the Company, and management's analysis of
the Company's operation sand prospects, and other matters, may include
forward-looking statements within the meaning of the Private Securities
Litigation Reform Act of 1995 and other provisions of federal and state
securities laws. Although the Company believes that the assumptions underlying
such forward-looking statements contained in this Report are reasonable, any of
the assumptions could be inaccurate and, accordingly, there can be no assurance
that the forward-looking statements included herein will prove to be accurate.
Factors that could cause actual results to differ from the results anticipated,
but not guaranteed, in this Report, include (without limitation) economic and
social conditions, competition for loans, mortgages, and other financial
services and products, changes in interest rates, unforeseen changes in
liquidity, results of operations, and financial conditions affecting the
Company's customers, material unforeseen complications related to addressing
Year 2000 issues (both as to the Company and as to its customers, vendors,
consultants and governmental agencies), as well as other risks that cannot be
accurately quantified or completely identified. Many factors affecting the
Company's financial condition and profitability, including changes in economic
conditions, the volatility of interest rates, political events and competition
from other providers of financial services simply cannot be predicted. Because
these factors are unpredictable and beyond the Company's control, earnings may
fluctuate from period to period. The purpose of this type of information (such
as in Item 6 and Item 7, as well as other portions of this Report) is to provide
Form 10-KSB readers with information relevant to understanding and assessing the
financial condition and results of operations of the Company not to predict the
future or to guarantee results. The Company undertakes no obligation to publish
revised forward-looking statements to reflect the occurrence of changes or of
unanticipated events, circumstances, or results.
<PAGE> 15
STATISTICAL INFORMATION AND SELECTED FINANCIAL DATA
Certain selected financial data and certain statistical data concerning
the Company that should be read in conjunction with Item 6, "Management's
Discussion and Analysis or Plan of Operation" is set forth as a part of Item 6
and is also presented in certain of the Notes to the Consolidated Financial
Statements included in Item 7 of this Report.
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 six Branches
located in Lebanon, Hermitage, Donelson, Old Hickory, 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 six 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, and the Bank has recently began using a building located on a lot
contiguous to the Main Office.
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 1997.
PART II
ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.
(A) MARKET INFORMATION
There is no established public trading market for 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
1997. (UNLESS OTHERWISE EXPRESSLY STATED, ALL PER SHARE DATA HAVE BEEN ADJUSTED
TO GIVE EFFECT, TO THE TWO-FOR-ONE STOCK SPLIT THAT WAS APPROVED BY THE
COMPANY'S SHAREHOLDERS ON APRIL 18, 1996.) The Company did not redeem any shares
of its Common Stock in 1997 or 1996. 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 Company's Common Stock for the respective periods shown, and
it is possible that transactions
<PAGE> 16
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>
Calendar Quarter Common Stock
---------------- -------------------------------
High Low
---- ---
Stock Price
-----------
1997
<S> <C> <C>
Fourth Quarter $25.00 $25.00
Third Quarter $22.50 $22.50
Second Quarter *N/A *N/A
First Quarter $21.00 $20.00
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
</TABLE>
*No trades.
The last trade known to management involved 160 shares at $25.00 per
share in January 1998. Because there is no established public 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 public
trading 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 1, 1998, the Company had 941,646 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.
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.
<PAGE> 17
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 1, 1998
was approximately 515.
(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 $0.25
per share in 1997, $0.20 per share in 1996, and $0.175 per share in 1995. 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 be
subject to Board discretion and will depend upon earnings, financial condition,
regulatory and prudential considerations, and or other factors affecting the
Company that cannot be reliably predicted, including Board discretion.
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 render the
corporation unable to pay its debts as they become due in the usual course of
business; (2) the corporation's total assets would not be 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.
<PAGE> 18
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 TDFI, 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, provided that prior
to determining that undivided profits are available for the declaration of
dividends, the following transfers shall be made: (1) net losses shall be
deducted from the undivided profits account; and (2) there shall be transferred
from the undivided profits account to the surplus account (a) the amount
required to raise the surplus to fifty percent (50%) of the capital stock; and,
(b) an amount, not less than ten percent (10%) of net profits, until the surplus
equals the capital stock, and 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 TDFI, 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
"Dividend Reinvestment Plan") for those Shareholders who desire to reinvest
their cash dividends in Company Common Stock. Pursuant to the 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 1997, the Company issued 7,850 original shares
to participants in the Dividend Reinvestment 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
except as set forth in this paragraph. In 1997, the Company issued 2,808 shares
to certain of the participants in the 1993 First Financial Corporation Stock
Option Plan (the "Stock Option Plan") at an average weighted price per share of
$11.53. Please refer to Note 16 of the Consolidated Financial Statements for
additional information on the dividend reinvestment plan and to Note 18 of the
Consolidated Financial Statements for additional information on the Stock Option
Plan.
(F) REGISTRATION UNDER THE EXCHANGE ACT
The Company recently registered its common voting shares pursuant to
Section 12(g) of the Exchange Act. The registration statement (Form 8-A) is
expected to be effective in May of 1998. Accordingly, beginning with the
effectiveness of that registration statement, the Company will be subject to the
requirements of the Exchange Act, including (without limitation) the proxy rules
and Section 16(a).
Section 16(a) of the Exchange Act requires the Company's Directors and
certain officers, and persons who own more than ten percent of a registered
class of the Company's equity securities, to file with the Commission initial
reports of ownership and reports of changes in ownership of the Company's Common
Stock and other equity securities of the Company that might be issued in the
future. These officers, directors and greater than ten-percent shareholders are
required by a Commission regulation to furnish the Company with copies of these
reports.
<PAGE> 19
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 First Bank, its subsidiary. This discussion should be read in
conjunction with the consolidated financial statements.
[Please turn to the following page.]
<PAGE> 20
FIRST FINANCIAL
CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OR
PLAN OF OPERATION
- --------------------------------------------------------------------------------
The purpose of this discussion 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.
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 interest-
sensitive 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, or the need or desire to increase capital and similar
economic factors. The Company has $8,944,000 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, 1997 commercial loans of approximately $31 million and other loans
(real estate construction, real estate mortgage and consumer) of approximately
$88 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.
As for liabilities, certificates of deposit of $100,000 or greater of
approximately $29 million will become due during the next twelve months. The
Company's deposit base has shown continued growth, increasing by approximately
$26 million or 15.4% in 1997. During 1996 deposits increased by approximately
$25 million or 17.2%.
The Company also has the ability to meet its liquidity needs through
advances from the Federal Home Loan Bank. At December 31, 1997 and 1996, the
Company had $942,000 and $993,000, respectively, of these advances.
As of December 31, 1997 the Bank's asset sensitivity was 6.0% (the excess
of earnings assets over interest sensitive liabilities 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 19.5% at December 31, 1997 and 22.9% at December 31, 1996.
The Company presently maintains an asset sensitive position over the 1998
year or a positive gap assuming negotiable order of withdrawal, money market
demand and savings accounts are not rate sensitive. Asset sensitivity means
that more of the Company's assets are capable of repricing over certain time
frames than liabilities. The interest rates associated with these liabilities
may not actually change over this period but are capable of changing. For
example, the 90 day gap is a picture of the possible repricing over a 90 day
period.
3
<PAGE> 21
FIRST FINANCIAL
CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS
PLAN OF OPERATION
- --------------------------------------------------------------------------------
The following table shows the rate sensitivity gaps for different time
periods as of December 31, 1997:
<TABLE>
<CAPTION>
---------------------------------------------------------
Interest rate sensitivity gaps: 1-90 91-365 One Year
December 31, 1997 Days Days and Longer Total
------------ ----------- ------------ -----------
<S> <C> <C> <C> <C>
Interest-earning assets . . . . . . . . $ 62,550 $ 46,728 $ 89,412 $ 198,690
Interest-bearing liabilities . . . . . 33,155 58,999 77,484 169,638
- ---------------------------------------- ------------ ----------- ------------ -----------
Interest-rate sensitivity gap . . . . . $ 29,395 $ (12,271) $ 11,928 $ 29,052
- ---------------------------------------- ------------ ----------- ------------ -----------
Cumulative gap . . . . . . . . . . . . $ 29,395 $ 17,124 $ 29,052
------------ ----------- ------------
Interest-rate sensitivity gap
as a % of total assets . . . . . . . 14.8% (6.2)% 6.0%
- ---------------------------------------- ------------ ----------- ------------
Cumulative gap as a % of
total assets . . . . . . . . . . . . 14.8% 8.6 % 14.6%
- ---------------------------------------- ------------ ----------- ------------
</TABLE>
For purposes of presentation management considers negotiable order of
withdrawal accounts, money market demand accounts and savings accounts totaling
$55,216,000 at December 31, 1997 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 $55,216,000 for all periods through 365
days if the accounts with no contractual maturities had been included in the
1-90 days maturity category.
CAPITAL RESOURCES
A primary source of capital is internal growth through retained earnings.
The ratio of stockholders' equity to total assets was 7.5% at December 31,
1997, 7.2% at December 31, 1996 and 7.0% at December 31, 1995. Total assets
increased 15.5% from $183,973,000 to $212,492,000 during the year ended
December 31, 1997. During 1996 total assets increased from $157,755,000 to
$183,973,000 or 16.6%. Management has anticipated an annual growth rate of 10%
to 15% for 1998 compared to the annual growth rates of 15.5% for 1997 and 16.6%
for 1996. 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 other than the planned branch described below.
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, 1997 (excluding the effect of the adoption of SFAS No. 115):
<TABLE>
<CAPTION>
(In Thousands)
- ---------------------------------------------------------------------------------------- -----------
<S> <C>
Tier I capital: Stockholders' equity.................................................. $ 15,713
Total risk-based capital:
Allowable allowance for loan losses (limited to 1.25% of risk-weighted assets)..... 1,704
- ---------------------------------------------------------------------------------------- -----------
Total risk-based capital...................................................... $ 17,417
- ---------------------------------------------------------------------------------------- -----------
Risk-weighted assets................................................................... $ 155,598
- ---------------------------------------------------------------------------------------- -----------
Risk-based capital ratios: Tier I capital ratio....................................... 10.10%
- ---------------------------------------------------------------------------------------- -----------
Total risk-based capital ratio......................................................... 11.19%
- ---------------------------------------------------------------------------------------- -----------
</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, 1997, the Company and its subsidiary bank were in
compliance with these requirements.
4
<PAGE> 22
FIRST FINANCIAL
CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OR
PLAN OF OPERATION
- --------------------------------------------------------------------------------
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, 1997 was 7.45% as compared to
7.14% at December 31, 1996 and 6.86% at December 31, 1995.
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, 1997 and 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. 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 plan whereby
159,000 shares of the Company's stock is available for issuance to directors,
officers and employees of the Company. At December 31, 1997, 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, 528 shares were granted at $19.00 per share
and 13,000 shares were granted in 1997 at $22.50 per share. The options are
granted at the estimated market price of the stock at the date the option was
granted. At December 31, 1997 there were 124,222 options granted but not
exercised. The options are generally exercisable ratably over a ten year
period from the date granted. At December 31, 1997 options to purchase 30,280
common shares were available for grant in future years.
At present, the net book value of premises and equipment is 42.3% 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 bank also has a branch bank facility in
Smyrna, Rutherford County, Tennessee which opened in the fourth quarter of
1996. The Company is also in the process of constructing a new branch bank
facility in Donelson, Davidson County, Tennessee at an estimated cost of
$850,000. 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 41.0%. Investment in fixed assets can have a detrimental impact
on profits, particularly in the short term.
RESULTS OF OPERATIONS
Net earnings were $2,604,000 in 1997 as compared to $2,350,000 in 1996 and
$1,741,000 in 1995. Basic earnings per share increased from $1.89 in 1995 to
$2.53 in 1996 to $2.78 in 1997. Diluted earnings per share increased from
$1.88 in 1995 to $2.50 in 1996 to $2.71 in 1997.
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.
The Company's total interest income, excluding tax equivalent adjustments,
increased by $2,023,000 or 13.8% in 1997, $2,248,000 or 18.2% in 1996, and
$3,535,000 or 40.0% in 1995. The increases were primarily attributable to
higher volumes of earning assets in 1997, 1996, and 1995. The ratio of average
earning assets to total average assets was 93.1% for the year ended December
31, 1997, 93.2% for 1996 and 93.1% for 1995.
5
<PAGE> 23
FIRST FINANCIAL
CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OR
PLAN OF OPERATION
- --------------------------------------------------------------------------------
Interest expense increased by $1,081,000 in 1997 or 16.2%, increased
$863,000 or 14.9% in 1996, and increased $2,003,000 or 52.8% in 1995. The
increase in 1997 can be attributable largely to an increase in volume. 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 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 $942,000 or
11.8% during 1997, $1,385,000 or 21.0% in 1996, and $1,532,000 or 30.3% in
1995.
For the year ended December 31, 1997, the Company had interest income, on a
tax-equivalent adjusted basis, as a percent of average earning assets, of 9.2%,
compared with 9.3% for the year ended December 31, 1996 and 9.4% for 1995.
Interest expense as a percentage of interest bearing liabilities did not change
between 1996 and 1997. Interest expense as a percentage of average interest
bearing liabilities decreased from to 5.1% in 1995 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, remained level at
5.1% in 1995 and 1996 and decreased to 5.0% in 1997. The spread has remained
relatively constant for the past three years.
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 $350,000 in 1997 as compared to $310,000
in 1996 and $356,000 in 1995. 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, 1997 and 1996:
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------- --------- ---------
(Dollars in thousands) 1997 1996
<S> <C> <C>
Loans past due 90 days or more and still accruing:
Commercial, financial and agricultural loans . . . . . . . . . . . . . . . . . . . . $ 139 $ 139
Real estate - construction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . - -
Real estate - mortgage loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . 109 74
Consumer loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 67 14
- --------------------------------------------------------------------------------------- --------- ---------
315 227
- --------------------------------------------------------------------------------------- --------- ---------
Non-accrual loans:
Commercial, financial and agricultural loans . . . . . . . . . . . . . . . . . . . . 389 -
Real estate - construction loans . . . . . . . . . . . . . . . . . . . . . . . . . . - -
Real estate - mortgage loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . 89 88
Consumer loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3 -
- --------------------------------------------------------------------------------------- --------- ---------
481 88
- --------------------------------------------------------------------------------------- --------- ---------
Renegotiated loans:
Commercial, financial and agricultural loans 49 92
Real estate - construction loans . . . . . . . . . . . . . . . . . . . . . . . . . . - -
Real estate - mortgage loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . 108 231
Consumer loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . - -
- --------------------------------------------------------------------------------------- --------- ---------
157 323
- --------------------------------------------------------------------------------------- --------- ---------
Total nonperforming loans $ 953 $ 638
- --------------------------------------------------------------------------------------- --------- ---------
</TABLE>
6
<PAGE> 24
FIRST FINANCIAL
CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OR
PLAN OF OPERATION
- --------------------------------------------------------------------------------
Nonperforming loans have increased by $315,000 from December 31, 1996 to
December 31, 1997 and represent .65% and .51% of total loans, respectively.
The increase resulted from an increase in non-accrual loans of $393,000, an
increase in loans ninety-days or more past due of $88,000, and a decrease in
renegotiated loans of $166,000. The decrease in restructured loans from 1996
to 1997 resulted primarily from the paydown of loans between years. One of
these loans amounting to $108,000 is included within real estate - mortgage and
one loan amounting to $49,000 is included within commercial loans.
At December 31, 1997 loans totaling $2,018,000 were included in the
Company's internal classified loan list. Of these loans $671,000 are consumer,
$1,175,000 are commercial loans and $172,000 are real estate loans. The
collateral values securing these loans total approximately $3,248,000 based on
management estimates ($1,241,000 related to consumer loans, $1,721,000 related
to commercial loans and $286,000 related to real estate loans). At December
31, 1996, the Company's internally classified loans totaled $1,634,000 as
compared to $1,419,000 at December 31, 1995. 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 $351,000 or 20.2% in 1997, and increased
$201,000 or 13.1% in 1996, and decreased $351,000 or 18.6% in 1995. Included
in the year ended December 31, 1996 is a net security gain of $11,000.
Exclusive of this transaction, non-interest income increased $362,000 or 20.9%
in 1997 and increased $190,000 or 12.4% in 1996. There were no securities
gains during the year ended December 31, 1995. The overall increase in
non-interest income in 1997 includes a $165,000 increase in service charges on
deposits, a $212,000 increase in gains on sales of loans, and a $15,000
decrease in other fees. The increase in 1996 resulted from increases in
service charges, other fees, and 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. Gain on sale of loans increased from $556,000 in
1995 to $600,000 in 1996 and increased to $812,000 in 1997. Commissions and
service charges are monitored continually to insure maximum return based on
costs and competition.
Non-interest expense increased $835,000 or 14.3% in 1997, $706,000 or 13.7%
in 1996, and $561,000 or 12.2% in 1995. Included in the years ended December
31, 1997 and 1995 are net security losses of $47,000 and $62,000, respectively,
related to sales of available-for-sale securities. Exclusive of these
transactions, non-interest expense increased $788,000 or 13.5% and $768,000 or
15.1% in 1997 and 1996, respectively. The increases in 1997, 1996, and 1995
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 additions to furniture
and equipment in 1996. Employee salaries and benefits increased $526,000 or
16.0% in 1997, $509,000 or 18.3% in 1996 and $283,000 or 11.3% in 1995. The
FDIC insurance premiums and state banking fees decreased from $160,000 in 1995
to $34,000 in 1996 and increased to $59,000 in 1997. 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. Premiums for
1997 increased to $21,000.
The Company accounts for its securities under the provisions of Statement
of Financial Accounting Standards No. 115 (SFAS No. 115), "Accounting for
Certain Investments in Debt and Equity Securities". 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, 1997
and 1996 as available-for-sale was made to provide for more flexibility in
asset/liability management and capital management.
7
<PAGE> 25
FIRST FINANCIAL
CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OR
PLAN OF OPERATION
- --------------------------------------------------------------------------------
The net increase in capital at December 31, 1995 resulting from applying
these accounting provisions totaled $197,000 which represents the unrealized
appreciation 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. The
net increase in capital at December 31, 1997 totaled $249,000 which represents
the unrealized appreciation in securities available-for-sale of $401,000 less
applicable taxes of $152,000.
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-for-sale classification in December, 1995
pursuant to these provisions.
The Company plans to adopt Statement of Financial Accounting Standards No.
130 (SFAS 130) "Reporting Comprehensive Income". The new statement which
becomes effective for years beginning after December 15, 1997, requires a new
financial statement that includes unrealized gains and losses on certain assets
and liabilities. The statement will provide additional information but will
not impact existing statements.
The Company has conducted a comprehensive review of its computer systems to
identify the systems that could be affected by the Year 2000 Issue and is
developing an implementation plan to resolve the issue. The Year 2000 Issue is
the result of computer programs being written using two digits rather than four
to define the applicable year. Any of the Company's programs that have
time-sensitive software may recognize a date using "00" as the year 1990 rather
than the year 2000. This could result in a major system failure or
miscalculations. The Company's software vendors have been communicated with
and are responsible for upgrading the primary software of the Bank.
Communications have also been planned with customers of the Bank concerning the
Year 2000 Issue. The Company presently believes that, with modifications to
existing software and conversions to new software, the Year 2000 problem will
not pose significant operational problems for the Company's computer systems as
so modified and converted. However, if such modifications and conversions are
not completed timely, the Year 2000 problem may have a material impact on the
operations of the Company.
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.
Branch operations contributed 67.9% of the Bank's total deposits by year
end as compared to 66.6% in 1996, as well as 45.3% of the loans as compared to
42.2% in 1996. The origination and sale of loans net of allocated expenses
contributed $177,000 in pretax income in 1997 and $86,000 in 1996. 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.
8
<PAGE> 26
FIRST FINANCIAL CORPORATION
Form 10-KSB
December 31, 1997
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 the loan category. Loan fees of
$956,000, $716,000 and $466,000 for 1997, 1996 and 1995, respectively,
are included in loan income and represent an adjustment of the yield on
these loans.
<PAGE> 27
FIRST FINANCIAL CORPORATION
Form 10-KSB
December 31, 1997
<TABLE>
<CAPTION>
In Thousands, Except Interest Rates
--------------------------------------------------------------------------------------
1997 1996 1997/1996 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 $ 136,918 10.0% 13,707 114,519 10.35% 11,858 2,318 (469) 1,849
--------- ------ ------ ------- ------- ------ ----- --- -----
Tax exempt loans 418 5.98 25 571 6.13 35 (9) (1) (10)
Taxable equivalent adjustment -- -- 13 -- -- 19 (5) (1) (6)
--------- ------ ------ ------- ------- ------ -----
Total tax-exempt loans 418 9.09 38 571 9.46 54 (14) (2) (16)
--------- ------ ------ ------- ------- ------ -----
Total loans 137,336 10.01 13,745 115,090 10.35 11,912 2,302 (469) 1,833
Less allowance for possible loan
losses (1,646) -- -- (1,409) -- -- --
--------- ------ ------ -------- ------- ------ -----
Net loans 135,690 10.13 13,745 113,681 10.48 11,912 2,306 (473) 1,833
--------- ------ ------ ------- ------- ------ -----
Investment securities-taxable 28,184 6.56 1,848 31,791 6.40 2,036 (231) 43 (188)
Investment securities-tax exempt 11,249 4.89 550 8,920 4.89 436 114 -- 114
Taxable equivalent adjustment -- -- 283 -- -- 225 58 -- 58
--------- ------ ------ ------- ------- ------ -----
Total tax-exempt
investment securities 11,249 7.41 833 8,920 7.41 661 172 -- 172
--------- ------ ------ ------- ------- ------ -----
Total investment securities 39,433 6.80 2,681 40,711 6.62 2,697 (85) 69 (16)
--------- ------ ------ ------- ------- ------ -----
Loans held for sale 2,125 6.68 142 1,733 6.87 119 27 (4) 23
Federal funds sold 7,485 5.08 380 3,119 4.39 137 192 51 243
Interest-bearing deposits in
financial institutions -- -- -- 95 8.42 8 (8) -- (8)
--------- ------ ------ ------- ------- ------ -----
Total earning assets, net
of allowance for possible
loan losses 184,733 9.17 16,948 159,339 9.33 14,873 2,369 (294) 2,075
--------- ------ ------ ------- ------- ------ -----
Cash and due from banks 4,922 4,369
Other assets 8,704 7,186
--------- -------
Total assets $ 198,359 170,894
========= =======
</TABLE>
<PAGE> 28
FIRST FINANCIAL CORPORATION
Form 10-KSB
December 31, 1997
<TABLE>
<CAPTION>
In Thousands, Except Interest Rates
-------------------------------------------------------------------------------------------------
1997 1996 1997/1996 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>
Deposits:
Negotiable order of withdrawal
accounts $ 20,310 2.64% 536 16,046 2.50% 401 107 28 135
Money market demand accounts 22,115 3.99 883 19,680 4.04 795 98 (10) 88
Savings accounts 8,479 2.69 228 8,121 2.76 224 10 (6) 4
Individual retirement savings
accounts 1,724 4.58 79 1,737 4.61 80 (1) -- (1)
Certificates of deposit,
$100,000 and over 31,190 5.86 1,829 24,766 5.70 1,412 366 51 417
Certificates of deposit
under $100,000 73,268 5.50 4,028 64,109 5.54 3,553 507 (32) 475
Other borrowings 2,058 7.48 154 2,580 7.40 191 (39) 2 (37)
-------- ----- ------ -------- ------- ----- --------
Total interest-bearing
liabilities 159,144 4.86 7,737 137,039 4.86 6,656 1,074 7 1,081
Demand 23,459 -- -- 20,861 -- -- --
-------- ----- ------ -------- ------- ----- --------
Total liabilities 182,603 4.24 7,737 157,900 4.22 6,656 1,042 39 1,081
-------- ----- ------ -------- ------- ----- --------
Other liabilities 2,388 1,260
Stockholders' equity 13,368 11,734
-------- --------
Total liabilities and
stockholders' equity $198,359 170,894
======== ========
Net interest income 9,211 8,217 994
====== ===== ========
Net yield on earning assets 4.99% 5.16%
===== =======
Net interest spread 4.93% 5.11%
===== =======
</TABLE>
<PAGE> 29
FIRST FINANCIAL CORPORATION
Form 10-KSB
December 31, 1997
<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 10.3% 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 - - -
-------- -------- -------- ------- -------- ------- -----
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 6.87 119 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>
<PAGE> 30
FIRST FINANCIAL CORPORATION
Form 10-KSB
December 31, 1997
<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
accounts $ 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
Stockholders' equity 11,734 9,669
---------- --------
Total liabilities and
stockholders' equity $ 170,894 143,038
========== ========
Net interest income 217 6,793 1,424
==== ===== =====
Net yield on earning assets 5.16% 5.10%
====== ====
Net interest spread 5.11% 5.08%
====== ====
</TABLE>
<PAGE> 31
FIRST FINANCIAL CORPORATION
Form 10-KSB
December 31, 1997
II. Investment Portfolio
A. Securities at December 31, 1997 are as follows:
<TABLE>
<CAPTION> SECURITIES AVAILABLE-FOR-SALE
----------------------------------------------------------------------------
(In Thousands)
Gross Gross Estimated
Amortized Unrealized Unrealized Market
Cost Gains Losses Value
----------------- ----------------- ----------------- -----------------
<S> <C> <C> <C> <C>
U.S. Government
obligations $ 6,748 23 3 6,768
Securities of U.S.
government agencies
and corporations 7,540 64 16 7,588
Obligations of state and
political subdivisions 12,874 263 20 13,117
Mortgage-backed
securities 10,258 149 36 10,371
Collateralized mortgage
obligations 1,611 - 22 1,589
Federal Home Loan
Bank Stock 582 - - 582
----------------- ----------------- ----------------- -----------------
$ 39,613 499 97 40,015
================= ================= ================= =================
</TABLE>
Securities at December 31, 1996 are as follows:
<TABLE>
<CAPTION> SECURITIES AVAILABLE-FOR-SALE
----------------------------------------------------------------------------
(In Thousands)
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
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>
<PAGE> 32
II. Investment Portfolio, Continued
B. The following schedule details the estimated maturities and
weighted average yields of investment securities of the
Company at December 31, 1997.
<TABLE>
<CAPTION> Estimated Weighted
Amortized Market Average
Available-For-Sale Securities Cost Value Yields
- ----------------------------- ----------------- ----------------- -----------------
(In Thousands)
<S> <C> <C> <C>
Securities of U.S. Government
obligations:
Less than one year $ 2,241 2,240 5.2%
One to five years 4,507 4,528 6.0
Five to ten years - - -
More than ten years - - -
----------------- ----------------- -----------------
Total securities of
U.S. Government obligations 6,748 6,768 5.9
----------------- ----------------- -----------------
Securities of U.S. Government
agencies and corporations:
Less than one year - - -
One to five years 2,496 2,510 6.7
Five to ten years 1,833 1,857 6.8
More than ten years 3,211 3,221 6.8
----------------- ----------------- -----------------
Total securities of U.S.
Government agencies
and corporations 7,540 7,588 6.8
----------------- ----------------- -----------------
Obligations of states and
political subdivisions*:
Less than one year 755 756 4.4
One to five years 4,988 4,997 4.6
Five to ten years 2,143 2,189 5.0
More than ten years 4,988 5,175 5.2
----------------- ----------------- -----------------
Total obligations of states
and political subdivisions 12,874 13,117 4.9
----------------- ----------------- -----------------
Corporate and other:
Deposit notes and corporate bonds 582 582 7.2
----------------- ----------------- -----------------
Mortgage-backed securities 10,258 10,371 6.9
----------------- ----------------- -----------------
Collateralized mortgage obligations 1,611 1,589 5.5
----------------- ----------------- -----------------
Total available-for-sale
securities $ 39,613 40,015 6.0
================= ================= =================
</TABLE>
* Weighted average yield is stated on a tax-equivalent basis, assuming a
weighted average Federal income tax rate of 34%.
<PAGE> 33
FIRST FINANCIAL CORPORATION
Form 10-KSB
December 31, 1997
III. Loan Portfolio:
A. Loan Types
The following schedule details the loans of the Company at
December 31, 1997 and 1996.
<TABLE>
<CAPTION>
In Thousands
-----------------------
1997 1996
---------- ---------
<S> <C> <C>
Commercial, financial and
agricultural $ 46,024 36,311
Real estate - construction 12,656 11,724
Real estate - mortgage 74,032 65,204
Consumer 15,158 12,190
--------- ---------
Gross loans 147,870 125,429
Less unearned interest (1,101) (1,117)
--------- ---------
Total loans, net of unearned interest 146,769 124,312
Less allowance for possible loan losses (1,704) (1,541)
--------- ---------
Net loans $ 145,065 122,771
========= =========
</TABLE>
<PAGE> 34
FIRST FINANCIAL CORPORATION
Form 10-KSB
December 31, 1997
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, 1997.
<TABLE>
<CAPTION>
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 $31,470 14,462 92 46,024
Real estate -
construction 11,840 816 - 12,656
------- ------ ------ ------
$43,310 15,278 92 58,680
======= ====== ====== ======
Interest-Rate Sensitivity:
Fixed interest rates $29,454 15,278 92 44,824
Floating or adjustable
interest rates 13,856 - - 13,856
------- ------ ------ ------
Total commercial,
financial and
agricultural
loans plus
real estate -
construction
loans $43,310 15,278 92 58,680
======= ====== ====== ======
</TABLE>
* Includes demand loans, bankers acceptances, commercial paper and
deposit notes.
<PAGE> 35
FIRST FINANCIAL CORPORATION
Form 10-KSB
December 31, 1997
III. Loan Portfolio, Continued
C. Risk Elements
The following schedule details selected information as to
non-performing loans of the Company at December 31, 1997 and
1996.
<TABLE>
<CAPTION>
In Thousands
---------------------------
1997 1996
-------- -------
<S> <C> <C>
Non-accrual loans:
Commercial, financial and agricultural $ 389 --
Real estate - construction -- --
Real estate - mortgage 89 88
Consumer 3 --
Lease financing receivable -- --
-------- -------
Total non-accrual $ 481 88
======== =======
Loans 90 days past due:
Commercial, financial and agricultural $ 139 139
Real estate - construction -- --
Real estate - mortgage 109 74
Consumer 67 14
Lease financing receivable -- --
-------- -------
Total loans 90 days past due $ 315 227
======== =======
Renegotiated loans:
Commercial, financial and agricultural $ 49 92
Real estate - construction -- --
Real estate - mortgage 108 231
Consumer -- --
Lease financing receivable -- --
-------- -------
Total renegotiated loans past due $ 157 323
======== =======
Loans current - considered uncollectible $ -- --
======== =======
Total non-performing loans $ 953 638
======== =======
Total loans, net of unearned interest $146,769 124,312
======== =======
Percent of total loans outstanding,
net of unearned interest 0.65% 0.51%
======== =======
Other real estate 2 2
======== =======
</TABLE>
<PAGE> 36
FIRST FINANCIAL CORPORATION
Form 10-KSB
December 31, 1997
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 $481,000 at December 31, 1997 and
$88,000 at December 31, 1996. Had interest been accrued on these
loans, net earnings would have been increased by approximately
$35,000 in 1997 and $4,000 in 1996. Total interest income would have
increased from $16,652,000 to $16,687,000 in 1997 as compared to
$14,629,000 to $14,633,000 in 1996. There were no non-accrual loans
outstanding in 1995.
Nonperforming loans have increased by $315,000 from December 31,
1996 to December 31, 1997. The increase resulted from an increase in
non-accrual loans of $393,000, an increase in loans ninety-days or
more past due of $88,000, and a decrease in renegotiated loans of
$166,000. The decrease in renegotiated loans from 1996 to 1997
resulted primarily rom the pay down of loans between years. One of
these loans amounting to $108,000 is included within real estate
mortgage and one loan amounting to $49,000 is included within
commercial loans.
At December 31, 1997, loans totaling $2,018,000 were included in the
Company's internal classified loan list. Of these loans $671,000 are
consumer, $1,175,000 are commercial and $172,000 are real estate
loans. The collateral values securing these loans total
approximately $3,248,000 based on management estimates, ($1,241,000
related to consumer loans, $1,721,000 related to commercial loans
and $286,000 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, 1997, 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.
<PAGE> 37
FIRST FINANCIAL CORPORATION
Form 10-KSB
December 31, 1997
III. Loan Portfolio, Continued:
C. Risk Elements, Continued:
At December 31, 1997 and 1996, other real estate totaled $2,000 and
consisted of one property. The balance at December 31, 1997 has not
changed from December 31, 1996.
Management is attempting to sell the property included within other
real estate at December 31, 1997 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, 1997 which would be required to be disclosed as
past due, non-accrual, restructured or potential problem loans, if
such interest-bearing assets were loans.
<PAGE> 38
FIRST FINANCIAL CORPORATION
Form 10-KSB
December 31, 1997
IV. Summary of Loan Loss Experience
The following schedule details selected information related to the
allowance for possible loan losses account of the Company at December
31, 1997 and 1996 and the years then ended.
<TABLE>
<CAPTION>
In Thousands Except Percentages
-------------------------------
1997 1996
---------- -----------
<S> <C> <C>
Allowance for loan losses at beginning of period $ 1,541 1,246
---------- -----------
Less: net loan charge-offs:
Charge-offs:
Commercial, financial and agricultural (73) (20)
Real estate construction -- --
Real estate - mortgage (35) (13)
Consumer (101) (65)
Lease financing -- --
---------- -----------
(209) (98)
---------- -----------
Recoveries:
Commercial, financial and agricultural 5 53
Real estate construction -- --
Real estate - mortgage -- 10
Consumer 17 20
Lease financing -- --
---------- -----------
22 83
---------- -----------
Net loan charge-offs (187) (15)
---------- -----------
Provision for loan losses charged to expense 350 310
---------- -----------
Allowance for loan losses at end of period $ 1,704 1,541
========== ===========
Total loans, net of unearned interest, at end of year $146,769 124,312
========== ===========
Average total loans outstanding,
net of unearned interest, during year $137,336 115,090
========== ===========
Net charge-offs as a percentage of average
total loans outstanding, net of unearned
interest, during year 0.14% 0.01%
========== ===========
Ending allowance for loan losses as a
percentage of total loans outstanding
net of unearned interest, at end of year 1.16% 1.24%
========== ===========
</TABLE>
<PAGE> 39
FIRST FINANCIAL CORPORATION
Form 10-KSB
December 31, 1997
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, 1997 December 31, 1996
-------------------------------------------- ----------------------------------------
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>
Commercial, financial
and agricultural $ 316 31% $ 280 29%
Real estate construction -- 9 -- 9
Real estate mortgage 148 50 714 52
Consumer 1,240 10 547 10
------------------ -------------------- ---------------- -------------------
$ 1,704 100% $ 1,541 100%
================== ==================== ================ ===================
</TABLE>
The allowance for possible loan losses is an amount that management
believes will be adequate to absorb possible losses on existing loans
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
potentially uncollectible. Loan classifications are reviewed
periodically by a person independent of the lending function. The Board
of Directors periodically reviews the adequacy of the allowance for
possible loan losses on a quarterly basis.
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.
<PAGE> 40
FIRST FINANCIAL CORPORATION
Form 10-KSB
December 31, 1997
V. Deposits
The average amounts and average interest rates for deposits for 1997 and
1996 are detailed in the following schedule:
<TABLE>
<CAPTION>
1997 1996
----------------------------------- ------------------------------
Average Average
Balance Balance
---------------- Average -------------- Average
In Thousands Rate In Thousands Rate
---------------- ------------------ -------------- -------------
<S> <C> <C> <C> <C>
Non-interest bearing deposits $ 23,459 0.00% 20,861 0.00%
Negotiable order of withdrawal
accounts 20,310 2.64% 16,046 2.50%
Money market demand accounts 22,115 3.99% 19,680 4.04%
Savings accounts 8,479 2.69% 8,121 2.76%
Individual retirement savings
accounts 1,724 4.58% 1,737 4.61%
Certificates of deposit $100,000
and over 31,190 5.86% 24,766 5.70%
Certificates of deposit under
$100,000 73,268 5.50% 64,109 5.54%
--------------- --------------- ------------ ------------
$ 180,545 4.83% 155,320 4.16%
=============== =============== ============ ============
</TABLE>
The following schedule details the maturities of certificates of deposit
and individual retirement accounts of $100,000 and over at December 31,
1997.
<TABLE>
<CAPTION>
In Thousands
------------
<S> <C>
Less than three months $ 16,021
Three to six months 4,195
Six to twelve months 8,591
More than twelve months 5,589
---------
$ 34,396
=========
</TABLE>
<PAGE> 41
FIRST FINANCIAL CORPORATION
Form 10-KSB
December 31, 1997
VI. Return on Equity and Assets
The following schedule details selected key ratios of the Company at
December 31, 1997, 1996, and 1995.
<TABLE>
<CAPTION>
1997 1996 1995
-------------- --------------- ----------------
<S> <C> <C> <C>
Return on assets 1.31% 1.38% 1.22%
(Net income divided by average total assets)
Return on equity 19.48% 20.02% 18.01%
(Net income divided by average equity)
Dividend payout ratio 8.99% 8.03% 9.36%
(Dividends declared per share divided
by net income per share)
Equity to assets ratio 6.74% 6.87% 6.76%
(Average equity divided by average
total assets)
Leverage capital ratio 7.45% 7.14% 6.86%
(Equity divided by fourth quarter
average total assets, excluding the
effect of the adoption of SFAS No. 115)
</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.
<PAGE> 42
FIRST FINANCIAL CORPORATION
Form 10-KSB
December 31, 1997
VI. Return on Equity and Assets, Continued
The following schedule details the Company's risk-based capital at
December 31, 1997 and 1996 (excluding the effect of the adoption of SFAS
No. 115):
<TABLE>
<CAPTION>
In Thousands
----------------------------------
1997 1996
---- ----
<S> <C> <C>
Tier I capital:
Stockholders' equity, excluding the net
unrealized gain on available-for-sale
securities $ 15,713 13,144
Total Risk-Based capital:
Allowable allowance for loan losses
(limited to 1.25% of risk-weighted
assets) 1,704 1,541
-------------- ---------------
Total capital $ 17,417 14,685
============== ===============
Risk-weighted assets $ 155,645 130,485
============== ===============
Risk-based capital ratios:
Tier I capital ratio 10.10% 10.07%
============== ===============
Total Risk-Based capital ratio 11.19% 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, 1997, the Company and its subsidiary bank
were in compliance with these requirements.
<PAGE> 43
FIRST FINANCIAL CORPORATION
Form 10-KSB
December 31, 1997
VI. Return on Equity and Assets, Continued
The following schedule details the Company's interest rate sensitivity
at December 31, 1997:
<TABLE>
<CAPTION>
(In Thousands) Repricing Within
----------------------------------------------------------------
Total 0-90 Days 91-365 Days Over 1 Year
-------------- --------------- --------------- --------------
<S> <C> <C> <C> <C>
Earning assets:
Loans $ 146,769 47,985 40,442 58,342
Loans held for sale 2,606 2,606 -- --
Securities 40,015 2,659 6,286 31,070
Federal funds sold 9,300 9,300 -- --
------------- --------------- --------------- --------------
Total earning assets 198,690 62,550 46,728 89,412
------------- --------------- --------------- --------------
Interest-bearing liabilities:
Negotiable order of withdrawal accounts 23,954 -- -- 23,954
Money market demand accounts 23,118 -- -- 23,118
Savings accounts 8,144 -- -- 8,144
Individual retirement savings accounts 1,689 1,689 -- --
Certificates of deposit, $100,000 and over 34,396 16,021 12,786 5,589
Certificates of deposit, under $100,000 76,409 15,445 45,613 15,351
Other borrowings 1,928 -- 600 1,328
------------- ---------------- --------------- --------------
Total interest bearing liabilities 169,638 33,155 58,999 77,484
------------- ---------------- --------------- --------------
Interest-sensitivity gap $ 29,052 29,395 (12,271) 11,928
============= ================ =============== ==============
Cumulative gap 29,395 17,124 29,052
================ ================ ==============
Interest-sensitivity gap as % of total assets 14.8% (6.2)% 6.0%
================ =============== ==============
Cumulative gap as % of total assets 14.8% 8.6% 14.6%
================ =============== ==============
</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.
<PAGE> 44
FIRST FINANCIAL CORPORATION
Form 10-KSB
December 31, 1997
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 0-90 days
category above, the cumulative gap as a percentage of total assets would
have been negative (13.0%) and (19.2%), respectively for the 0-90 days
and 91-265 days at December 31, 1997.
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 $5,000,000. 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 February 28, 1998 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, 1997, the interest rate was 8.152%. 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 those of a "well capitalized" bank as defined by the
regulatory authorities. The outstanding balance at December 31, 1997 and
1996 was $600,000 and $800,000, respectively.
The advances from the Federal Home Loan Bank at December 31, 1997
consist of the following:
<TABLE>
<CAPTION>
Interest Rate In Thousands
------------- ------------
<S> <C>
7.05% $ 616
7.65% 326
------------
$ 942
============
</TABLE>
<PAGE> 45
FIRST FINANCIAL CORPORATION
Form 10-KSB
December 31, 1997
VII. Other Borrowings, Continued
Advances from the Federal Home Loan Bank are to mature as follows at
December 31, 1997:
<TABLE>
<CAPTION>
Amount
-----------
In
Year Ending December, 31 Thousands
------------------------ -----------
<S> <C>
1998 $ 54
1999 599
2000 20
2001 22
2002 24
Later years 223
----------
$ 942
==========
</TABLE>
These advances are collateralized by approximately $1,413,000 of the
Subsidiary Bank's mortgage loan portfolio.
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, 1997 and 1996 was $386,000 and
$391,000, respectively.
Maturities for the years ending 1998 through 2002 are $5,000, $5,000,
$6,000, $6,000 and $7,000, respectively, with the remaining balance of
$357,000 due in later years.
<PAGE> 46
FIRST FINANCIAL
CORPORATION
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, 1997:
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------
(In Thousands, Except Per Share Information)
1997 1996 1995 1994 1993
- ----------------------------------------- ---------- -------- -------- --------- --------
<S> <C> <C> <C> <C> <C>
Interest income . . . . . . . . . . . . . $ 16,652 $ 14,629 $ 12,381 $ 8,846 $ 7,309
Interest expense . . . . . . . . . . . . 7,737 6,656 5,793 3,790 2,822
- ----------------------------------------- ---------- -------- -------- -------- --------
Net interest income. . . . . . . 8,915 7,973 6,588 5,056 4,487
Provision for possible loan losses . . . (350) (310) (356) (325) (311)
- ----------------------------------------- ---------- -------- -------- -------- --------
Net interest income after provision
for possible loan losses . . . . . . . 8,565 7,663 6,232 4,731 4,176
Non-interest income . . . . . . . . . . . 2,090 1,739 1,538 1,889 1,600
Non-interest expense . . . . . . . . . . (6,690) (5,855) (5,149) (4,588) (4,060)
- ----------------------------------------- ---------- -------- -------- -------- --------
Earnings before income taxes . . 3,965 3,547 2,621 2,032 1,716
Income taxes . . . . . . . . . . . . . . 1,361 1,197 880 702 599
- ----------------------------------------- ---------- -------- -------- -------- --------
Net earnings $ 2,604 $ 2,350 $ 1,741 $ 1,330 $ 1,117
- ----------------------------------------- ---------- -------- -------- -------- --------
Cash dividends declared . . . . . . . . . $ 233 $ 186 $ 161 $ 159 $ 147
- ----------------------------------------- ---------- -------- -------- -------- --------
Total assets end of year . . . . . . . . $ 212,492 $183,973 $157,755 $125,589 $108,520
- ----------------------------------------- ---------- -------- -------- -------- --------
Stockholders' equity end of year . . . . $ 15,962 $ 13,173 $ 11,047 $ 8,885 $ 8,584
- ----------------------------------------- ---------- -------- -------- -------- --------
Per share information:
Basic earnings per share** . . . . . . $ 2.78 $ 2.53 $ 1.89 1.43 $ 1.13
- ----------------------------------------- ---------- -------- -------- -------- --------
Diluted earnings per share** . . . . . $ 2.71 $ 2.50 $ 1.88 $ 1.43 $ 1.13
- ----------------------------------------- ---------- -------- -------- -------- --------
Dividends per share** . . . . . . . . . $ .25 $ 0.20 $ 0.175 $ 0.175 $ 0.15
- ----------------------------------------- ---------- -------- -------- -------- --------
Book value per share end of year** . . $ 16.95 $ 14.15 $ 11.97 $ 9.63 $ 8.84
- ----------------------------------------- ---------- -------- -------- -------- --------
</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. In addition, the earnings per share calculations have
been retroactively adjusted to present basic and diluted earnings per share
in accordance with Statement of Financial Accounting Standards 128,
"Earnings Per Share", which became effective in 1997.
<PAGE> 47
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, 1997 and 1996;
- Consolidated Statements of Earnings - Three years ended December
31, 1997;
- Consolidated Statements of Changes in Stockholders' Equity -
Three years ended December 31, 1997;
- Consolidated Statements of Cash Flows - Three years ended
December 31, 1997; 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.
<PAGE> 48
DIRECTORS OF THE REGISTRANT
<TABLE>
<CAPTION>
PREVIOUS FIVE YEARS BUSINESS DIRECTOR
NAME (AGE) EXPERIENCE SINCE
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Harold Gordon Bone (56) President, Horizon Concrete; Partner/Co-Manager, BnB 1992
Enterprises (Building and rental property).
Robert L. Callis (52) Attorney at Law; Secretary to the Board of Directors. 1992
Morris D. Ferguson, M.D. (65) Retired Physician. 1992
Arthur P. Gardner (61) Senior vice president, S & S Industries, Inc. 1992
(Manufacturing).
M. Dale McCulloch (47) President, Jones Bros., Inc. (Construction). 1992
David Major (49) Chairman, President, and Chief Executive First Financial 1992
Corporation and First Bank & Trust; Director, Plateau
Insurance Company, 1991 - present.
Dan E. Midgett (54) President, Dan E. Midgett & Co., Inc. 1992
Monty Mires (52) Real estate investor. 1992
James S. Short (47) Executive Vice President and Senior Loan Officer First Financial 1992
Corporation and First Bank & Trust.
Harold W. Sutton (66) Owner, Harold Sutton Realty, Inc. 1992
</TABLE>
<PAGE> 49
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 49 Chairman, Director, President and Chief Executive Officer, First Financial
Corporation, and First Bank.
James S. Short 47 Director, Executive Vice President and Senior Loan Officer, First
Financial Corporation, and First Bank.
Sally P. Kimble 44 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 56 Senior Vice President, First Bank.
David B. Penuel 58 Senior Vice President, First Bank.
D. Edwin Davenport 47 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 Assistant Vice
President of First Bank.
(d) INVOLVEMENT IN CERTAIN LEGAL PROCEEDINGS.
None.
(e) COMPLIANCE WITH SECTION 16(A) OF THE SECURITIES EXCHANGE ACT
The Company's registration statement on Form 8-A pursuant to
Section 12 of the Exchange Act is not yet effective and the Company 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 yet subject to Section 16(a) of the Securities Exchange Act.
However, upon the effectiveness of its registration under the Exchange
Act, in approximately mid-1998, the Company will be subject to Section
16(a) of the Exchange Act.
<PAGE> 50
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, 1997, of those persons who were the Company's Chief
Executive Officer at any time during the 1997 fiscal year and the other four
most highly compensated executive officers as of December 31, 1997 whose total
annual salary and bonus equal or exceed $100,000:
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
Annual Compensation Long-Term Compensation
--------------------------------------- ----------------------------------------------------------------
Awards Payouts
----------------------------- ---------------------------------
Securities
Other Restricted Underlying
Name and Principal Annual Stock Award(s) Options/SARs LTIP All Other
Position Year Salary($) Bonus($) Compensation($)(1} ($) (#)(2) Payouts($) Compensation($)(3)
- ------------------ ---- --------- -------- ------------------ -------------- ------------ ------------- ------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
David Major, 1997 $ 141,880 $ -0- $18,941 N/A 1,300 $ -0- $ 7,042
President/CEO 1996 126,880 3,952 18,512 N/A -0- -0- 6,589
1995 122,000 -0- 11,185 N/A 4,864 -0- 6,350
</TABLE>
NOTES TO SUMMARY COMPENSATION TABLE
(1) This amount includes Director's fees, 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 includes the Company's contribution to the Company's
401(k) plan on behalf of the named executive(s), as well as the value of the
named executive officer(s)'s automobile usage and insurance premiums paid by the
Company, other than pursuant to non discriminatory insurance plans generally
available to all employees based on salary.
STOCK OPTION GRANTS
The Company granted 1,300 stock options under its existing Stock Option
Plan to each Director, which included the executive officer(s) named in the
Summary Compensation Table. (As noted previously, all per share data have been
adjusted to reflect the two-for-one stock split that occurred in 1996.) Of
these, one hundred shares were available for exercise within one year plus
one-sixth of the remaining shares are exercisable during any twelve month
period, subject to certain specified limitations. All options granted in 1997
were granted at the then estimated fair market value of $22.50 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.
<PAGE> 51
<TABLE>
<CAPTION>
OPTIONS/SARS GRANTS IN LAST FISCAL YEAR
- --------------------------------------------------------------------------------------------------------------------
PERCENTAGE OF
NUMBER OF TOTAL
SECURITIES OPTIONS/SARS EXERCISE OR BASE
UNDERLYING GRANTED TO PRICE
OPTIONS/SARS EMPLOYEES IN (DOLLARS PER
NAME (#) FISCAL YEAR SHARE) EXPIRATION DATE
<S> <C> <C> <C> <C>
David Major 1,300(1) 50%(1) $22.50 August 31, 2007
- --------------------------------------------------------------------------------------------------------------------
</TABLE>
NOTE TO PRECEDING TABLE
(1) This shares granted represent 10% of the options granted to
the Directors in 1997.
1997 STOCK EXERCISES
The table below provides information as to exercises of options under
the Company's Stock Option Plan by the named executive officer(s) reflected in
the Summary Compensation Table and the year-end value of unexercised options
held by such officer(s). (The Company grants no stock appreciation rights.)
<TABLE>
<CAPTION>
AGGREGATED OPTION/SAR EXERCISES IN LAST FISCAL
YEAR AND FISCAL YEAR END OPTION/SAR VALUES(1)
- ----------------------------------------------------------------------------------------------------------------------
Securities
Underlying Value of
Unexercised Unexercised in-the-
Options/SARs Money
At Fiscal Year End Options/SARs At
(#) Fiscal Year End ($)
Shares Acquired on Value Realized on --------------------- -------------------
Name Exercise (#) Exercise ($)
Exercisable/ Exercisable/
Nonexerciseable(2) Nonexerciseable(2)
<S> <C> <C> <C> <C>
David Major -0- $-0- 12,244/14,560 $173,290/$188,200
- ----------------------------------------------------------------------------------------------------------------------
</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, 1997 of $25.00 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.
<PAGE> 52
BENEFITS
The stockholders of the Company approved the Stock Option Plan in 1993.
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. Other options have been granted based on
shorter vesting schedules.) 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, 1997, 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
$68,000 as compared with $55,000 for 1996 and $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.
<PAGE> 53
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 1997 a retainer of $5,000 each for the
year 1998. 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 benefits. There were six
participants in the Program at year end 1997 and 1996. 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 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. The total received will vary for each individual due to age, amount of
deferral, retirement, and whether or not the director has chosen to receive
monthly benefits or a lump sum payment. At December 31, 1997, the deferred
compensation liability totaled $110,000 (compared to $100,000 at December 31,
1996). The cash surrender value of life insurance was $211,000 at December 31,
1997 (compared to $163,000 at December 31, 1996). The face amount of the
insurance policies in force at December 31, 1997 approximated $1,108,000. In
1997, Directors Morris Ferguson and Harold W. Sutton reached retirement age
according to the deferred compensation plan. Each elected to receive lump sum
payments of, respectively, $12,860.00 and $6,459.64. 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, 1997. The Company enters into simple agreements with the Directors
in connection with their service for the upcoming year and their agreement to
stand for election at the next Annual Meeting of the Shareholders.
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 1, 1998 there were 941,646 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 approximately
February 1, 1998. 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 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 (941,646)
at said date, plus that number of shares obtainable by the named person on the
exercise of such options.
<PAGE> 54
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------
Amount and
Nature of Percent
Name and Address Beneficial of
of Beneficial Owner Ownership(1) Class(1)
- -----------------------------------------------------------------------------
<S> <C> <C> <C>
(1) Harold G. Bone 36,774 (2) 3.90%
2145 Carthage Hwy.
Lebanon, TN 37087
Robert L. Callis, Esq. 29,221 (3) 3.10%
2745 No. Mt Juliet Rd
Mt. Juliet, TN 37122
Morris D. Ferguson 13,930 1.47%
1932 Arlington Drive
Lebanon, TN 37087
Arthur P. Gardner 6,197 (4) *
154 Spring Valley Road
Nashville, TN 37214
M. Dale McCulloch 45,109 (5) 4.79%
818 Moreland Hills Drive
Mt. Juliet, TN 37122
David Major 27,297 2.86%
1691 North Mt. Juliet Road
Mt. Juliet, TN 37122
Dan E. Midgett 19,330 (6) 2.05%
4138 Andrew Jackson Parkway
Hermitage, TN 37076
Monty Mires 19,120 (7) 2.03%
5361 Stewarts Ferry Pike
Mt. Juliet, TN 37122
James S. Short 26,951 2.83%
1691 North Mt. Juliet Road
Mt. Juliet, TN 37122
Harold W. Sutton 20,642 (8) 2.19%
489 Wilson Drive
Mt. Juliet, TN 37122
(2) Directors and Executive 297,584 (9) 30.17%
Officers as a Group (14 individuals)
</TABLE>
<PAGE> 55
NOTES TO PRECEDING TABLE
(1) The percentages shown are based on 941,646 total shares outstanding as
of February 1, 1998. The shares shown in each Director's column, and in the
group total, include shares beneficially owned at February 1, 1998 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. Under that Rule, a beneficial
owner of a security includes any person who, directly or indirectly, through any
contract, arrangement, understanding, relationship, or otherwise has or shares
voting power or investment power with respect to the security. Voting power
includes the power to vote or to direct the voting of the power with respect to
the security. Investment power includes the power to dispose or to direct the
disposition of the security. 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. The following Directors and Executive Officers hold the
specified number of options exercisable within 60 days: Mr. Bone (1,490), Mr.
Callis (1,930), Dr. Ferguson (1,930), Mr. Gardner (1,666), Mr. Major (12,244),
Mr. McCulloch (968), Mr. Midgett (1,666), Mr. Mires (1,930), Mr. Short (9,872),
Mr. Sutton (1,930), Mr. Davenport (1,536), Mr. Henson (2,336), Mrs. Kimble
(2,920), and Mr. Penuel (2,336). Shares held in self-directed Individual
Retirement Accounts have been shown in each Director's total, which shares are
shown as the individual possessing sole voting and dispositive authority.
(2) This Director has voting and investment authority with respect to
15,439 of the shares indicated as custodian for his children.
(3) This Director disclaims voting and investment authority as to 4,137
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 1,638 shares
held jointly with his spouse and disclaims voting and investment authority as to
708 shares controlled by his spouse.
(5) This Director disclaims voting and investment authority as to 16,860
shares controlled by his spouse. Included in this Director's total are 1,832
shares which belong to such Director's minor children.
(6) 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 1,400 shares
controlled by his spouse.
(7) This Director shares voting and investment authority as to 8,095 shares
held jointly with his spouse.
(8) This Director shares voting and investment authority as to 16,488
shares held jointly with his spouse and disclaims voting and investment
authority as to 300 shares controlled by his spouse.
(9) 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.
* Indicates that the amount is less than 1%.
---------------
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 1997. All loan
transactions were made in the ordinary course of business and on substantially
the same terms, including interest rates and collateral,
<PAGE> 56
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 1997, this amounted to approximately $30,759.50 in direct fees.
Additional fees resulted from referrals. The Company relies upon its Directors
and executive officers for identification of their respective associates and
affiliates (as those terms are defined in the Exchange Act).
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, commencing at page F-1 of
this Report.
(a) Consolidated Balance Sheets as of December 31, 1997 and 1996;
(b) Consolidated Statements of Earnings for the three years ended
December 31, 1997;
(c) Consolidated Statements of Changes in Stockholders' Equity for
the three years ended December 31, 1997;
(d) Consolidated Statements of Cash Flows for the three years ended
December 31, 1997; and
(e) All Notes to the foregoing Consolidated Financial Statements.
(2) Listing of Exhibits:
3(i) Charter, as amended.*
3(ii) Bylaws.
10.1 First Financial Corporation 1993 Stock Option Plan.**
10.2 First Financial Corporation 1996 Dividend Reinvestment Plan.*
10.3 First American National Bank Loan Documents.
10.4 Director Agreement (Generic Form)
11 Statement re: computation re per share earnings (Incorporated by
reference to Note 17 of the Consolidated Financial Statements).
21 Subsidiary of the Registrant for the year ended December 31,
1997.
27 Financial Data Schedule.***
(b) No reports on Form 8-K were filed for the quarter ended December 31, 1997.
(c) Exhibits - The exhibits required to be filed with this Annual Report are
attached hereto as a separate section of this report.
<PAGE> 57
(d) Financial Statements Schedules - All schedules have been omitted since the
required information is either not applicable, is disclosed in Item 1 or
Item 7 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-KSB under the Securities Exchange Act of 1934 for the
fiscal year ended December 31, 1996.
** 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, 1997 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, 1997.
<PAGE> 58
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 March 16, 1998
- ----------------------------- Officer and Director
David Major
/s/ Robert L. Callis Secretary and Director March 19, 1998
- -----------------------------
Robert L. Callis
/s/ Sally P. Kimble Chief Financial Officer, Chief March 16, 1998
- ----------------------------- Accounting Officer, and Treasurer
Sally P. Kimble
/s/ Harold Gordon Bone Director March 19, 1998
- -----------------------------
Harold Gordon Bone
/s/ Morris D. Ferguson Director March 19, 1998
- -----------------------------
Morris D. Ferguson
/s/ Arthur P. Gardner Director March 19, 1998
- -----------------------------
Arthur P. Gardner
/s/ M. Dale McCulloch Director March 19, 1998
- -----------------------------
M. Dale McCulloch
/s/ Dan E. Midgett Director March 19, 1998
- -----------------------------
Dan E. Midgett
/s/ Monty Mires Director March 19, 1998
- -----------------------------
Monty Mires
/s/ James S. Short Director, Executive Vice March 16, 1998
- ----------------------------- President, and Senior Loan Officer
James S. Short
/s/ Harold W. Sutton Director March 19, 1998
- -----------------------------
Harold W. Sutton
</TABLE>
<PAGE> 59
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
1. Instructions:
Supplemental information to be Furnished With Reports Filed Pursuant to Section
15(d) of the Exchange Act By Non-reporting Issuers
(a) Except to the extent that the materials enumerated in (1) and/or (2)
below are specifically incorporated into this Form by reference (in which case,
see rule 12b-23(b)), every issuer which files an annual report on this Form
under Section 15(d) of the Exchange Act shall furnish the Commission for its
information, at the time of filing its report on this Form, four copies of the
following:
(1) Any annual report to security holders covering the registrant's
last fiscal year; and
(2) Every proxy statement, form of proxy or other proxy soliciting
material sent to more than ten of the registrant's security holders
with respect to any annual or other meeting of security holders.
(b) The Commission will not consider the material to be "filed" or subject
to the liabilities of Section 18 of the Exchange Act, except if the issuer
specifically incorporates it in its annual report on this Form by reference.
(c) If no such annual report or proxy material has been sent to security
holders, a statement to that effect shall be included under this caption. If
such report or proxy material is to be furnished to security holders subsequent
to the filing of the annual report on this Form, the registrant shall so state
under this caption and shall furnish copies of such material
2. Items included:
(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 t o
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 commencing at page 95.
<PAGE> 60
FIRST FINANCIAL CORPORATION
ANNUAL REPORT ON FORM 10-KSB
FOR THE YEAR ENDED DECEMBER 31, 1997
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION OF EXHIBIT SEQUENTIAL NUMBERED
PAGE OR REFERENCE
<S> <C> <C>
3(i) Charter of First Financial (Note 1)
Corporation
3(ii) Bylaws of First Financial 60
Corporation
4.1 Charter of First Financial (Note 1)
Corporation (See Exhibit 3(i))
4.2 Bylaws of First Financial 60
Corporation (See Exhibit 3(ii))
10.1 First Financial Corporation 1993 (Note 2)
Stock Option Plan
10.2 First Financial Corporation 1996 (Note 1)
Dividend Reinvestment Plan
10.3 First American National Bank Loan 72
Documents
10.4 Director Agreement (Generic Form) 90
11 Statement re: Computation of Per (Note 3)
Share Earnings
21 Subsidiary of First Financial 92
Corporation
27 Financial Statement Schedule (Note 4)
</TABLE>
NOTES
(1) Incorporated herein by reference to exhibits filed with Form 10-KSB Annual
Report under the Securities Exchange Act of 1934, as amended, for the
fiscal year ended December 31, 1996.
(2) Incorporated herein by reference to Exhibit 10 filed as part of Form 10-K
Annual Report under the Securities Exchange Act of 1934, as amended, for
the fiscal year ended December 31, 1993.
(3) Incorporated by reference to Note 17 of the Consolidated Statements of
Earnings of First Financial Corporation's Consolidated Annual Financial
Statements for the year ended December 31, 1997.
(4) 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, 1997 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, 1997.
<PAGE> 61
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
FIRST FINANCIAL CORPORATION PAGE
----
<S> <C>
Independent Auditor's Report F-3
Consolidated Balance Sheets
December 31, 1997 and 1996 F-4
Consolidated Statements of Earnings
Three Years Ended December 31, 1997 F-5
Consolidated Statement of Changes in Stockholders' Equity
Three Years Ended December 31, 1997 F-6
Consolidated Statements of Cash Flows
Three Years Ended December 31, 1997 F-7
Notes to Consolidated Financial Statements F-9
</TABLE>
<PAGE> 62
FIRST FINANCIAL CORPORATION
MT. JULIET, TENNESSEE
CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1997 AND 1996
(WITH INDEPENDENT AUDITOR'S REPORT THEREON)
<PAGE> 63
FIRST FINANCIAL
CORPORATION
- --------------------------------------------------------------------------------
Independent Auditor's 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, 1997 and 1996, 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, 1997.
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, 1997 and 1996, and
the results of their operations and their cash flows for each of the three years
in the period ended December 31, 1997, in conformity with generally accepted
accounting principles.
/s/ Maggart & Associates, P.C.
Nashville, Tennessee
January 8, 1998
<PAGE> 64
FIRST FINANCIAL
CORPORATION
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1997 AND 1996
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------------------
(In Thousands) 1997 1996
- ---------------------------------------------------------------------------------------- ---------------- ------------------
<S> <C> <C>
ASSETS
Loans, net of allowance for possible loan losses of $1,704,000 and $1,541,000,
respectively......................................................................... $145,065 $122,771
Securities available-for-sale, at market (amortized cost of $39,613,000
and $42,427,000, respectively)....................................................... 40,015 42,473
Loans held for sale..................................................................... 2,606 1,723
Federal funds sold...................................................................... 9,300 3,725
- ---------------------------------------------------------------------------------------- ----------------- ------------------
Total earning assets.................................................. 196,986 170,692
- ---------------------------------------------------------------------------------------- ----------------- ------------------
Cash and due from banks................................................................. 6,100 5,412
Premises and equipment, net............................................................. 6,752 5,457
Other real estate....................................................................... 2 2
Accrued interest receivable............................................................. 1,873 1,638
Deferred income taxes................................................................... 258 410
Other assets............................................................................ 521 362
- ---------------------------------------------------------------------------------------- ----------------- ------------------
Total assets.......................................................... $212,492 $183,973
- ---------------------------------------------------------------------------------------- ----------------- ------------------
LIABILITIES AND STOCKHOLDERS' EQUITY
Deposits:
Demand deposits...................................................................... $ 25,550 $ 20,647
Negotiable order of withdrawal accounts.............................................. 23,954 16,305
Money market account deposits........................................................ 23,118 21,381
Savings accounts..................................................................... 9,833 9,928
Certificates of deposit.............................................................. 110,805 99,184
- ---------------------------------------------------------------------------------------- ----------------- ------------------
Total deposits........................................................ 193,260 167,445
- ---------------------------------------------------------------------------------------- ----------------- ------------------
Income taxes payable.................................................................... - 90
Accrued interest payable................................................................ 1,096 882
Other liabilities....................................................................... 246 199
Short-term borrowings................................................................... 600 800
Advances from Federal Home Loan Bank.................................................... 942 993
Long-term debt.......................................................................... 386 391
- ---------------------------------------------------------------------------------------- ----------------- ------------------
Total liabilities..................................................... 196,530 170,800
- ---------------------------------------------------------------------------------------- ----------------- ------------------
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 1,079,572 and 1,068,914 shares, respectively................................ 2,699 2,672
Additional paid-in capital........................................................... 4,021 3,850
Retained earnings.................................................................... 10,250 7,879
Net unrealized gains on available-for-sale securities, net of applicable
income taxes of $152,000 and $18,000, respectively................................. 249 29
Less cost of 137,926 shares of treasury stock........................................ (1,257) (1,257)
- ---------------------------------------------------------------------------------------- ----------------- ------------------
Total stockholders' equity............................................ 15,962 13,173
- ---------------------------------------------------------------------------------------- ----------------- ------------------
COMMITMENTS AND CONTINGENCIES
- --------------------------------------------------------------------------------------- ----------------- ------------------
Total liabilities and stockholders' equity........................... $212,492 $183,973
- ---------------------------------------------------------------------------------------- ----------------- ------------------
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE> 65
FIRST FINANCIAL
CORPORATION
CONSOLIDATED STATEMENTS OF EARNINGS
THREE YEARS ENDED DECEMBER 31, 1997
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------
(In Thousands, Except Per Share Amounts) 1997 1996 1995
- ----------------------------------------------------------------- ------------ ------------ ------------
<S> <C> <C> <C>
Interest income:
Interest and fees on loans .................................... $ 13,732 $ 11,893 $ 9,787
Interest and dividends on securities:
Taxable securities ......................................... 1,848 2,036 1,938
Exempt from Federal income taxes ........................... 550 436 360
Interest on loans held for sale ............................... 142 119 75
Interest on Federal funds sold ................................ 380 137 209
Interest on interest-bearing deposits in financial institutions -- 8 12
- ----------------------------------------------------------------- ------------ ------------ ------------
Total interest income .................................. 16,652 14,629 12,381
- ----------------------------------------------------------------- ------------ ------------ ------------
Interest expense:
Interest on negotiable order of withdrawal accounts ........... 536 401 341
Interest on money market demand accounts ...................... 883 795 558
Interest on savings deposits .................................. 228 224 211
Interest on individual retirement savings accounts ............ 79 80 82
Interest on certificates of deposit ........................... 5,857 4,965 4,376
Interest on short-term borrowings ............................. 57 76 89
Interest on advances from Federal Home Loan Bank .............. 70 88 108
Interest on long-term debt .................................... 27 27 28
- ----------------------------------------------------------------- ------------ ------------ ------------
Total interest expense ................................. 7,737 6,656 5,793
- ----------------------------------------------------------------- ------------ ------------ ------------
Net interest income before provision for loan losses ............ 8,915 7,973 6,588
Provision for possible loan losses .............................. (350) (310) (356)
- ----------------------------------------------------------------- ------------ ------------ ------------
Net interest income after provision for possible loan losses .... 8,565 7,663 6,232
Non-interest income ............................................. 2,090 1,739 1,538
Non-interest expense ............................................ (6,690) (5,855) (5,149)
- ----------------------------------------------------------------- ------------ ------------ ------------
Earnings before income taxes ........................... 3,965 3,547 2,621
Income taxes .................................................... 1,361 1,197 880
- ----------------------------------------------------------------- ------------ ------------ ------------
Net earnings ........................................... $ 2,604 $ 2,350 $ 1,741
- ----------------------------------------------------------------- ------------ ------------ ------------
Basic earnings per common share ................................. $ 2.78 $ 2.53 $ 1.89
- ----------------------------------------------------------------- ------------ ------------ ------------
Diluted earnings per common share ............................... $ 2.71 $ 2.50 $ 1.88
- ----------------------------------------------------------------- ------------ ------------ ------------
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE> 66
FIRST FINANCIAL
CORPORATION
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
THREE YEARS ENDED DECEMBER 31, 1997
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------
Net
Unrealized
Gains
(Losses)
On
Additional Available-
Common Paid-In Retained For-Sale Treasury
(In Thousands, Except Shares) Stock Capital Earnings Securities Stock Total
- -------------------------------------------- ---------- ---------- ---------- ----------- ---------- -----------
<S> <C> <C> <C> <C> <C> <C>
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 $103,000 ...... -- -- -- (168) -- (168)
- -------------------------------------------- ---------- ---------- ---------- ----------- ---------- -----------
Balance December 31, 1996 .................. 2,672 3,850 7,879 29 (1,257) 13,173
Net earnings for year ...................... -- -- 2,604 -- -- 2,604
Cash dividends declared ($.25 per share) .. -- -- (233) -- -- (233)
Issuance of 2,808 shares of common stock ... 7 26 -- -- -- 33
Issuance of 7,850 shares of common stock
pursuant to dividend reinvestment plan .. 20 145 -- -- -- 165
Net change in unrealized appreciation during
the year, net of taxes of $134,000 ...... -- -- -- 220 -- 220
- -------------------------------------------- ---------- ---------- ---------- ----------- ---------- -----------
BALANCE DECEMBER 31, 1997 $2,699 $4,021 $ 10,250 $ 249 $(1,257) $ 15,962
- -------------------------------------------- ---------- ---------- ---------- ----------- ---------- -----------
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE> 67
FIRST FINANCIAL
CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
THREE YEARS ENDED DECEMBER 31, 1997
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------
(In Thousands) 1997 1996 1995
- ------------------------------------------------------------ ------------- ------------- -------------
<S> <C> <C> <C>
Cash flows from operating activities:
Interest received ........................................ $ 16,336 $ 14,463 $ 11,962
Fees received ............................................ 1,278 1,128 982
Interest paid ............................................ (7,523) (6,578) (5,484)
Cash paid to suppliers and employees ..................... (6,302) (5,544) (4,711)
Proceeds from loan sales ................................. 38,614 34,603 27,913
Originations of loans held for sale ...................... (38,685) (33,914) (28,073)
Income taxes paid ........................................ (1,483) (1,330) (950)
- ------------------------------------------------------------ ------------- ------------- -------------
Net cash provided by operating activities ......... 2,235 2,828 1,639
- ------------------------------------------------------------ ------------- ------------- -------------
Cash flows from investing activities:
Proceeds from sales of available-for-sale securities ..... 7,236 10,711 3,685
Proceeds from maturities of available-for-sale securities 4,276 4,321 1,746
Purchase of available-for-sale securities ................ (8,666) (14,112) (12,483)
Proceeds from maturities of held-to-maturity securities .. -- -- 1,903
Purchase of held-to-maturity securities .................. -- -- (3,344)
Loans made to customers, net of repayments ............... (22,644) (23,276) (21,719)
Purchase of premise and equipment ........................ (1,698) (1,300) (532)
Proceeds from maturities of (purchase of) interest-bearing
deposits in financial institutions .................... -- 203 (3)
Proceeds from sale of other real estate .................. -- 239 --
Increase in other real estate ............................ -- (5) (13)
Purchase of other assets ................................. -- (34) --
- ------------------------------------------------------------ ------------- ------------- -------------
Net cash used in investing activities ............. (21,496) (23,253) (30,760)
- ------------------------------------------------------------ ------------- ------------- -------------
Cash flows from financing activities:
Net increase in non-interest-bearing, demand
savings and NOW deposit accounts ...................... 14,194 6,414 13,220
Net increase in time deposits ............................ 11,621 18,109 16,664
Repayments of short-term borrowings, net ................. (200) (196) (90)
Repayment of advances from Federal Home Loan Bank ........ (51) (338) (246)
Repayment of long-term debt .............................. (5) (4) (5)
Issuance of common stock ................................. 198 130 2
Dividends paid ........................................... (233) (186) (161)
Purchase of treasury stock ............................... -- -- (5)
- ------------------------------------------------------------ ------------- ------------- -------------
Net cash provided by financing activities ......... 25,524 23,929 29,379
- ------------------------------------------------------------ ------------- ------------- -------------
Net increase in cash and cash equivalents .................. 6,263 3,504 258
Cash and cash equivalents at beginning of year ............. 9,137 5,633 5,375
- ------------------------------------------------------------ ------------- ------------- -------------
Cash and cash equivalents at end of year ................... $ 15,400 $ 9,137 $ 5,633
- ------------------------------------------------------------ ------------- ------------- -------------
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE> 68
FIRST FINANCIAL
CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS, CONTINUED
THREE YEARS ENDED DECEMBER 31, 1997
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------
(In Thousands) 1997 1996 1995
- ---------------------------------------------------------- ----------- ----------- ------------
<S> <C> <C> <C>
Reconciliation of net earnings to net cash
provided by operating activities:
Net earnings ........................................ $ 2,604 $ 2,350 $ 1,741
Adjustments to reconcile net earnings to net cash
provided by operating activities:
Depreciation and amortization ................... 324 324 297
Amortization of organization expense ............ -- 9 9
Loss (gain) on securities ....................... 47 (11) 62
Provision for possible loan losses .............. 350 310 356
Provision for losses on other real estate ....... -- -- 2
Provision for deferred taxes .................... 18 (123) (126)
Decrease (increase) in loans held for sale ...... (883) 89 (716)
Increase in accrued interest receivable ......... (237) (175) (413)
Increase in other assets ........................ (159) (52) (34)
Increase (decrease) in taxes payable ............ (90) (11) 56
Increase in interest payable .................... 214 78 309
Increase in accrued expenses .................... 47 40 96
- ---------------------------------------------------------- ----------- ----------- ------------
Total adjustments ........................... (369) 478 (102)
- ---------------------------------------------------------- ----------- ----------- ------------
Net cash provided by operating activities ... $ 2,235 $ 2,828 $ 1,639
- ---------------------------------------------------------- ----------- ----------- ------------
SUPPLEMENTAL SCHEDULE OF NON-CASH ACTIVITIES:
Investment securities transferred to available-for-sale $ -- $ -- $ 20,155
- ---------------------------------------------------------- ----------- ----------- ------------
Change in realized gain (loss) in value of securities
available-for-sale, net of taxes of $134,000 in 1997,
$103,000 in 1996 and $360,000 in 1995 ............... $ 220 $ (168) $ 585
- ---------------------------------------------------------- ----------- ----------- ------------
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE> 69
FIRST FINANCIAL
CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1997, 1996 AND 1995
- --------------------------------------------------------------------------------
(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 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 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
discount, deferred loan fees net of loan acquisition costs, and the allowance
for possible loan losses are shown as reductions of loans. Loan origination and
commitment fees and certain loan-related costs are being deferred and the net
amount amortized as an adjustment of the related loan's yield over the
contractual life of the loan. Unearned discount represents the unamortized
amount of finance charges, principally related to certain installment loans.
Interest income on most loans is accrued based on the principal amount
outstanding.
The Company follows the provisions of Statement of Financial Accounting
Standards (SFAS) No. 114, "Accounting by Creditors for Impairment of a Loan" and
SFAS No. 118, "Accounting by Creditors for Impairment of a Loan - Income
Recognition and Disclosures". These pronouncements apply to impaired loans
except for large groups of smaller-balance homogeneous loans that are
collectively evaluated for impairment including residential mortgage, consumer
and credit card loans.
A loan is impaired when it is probable that the Company will be unable
to collect the scheduled payments of principal and interest due under the
contractual terms of the loan agreement. Impaired loans are measured at the
present value of expected future cash flows discounted at the loan's effective
interest rate, at the loan's observable market price, or the fair value of the
collateral if the loan is collateral dependent. If the measure of the impaired
loan is less than the recorded investment in the loan, the Company recognizes an
impairment by creating a valuation allowance with a corresponding charge to the
provision for possible loan losses or by adjusting an existing valuation
allowance for the impaired loan with a corresponding charge or credit to the
provision for possible loan losses.
The Company's consumer loans are divided into various groups of
smaller-balance homogeneous loans that are collectively evaluated for impairment
and, thus, are not subject to the provisions of SFAS Nos. 114 and 118.
Substantially all other loans of the Company are evaluated for impairment under
the provisions of SFAS Nos. 114 and 118.
The Company considers all loans on nonaccrual status to be impaired.
Loans are placed on nonaccrual status when doubt as to timely collection of
principal or interest exists, or when principal or interest is past due 90 days
or more unless such loans are well-secured and in the process of collection.
Delays or shortfalls in loan payments are evaluated along with various other
factors to determine if a loan is impaired. Generally, delinquencies under 90
days are considered insignificant unless certain other factors are present which
indicate impairment is probable. The decision to place a loan on nonaccrual
status is also based on an evaluation of the borrower's financial condition,
collateral, liquidation value, and other factors that affect the borrower's
ability to pay.
<PAGE> 70
FIRST FINANCIAL
CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
DECEMBER 31, 1997, 1996 AND 1995
- --------------------------------------------------------------------------------
Generally, at the time a loan is placed on nonaccrual status, all
interest accrued and uncollected on the loan in the current fiscal year is
reversed from income, and all interest accrued and uncollected from the prior
year is charged off against the allowance for possible loan losses. Thereafter,
interest on nonaccrual loans is recognized as interest income only to the extent
that cash is received and future collection of principal is not in doubt. If the
collectibility of outstanding principal is doubtful, such cash received is
applied as a reduction of principal. A nonaccrual loan may be restored to an
accruing status when principal and interest are no longer past due and unpaid
and future collection of principal and interest on a timely basis is not in
doubt.
Loans not on nonaccrual status are classified as impaired in certain
cases when there is inadequate protection by the current net worth and financial
capacity of the borrower or of the collateral pledged, if any. In those cases,
such loans have a well-defined weakness or weaknesses that jeopardize the
liquidation of the debt, and if such deficiencies are not corrected, there is a
probability that the Company will sustain some loss. In such cases, interest
income continues to accrue as long as the loan does not meet the Company's
criteria for nonaccrual status.
Generally, the Company also classifies as impaired any loans the terms
of which have been modified in a troubled debt restructuring. Interest is
generally accrued on such loans that continue to meet the modified terms of
their loan agreements.
The Company's charge-off policy for impaired loans is similar to its
charge-off policy for all loans in that loans are charged off in the month when
they are considered uncollectible.
- --------------------------------------------------------------------------------
(E) ALLOWANCE FOR POSSIBLE LOAN LOSSES
The provision for possible loan losses represents a charge to earnings
necessary, after loan charge-offs and recoveries, to maintain the allowance for
possible loan losses at an appropriate level which is adequate to absorb
estimated losses inherent in the loan portfolio. Such estimated losses arise
primarily from the loan portfolio but may also be derived from other sources,
including commitments to extend credit and standby letters of credit. The level
of the allowance is determined on a quarterly basis using procedures which
include: (1) categorizing commercial and commercial real estate loans into risk
categories to estimate loss probabilities based primarily on the historical loss
experience of those risk categories and current economic conditions; (2)
analyzing significant commercial and commercial real estate credits and
calculating specific reserves as necessary; (3) assessing various homogeneous
consumer loan categories to estimate loss probabilities based primarily on
historical loss experience; (4) reviewing unfunded commitments; and (5)
considering various other factors, such as changes in credit concentrations,
loan mix, and economic conditions which may not be specifically quantified in
the loan analysis process.
The allowance for possible loan losses consists of an allocated portion
and an unallocated, or general portion. The allocated portion is maintained to
cover estimated losses applicable to specific segments of the loan portfolio.
The unallocated portion is maintained to absorb losses which probably exist as
of the evaluation date but are not identified by the more objective processes
used for the allocated portion of the allowance due to risk of errors or
imprecision. While the total allowance consists of an allocated portion and an
unallocated portion, these terms are primarily used to describe a process. Both
portions of the allowance are available to provide for inherent loss in the
entire portfolio.
The allowance for possible loan losses is increased by provisions for
possible loan losses charged to expense and is reduced (increased) by loans
charged off net of recoveries on loans previously charged off. The provision is
based on management's determination of the amount of the allowance necessary to
provide for estimated loan losses based on its evaluation of the loan portfolio.
Determining the appropriate level of the allowance and the amount of the
provision involves uncertainties and matters of judgment and therefore cannot be
determined with precision.
- --------------------------------------------------------------------------------
(F) DEBT AND EQUITY SECURITIES
The Company accounts for its debt and equity securities under the
provisions of Statement of Financial Accounting Standards No. 115 (SFAS No.
115), "Accounting for Certain Investments in Debt and Equity Securities". 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
recognized 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 by
the interest method.
No securities have been classified as trading securities or securities
held-to-maturity.
<PAGE> 71
FIRST FINANCIAL
CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
DECEMBER 31, 1997, 1996 AND 1995
- --------------------------------------------------------------------------------
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-for-sale classification in December, 1995 pursuant to the
provisions of this pronouncement.
Realized gains or losses from the sale of securities are recognized
based upon the specific identification method.
- --------------------------------------------------------------------------------
(G) 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.
- --------------------------------------------------------------------------------
(H) PREMISES AND EQUIPMENT
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.
- --------------------------------------------------------------------------------
(I) 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.
- --------------------------------------------------------------------------------
(J) 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.
- --------------------------------------------------------------------------------
(K) 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.
- --------------------------------------------------------------------------------
(L) 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 No. 109, "Accounting for Income Taxes." As changes
in tax laws or rates are enacted, deferred tax assets and liabilities are
adjusted through the provision for income taxes.
The Company and its subsidiary file a consolidated Federal income tax
return. Its subsidiary provides for income taxes on a separate-return basis.
<PAGE> 72
FIRST FINANCIAL
CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
DECEMBER 31, 1997, 1996 AND 1995
- --------------------------------------------------------------------------------
(M) RECLASSIFICATIONS
Certain reclassifications have been made to the 1996 and 1995 figures
to conform to the presentation for 1997.
- --------------------------------------------------------------------------------
(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.
- --------------------------------------------------------------------------------
(2) LOANS AND ALLOWANCE FOR POSSIBLE LOAN LOSSES
Loans and allowance for possible loan losses at December 31, 1997 and
1996 are summarized as follows:
<TABLE>
<CAPTION>
(In Thousands) 1997 1996
- -------------------------------------------------------------------------------- --------- ---------
<S> <C> <C>
Commercial, financial and agricultural ......................................... $ 46,024 $ 36,311
Real estate - construction ..................................................... 12,656 11,724
Real estate - mortgage ......................................................... 74,032 65,204
Consumer ....................................................................... 15,158 12,190
- -------------------------------------------------------------------------------- --------- ---------
147,870 125,429
Less unearned interest ......................................................... (1,101) (1,117)
Less allowance for possible loan losses ........................................ (1,704) (1,541)
- -------------------------------------------------------------------------------- --------- ---------
$ 145,065 $ 122,771
- -------------------------------------------------------------------------------- --------- ---------
</TABLE>
The principal maturities on loans at December 31, 1997 are as follows:
<TABLE>
<CAPTION>
(In Thousands)
---------------------------------------------------------------------
Commercial
Financial
and Real Estate Real Estate -
Maturity Agricultural Construction Mortgage Consumer Total
- ------------------------ ------------ ------------ ------------- ---------- --------
<S> <C> <C> <C> <C> <C>
3 months or less ....... $15,001 $ 8,524 $20,090 $ 4,489 $ 48,104
3 to 12 months ......... 16,469 3,316 19,517 1,024 40,326
1 to 5 years ........... 14,462 816 31,805 9,129 56,212
Over 5 Years ........... 92 -- 2,620 516 3,228
- ------------------------ ------------ ------------ ------------- ---------- --------
$46,024 $12,656 $74,032 $15,158 $147,870
- ------------------------ ------------ ------------ ------------- ---------- --------
</TABLE>
At December 31, 1997, variable rate and fixed rate loans total
$32,490,000 and $115,380,000, respectively. Variable and fixed rate loans at
December 31, 1996 were $28,065,000 and $97,364,000, respectively.
In the normal course of business, the Company's subsidiary has made
loans at prevailing interest rates and terms to directors and executive officers
of the Company and to their affiliates. At December 31, 1997 and 1996, the
aggregate amount of these loans was $1,897,000 and $2,753,000, respectively. As
of December 31, 1997, none of these loans were restructured, nor were any
related party loans charged-off during the most recent three years.
<PAGE> 73
FIRST FINANCIAL
CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
DECEMBER 31, 1997, 1996 AND 1995
- --------------------------------------------------------------------------------
An analysis of the activity with respect to such loans to related
parties is as follows:
<TABLE>
<CAPTION>
(In Thousands) 1997 1996
- -------------------------------------------------------------------------------- ------- -------
<S> <C> <C>
Balance, January 1 ............................................................. $ 2,753 $ 2,439
New Loans during the year ...................................................... 1,451 1,487
Repayments during the year ..................................................... (2,307) (1,173)
- -------------------------------------------------------------------------------- ------- -------
Balance, December 31 ........................................................... $ 1,897 $ 2,753
- -------------------------------------------------------------------------------- ------- -------
</TABLE>
At December 31, 1997 and 1996, loans which had been placed on
non-accrual status totaled $481,000 and $88,000, respectively. Had interest been
accrued on these loans, net earnings would have been increased by approximately
$35,000 in 1997 and $4,000 in 1996. No loans were on non-accrual status during
1995.
Transactions in the allowance for possible loan losses for the years
ended December 31, 1997, 1996 and 1995 are summarized as follows:
<TABLE>
<CAPTION>
(In Thousands) 1997 1996 1995
- -------------------------------------- ------- ------- -------
<S> <C> <C> <C>
Balance, beginning of year ........... $ 1,541 $ 1,246 $ 932
Provision charged to operating
expense.............................. 350 310 356
Loans charged off .................... (209) (98) (79)
Recoveries on losses ................. 22 83 37
- -------------------------------------- ------- ------- -------
Balance, end of year ................. $ 1,704 $ 1,541 $ 1,246
- -------------------------------------- ------- ------- -------
</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.
Impaired loans and related loan loss reserve amounts at December 31,
1997 and 1996 were as follows:
<TABLE>
<CAPTION>
(In Thousands) 1997 1996
- ------------------------------------ ---- ----
<S> <C> <C>
Recorded investment ................ $715 $586
Loan loss reserve .................. 143 117
---- ----
</TABLE>
The average recorded investment in impaired loans for the years ended
December 31, 1997 and 1996 was $650,000 and $576,000, respectively. The related
total amount of interest income recognized on the accrual basis for the period
that such loans were impaired was $60,000 and $31,000 for 1997 and 1996,
respectively. The amount of interest income recognized on the cash basis for the
period such loans were impaired was $8,000 in 1997 and none in 1996.
In 1997, 1996 and 1995, the Company originated for sale in the
secondary market loans of $38,685,000, $33,914,000, and $28,073,000,
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,
1997, the subsidiary Bank had repurchased no loans 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 $812,000 in 1997, $600,000 in 1996, and $556,000 in
1995.
<PAGE> 74
FIRST FINANCIAL
CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
DECEMBER 31, 1997, 1996 AND 1995
- --------------------------------------------------------------------------------
(3) DEBT AND EQUITY SECURITIES
Debt and equity securities have been classified in the balance sheet
according to management's intent. The amortized cost and the estimated market
values of securities at December 31 was as follows:
<TABLE>
<CAPTION>
Securities Available-For-Sale
1997
---------------------------------------------------
Gross Gross Estimated
Amortized Unrealized Unrealized Market
(In Thousands) Cost Gains Losses Value
- ----------------------------------- --------- ---------- ---------- ---------
<S> <C> <C> <C> <C>
U.S. Government obligations ....... $ 6,748 $ 23 $ 3 $ 6,768
Securities of U.S. government
agencies and corporations ....... 7,540 64 16 7,588
Obligations of state and political
subdivisions .................... 12,874 263 20 13,117
Mortgage-backed securities ........ 10,258 149 36 10,371
Collateralized mortgage
obligations ..................... 1,611 -- 22 1,589
Federal Home Loan Bank stock ...... 582 -- -- 582
- ----------------------------------- --------- ---------- ---------- ---------
$39,613 $499 $ 97 $40,015
- ----------------------------------- --------- ---------- ---------- ---------
</TABLE>
The effective yield at December 31, 1997 on the collateralized mortgage
obligations was 5.5%.
<TABLE>
<CAPTION>
Securities Available-For-Sale
1996
---------------------------------------------------
Gross Gross Estimated
Amortized Unrealized Unrealized Market
(In Thousands) 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 5.6%.
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, 1997.
<PAGE> 75
FIRST FINANCIAL
CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
DECEMBER 31, 1997, 1996 AND 1995
- --------------------------------------------------------------------------------
Included in the securities are $10,861,000 (market value of
$11,381,000) and $9,062,000 (market value of $9,046,000) at December 31, 1997
and 1996, 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.
The amortized cost and estimated market value of debt and equity
securities at December 31, 1997, 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 .............. $ 2,996 $ 2,996
Due after one year through five
years .............................. 12,491 12,526
Due after five years through ten
years .............................. 5,087 5,144
Due after ten years .................. 8,199 8,396
- -------------------------------------- --------- ---------
28,773 29,062
Mortgage-backed securities ........... 10,258 10,371
Federal Home Loan Bank stock ......... 582 582
- -------------------------------------- --------- ---------
$39,613 $40,015
- -------------------------------------- --------- ---------
</TABLE>
Included within the securities portfolio is stock of the Federal Home
Loan Bank amounting to $582,000 and $498,000 at December 31, 1997 and 1996,
respectively. 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>
For the Year Ended December 31 (In Thousands) 1997 1996 1995
- --------------------------------------------- ------- -------- -------
<S> <C> <C> <C>
Gross proceeds from sales ................... $ 7,236 $ 10,711 $ 3,685
- --------------------------------------------- ------- -------- -------
Gross realized gains ........................ $ 17 $ 57 $ --
Gross realized losses ....................... (64) (46) (62)
- --------------------------------------------- ------- -------- -------
Net realized gains (losses) ................. $ (47) $ 11 $ (62)
- --------------------------------------------- ------- -------- -------
</TABLE>
Investment securities carried in the balance sheet at $19,376,000
(amortized cost of $19,199,000) as of December 31, 1997 were pledged to secure
public and trust deposits and for other purposes as required or permitted by
law. At December 31, 1996, the carrying value of pledged securities was
$16,030,000 with an amortized cost of $16,054,000.
- --------------------------------------------------------------------------------
(4) PREMISES AND EQUIPMENT
The detail of premises and equipment at December 31, 1997 and 1996 is
as follows:
<TABLE>
<CAPTION>
(In Thousands) 1997 1996
- ------------------------------------- ----------- -----------
<S> <C> <C>
Land ................................ $ 1,472 $ 972
Land improvements ................... 120 118
Buildings ........................... 4,171 3,714
Leasehold improvements .............. 73 73
Construction in progress ............ 111 432
Furniture and equipment ............. 2,864 1,804
Autos ............................... 38 38
----------- -----------
8,849 7,151
Less accumulated depreciation........ (2,097) (1,694)
- ------------------------------------- ----------- -----------
$ 6,752 $ 5,457
- ------------------------------------- ----------- -----------
</TABLE>
<PAGE> 76
FIRST FINANCIAL
CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
DECEMBER 31, 1997, 1996 AND 1995
- --------------------------------------------------------------------------------
(5) CERTIFICATES OF DEPOSIT
Principal maturities of certificates of deposit and individual
retirement accounts at December 31, 1997 are as follows:
<TABLE>
<CAPTION>
(In Thousands)
-------------------------------------------
Single Deposits Single Deposits
Maturity Under $100,000 Over $100,000 Total
- ----------------------------------------------------------- --------------- --------------- --------
<S> <C> <C> <C>
3 months or less .......................................... $15,445 $ 16,021 $ 31,466
3 to 6 months ............................................. 16,254 4,195 20,449
6 to 12 months ............................................ 29,359 8,591 37,950
1 to 5 years .............................................. 15,351 5,589 20,940
- ----------------------------------------------------------- --------------- --------------- --------
$76,409 $ 34,396 $110,805
- ----------------------------------------------------------- --------------- --------------- --------
</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, 1997 and 1996 were approximately $1,015,000 and $874,000,
respectively.
At December 31, 1997 certificates of deposit and other deposits in
denominations of $100,000 or more amounted to $49,600,000 as compared to
$48,764,000 at December 31, 1996.
- --------------------------------------------------------------------------------
(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
$5,000,000. 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 February 28, 1998, 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 Bank collateralizes the line. At December 31, 1997, the interest rate
was 8.152%. 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 those of a "well capitalized" bank as defined by the regulatory
authorities. The outstanding balance at December 31, 1997, and 1996 was $600,000
and $800,000, respectively.
- --------------------------------------------------------------------------------
(7) ADVANCES FROM FEDERAL HOME LOAN BANK
The advances from the Federal Home Loan Bank at December 31, 1997 and
1996 consist of the following:
<TABLE>
<CAPTION>
(In Thousands)
----------------
Interest Rate 1997 1996
- -------------------------------------- ------ ------
<S> <C> <C>
7.05%................................. $616 $650
7.65%................................. 326 343
- -------------------------------------- ------ ------
$942 $993
- -------------------------------------- ------ ------
</TABLE>
Advances from the Federal Home Loan Bank at December 31, 1997 are to
mature as follows:
<TABLE>
<CAPTION>
(In Thousands)
Year Ending December 31, Amount
-----------------
<S> <C>
1998........................................... $ 54
1999........................................... 599
2000........................................... 20
2001........................................... 22
2002........................................... 24
Later years.................................... 223
- ---------------------------------------------------------------------------
$ 942
- ---------------------------------------------------------------------------
</TABLE>
These advances are collateralized by approximately $1,413,000 of the
subsidiary bank's mortgage loan portfolio.
<PAGE> 77
FIRST FINANCIAL
CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
DECEMBER 31, 1997, 1996 AND 1995
- --------------------------------------------------------------------------------
(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, 1997, and 1996 was
$386,000 and $391,000, respectively.
Principal maturities at December 31, 1997, for the years 1998 through
2002 are $5,000, $5,000, $6,000, $6,000 and $7,000, respectively, with the
remaining balance of $357,000 due in later years.
- --------------------------------------------------------------------------------
(9) NON-INTEREST INCOME AND NON-INTEREST EXPENSE
The significant components of non-interest income and non-interest
expense for the years ended December 31 are presented below:
<TABLE>
<CAPTION>
(In Thousands) 1997 1996 1995
- ----------------------------------------- ---------- ---------- ----------
<S> <C> <C> <C>
Non-interest income:
Service charges on deposits .......... $1,001 $ 836 $ 776
Other fees ........................... 277 292 206
Gains on sales of loans .............. 812 600 556
Security gains ....................... -- 11 --
- ----------------------------------------- ---------- ---------- ----------
$2,090 $1,739 $1,538
- ----------------------------------------- ---------- ---------- ----------
Non-interest expense:
Employee salaries and benefits ....... $3,812 $3,286 $2,777
Occupancy expenses ................... 376 384 300
Furniture and equipment expenses ..... 523 409 363
FDIC insurance and State banking
fees ............................... 59 34 160
Cost of operation of other real
estate ............................. 1 3 12
Data processing fees ................. 223 202 177
Security losses ...................... 47 -- 62
Other operating expenses ............. 1,649 1,537 1,298
- ----------------------------------------- ---------- ---------- ----------
$6,690 $5,855 $5,149
- ----------------------------------------- ---------- ---------- ----------
</TABLE>
- --------------------------------------------------------------------------------
(10) INCOME TAXES
The components of the net deferred tax asset are as follows:
<TABLE>
<CAPTION>
December 31 (In Thousands) 1997 1996
- ------------------------------------ --------- ---------
<S> <C> <C>
Deferred tax asset:
Federal ......................... $ 491 $ 432
State ........................... 92 81
- ------------------------------------ --------- ---------
583 513
- ------------------------------------ --------- ---------
Deferred tax liability:
Federal ......................... (274) (87)
State ........................... (51) (16)
- ------------------------------------ --------- ---------
(325) (103)
- ------------------------------------ --------- ---------
Net deferred tax asset .... $ 258 $ 410
- ------------------------------------ --------- ---------
</TABLE>
<PAGE> 78
FIRST FINANCIAL
CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
DECEMBER 31, 1997, 1996 AND 1995
- --------------------------------------------------------------------------------
The tax effects of each type of significant item that gave rise to
deferred taxes at December 31 are:
<TABLE>
<CAPTION>
(In Thousands) 1997 1996
- ------------------------------------------------------------------------ --------- ---------
<S> <C> <C>
Financial statement allowance for loan losses in excess of tax
allowance ............................................................ $ 541 $ 476
Financial statement deduction for deferred compensation
in excess of deduction for tax purposes .............................. 42 37
Dividend income not recognized for tax purposes ........................ (38) --
Excess of depreciation deducted for tax purposes
over amounts deducted in the financial statements .................... (135) (85)
Excess of market value over estimated book value
related to securities available-for-sale ............................. (152) (18)
- ------------------------------------------------------------------------ --------- ---------
$ 258 $ 410
- ------------------------------------------------------------------------ --------- ---------
</TABLE>
The components of income tax expense (benefit) are summarized as
follows:
<TABLE>
<CAPTION>
(In Thousands) 1997 1996 1995
- ----------------------- ------- ------- -------
<S> <C> <C> <C>
Current:
Federal ............. $ 1,119 $ 1,102 $ 828
State ............... 224 218 178
- ----------------------- ------- ------- -------
1,343 1,320 1,006
- ----------------------- ------- ------- -------
Deferred:
Federal ............. 15 (104) (106)
State ............... 3 (19) (20)
- ----------------------- ------- ------- -------
18 (123) (126)
------- ------- -------
$ 1,361 $ 1,197 $ 880
- ----------------------- ------- ------- -------
</TABLE>
A reconciliation of actual income taxes in the consolidated statements
of earnings with the "expected" tax expense (computed by applying the statutory
Federal income tax of 34% to earnings before income taxes) is as follows:
<TABLE>
<CAPTION>
(In Thousands) 1997 1996 1995
- ------------------------------------------------ ----------- ----------- ---------
<S> <C> <C> <C>
Computed "expected" tax expense ................ $ 1,348 $ 1,206 $ 891
State income taxes, net of Federal
income tax benefit .......................... 161 127 109
Tax exempt interest, net of interest
expense exclusion ........................... (169) (140) (114)
Other .......................................... 21 4 (6)
- ------------------------------------------------ ----------- ----------- ---------
$ 1,361 $ 1,197 $ 880
- ------------------------------------------------ ----------- ----------- ---------
</TABLE>
Total income tax expense includes a tax benefit of $18,000 in 1997, a
tax expense of $4,000 in 1996 and tax benefits of $24,000 in 1995 related to
security transactions.
- --------------------------------------------------------------------------------
(11) COMMITMENTS AND CONTINGENT LIABILITIES
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.
<PAGE> 79
FIRST FINANCIAL
CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
DECEMBER 31, 1997, 1996 AND 1995
- --------------------------------------------------------------------------------
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, 1997, future minimum lease commitments are as
follows:
<TABLE>
<CAPTION>
(In Thousands)
- ----------------------------------------------- ---------
<S> <C>
1998........................................... $ 32
1999........................................... 29
- ----------------------------------------------- ---------
$ 61
- ----------------------------------------------- ---------
</TABLE>
Rentals which are included in occupancy expense amount to $55,000,
$68,000, and $57,000 in 1997, 1996 and 1995, 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>
Contract or
Notional Amount
--------------------------
(In Thousands) 1997 1996
- ------------------------------------------------ ----------- -----------
<S> <C> <C>
Financial instruments whose contract
amount represent credit risk:
Commercial loan commitments ............... $13,552 $12,105
Unfunded lines-of-credit .................. 13,547 9,613
Letters of credit ......................... 4,562 2,974
- ------------------------------------------------ ----------- -----------
Total ..................................... $31,661 $24,692
- ------------------------------------------------ ----------- -----------
</TABLE>
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.
<PAGE> 80
FIRST FINANCIAL
CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
DECEMBER 31, 1997, 1996 AND 1995
- --------------------------------------------------------------------------------
(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, 1997, 1996, and 1995 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 $68,000 for 1997, $55,000 for 1996, and $45,000 for 1995.
- --------------------------------------------------------------------------------
(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 classification is also subject to qualitative
judgments about components, risk weightings and other factors. Those qualitative
judgments could also affect the Bank's capital status and the amount of
dividends the subsidiary may distribute. At December 31, 1997, 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, 1997, the Company and its bank subsidiaries are
required to have minimum Tier I and total risk-based capital (total capital)
ratios of 4% and 8%, respectively. The Company's actual ratios at that date were
10.1% and 11.2%, respectively. The subsidiary bank's Tier I ratio was 10.6% and
the total capital ratio was 11.7% at December 31, 1997. The leverage ratios at
December 31, 1997 were 7.4% for the Company and 7.7% 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 7,850 in 1997 and 7,224 in 1996 were sold to participants under
the terms of the plan.
- --------------------------------------------------------------------------------
(17) EARNINGS PER SHARE (EPS)
In 1997, Statement of Financial Accounting Standards ("SFAS") 128
"Earnings Per Share" established uniform standards for computing and presenting
earnings per share. SFAS 128 replaces the presentation of primary earnings per
share with the presentation of basic earnings per share and diluted earnings per
share. The computation of basic earnings per share is based on the weighted
average number of common shares outstanding during the period. The computation
of diluted earnings per share begins with the basic earnings per share plus the
effect of common shares contingently issuable from stock options. In addition,
on April 18, 1996, the stockholders approved a two-for-one stock split effective
for stockholders of record on May 1, 1996. The weighted average number of shares
used in the computation of earnings per share have been retroactively adjusted
to reflect the provisions of SFAS 128 and the stock split. Dividends per share
have also been retroactively adjusted to reflect the stock split.
<PAGE> 81
FIRST FINANCIAL
CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
DECEMBER 31, 1997, 1996 AND 1995
- --------------------------------------------------------------------------------
The following is a summary of the components comprising basic and
diluted earnings per share (EPS):
<TABLE>
<CAPTION>
(In Thousands, except share amounts) 1997 1996 1995
- ------------------------------------------------------------ ---------- ---------- ----------
<S> <C> <C> <C>
Basic EPS Computation:
Numerator - Income available to common stockholders ..... $ 2,604 $ 2,350 $ 1,741
-------- -------- --------
Denominator - Weighted average number of common
shares outstanding .................................... 935,904 927,064 922,769
-------- -------- --------
Basic earnings per common share ......................... $ 2.78 $ 2.53 $ 1.89
======== ======== ========
Diluted EPS Computation:
Numerator ............................................... $ 2,604 $ 2,350 $ 1,741
-------- -------- --------
Denominator:
Weighted average number of common shares
outstanding ......................................... 935,904 927,064 922,769
Dilutive effect of stock options ...................... 23,539 13,844 5,214
-------- -------- --------
959,443 940,908 927,983
-------- -------- --------
Diluted net earnings per common shares .................. $ 2.71 $ 2.50 $ 1.88
======== ======== ========
</TABLE>
- --------------------------------------------------------------------------------
(18) 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.
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 basic earnings per
common share and diluted earnings per common share would have been reduced to
the proforma amounts indicated below:
<TABLE>
<CAPTION>
(In Thousands) 1997 1996 1995
- ---------------------------------------- --------- --------- ---------
<S> <C> <C> <C>
Net earnings
As Reported .......................... $ 2,604 $ 2,350 $ 1,741
Proforma ............................. $ 2,582 $ 2,337 $ 1,728
Basic earnings per common share
As Reported .......................... $ 2.78 $ 2.53 $ 1.89
Proforma ............................. $ 2.76 $ 2.52 $ 1.87
Diluted earnings per common shares
As Reported .......................... $ 2.71 $ 2.50 $ 1.88
Proforma ............................. $ 2.69 $ 2.48 $ 1.86
--------- --------- ---------
</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.
<PAGE> 82
FIRST FINANCIAL
CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
DECEMBER 31, 1997, 1996 AND 1995
- --------------------------------------------------------------------------------
A summary of the stock option activity for 1997, 1996 and 1995 is as
follows:
<TABLE>
<CAPTION>
1997 1996 1995
------------------------ ----------------------- -----------------------
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 ....... 114,030 $ 11.48 114,464 $ 11.44 80,872 $ 10.05
Granted ................................ 13,000 22.50 528 19.00 33,792 14.76
Exercised .............................. (2,808) 11.53 (962) 10.88 (200) 12.00
Forfeited .............................. -- -- -- -- -- --
------- ---------- ------- ---------- ------- ----------
Outstanding at end of year ............. 124,222 $ 12.63 114,030 $ 11.48 114,464 $ 11.44
- ---------------------------------------- ------- ---------- ------- ---------- ------- ----------
Options exercisable at year end ........ 49,524 38,993 27,616
- ---------------------------------------- ------- ------- -------
</TABLE>
The following table summarizes information about fixed stock options
outstanding at December 31, 1997:
<TABLE>
<CAPTION>
Options Outstanding Options Exercisable
------------------------------------------------------ -----------------------------------
Weighted
Weighted Average Weighted
Range of Number Average Remaining Number Average
Exercise Outstanding Exercise Contractual Exercisable Exercise
Prices at 12/31/97 Price Life at 12/31/97 Price
- ------------------ --------------- ---------------- ---------------- --------------- ----------------
<S> <C> <C> <C> <C> <C>
$10 to $13 81,624 $10.18 5.1 years 37,924 $10.11
$15 to $22.50 42,520 $17.32 5.3 years 11,600 $15.64
- ------------------ --------------- ---------------- ---------------- --------------- ----------------
</TABLE>
- --------------------------------------------------------------------------------
(19) 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
retirement benefits. There were four participants in the program at December 31,
1997 compared to six at December 31, 1996. 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 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, 1997,
the deferred compensation liability totaled $110,000 as compared to $100,000 at
December 31, 1996. The Cash surrender value of life insurance was $211,000 and
$163,000 at December 31, 1997 and 1996, respectively. The face amount of the
insurance policies in force at December 31, 1997 approximated $1,108,000. The
program is not qualified under Section 401 of the Internal Revenue Service.
- --------------------------------------------------------------------------------
<PAGE> 83
FIRST FINANCIAL
CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
DECEMBER 31, 1997, 1996 AND 1995
- --------------------------------------------------------------------------------
(20) FIRST FINANCIAL CORPORATION - PARENT COMPANY FINANCIAL INFORMATION
FIRST FINANCIAL CORPORATION (Parent Company Only)
BALANCE SHEETS
December 31, 1997 and 1996
<TABLE>
<CAPTION>
(In Thousands) 1997 1996
- --------------------------------------------------------------------------------- --------- ----------
<S> <C> <C>
ASSETS
Cash ............................................................................ $ 44* $ 42*
Investment in commercial bank subsidiary ........................................ 16,482* 13,893*
Due from commercial bank subsidiary ............................................. 6* 9*
Other assets .................................................................... 34 34
- --------------------------------------------------------------------------------- --------- ----------
Total assets................................................................ $16,566 $ 13,978
- --------------------------------------------------------------------------------- --------- ----------
LIABILITIES AND STOCKHOLDERS' EQUITY
Short-term borrowings............................................................ $ 600 $ 800
Accrued interest payable ........................................................ 4 5
- --------------------------------------------------------------------------------- --------- ----------
604 805
- --------------------------------------------------------------------------------- --------- ----------
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 1,079,572 and 1,068,914 shares, respectively ........................ 2,699 2,672
Additional paid-in capital .................................................... 4,021 3,850
Retained earnings ............................................................. 10,250 7,879
Net unrealized gain on available-for-sale securities,
net of applicable income taxes of $152,000 and $18,000, respectively ....... 249 29
Less cost of 137,926 shares of treasury stock ................................. (1,257) (1,257)
- --------------------------------------------------------------------------------- --------- ----------
Total stockholders' equity ............................................... 15,962 13,173
- --------------------------------------------------------------------------------- --------- ----------
Total liabilities and stockholders' equity ............................... $16,566 $ 13,978
- --------------------------------------------------------------------------------- --------- ----------
</TABLE>
FIRST FINANCIAL CORPORATION (Parent Company Only)
STATEMENTS OF EARNINGS
For the Three Years Ended December 31, 1997
<TABLE>
<CAPTION>
(In Thousands) 1997 1996 1995
- -------------------------------------------------------------- ------- ------- -------
<S> <C> <C> <C>
Income:
Dividends from commercial bank subsidiary .................. $ 300* $ 285* $ 360*
- -------------------------------------------------------------- ------- ------- -------
Expenses:
Interest expense ........................................... 57 69 87
Amortization of organizational costs ....................... -- 9 9
Other expenses ............................................. 49 39 26
- -------------------------------------------------------------- ------- ------- -------
106 117 122
- -------------------------------------------------------------- ------- ------- -------
Earnings before Federal income tax benefits and equity in
undistributed earnings of commercial bank subsidiary .. 194 168 238
Federal income tax benefits .................................. 40 44 46
Equity in undistributed earnings of commercial bank
subsidiary ................................................ 2,370* 2,138* 1,457*
- -------------------------------------------------------------- ------- ------- -------
Net earnings ............................................ $2,604 $2,350 $1,741
- -------------------------------------------------------------- ------- ------- -------
*Eliminated in consolidation.
- -----------------------------------------------------------------------------------------------------
</TABLE>
<PAGE> 84
FIRST FINANCIAL
CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
DECEMBER 31, 1997, 1996 AND 1995
- --------------------------------------------------------------------------------
(20) FIRST FINANCIAL CORPORATION - PARENT COMPANY FINANCIAL INFORMATION
FIRST FINANCIAL CORPORATION (Parent Company Only)
STATEMENTS OF STOCKHOLDERS' EQUITY
For the Three Years Ended December 31, 1997
<TABLE>
<CAPTION>
Net
Unrealized
Gains (Losses)
Additional On Available-
Common Paid-In Retained For-Sale Treasury
(In Thousands, Except Shares) Stock Capital Earnings Securities Stock Total
- -------------------------------------------- ------ ---------- -------- -------------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
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 $103,000 ...... -- -- -- (168) -- (168)
- -------------------------------------------- ------ ------ -------- ----- ------- --------
Balance December 31, 1996 .................. 2,672 3,850 7,879 29 (1,257) 13,173
Net earnings for year ...................... -- -- 2,604 -- -- 2,604
Cash dividends declared
($.25 per share) ........................ -- -- (233) -- -- (233)
Issuance of 2,808 shares of common Stock.... 7 26 -- -- -- 33
Issuance of 7,850 shares of common stock
pursuant to dividend reinvestment plan .. 20 145 -- -- -- 165
Net change in unrealized appreciation during
the year, net of taxes of $134,000 ...... -- -- -- 220 -- 220
- -------------------------------------------- ------ ------ -------- ----- ------- --------
BALANCE DECEMBER 31, 1997 .................. $2,699 $4,021 $ 10,250 $ 249 $(1,257) $ 15,962
- -------------------------------------------- ------ ------ -------- ----- ------- --------
</TABLE>
<PAGE> 85
FIRST FINANCIAL
CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
DECEMBER 31, 1997, 1996 AND 1995
- --------------------------------------------------------------------------------
(20) FIRST FINANCIAL CORPORATION - PARENT COMPANY FINANCIAL INFORMATION
FIRST FINANCIAL CORPORATION (Parent Company Only)
STATEMENTS OF CASH FLOWS
For the Three Years Ended December 31, 1997
Increase (Decrease) in Cash and Cash Equivalents
<TABLE>
<CAPTION>
(In Thousands) 1997 1996 1995
- ------------------------------------------------------------ -------- -------- --------
<S> <C> <C> <C>
Cash flows from operating activities:
Cash paid to suppliers ................................... $ (49) $ (39) $ (26)
Interest paid ............................................ (57) (72) (87)
Income taxes received .................................... 43 71 77
- ------------------------------------------------------------ -------- -------- --------
Net cash used in operating activities ........... (63) (40) (36)
- ------------------------------------------------------------ -------- -------- --------
Cash flows from investing activities:
Dividend received from commercial bank subsidiary ........ 300 285 360
Purchase of other assets ................................. -- (34) --
- ------------------------------------------------------------ -------- -------- --------
Net cash provided by investing activities ....... 300 251 360
- ------------------------------------------------------------ -------- -------- --------
Cash flows from financing activities:
Repayments of short-term borrowings ...................... (200) (196) (90)
Dividends paid ........................................... (233) (186) (161)
Payments made to acquire treasury stock .................. -- -- (5)
Issuance of common stock ................................. 198 130 2
- ------------------------------------------------------------ -------- -------- --------
Net cash used in financing activities ........... (235) (252) (254)
- ------------------------------------------------------------ -------- -------- --------
Net increase (decrease) in cash and cash equivalents ....... 2 (41) 70
Cash and cash equivalents at beginning of year ............. 42 83 13
- ------------------------------------------------------------ -------- -------- --------
Cash and cash equivalents at end of year ................... $ 44 $ 42 $ 83
- ------------------------------------------------------------ -------- -------- --------
Reconciliation of net earnings to net cash used in operating
activities:
Net earnings .......................................... $ 2,604 $ 2,350 $ 1,741
Adjustments to reconcile net earnings to net cash
used in operating activities:
Equity in earnings of commercial bank subsidiary .. (2,670) (2,423) (1,817)
Amortization of organization costs ................ -- 9 9
Decrease in due from bank subsidiary .............. 4 27 31
Decrease in accrued interest ...................... (1) (3) --
- ------------------------------------------------------------ -------- -------- --------
Total adjustments ............................... (2,667) (2,390) (1,777)
- ------------------------------------------------------------ -------- -------- --------
Net cash used in operating activities ........... $ (63) $ (40) $ (36)
- ------------------------------------------------------------ -------- -------- --------
</TABLE>
<PAGE> 86
FIRST FINANCIAL
CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
DECEMBER 31, 1997, 1996 AND 1995
- --------------------------------------------------------------------------------
(21) 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 those 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.
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.
<PAGE> 87
FIRST FINANCIAL
CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
DECEMBER 31, 1997, 1996 AND 1995
- --------------------------------------------------------------------------------
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, 1997, 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, 1997 and 1996 are as follows:
<TABLE>
<CAPTION>
1997 1996
------------------------- -----------------------
Carrying Fair Carrying Fair
(In Thousands) Amount Value Amount Value
---------- --------- ---------- --------
<S> <C> <C> <C> <C>
Financial assets:
Cash and short-term investments ...... $ 15,400 $ 15,400 $ 9,137 $ 9,137
Securities ........................... 40,015 40,015 42,473 42,473
Loans ................................ 146,769 124,312
Less: allowance for loan losses ...... (1,704) (1,541)
--------- --------
Loans, net of allowance .............. 145,065 144,520 122,771 122,729
--------- --------
Loans held for sale .................. 2,606 2,606 1,723 1,723
Financial liabilities:
Deposits ............................. 193,260 194,282 167,445 168,029
Short-term borrowings ................ 600 600 800 800
Advances from Federal Home Loan Bank.. 942 997 993 995
Long-term debt ....................... 386 364 391 381
Unrecognized financial instruments:
Commitments to extend credit ......... -- -- -- --
Standby letters of credit ............ -- -- -- --
</TABLE>
- --------------------------------------------------------------------------------
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, a 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.
<PAGE> 88
SUPPLEMENTAL INFORMATION
<PAGE> 89
SUPPLEMENTAL INFORMATION
1. Instructions:
Supplemental information to be Furnished With Reports Filed Pursuant to Section
15(d) of the Exchange Act By Non-reporting Issuers
(a) Except to the extent that the materials enumerated in (1)
and/or (2) below are specifically incorporated into this Form by reference (in
which case, see rule 12b-23(b)), every issuer which files an annual report on
this Form under Section 15(d) of the Exchange Act shall furnish the Commission
for its information, at the time of filing its report on this Form, four copies
of the following:
(1) Any annual report to security holders covering the
registrant's last fiscal year; and
(2) Every proxy statement, form of proxy or other proxy
soliciting material sent to more than ten of the registrant's
security holders with respect to any annual or other meeting
of security holders.
(b) The Commission will not consider the material to be "filed" or
subject to the liabilities of Section 18 of the Exchange Act, except if the
issuer specifically incorporates it in its annual report on this Form by
reference.
(c) If no such annual report or proxy material has been sent to
security holders, a statement to that effect shall be included under this
caption. If such report or proxy material is to be furnished to security holders
subsequent to the filing of the annual report on this Form, the registrant shall
so state under this caption and shall furnish copies of such material
2. Items included:
(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.
<PAGE> 90
FIRST FINANCIAL CORPORATION
1691 NORTH MT. JULIET ROAD
MT. JULIET, TENNESSEE 37122
MARCH 18, 1998
Dear Shareholder:
You are cordially invited to attend the 1998 Annual Meeting of
Shareholders of First Financial Corporation (the "Company") to be held on April
16, 1998, 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 2, 1998, 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, 1998, 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
Chairman of the Board
<PAGE> 91
FIRST FINANCIAL CORPORATION
1691 NORTH MT. JULIET ROAD
MT. JULIET, TENNESSEE 37122
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD ON APRIL 16, 1998
Notice is hereby given that the 1998 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 16, 1998, 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, 1998; and
3. The transaction of such other business as may properly come before
the Annual Meeting or any adjournment(s) thereof or postponements. Other than
ministerial matters such as the approval of prior minutes, 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 2, 1998, 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
Secretary to the Board
Mt. Juliet, Tennessee
March 18, 1998
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> 92
PROXY STATEMENT
OF
FIRST FINANCIAL CORPORATION
1691 NORTH MT. JULIET ROAD
MT. JULIET, TENNESSEE 37122
ANNUAL MEETING OF SHAREHOLDERS
APRIL 16, 1998
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 1998 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 16, 1998, 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, 1998.
The enclosed Notice of Annual Meeting and this Proxy Statement are being first
mailed to Shareholders on or about March 18, 1998.
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 (Robert L. Callis) 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. (Merely attending the Annual Meeting will not serve to revoke a
proxy.) 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 1998 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 2, 1998, as the record date and, accordingly, only holders of
record of shares of the Common Stock at the close of business on April 2, 1998,
are entitled to receive notice of, and to vote at, the Annual Meeting. As of
February 1, 1998, there were 941,646 shares of the Common Stock outstanding and
entitled to vote, with each share entitled to one vote as to all matters. The
<PAGE> 93
presence in person or by proxy of at least a majority of the total number of
outstanding 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 941,646 shares of the Company's
Common Stock issued and outstanding at February 1, 1998, 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 approximately
February 1, 1998. 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 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 (941,646)
at said date, plus that number of shares obtainable by the named person on the
exercise of such options.
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
Amount and
Nature of Percent
Name and Address Beneficial of
of Beneficial Owner Ownership(1) Class(1)
- --------------------------------------------------------------------------------
<S> <C> <C>
(1) Harold G. Bone 37,208(2) 3.94%
2145 Carthage Hwy.
Lebanon, TN 37087
Robert L. Callis, Esq. 29,655(3) 3.14%
2745 No. Mt Juliet Rd
Mt. Juliet, TN 37122
Morris D. Ferguson 14,364 1.52%
1932 Arlington Drive
Lebanon, TN 37087
</TABLE>
<PAGE> 94
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
Amount and
Nature of Percent
Name and Address Beneficial of
of Beneficial Owner Ownership(1) Class(1)
- --------------------------------------------------------------------------------
<S> <C> <C>
Arthur P. Gardner 6,631(4) *
154 Spring Valley Road
Nashville, TN 37214
M. Dale McCulloch 45,543(5) 4.83%
818 Moreland Hills Drive
Mt. Juliet, TN 37122
David Major 29,969 3.13%
1691 North Mt. Juliet Road
Mt. Juliet, TN 37122
Dan E. Midgett 19,764(6) 2.09%
4138 Andrew Jackson Parkway
Hermitage, TN 37076
Monty Mires 19,554(7) 2.07%
5361 Stewarts Ferry Pike
Mt. Juliet, TN 37122
James S. Short 29,099 3.05%
1691 North Mt. Juliet Road
Mt. Juliet, TN 37122
Harold W. Sutton 21,076(8) 2.23%
489 Wilson Drive
Mt. Juliet, TN 37122
(2) Directors and Executive 308,052(9) 30.90%
Officers as a Group (14 individuals)
</TABLE>
- ---------------------------
* Less than 1%.
Notes to Preceding Table
(1) The percentages shown are based on 941,646 total shares outstanding
as of February 1, 1998. The shares shown in each Director's column, and in the
group total, include shares beneficially owned at February 1, 1998 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. Under that Rule, a beneficial
owner of a security includes any person who, directly or indirectly, through any
contract, arrangement, understanding, relationship, or otherwise has or shares
voting power or investment power with respect to the security. Voting power
includes the power to vote or to direct the voting of the power with respect to
the security. Investment power includes the power to dispose or to direct the
disposition of the security. 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
<PAGE> 95
individual retirement account. The following Directors and Executive Officers
hold the specified number of options exercisable within 60 days: Mr. Bone
(1,924), Mr. Callis (2,364), Dr. Ferguson (2,364), Mr. Gardner (2,100), Mr.
Major (14,916), Mr. McCulloch (1,402), Mr. Midgett (2,100), Mr. Mires (2,364),
Mr. Short (12,020), Mr. Sutton (2,364), Mr. Davenport (2,048), Mr. Henson
(2,848), Mrs. Kimble (3,560), and Mr. Penuel (2,848). Shares held in
self-directed Individual Retirement Accounts have been shown in each Director's
total, which shares are shown as the individual possessing sole voting and
dispositive authority.
(2) This Director has voting and investment authority with respect to
15,439 of the shares indicated as custodian for his children.
(3) This Director disclaims voting and investment authority as to 4,137
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 1,638
shares held jointly with his spouse and disclaims voting and investment
authority as to 708 shares controlled by his spouse.
(5) This Director disclaims voting and investment authority as to
16,860 shares controlled by his spouse. Included in this Director's total are
1,832 shares which belong to such Director's minor children.
(6) 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 1,400
shares controlled by his spouse.
(7) This Director shares voting and investment authority as to 8,095
shares held jointly with his spouse.
(8) This Director shares voting and investment authority as to 16,488
shares held jointly with his spouse and disclaims voting and investment
authority as to 300 shares controlled by his spouse.
(9) 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.
----------------
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.
<PAGE> 96
<TABLE>
<CAPTION>
Name Age Office and Business Experience
- ----------------- --- -----------------------------------------
<S> <C> <C>
David Major 49 Chairman, Director, President and Chief
Executive Officer, First Financial
Corporation and First Bank.
James S. Short 47 Director, Executive Vice President, and
Senior Loan Officer, First Financial
Corporation and First Bank.
Sally P. Kimble 44 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 56 Senior Vice President.
David B. Penuel 58 Senior Vice President.
D. Edwin Davenport 47 Senior Vice President, First Bank, 1994 -
present; Vice President, Cavalry Banking,
1980 - 1994.
</TABLE>
Officers are elected annually by, 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.)
<PAGE> 97
<TABLE>
<CAPTION>
Position
Position and and Office
Office Held held with
Name Age with First Bank the Company
---- --- --------------- -----------
<S> <C> <C> <C>
Harold G. Bone(2) 56 Director Director
Robert L. Callis(3) 52 Director & Secretary Director & Secretary
Morris D. Ferguson, 65 Director Director
M.D.(4)
Arthur P. Gardner(5) 61 Director Director
M. Dale McCulloch(6) 47 Director Director
David Major(7) 49 Chairman, President, Chairman,
CEO & Director President, CEO
& Director
Dan E. Midgett(8) 54 Director Director
Monty Mires(9) 52 Director Director
James S. Short(10) 47 Director, Director
Executive V.P., and Executive V.P., and
Senior Loan Officer Senior Loan Officer
Harold W. Sutton(11) 66 Director 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. From 1996 until July of 1997, Mr. Callis was a
partner of Callis & Hershey. He is now a sole practitioner. Mr. Callis provides
certain legal services to the Company and to First Bank as described under the
discussion of "Certain Relationships and Related Transactions."
(4) Dr. Ferguson is a retired physician.
<PAGE> 98
(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, Senior Loan Officer
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, 1997, the Board of Directors met four
times (all of which 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.
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
<PAGE> 99
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
There were no changes in the Company's chief executive during the
last fiscal year. The following table sets forth the compensation of the
Company's Chief Executive Officer for 1997 and the other four most highly
compensated executive officers as of December 31, 1997 (if their total annual
salary and bonus equaled or exceeded $100,000). The figures below include all
compensation paid for all services to the Company for that fiscal year.
SUMMARY COMPENSATION TABLE
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
Annual Compensation Long-Term Compensation
--------------------------------------------------------------------------------------------------------
Awards Payouts
----------------------------- -----------------------------
Securities
Other Restricted Underlying
Name and Principal Annual Stock Award(s) Options/SARs LTIP All Other
Position Year Salary($) Bonus($) Compensation($)(1) ($) (#)(2) Payouts($) Compensation($)(3)
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
David Major, 1997 $141,880 $ -0- $18,941 N/A 1,300 $ -0- $7,042
President/CEO 1996 126,880 3,952 18,512 N/A -0- -0- 6,589
1995 122,000 -0- 11,185 N/A 4,864 -0- 6,350
</TABLE>
Notes to Summary Compensation Table
(1) This amount includes Director's fees, 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 includes the Company's contribution to the Company's
401(k) plan on behalf of the named executive(s), as well as the value of the
named executive officer(s)'s automobile usage and insurance premiums paid by the
company.
STOCK OPTION GRANTS
The Company granted 1,300 stock options to the Directors, which
included each of the executive officer(s) named in the Summary Compensation
Table. (As noted previously, all per share data have been adjusted to reflect
the two-for-one stock split that occurred in 1996.) Of these, One hundred shares
became exercisable on December 30, 1997, and two hundred per year are
exercisable during any twelve month period commencing September 1, 1998,
pursuant to certain terms and subject to certain specified limitations. All
options granted in 1997 were granted at the then estimated fair market value of
$22.50 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.
<PAGE> 100
1997 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.)
<TABLE>
<CAPTION>
- ---------------------- ---------------------- --------------------- ---------------------- ----------------------
PERCENTAGE OF TOTAL
NUMBER OF SECURITIES OPTIONS/SARS
UNDERLYING GRANTED TO EXERCISE OR BASE
OPTIONS/SARS EMPLOYEES IN FISCAL PRICE
NAME (#) YEAR (DOLLARS PER SHARE) EXPIRATION DATE
- ---------------------- ---------------------- --------------------- ---------------------- ----------------------
<S> <C> <C> <C> <C>
David Major 1,300(1) 50% $22.50 August 31, 2007
- ---------------------- ---------------------- --------------------- ---------------------- ----------------------
</TABLE>
NOTE TO PRECEDING TABLE
(1) This number represented 10% of the options granted to the Directors
in 1997.
1997 STOCK EXERCISES
The table below provides information as to exercises of options under
the Company's stock option plan by the named executive officer(s) reflected in
the Summary Compensation Table and the year-end value of unexercised options
held by such officer(s). (The Company grants no stock appreciation rights.)
AGGREGATED OPTION/SAR EXERCISES IN LAST FISCAL
YEAR AND FISCAL YEAR END OPTION/SAR VALUES(1)
<TABLE>
<CAPTION>
- -------------------- --------------------- -------------------- ------------------------ ------------------------
Securities Underlying Value of Unexercised
Unexercised in-the-Money
Options/SARs Options/SARs At Fiscal
At Fiscal Year End (#) Year End ($)
Shares Acquired on Value Realized on Exercisable/ Exercisable/
Name and Title Exercise (#) Exercise ($) Nonexerciseable(2) Nonexerciseable(2)
- -------------------- --------------------- -------------------- ------------------------ ------------------------
<S> <C> <C> <C> <C>
David Major -0- $ -0- 12,244/14,560 $173,290/$188,200
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, 1997 of $25.00 per share and the respective exercise
price(s) of the options at the date(s) of grant. Such amounts may not
<PAGE> 101
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.
-----------
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, 1997, the employer matched fifty cents ($.50) per dollar of
employee contributions up to a maximum of 6% of the employee's
<PAGE> 102
compensation. The Company's contribution for the year, including administrative
fees, totaled $68,000 as compared with $55,000 for 1996 and $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 1997 a retainer of $ 5,000 each for the
year 1998. 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 benefits. There were six
participants in the Program at year end 1997 and 1996. 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 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. The total received will vary for each individual due to age, amount of
deferral, retirement, and whether or not the director has chosen to receive
monthly benefits or a lump sum payment. At December 31, 1997, the deferred
compensation liability totaled $110,000 (compared to $100,000 at December 31,
1996). The cash surrender value of life insurance was $211,000 at December 31,
1997 (compared to $163,000 at December 31, 1996). The face amount of the
insurance policies in force at December 31, 1997 approximated $1,108,000. In
1997, Directors Morris Ferguson and Harold W. Sutton reached retirement age
according to the deferred compensation plan. Each elected to receive lump sum
payments of, respectively, $12,860.00 and $6,459.64. 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 $1,897,000 at December 31, 1997 and thus
equal to an estimated 11.88% of the Company's total Shareholders' equity at
December 31, 1997. This indebtedness comprised approximately 1.31% of the total
currently outstanding First Bank loans (net of loan loss reserve) as of December
31, 1997. 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, nor were any of these related-party loans restructured or
charged off in such year.
<PAGE> 103
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 1997: D. Edwin Davenport ($193.96); Charlcie
Finley ($38.59); David Grandstaff ($284.31); Allen M. Henson ($300.47); David
Major ($8.93); Willadeen Miller ($1,208.67); Betty Parks ($87.55); David B.
Penuel ($2,781.75); James S. Short ($137.78); Phil Smartt ($1,249.09); Vondie
Smith ($296.06), Adeline Smotherman ($64.23); Charles Styles ($3,354.80);
Barbara Wilkerson ($287.49); and Ron Wright ($871.17), for a total of
$11,164.85.
Director Robert L. Callis is an attorney who represents the Company and
First Bank in certain legal matters. First Bank paid Mr. Callis approximately
$30,759.50 for services rendered in fiscal 1997. 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 for
mutually agreed projects.
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 Assistant Vice President 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, 1998, subject to ratification of such appointment by the
Shareholders. Maggart & Associates, P.C. served as the Company's independent
auditors for the 1997 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.
REGISTRATION UNDER THE SECURITIES EXCHANGE ACT; COMPLIANCE WITH
SECTION 16(a) OF THE EXCHANGE ACT
The Company has recently registered the shares of its common stock
pursuant to Section 12 of the Exchange Act. Accordingly, the Company, will
become subject to Section 16(a) of the Exchange Act commencing approximately in
mid-1998.
<PAGE> 104
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, 1997 (WITHOUT CERTAIN EXHIBITS), AS AND WHEN 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, 1997, 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 1999 Annual Meeting of Shareholders, any Shareholder
proposal to take action at such 1999 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 January 31, 1999. 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.
<PAGE> 105
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 2, 1998, at the
Annual Meeting of Shareholders to be held on April 16, 1998, 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, 1998.
[ ] 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: , 1998
----------------- --------------------------------------------
Signature
--------------------------------------------
Signature, if held jointly
<PAGE> 106
Year 9
FIRST FINANCIAL CORPORATION
ANNUAL REPORT 1997
<PAGE> 107
FIRST FINANCIAL
CORPORATION
LETTER TO SHAREHOLDERS
- -------------------------------------------------------------------------------
Dear Shareholders,
First Financail Coproation experienced a very successful year in 1997, thanks to
excellent economic conditions, supportive shareholders, loyal customers and a
dedicated staff. Groundwork which was set in 1996 helped to pave the way for
continued growth and income opportunities in 1997.
The first quarter of the year we unveiled our updated and distinctive
FIRST BANK logo which clearly defines our bank's image and reflects our
commitment to the future. The second and third quarters of the year were spent
expanding and upgrading current physical plant facilities in order to better
serve our customers and more effeciently house our employees. On-going
technological upgrades to our computer equipment made throughout the year
continue to increase staffing efficiency and enhance customer service.
The later part of 1997 we increased our customer service staff through
the addition of experienced bankers at several of our locations. Staffing for
our new Donelson location was determined and set into motion for an early 1998
opening.
From the financial perspective, net earnings for the corporation were
$2,604,000 in 1997 as compared to $2,350,000 in 1996 -- an increase of 11%.
Return on average equity during this time period was 19.48%. Basic earnings per
share increased from $2.53 in 1996 to $2.78 in 1997. Continued deposit growth
in 1997 allowed First Bank to move into second place in market share in Wilson
County.
We are excited about the expansion opportunities that are before us in
1998. Recently we leased the old post office building next to the Main Office
in Mt. Juliet. this building is being renovated in order to accomodate expansion
of our services. Growth in our mortgage department has necessitated expansion so
we can take advantage of the market opportunities in that area. We will also be
relocating our loan operations department to this building in order to open
space in the Main Office for other types of retail activities.
Our new donelson branch opened in a temporary location on february 2.
The new permanent building will be under construction within a few weeks and
should be completed in the fall. We are very pleased with the reception the
bank has received n this community and are anticipating a strong deposit and
loan base in this new market.
As we reflect upon our success for this and previous years we are
optimistic about the future for First Financail Corporation and its subsidiary,
First Bank and Trust. Your continued support and involvement will assist in
making these dreams become realities.
Sincerely,
David Major
President and CEO
First Financial Corporation
<PAGE> 108
FIRST FINANCIAL
CORPORATION
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, 1997:
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------------
(In Thousands, Except Per Share Information) 1997 1996 1995 1994 1993
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Interest income............................. $ 16,652 $ 14,629 $ 12,381 $ 8,846 $ 7,309
Interest expense............................ 7,737 6,656 5,793 3,790 2,822
- -----------------------------------------------------------------------------------------------------------------------
Net interest income................ 8,915 7,973 6,588 5,056 4,487
Provision for possible loan losses.......... (350) (310) (356) (325) (311)
- -----------------------------------------------------------------------------------------------------------------------
Net interest income after provision
for possible loan losses................. 8,565 7,663 6,232 4,731 4,176
Non-interest income......................... 2,090 1,739 1,538 1,889 1,600
Non-interest expense........................ (6,690) (5,855) (5,149) (4,588) (4,060)
- -----------------------------------------------------------------------------------------------------------------------
Earnings before income taxes 3,965 3,547 2,621 $ 2,032 $ 1,716
Income taxes................................ 1,361 1,197 880 $ 702* $ 599
- ------------------------------------------------------------------------------------------------------------------------
Net earning........................ $ 2,604 $ 2,350 $ 1,741 $ 1,330 $ 1,117
- ------------------------------------------------------------------------------------------------------------------------
Cash dividends declared..................... $ 233 $ 186 $ 161 $ 159 $ 147
- ------------------------------------------------------------------------------------------------------------------------
Total assets end of year.................... $212,492 $183,973 $157,755 $125,589 $108,520
- ------------------------------------------------------------------------------------------------------------------------
Stockholders' equity end of year............ $ 15,962 $ 13,173 $ 11,047 $ 8,885 $ 8,584
- ------------------------------------------------------------------------------------------------------------------------
Per share information:
Basic earnings per common share**........ $ 2.78 $ 2.53 $ 1.89 $ 1.43 $ 1.13
- ------------------------------------------------------------------------------------------------------------------------
Diluted earnings per common share**...... $ 2.71 $ 2.50 $ 1.88 $ 1.43 $ 1.13
- ------------------------------------------------------------------------------------------------------------------------
Dividends per share**.................... $ .25 $ 0.20 $ 0.175 $ 0.175 $ 0.15
- ------------------------------------------------------------------------------------------------------------------------
Book value per share end of year**....... $ 16.95 $ 14.15 $ 11.97 $ 9.63 $ 8.84
- ------------------------------------------------------------------------------------------------------------------------
</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. In addition, the earnings per share calculations have
been retroactively adjusted to present basic and diluted earnings per
share in accordance with Statement of Financial Accounting Standards 128,
"Earnings Per Share", which became effective in 1997.
<PAGE> 109
FIRST FINANCIAL
CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OR
PLAN OF OPERATION
- -------------------------------------------------------------------------------
The purpose of this discussion 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.
- -------------------------------------------------------------------------------
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
interest-sensitive 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, or the need or desire to increase capital and similar economic factors.
The Company has $8,944,000 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, 1997 commercial loans of approximately $31 million and other loans
(real estate construction, real estate mortgage and consumer) of approximately
$88 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.
As for liabilities, certificates of deposit of $100,000 or greater of
approximately $29 million will become due during the next twelve months. The
Company's deposit base has shown continued growth, increasing by approximately
$26 million or 15.4% in 1997. During 1996 deposits increased by approximately
$25 million or 17.2%.
The Company also has the ability to meet its liquidity needs through
advances from the Federal Home Loan Bank. At December 31, 1997 and 1996, the
Company had $942,000 and $993,000, respectively, of these advances.
As of December 31, 1997 the Bank's asset sensitivity was 6.0% (the excess
of earnings assets over interest sensitive liabilities 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 19.5% at December 31, 1997 and 22.9% at December 31, 1996.
The Company presently maintains an asset sensitive position over the 1998
year or a positive gap assuming negotiable order of withdrawal, money market
demand and savings accounts are not rate sensitive. Asset sensitivity means
that more of the Company's assets are capable of repricing over certain time
frames than liabilities. The interest rates associated with these liabilities
may not actually change over this period but are capable of changing. For
example, the 90 day gap is a picture of the possible repricing over a 90 day
period.
<PAGE> 110
FIRST FINANCIAL
CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OR
PLAN OF OPERATION
- -------------------------------------------------------------------------------
The following table shows the rate sensitivity gaps for different time
periods as of December 31, 1997:
<TABLE>
<CAPTION>
-------- -------- ---------- -------------
Interest rate sensitivity gaps: 1-90 91-365 One Year
December 31, 1997 Days Days and Longer Total
-------- -------- ---------- -------------
<S> <C> <C> <C> <C>
Interest-earning assets................... $ 62,550 $ 46,728 $ 89,412 $ 198,690
Interest-bearing liabilities.............. 33,155 58,999 77,484 169,638
------------------------------------------ -------- -------- ---------- -------------
Interest-rate sensitivity gap............. $ 29,395 $(12,271) $ 11,928 $ 29,052
------------------------------------------ -------- -------- ---------- -------------
Cumulative gap............................ $ 29,395 $ 17,124 $ 29,052
------------------------------------------ -------- -------- ----------
Interest-rate sensitivity gap
as a % of total assets................. 14.8% (6.2)% 6.0%
------------------------------------------ -------- -------- ----------
Cumulative gap as a % of
total assets........................... 14.8% 8.6% 14.6%
------------------------------------------ -------- -------- ----------
</TABLE>
For purposes of presentation management considers negotiable order of
withdrawal accounts, money market demand accounts and savings accounts totaling
$55,216,000 at December 31, 1997 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 $55,216,000 for all periods through 365
days if the accounts with no contractual maturities had been included in the
1-90 days maturity category.
- -------------------------------------------------------------------------------
CAPITAL RESOURCES
A primary source of capital is internal growth through retained earnings.
The ratio of stockholders' equity to total assets was 7.5% at December 31,
1997, 7.2% at December 31, 1996 and 7.0% at December 31, 1995. Total assets
increased 15.5% from $183,973,000 to $212,492,000 during the year ended
December 31, 1997. During 1996 total assets increased from $157,755,000 to
$183,973,000 or 16.6%. Management has anticipated an annual growth rate of 10%
to 15% for 1998 compared to the annual growth rates of 15.5% for 1997 and 16.6%
for 1996. 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 other than the planned branch described below.
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, 1997 (excluding the effect of the adoption of SFAS No. 115):
<TABLE>
<CAPTION>
(In Thousands)
- ----------------------------------------------------------------------------------------------------- --------
<S> <C>
Tier I capital: Stockholders' equity................................................................ $15,713
Total risk-based capital:
Allowable allowance for loan losses (limited to 1.25% of risk-weighted assets)................... 1,704
- ----------------------------------------------------------------------------------------------------- --------
Total risk-based capital.................................................................... $17,417
- ----------------------------------------------------------------------------------------------------- --------
Risk-weighted assets................................................................................. $55,598
- ----------------------------------------------------------------------------------------------------- --------
Risk-based capital ratios: Tier I capital ratio..................................................... 10.10%
- ----------------------------------------------------------------------------------------------------- --------
Total risk-based capital ratio....................................................................... 11.19%
- ----------------------------------------------------------------------------------------------------- --------
</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, 1997, the Company and its subsidiary bank were in
compliance with these requirements.
<PAGE> 111
FIRST FINANCIAL
CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OR
PLAN OF OPERATION
- -------------------------------------------------------------------------------
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, 1997 was 7.45% as compared to 7.14% at
December 31, 1996 and 6.86% at December 31, 1995.
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, 1997 and 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. 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 plan whereby
159,000 shares of the Company's stock is available for issuance to directors,
officers and employees of the Company. At December 31, 1997, 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, 528 shares were granted at $19.00 per share
and 13,000 shares were granted in 1997 at $22.50 per share. The options are
granted at the estimated market price of the stock at the date the option was
granted. At December 31, 1997 there were 124,222 options granted but not
exercised. The options are generally exercisable ratably over a ten year period
from the date granted. At December 31, 1997 options to purchase 30,280 common
shares were available for grant in future years.
At present, the net book value of premises and equipment is 42.3% 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 bank also has a branch bank facility in
Smyrna, Rutherford County, Tennessee which opened in the fourth quarter of
1996. The Company is also in the process of constructing a new branch bank
facility in Donelson, Davidson County, Tennessee at an estimated cost of
$850,000. 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 41.0%. Investment in fixed assets can have a detrimental impact
on profits, particularly in the short term.
- -------------------------------------------------------------------------------
RESULTS OF OPERATIONS
Net earnings were $2,604,000 in 1997 as compared to $2,350,000 in 1996 and
$1,741,000 in 1995. Basic earnings per share increased from $1.89 in 1995 to
$2.53 in 1996 to $2.78 in 1997. Diluted earnings per share increased from $1.88
in 1995 to $2.50 in 1996 to $2.71 in 1997.
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.
The Company's total interest income, excluding tax equivalent adjustments,
increased by $2,023,000 or 13.8% in 1997, $2,248,000 or 18.2% in 1996, and
$3,535,000 or 40.0% in 1995. The increases were primarily attributable to
higher volumes of earning assets in 1997, 1996, and 1995. The ratio of average
earning assets to total average assets was 93.1% for the year ended December
31, 1997, 93.2% for 1996 and 93.1% for 1995.
<PAGE> 112
FIRST FINANCIAL
CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OR
PLAN OF OPERATION
- -------------------------------------------------------------------------------
Interest expense increased by $1,081,000 in 1997 or 16.2%, increased
$863,000 or 14.9% in 1996, and increased $2,003,000 or 52.8% in 1995. The
increase in 1997 can be attributable largely to an increase in volume. 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 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
$942,000 or 11.8% during 1997, $1,385,000 or 21.0% in 1996, and $1,532,000 or
30.3% in 1995.
For the year ended December 31, 1997, the Company had interest income, on
a tax-equivalent adjusted basis, as a percent of average earning assets, of
9.2%, compared with 9.3% for the year ended December 31, 1996 and 9.4% for
1995. Interest expense as a percentage of interest bearing liabilities did not
change between 1996 and 1997. Interest expense as a percentage of average
interest bearing liabilities decreased from to 5.1% in 1995 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, remained level at
5.1% in 1995 and 1996 and decreased to 5.0% in 1997. The spread has remained
relatively constant for the past three years.
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 $350,000 in 1997 as compared to $310,000
in 1996 and $356,000 in 1995. 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, 1997 and 1996:
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------- ------------------------------
(Dollars in thousands) 1997 1996
<S> <C> <C>
Loans past due 90 days or more and still accruing:
Commercial, financial and agricultural loans............................................. $ 139 $ 139
Real estate - construction............................................................... - -
Real estate - mortgage loans............................................................. 109 74
Consumer loans........................................................................... 67 14
- --------------------------------------------------------------------------------------------- ------------------------------
315 227
- --------------------------------------------------------------------------------------------- ------------------------------
Non-accrual loans:
Commercial, financial and agricultural loans............................................. 389 -
Real estate - construction loans......................................................... - -
Real estate - mortgage loans............................................................. 89 88
Consumer loans........................................................................... 3 -
- --------------------------------------------------------------------------------------------- ------------------------------
481 88
- --------------------------------------------------------------------------------------------- ------------------------------
Renegotiated loans:
Commercial, financial and agricultural loans............................................. 49 92
Real estate - construction loans......................................................... - -
Real estate - mortgage loans............................................................. 108 231
Consumer loans........................................................................... - -
- --------------------------------------------------------------------------------------------- ------------------------------
157 323
- --------------------------------------------------------------------------------------------- ------------------------------
Total nonperforming loans $ 953 $ 638
- --------------------------------------------------------------------------------------------- ------------------------------
</TABLE>
<PAGE> 113
FIRST FINANCIAL
CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OR
PLAN OF OPERATION
- -------------------------------------------------------------------------------
Nonperforming loans have increased by $315,000 from December 31, 1996 to
December 31, 1997 and represent .65% and .51% of total loans, respectively. The
increase resulted from an increase in non-accrual loans of $393,000, an
increase in loans ninety-days or more past due of $88,000, and a decrease in
renegotiated loans of $166,000. The decrease in restructured loans from 1996 to
1997 resulted primarily from the paydown of loans between years. One of these
loans amounting to $108,000 is included within real estate - mortgage and one
loan amounting to $49,000 is included within commercial loans.
At December 31, 1997 loans totaling $2,018,000 were included in the
Company's internal classified loan list. Of these loans $671,000 are consumer,
$1,175,000 are commercial loans and $172,000 are real estate loans. The
collateral values securing these loans total approximately $3,248,000 based on
management estimates ($1,241,000 related to consumer loans, $1,721,000 related
to commercial loans and $286,000 related to real estate loans). At December 31,
1996, the Company's internally classified loans totaled $1,634,000 as compared
to $1,419,000 at December 31, 1995. 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 $351,000 or 20.2% in 1997, and increased
$201,000 or 13.1% in 1996, and decreased $351,000 or 18.6% in 1995. Included in
the year ended December 31, 1996 is a net security gain of $11,000. Exclusive
of this transaction, non-interest income increased $362,000 or 20.9% in 1997
and increased $190,000 or 12.4% in 1996. There were no securities gains during
the year ended December 31, 1995. The overall increase in non-interest income
in 1997 includes a $165,000 increase in service charges on deposits, a $212,000
increase in gains on sales of loans, and a $15,000 decrease in other fees. The
increase in 1996 resulted from increases in service charges, other fees, and
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.
Gain on sale of loans increased from $556,000 in 1995 to $600,000 in 1996 and
increased to $812,000 in 1997. Commissions and service charges are monitored
continually to insure maximum return based on costs and competition.
Non-interest expense increased $835,000 or 14.3% in 1997, $706,000 or
13.7% in 1996, and $561,000 or 12.2% in 1995. Included in the years ended
December 31, 1997 and 1995 are net security losses of $47,000 and $62,000,
respectively, related to sales of available-for-sale securities. Exclusive of
these transactions, non-interest expense increased $788,000 or 13.5% and
$768,000 or 15.1% in 1997 and 1996, respectively. The increases in 1997, 1996,
and 1995 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 additions
to furniture and equipment in 1996. Employee salaries and benefits increased
$526,000 or 16.0% in 1997, $509,000 or 18.3% in 1996 and $283,000 or 11.3% in
1995. The FDIC insurance premiums and state banking fees decreased from
$160,000 in 1995 to $34,000 in 1996 and increased to $59,000 in 1997. 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.
Premiums for 1997 increased to $21,000.
The Company accounts for its securities under the provisions of Statement
of Financial Accounting Standards No. 115 (SFAS No. 115), "Accounting for
Certain Investments in Debt and Equity Securities". 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, 1997
and 1996 as available-for-sale was made to provide for more flexibility in
asset/liability management and capital management.
<PAGE> 114
FIRST FINANCIAL
CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OR
PLAN OF OPERATION
- -------------------------------------------------------------------------------
The net increase in capital at December 31, 1995 resulting from applying
these accounting provisions totaled $197,000 which represents the unrealized
appreciation 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. The
net increase in capital at December 31, 1997 totaled $249,000 which represents
the unrealized appreciation in securities available-for-sale of $401,000 less
applicable taxes of $152,000.
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-for-sale classification in December, 1995
pursuant to these provisions.
The Company plans to adopt Statement of Financial Accounting Standards No.
130 (SFAS 130) "Reporting Comprehensive Income". The new statement which
becomes effective for years beginning after December 15, 1997, requires a new
financial statement that includes unrealized gains and losses on certain assets
and liabilities. The statement will provide additional information but will not
impact existing statements.
The Company has conducted a comprehensive review of its computer systems
to identify the systems that could be affected by the Year 2000 Issue and is
developing an implementation plan to resolve the issue. The Year 2000 Issue is
the result of computer programs being written using two digits rather than four
to define the applicable year. Any of the Company's programs that have
time-sensitive software may recognize a date using "00" as the year 1990 rather
than the year 2000. This could result in a major system failure or
miscalculations. The Company's software vendors have been communicated with and
are responsible for upgrading the primary software of the Bank. Communications
have also been planned with customers of the Bank concerning the Year 2000
Issue. The Company presently believes that, with modifications to existing
software and conversions to new software, the Year 2000 problem will not pose
significant operational problems for the Company's computer systems as so
modified and converted. However, if such modifications and conversions are not
completed timely, the Year 2000 problem may have a material impact on the
operations of the Company.
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.
Branch operations contributed 67.9% of the Bank's total deposits by year
end as compared to 66.6% in 1996, as well as 45.3% of the loans as compared to
42.2% in 1996. The origination and sale of loans net of allocated expenses
contributed $177,000 in pretax income in 1997 and $86,000 in 1996. 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.
<PAGE> 115
FIRST FINANCIAL CORPORATION
MT. JULIET, TENNESSEE
CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1997 AND 1996
(WITH INDEPENDENT AUDITOR'S REPORT THEREON)
<PAGE> 116
MAGGART & ASSOCIATES, P.C.
Certified Public Accountants
FIRST UNION TOWER
SUITE 2150
150 FOURTH AVENUE, NORTH
NASHVILLE, TENNESSEE 37219-2417
Telephone (615) 252-6100
Facsimile (615) 252-6105
- -------------------------------------------------------------------------------
Independent Auditor's 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, 1997 and 1996, 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,
1997. 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, 1997 and 1996,
and the results of their operations and their cash flows for each of the three
years in the period ended December 31, 1997, in conformity with generally
accepted accounting principles.
/s/ Maggart & Associates, P.C.
Nashville, Tennessee
January 8, 1998
<PAGE> 117
FIRST FINANCIAL
CORPORATION
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1997 AND 1996
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
(In Thousands) 1997 1996
- ---------------------------------------------------------------------------------------------- ------------ ------------
<S> <C> <C>
ASSETS
Loans, net of allowance for possible loan losses of $1,704,000 and $1,541,000, respectively... $ 145,065 $ 122,771
Securities available-for-sale, at market (amortized cost of $39,613,000
and $42,427,000, respectively)............................................................. 40,015 42,473
Loans held for sale........................................................................... 2,606 1,723
Federal funds sold............................................................................ 9,300 3,725
- ---------------------------------------------------------------------------------------------- ------------ ------------
Total earning assets........................................................ 196,986 170,692
- ---------------------------------------------------------------------------------------------- ------------ ------------
Cash and due from banks....................................................................... 6,100 5,412
Premises and equipment, net................................................................... 6,752 5,457
Other real estate............................................................................. 2 2
Accrued interest receivable................................................................... 1,873 1,638
Deferred income taxes......................................................................... 258 410
Other assets.................................................................................. 521 362
- ---------------------------------------------------------------------------------------------- ------------ ------------
Total assets $ 212,492 $ 183,973
- ---------------------------------------------------------------------------------------------- ------------ ------------
LIABILITIES AND STOCKHOLDERS' EQUITY
Deposits:
Demand deposits............................................................................ $ 25,550 $ 20,647
Negotiable order of withdrawal accounts.................................................... 23,954 16,305
Money market account deposits.............................................................. 23,118 21,381
Savings accounts........................................................................... 9,833 9,928
Certificates of deposit.................................................................... 110,805 99,184
- ---------------------------------------------------------------------------------------------- ------------ ------------
Total deposits 193,260 167,445
- ---------------------------------------------------------------------------------------------- ------------ ------------
Income taxes payable.......................................................................... - 90
Accrued interest payable...................................................................... 1,096 882
Other liabilities............................................................................. 246 199
Short-term borrowings......................................................................... 600 800
Advances from Federal Home Loan Bank.......................................................... 942 993
Long-term debt................................................................................ 386 391
- ---------------------------------------------------------------------------------------------- ------------ ------------
Total liabilities 196,530 170,800
- ---------------------------------------------------------------------------------------------- ------------ ------------
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 1,079,572 and 1,068,914 shares, respectively...................................... 2,699 2,672
Additional paid-in capital................................................................. 4,021 3,850
Retained earnings.......................................................................... 10,250 7,879
Net unrealized gains on available-for-sale securities, net of applicable
income taxes of $152,000 and $18,000, respectively....................................... 249 29
Less cost of 137,926 shares of treasury stock.............................................. (1,257) (1,257)
- ---------------------------------------------------------------------------------------------- ------------ ------------
Total stockholders' equity................................................... 15,962 13,173
- ---------------------------------------------------------------------------------------------- ------------ ------------
COMMITMENTS AND CONTINGENCIES
- ----------------------------------------------------------------------------------------------
Total liabilities and stockholders' equity................................... $ 212,492 $ 183,973
- ---------------------------------------------------------------------------------------------- ------------ ------------
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE> 118
FIRST FINANCIAL
CORPORATION
CONSOLIDATED STATEMENTS OF EARNINGS
THREE YEARS ENDED DECEMBER 31, 1997
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------
(In Thousands, Except Per Share Amounts) ........................ 1997 1996 1995
- ----------------------------------------------------------------- ---------- ---------- ------------
<S> <C> <C> <C>
Interest income:
Interest and fees on loans .................................... $ 13,732 $ 11,893 $ 9,787
Interest and dividends on securities:
Taxable securities ......................................... 1,848 2,036 1,938
Exempt from Federal income taxes ........................... 550 436 360
Interest on loans held for sale ............................... 142 119 75
Interest on Federal funds sold ................................ 380 137 209
Interest on interest-bearing deposits in financial institutions -- 8 12
- ----------------------------------------------------------------- ---------- ---------- ------------
Total interest income .................................... 16,652 14,629 12,381
- ----------------------------------------------------------------- ---------- ---------- ------------
Interest expense:
Interest on negotiable order of withdrawal accounts ........... 536 401 341
Interest on money market demand accounts ...................... 883 795 558
Interest on savings deposits .................................. 228 224 211
Interest on individual retirement savings accounts ............ 79 80 82
Interest on certificates of deposit ........................... 5,857 4,965 4,376
Interest on short-term borrowings ............................. 57 76 89
Interest on advances from Federal Home Loan Bank .............. 70 88 108
Interest on long-term debt .................................... 27 27 28
- ----------------------------------------------------------------- ---------- ---------- ------------
Total interest expense ................................... 7,737 6,656 5,793
- ----------------------------------------------------------------- ---------- ---------- ------------
Net interest income before provision for loan losses ............ 8,915 7,973 6,588
Provision for possible loan losses .............................. (350) (310) (356)
- ----------------------------------------------------------------- ---------- ---------- ------------
Net interest income after provision for possible loan losses .... 8,565 7,663 6,232
Non-interest income ............................................. 2,090 1,739 1,538
Non-interest expense ............................................ (6,690) (5,855) (5,149)
- ----------------------------------------------------------------- ---------- ---------- ------------
Earnings before income taxes ............................. 3,965 3,547 2,621
Income taxes .................................................... 1,361 1,197 880
- ----------------------------------------------------------------- ---------- ---------- ------------
Net earnings ............................................. $ 2,604 $ 2,350 $ 1,741
- ----------------------------------------------------------------- ---------- ---------- ------------
Basic earnings per common share ................................. $ 2.78 $ 2.53 $ 1.89
- ----------------------------------------------------------------- ---------- ---------- ------------
Diluted earnings per common share ............................... $ 2.71 $ 2.50 $ 1.88
- ----------------------------------------------------------------- ---------- ---------- ------------
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE> 119
FIRST FINANCIAL
CORPORATION
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
THREE YEARS ENDED DECEMBER 31, 1997
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------
Net
Unrealized
Gains
(Losses)
On
Additional Available-
Common Paid-In Retained For-Sale Treasury
(In Thousands, Except Shares) .............. Stock Capital Earnings Securities Stock Total
- -------------------------------------------- -------- ---------- -------- ---------- -------- ---------
<S> <C> <C> <C> <C> <C> <C>
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 $103,000 ...... -- -- -- (168) -- (168)
- -------------------------------------------- -------- -------- -------- -------- -------- ---------
Balance December 31, 1996 .................. 2,672 3,850 7,879 29 (1,257) 13,173
Net earnings for year ...................... -- -- 2,604 -- -- 2,604
Cash dividends declared ($.25 per share) ... -- -- (233) -- -- (233)
Issuance of 2,808 shares of common stock ... 7 26 -- -- -- 33
Issuance of 7,850 shares of common stock
pursuant to dividend reinvestment plan .. 20 145 -- -- -- 165
Net change in unrealized appreciation during
the year, net of taxes of $134,000 ...... -- -- -- 220 -- 220
-------- -------- -------- -------- -------- ---------
BALANCE DECEMBER 31, 1997 .................. $ 2,699 $ 4,021 $ 10,250 $ 249 $ (1,257) $ 15,962
- -------------------------------------------- -------- -------- -------- -------- -------- ---------
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE> 120
FIRST FINANCIAL
CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
THREE YEARS ENDED DECEMBER 31, 1997
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------
(In Thousands) 1997 1996 1995
- ------------------------------------------------------------ -------- -------- --------
<S> <C> <C> <C>
Cash flows from operating activities:
Interest received ........................................ $ 16,336 $ 14,463 $ 11,962
Fees received ............................................ 1,278 1,128 982
Interest paid ............................................ (7,523) (6,578) (5,484)
Cash paid to suppliers and employees ..................... (6,302) (5,544) (4,711)
Proceeds from loan sales ................................. 38,614 34,603 27,913
Originations of loans held for sale ...................... (38,685) (33,914) (28,073)
Income taxes paid ........................................ (1,483) (1,330) (950)
- ------------------------------------------------------------ -------- -------- --------
Net cash provided by operating activities .......... 2,235 2,828 1,639
- ------------------------------------------------------------ -------- -------- --------
Cash flows from investing activities:
Proceeds from sales of available-for-sale securities ..... 7,236 10,711 3,685
Proceeds from maturities of available-for-sale securities 4,276 4,321 1,746
Purchase of available-for-sale securities ................ (8,666) (14,112) (12,483)
Proceeds from maturities of held-to-maturity securities .. -- -- 1,903
Purchase of held-to-maturity securities .................. -- -- (3,344)
Loans made to customers, net of repayments ............... (22,644) (23,276) (21,719)
Purchase of premise and equipment ........................ (1,698) (1,300) (532)
Proceeds from maturities of (purchase of) interest-bearing
deposits in financial institutions .................... -- 203 (3)
Proceeds from sale of other real estate .................. -- 239 --
Increase in other real estate ............................ -- (5) (13)
Purchase of other assets ................................. -- (34) --
- ------------------------------------------------------------ -------- -------- --------
Net cash used in investing activities .............. (21,496) (23,253) (30,760)
- ------------------------------------------------------------ -------- -------- --------
Cash flows from financing activities:
Net increase in non-interest-bearing, demand
savings and NOW deposit accounts ...................... 14,194 6,414 13,220
Net increase in time deposits ............................ 11,621 18,109 16,664
Repayments of short-term borrowings, net ................. (200) (196) (90)
Repayment of advances from Federal Home Loan Bank ........ (51) (338) (246)
Repayment of long-term debt .............................. (5) (4) (5)
Issuance of common stock ................................. 198 130 2
Dividends paid ........................................... (233) (186) (161)
Purchase of treasury stock ............................... -- -- (5)
- ------------------------------------------------------------ -------- -------- --------
Net cash provided by financing activities .......... 25,524 23,929 29,379
- ------------------------------------------------------------ -------- -------- --------
Net increase in cash and cash equivalents .................. 6,263 3,504 258
Cash and cash equivalents at beginning of year ............. 9,137 5,633 5,375
- ------------------------------------------------------------ -------- -------- --------
Cash and cash equivalents at end of year $ 15,400 $ 9,137 $ 5,633
- ------------------------------------------------------------ -------- -------- --------
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE> 121
FIRST FINANCIAL
CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS, CONTINUED
THREE YEARS ENDED DECEMBER 31, 1997
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------
(In Thousands) 1997 1996 1995
- ---------------------------------------------------------------------------- -------- -------- --------
<S> <C> <C> <C>
Reconciliation of net earnings to net cash
provided by operating activities:
Net earnings .......................................................... $ 2,604 $ 2,350 $ 1,741
Adjustments to reconcile net earnings to net cash
provided by operating activities:
Depreciation and amortization ...................................... 324 324 297
Amortization of organization expense ............................... -- 9 9
Loss (gain) on securities .......................................... 47 (11) 62
Provision for possible loan losses ................................. 350 310 356
Provision for losses on other real estate .......................... -- -- 2
Provision for deferred taxes ....................................... 18 (123) (126)
Decrease (increase) in loans held for sale ......................... (883) 89 (716)
Increase in accrued interest receivable ............................ (237) (175) (413)
Increase in other assets ........................................... (159) (52) (34)
Increase (decrease) in taxes payable ............................... (90) (11) 56
Increase in interest payable ....................................... 214 78 309
Increase in accrued expenses ....................................... 47 40 96
- ---------------------------------------------------------------------------- -------- -------- --------
Total adjustments ............................................... (369) 478 (102)
- ---------------------------------------------------------------------------- -------- -------- --------
Net cash provided by operating activities ....................... $ 2,235 $ 2,828 $ 1,639
- ---------------------------------------------------------------------------- -------- -------- --------
SUPPLEMENTAL SCHEDULE OF NON-CASH ACTIVITIES:
Investment securities transferred to available-for-sale .................. $ -- $ -- $ 20,155
- ---------------------------------------------------------------------------- -------- -------- --------
Change in realized gain (loss) in value of securities
available-for-sale, net of taxes of $134,000 in 1997,
$103,000 in 1996 and $360,000 in 1995 ................................. $ 220 $ (168) $ 585
- ---------------------------------------------------------------------------- -------- -------- --------
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE> 122
FIRST FINANCIAL
CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1997, 1996 AND 1995
- -------------------------------------------------------------------------------
(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 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 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 discount, deferred loan fees net of loan acquisition
costs, and the allowance for possible loan losses are shown
as reductions of loans. Loan origination and commitment fees
and certain loan-related costs are being deferred and the net
amount amortized as an adjustment of the related loan's yield
over the contractual life of the loan. Unearned discount
represents the unamortized amount of finance charges,
principally related to certain installment loans. Interest
income on most loans is accrued based on the principal amount
outstanding.
The Company follows the provisions of Statement of Financial
Accounting Standards (SFAS) No. 114, "Accounting by Creditors
for Impairment of a Loan" and SFAS No. 118, "Accounting by
Creditors for Impairment of a Loan - Income Recognition and
Disclosures". These pronouncements apply to impaired loans
except for large groups of smaller-balance homogeneous loans
that are collectively evaluated for impairment including
residential mortgage, consumer and credit card loans.
<PAGE> 123
FIRST FINANCIAL
CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
DECEMBER 31, 1997, 1996 AND 1995
- -------------------------------------------------------------------------------
A loan is impaired when it is probable that the Company will
be unable to collect the scheduled payments of principal and
interest due under the contractual terms of the loan
agreement. Impaired loans are measured at the present value
of expected future cash flows discounted at the loan's
effective interest rate, at the loan's observable market
price, or the fair value of the collateral if the loan is
collateral dependent. If the measure of the impaired loan is
less than the recorded investment in the loan, the Company
recognizes an impairment by creating a valuation allowance
with a corresponding charge to the provision for possible
loan losses or by adjusting an existing valuation allowance
for the impaired loan with a corresponding charge or credit
to the provision for possible loan losses.
The Company's consumer loans are divided into various groups
of smaller-balance homogeneous loans that are collectively
evaluated for impairment and, thus, are not subject to the
provisions of SFAS Nos. 114 and 118. Substantially all other
loans of the Company are evaluated for impairment under the
provisions of SFAS Nos. 114 and 118.
The Company considers all loans on nonaccrual status to be
impaired. Loans are placed on nonaccrual status when doubt as
to timely collection of principal or interest exists, or when
principal or interest is past due 90 days or more unless such
loans are well-secured and in the process of collection.
Delays or shortfalls in loan payments are evaluated along
with various other factors to determine if a loan is
impaired. Generally, delinquencies under 90 days are
considered insignificant unless certain other factors are
present which indicate impairment is probable. The decision
to place a loan on nonaccrual status is also based on an
evaluation of the borrower's financial condition, collateral,
liquidation value, and other factors that affect the
borrower's ability to pay.
Generally, at the time a loan is placed on nonaccrual status,
all interest accrued and uncollected on the loan in the
current fiscal year is reversed from income, and all interest
accrued and uncollected from the prior year is charged off
against the allowance for possible loan losses. Thereafter,
interest on nonaccrual loans is recognized as interest income
only to the extent that cash is received and future
collection of principal is not in doubt. If the
collectibility of outstanding principal is doubtful, such
cash received is applied as a reduction of principal. A
nonaccrual loan may be restored to an accruing status when
principal and interest are no longer past due and unpaid and
future collection of principal and interest on a timely basis
is not in doubt.
Loans not on nonaccrual status are classified as impaired in
certain cases when there is inadequate protection by the
current net worth and financial capacity of the borrower or
of the collateral pledged, if any. In those cases, such loans
have a well-defined weakness or weaknesses that jeopardize
the liquidation of the debt, and if such deficiencies are not
corrected, there is a probability that the Company will
sustain some loss. In such cases, interest income continues
to accrue as long as the loan does not meet the Company's
criteria for nonaccrual status.
Generally, the Company also classifies as impaired any loans
the terms of which have been modified in a troubled debt
restructuring. Interest is generally accrued on such loans
that continue to meet the modified terms of their loan
agreements.
The Company's charge-off policy for impaired loans is similar
to its charge-off policy for all loans in that loans are
charged off in the month when they are considered
uncollectible.
- -------------------------------------------------------------------------------
(e) ALLOWANCE FOR POSSIBLE LOAN LOSSES
The provision for possible loan losses represents a charge to
earnings necessary, after loan charge-offs and recoveries, to
maintain the allowance for possible loan losses at an
appropriate level which is adequate to absorb estimated
losses inherent in the loan portfolio. Such estimated losses
arise primarily from the loan portfolio but may also be
derived from other sources, including commitments to extend
credit and standby letters of credit. The level of the
allowance is determined on a quarterly basis using procedures
which include: (1) categorizing commercial and commercial
real estate loans into risk categories to estimate loss
probabilities based primarily on the historical loss
experience of those risk categories and current economic
conditions; (2) analyzing significant commercial and
commercial real estate credits and calculating specific
reserves as necessary; (3) assessing various homogeneous
consumer loan categories to estimate loss probabilities based
primarily on historical loss experience; (4) reviewing
unfunded commitments; and (5) considering various other
factors, such as changes in credit concentrations, loan mix,
and economic conditions which may not be specifically
quantified in the loan analysis process.
<PAGE> 124
FIRST FINANCIAL
CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
DECEMBER 31, 1997, 1996 AND 1995
- -------------------------------------------------------------------------------
The allowance for possible loan losses consists of an
allocated portion and an unallocated, or general portion. The
allocated portion is maintained to cover estimated losses
applicable to specific segments of the loan portfolio. The
unallocated portion is maintained to absorb losses which
probably exist as of the evaluation date but are not
identified by the more objective processes used for the
allocated portion of the allowance due to risk of errors or
imprecision. While the total allowance consists of an
allocated portion and an unallocated portion, these terms are
primarily used to describe a process. Both portions of the
allowance are available to provide for inherent loss in the
entire portfolio.
The allowance for possible loan losses is increased by
provisions for possible loan losses charged to expense and is
reduced (increased) by loans charged off net of recoveries on
loans previously charged off. The provision is based on
management's determination of the amount of the allowance
necessary to provide for estimated loan losses based on its
evaluation of the loan portfolio. Determining the appropriate
level of the allowance and the amount of the provision
involves uncertainties and matters of judgment and therefore
cannot be determined with precision.
- -------------------------------------------------------------------------------
(f) DEBT AND EQUITY SECURITIES
The Company accounts for its debt and equity securities under
the provisions of Statement of Financial Accounting Standards
No. 115 (SFAS No. 115), "Accounting for Certain Investments
in Debt and Equity Securities". 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 recognized 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 by the interest method.
No securities have been classified as trading securities or securities
held-to-maturity.
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-for-sale classification in
December, 1995 pursuant to the provisions of this pronouncement.
Realized gains or losses from the sale of securities are recognized
based upon the specific identification method.
<PAGE> 125
FIRST FINANCIAL
CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
DECEMBER 31, 1997, 1996 AND 1995
- -------------------------------------------------------------------------------
(g) 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.
- -------------------------------------------------------------------------------
(h) PREMISES AND EQUIPMENT
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.
- -------------------------------------------------------------------------------
(i) 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.
- -------------------------------------------------------------------------------
(j) 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.
- -------------------------------------------------------------------------------
(k) 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.
- -------------------------------------------------------------------------------
(l) 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
No. 109, "Accounting for Income Taxes." As changes in tax
laws or rates are enacted, deferred tax assets and
liabilities are adjusted through the provision for income
taxes.
<PAGE> 126
FIRST FINANCIAL
CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
DECEMBER 31, 1997, 1996 AND 1995
- -------------------------------------------------------------------------------
The Company and its subsidiary file a consolidated Federal
income tax return. Its subsidiary provides for income taxes
on a separate-return basis.
- -------------------------------------------------------------------------------
(m) RECLASSIFICATIONS
Certain reclassifications have been made to the 1996 and 1995
figures to conform to the presentation for 1997.
- -------------------------------------------------------------------------------
(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.
- -------------------------------------------------------------------------------
(2) LOANS AND ALLOWANCE FOR POSSIBLE LOAN LOSSES
Loans and allowance for possible loan losses at December 31, 1997 and
1996 are summarized as follows:
<TABLE>
<CAPTION>
(In Thousands) 1997 1996
- -------------------------------------------------------------------------------- --------- ---------
<S> <C> <C>
Commercial, financial and agricultural ......................................... $ 46,024 $ 36,311
Real estate - construction ..................................................... 12,656 11,724
Real estate - mortgage ......................................................... 74,032 65,204
Consumer ....................................................................... 15,158 12,190
- -------------------------------------------------------------------------------- --------- ---------
147,870 125,429
Less unearned interest ......................................................... (1,101) (1,117)
Less allowance for possible loan losses ........................................ (1,704) (1,541)
- -------------------------------------------------------------------------------- --------- ---------
$ 145,065 $ 122,771
- -------------------------------------------------------------------------------- --------- ---------
</TABLE>
The principal maturities on loans at December 31, 1997 are as follows:
<TABLE>
<CAPTION>
(In Thousands)
-------------------------------------------------------------------------------------
Commercial
Financial
and Real Estate Real Estate -
Maturity Agricultural Construction Mortgage Consumer Total
- ------------------------- --------------- -------------- --------------- ------------ ---------------
<S> <C> <C> <C> <C> <C>
3 months or less......... $ 15,001 $ 8,524 $ 20,090 $ 4,489 $ 48,104
3 to 12 months........... 16,469 3,316 19,517 1,024 40,326
1 to 5 years............. 14,462 816 31,805 9,129 56,212
Over 5 Years............. 92 -- 2,620 516 3,228
--------- -------- -------- ------- --------
$ 46,024 $ 12,656 $ 74,032 $15,158 $147,870
-------- -------- -------- ------- --------
</TABLE>
At December 31, 1997, variable rate and fixed rate loans total
$32,490,000 and $115,380,000, respectively. Variable and fixed rate
loans at December 31, 1996 were $28,065,000 and $97,364,000,
respectively.
11
<PAGE> 127
FIRST FINANCIAL
CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
DECEMBER 31, 1997, 1996 AND 1995
- -------------------------------------------------------------------------------
In the normal course of business, the Company's subsidiary has made
loans at prevailing interest rates and terms to directors and
executive officers of the Company and to their affiliates. At December
31, 1997 and 1996, the aggregate amount of these loans was $1,897,000
and $2,753,000, respectively. As of December 31, 1997, 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) 1997 1996
- ---------------------------------------- ------- --------
<S> <C> <C>
Balance, January 1 ..................... $ 2,753 $ 2,439
New Loans during the year .............. 1,451 1,487
Repayments during the year ............. (2,307) (1,173)
- ---------------------------------------- ------- -------
Balance, December 31 ................... $ 1,897 $ 2,753
- ---------------------------------------- ------- --------
</TABLE>
At December 31, 1997 and 1996, loans which had been placed on
non-accrual status totaled $481,000 and $88,000, respectively. Had
interest been accrued on these loans, net earnings would have been
increased by approximately $35,000 in 1997 and $4,000 in 1996. No
loans were on non-accrual status during 1995.
Transactions in the allowance for possible loan losses for the years
ended December 31, 1997, 1996 and 1995 are summarized as follows:
<TABLE>
<CAPTION>
(In Thousands) 1997 1996 1995
- ------------------------------------------------ --------- -------- -------
<S> <C> <C> <C>
Balance, beginning of year ..................... $ 1,541 $ 1,246 $ 932
Provision charged to operating expense ......... 350 310 356
Loans charged off .............................. (209) (98) (79)
Recoveries on losses ........................... 22 83 37
--------- -------- -------
Balance, end of year ........................... $ 1,704 $ 1,541 $ 1,246
- ------------------------------------------------ --------- -------- -------
</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.
Impaired loans and related loan loss reserve amounts at December 31,
1997 and 1996 were as follows:
<TABLE>
<CAPTION>
(In Thousands) 1997 1996
- ------------------------------------------------------- -------------- -------------------
<S> <C> <C>
Recorded investment.................................... $ 715 $ 586
Loan loss reserve...................................... 143 117
-------------- -------------------
</TABLE>
The average recorded investment in impaired loans for the years ended
December 31, 1997 and 1996 was $650,000 and $576,000, respectively.
The related total amount of interest income recognized on the accrual
basis for the period that such loans were impaired was $60,000 and
$31,000 for 1997 and 1996, respectively. The amount of interest income
recognized on the cash basis for the period such loans were impaired
was $8,000 in 1997 and none in 1996.
12
<PAGE> 128
FIRST FINANCIAL
CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
DECEMBER 31, 1997, 1996 AND 1995
- -------------------------------------------------------------------------------
In 1997, 1996 and 1995, the Company originated for sale in the
secondary market loans of $38,685,000, $33,914,000, and $28,073,000,
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, 1997, the subsidiary Bank had repurchased no
loans 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 $812,000 in 1997, $600,000 in 1996, and
$556,000 in 1995.
- -------------------------------------------------------------------------------
(3) DEBT AND EQUITY SECURITIES
Debt and equity securities have been classified in the balance sheet
according to management's intent. The amortized cost and the estimated
market values of securities at December 31 was as follows:
<TABLE>
<CAPTION>
Securities Available-For-Sale 1997
--------------------------------------------------
Gross Gross Estimated
Amortized Unrealized Unrealized Market
(In Thousands) Cost Gains Losses Value
- ------------------------------------- --------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
U.S. Government obligations ......... $ 6,748 $ 23 $ 3 $ 6,768
Securities of U.S. government
agencies and corporations ......... 7,540 64 16 7,588
Obligations of state and political
subdivisions ...................... 12,874 263 20 13,117
Mortgage-backed securities .......... 10,258 149 36 10,371
Collateralized mortgage obligations . 1,611 -- 22 1,589
Federal Home Loan Bank stock ........ 582 -- -- 582
- ------------------------------------- --------- ---------- -------- ----------
$ 39,613 $499 $ 97 $40,015
- ------------------------------------- --------- ---------- -------- ----------
</TABLE>
The effective yield at December 31, 1997 on the collateralized
mortgage obligations was 5.5%.
<TABLE>
<CAPTION>
Securities Available-For-Sale 1996
-------------------------------------------------------
Gross Gross Estimated
Amortized Unrealized Unrealized Market
(In Thousands) 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 5.6%.
13
<PAGE> 129
FIRST FINANCIAL
CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
DECEMBER 31, 1997, 1996 AND 1995
- -------------------------------------------------------------------------------
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, 1997.
Included in the securities are $10,861,000 (market value of
$11,381,000) and $9,062,000 (market value of $9,046,000) at December
31, 1997 and 1996, 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.
The amortized cost and estimated market value of debt and equity
securities at December 31, 1997, 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......................................................... $ 2,996 $ 2,996
Due after one year through five years........................................... 12,491 12,526
Due after five years through ten years.......................................... 5,087 5,144
Due after ten years............................................................. 8,199 8,396
----------- ----------
28,773 29,062
Mortgage-backed securities...................................................... 10,258 10,371
Federal Home Loan Bank stock.................................................... 582 582
----------- ----------
$ 39,613 $ 40,015
- -------------------------------------------------------------------------------- ----------- ----------
</TABLE>
Included within the securities portfolio is stock of the Federal Home
Loan Bank amounting to $582,000 and $498,000 at December 31, 1997 and
1996, respectively. 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>
For the Year Ended December 31 (In Thousands) 1997 1996 1995
- ---------------------------------------------------------------- ------- -------- -------
<S> <C> <C> <C>
Gross proceeds from sales ...................................... $ 7,236 $ 10,711 $ 3,685
- ---------------------------------------------------------------- ------- -------- -------
Gross realized gains ........................................... $ 17 $ 57 $ --
Gross realized losses .......................................... (64) (46) (62)
- ---------------------------------------------------------------- ------- -------- -------
Net realized gains (losses) .................................... $ (47) $ 11 $ (62)
- ---------------------------------------------------------------- ------- -------- -------
</TABLE>
Investment securities carried in the balance sheet at $19,376,000 (amortized
cost of $19,199,000) as of December 31, 1997 were pledged to secure public and
trust deposits and for other purposes as required or permitted by law. At
December 31, 1996, the carrying value of pledged securities was $16,030,000 with
an amortized cost of $16,054,000.
14
<PAGE> 130
FIRST FINANCIAL
CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
DECEMBER 31, 1997, 1996 AND 1995
- -------------------------------------------------------------------------------
(4) PREMISES AND EQUIPMENT
The detail of premises and equipment at December 31, 1997 and 1996 is
as follows:
<TABLE>
<CAPTION>
(In Thousands) 1997 1996
- -------------------------------------------------------------------------------- ------- -------
<S> <C> <C>
Land ........................................................................... $ 1,472 $ 972
Land improvements .............................................................. 120 118
Buildings ...................................................................... 4,171 3,714
Leasehold improvements ......................................................... 73 73
Construction in progress ....................................................... 111 432
Furniture and equipment ........................................................ 2,864 1,804
Autos .......................................................................... 38 38
------- -------
8,849 7,151
Less accumulated depreciation .................................................. (2,097) (1,694)
- -------------------------------------------------------------------------------- ------- -------
$ 6,752 $ 5,457
- -------------------------------------------------------------------------------- ------- -------
</TABLE>
(5) CERTIFICATES OF DEPOSIT
Principal maturities of certificates of deposit and individual
retirement accounts at December 31, 1997 are as follows:
<TABLE>
<CAPTION>
(In Thousands)
--------------------------------------------------
Single Deposits Single Deposits
Maturity Under $100,000 Over $100,000 Total
- ---------------------------------------------------------- -------------- --------------- ---------
<S> <C> <C> <C>
3 months or less ......................................... $15,445 $ 16,021 $ 31,466
3 to 6 months ............................................ 16,254 4,195 20,449
6 to 12 months ........................................... 29,359 8,591 37,950
1 to 5 years ............................................. 15,351 5,589 20,940
- ---------------------------------------------------------- ------- -------- --------
$76,409 $ 34,396 $110,805
- ---------------------------------------------------------- ------- -------- --------
</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, 1997 and 1996 were approximately
$1,015,000 and $874,000, respectively.
At December 31, 1997 certificates of deposit and other deposits in
denominations of $100,000 or more amounted to $49,600,000 as compared
to $48,764,000 at December 31, 1996.
- --------------------------------------------------------------------------------
(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 $5,000,000. 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 February 28, 1998,
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 Bank collateralizes
the line. At December 31, 1997, the interest rate was 8.152%. 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 those of a "well capitalized" bank as
defined by the regulatory authorities. The outstanding balance at
December 31, 1997, and 1996 was $600,000 and $800,000, respectively.
15
<PAGE> 131
FIRST FINANCIAL
CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
DECEMBER 31, 1997, 1996 AND 1995
- -------------------------------------------------------------------------------
(7) ADVANCES FROM FEDERAL HOME LOAN BANK
The advances from the Federal Home Loan Bank at December 31, 1997 and
1996 consist of the following:
<TABLE>
<CAPTION>
(In Thousands)
--------------------------
Interest Rate 1997 1996
------ ------
<S> <C> <C>
7.05% .............................. $616 $650
7.65% .............................. 326 343
- ------------------------------------ ---- ----
$942 $993
- ------------------------------------ ---- ----
</TABLE>
Advances from the Federal Home Loan Bank at December 31, 1997 are to
mature as follows:
<TABLE>
<CAPTION>
Year Ending December 31, (In Thousands)
Amount
-------------
<S> <C>
1998 ..................................................................................... $ 54
1999 ..................................................................................... 599
2000 ..................................................................................... 20
2001 ..................................................................................... 22
2002 ..................................................................................... 24
Later years .............................................................................. 223
- --------------------------------------------------------------------------------------------------------
$ 942
- --------------------------------------------------------------------------------------------------------
</TABLE>
These advances are collateralized by approximately $1,413,000 of the
subsidiary bank's mortgage loan portfolio.
- --------------------------------------------------------------------------------
(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, 1997, and 1996 was $386,000 and $391,000, respectively.
Principal maturities at December 31, 1997, for the years 1998 through
2002 are $5,000, $5,000, $6,000, $6,000 and $7,000, respectively, with
the remaining balance of $357,000 due in later years.
16
<PAGE> 132
FIRST FINANCIAL
CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
DECEMBER 31, 1997, 1996 AND 1995
- -------------------------------------------------------------------------------
(9) NON-INTEREST INCOME AND NON-INTEREST EXPENSE
The significant components of non-interest income and non-interest
expense for the years ended December 31 are presented below:
<TABLE>
<CAPTION>
(In Thousands) 1997 1996 1995
- ---------------------------------------------------------- ----------- ------------- ------------
<S> <C> <C> <C>
Non-interest income:
Service charges on deposits........................... $ 1,001 $ 836 $ 776
Other fees............................................ 277 292 206
Gains on sales of loans............................... 812 600 556
Security gains........................................ - 11 --
- --------------------------------------------------------- ------------ ------------- ------------
$ 2,090 $ 1,739 $ 1,538
- --------------------------------------------------------- ------------ ------------- ------------
Non-interest expense:
Employee salaries and benefits......................... $ 3,812 $ 3,286 $ 2,777
Occupancy expenses..................................... 376 384 300
Furniture and equipment expenses....................... 523 409 363
FDIC insurance and State banking fees.................. 59 34 160
Cost of operation of other real estate................. 1 3 12
Data processing fees................................... 223 202 177
Security losses........................................ 47 -- 62
Other operating expenses............................... 1,649 1,537 1,298
- ---------------------------------------------------------- ------------ ------------- ------------
$ 6,690 $ 5,855 $ 5,149
- ---------------------------------------------------------- ------------ ------------- ------------
</TABLE>
- --------------------------------------------------------------------------------
(10) INCOME TAXES
The components of the net deferred tax asset are as follows:
<TABLE>
<CAPTION>
December 31 (In Thousands) 1997 1996
- ------------------------------------------------------------------------------- ---- -----
<S> <C> <C>
Deferred tax asset:
Federal .................................................................... $ 491 $ 432
State ...................................................................... 92 81
- ------------------------------------------------------------------------------- ----- -----
583 513
- ------------------------------------------------------------------------------- ----- -----
Deferred tax liability:
Federal .................................................................... (274) (87)
State ...................................................................... (51) (16)
- ------------------------------------------------------------------------------- ----- -----
(325) (103)
- ------------------------------------------------------------------------------- ----- -----
Net deferred tax asset .......................................... $ 258 $ 410
- ------------------------------------------------------------------------------- ----- -----
</TABLE>
17
<PAGE> 133
FIRST FINANCIAL
CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
DECEMBER 31, 1997, 1996 AND 1995
- -------------------------------------------------------------------------------
The tax effects of each type of significant item that gave rise to deferred
taxes at December 31 are:
<TABLE>
<CAPTION>
(In Thousands) 1997 1996
- ------------------------------------------------------------------------------- ----- -----
<S> <C> <C>
Financial statement allowance for loan losses in excess of tax allowance ...... $ 541 $ 476
Financial statement deduction for deferred compensation
in excess of deduction for tax purposes ..................................... 42 37
Dividend income not recognized for tax purposes ............................... (38) --
Excess of depreciation deducted for tax purposes
over amounts deducted in the financial statements ........................... (135) (85)
Excess of market value over estimated book value
related to securities available-for-sale .................................... (152) (18)
- ------------------------------------------------------------------------------- ----- -----
$ 258 $ 410
- ------------------------------------------------------------------------------- ----- -----
</TABLE>
The components of income tax expense (benefit) are summarized as
follows:
<TABLE>
<CAPTION>
(In Thousands) 1997 1996 1995
- ----------------------------------------------------------- ------- ------- -------
<S> <C> <C> <C>
Current:
Federal ................................................. $ 1,119 $ 1,102 $ 828
State ................................................... 224 218 178
- ----------------------------------------------------------- ------- ------- -------
1,343 1,320 1,006
- ----------------------------------------------------------- ------- ------- -------
Deferred:
Federal ................................................. 15 (104) (106)
State ................................................... 3 (19) (20)
- ----------------------------------------------------------- ------- ------- -------
18 (123) (126)
------- ------- -------
$ 1,361 $ 1,197 $ 880
- ----------------------------------------------------------- ------- ------- -------
</TABLE>
A reconciliation of actual income taxes in the consolidated statements
of earnings with the "expected" tax expense (computed by applying the
statutory Federal income tax of 34% to earnings before income taxes) is
as follows:
<TABLE>
<CAPTION>
(In Thousands) 1997 1996 1995
- ----------------------------------------------------------- ------- ------- -----
<S> <C> <C> <C>
Computed "expected" tax expense ........................... $ 1,348 $ 1,206 $ 891
State income taxes, net of Federal
income tax benefit ..................................... 161 127 109
Tax exempt interest, net of interest
expense exclusion ...................................... (169) (140) (114)
Other ..................................................... 21 4 (6)
- ----------------------------------------------------------- ------- ------- -----
$ 1,361 $ 1,197 $ 880
- ----------------------------------------------------------- ------- ------- -----
</TABLE>
Total income tax expense includes a tax benefit of $18,000 in 1997, a
tax expense of $4,000 in 1996 and tax benefits of $24,000 in 1995
related to security transactions.
18
<PAGE> 134
FIRST FINANCIAL
CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
DECEMBER 31, 1997, 1996 AND 1995
- -------------------------------------------------------------------------------
(11) COMMITMENTS AND CONTINGENT LIABILITIES
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.
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,
1997, future minimum lease commitments are as follows:
<TABLE>
<CAPTION>
(In Thousands)
<S> <C>
- ------------------------------------------------------------------------------------------------- ---
1998 ....................................................................................... $32
1999 ....................................................................................... 29
- ------------------------------------------------------------------------------------------------- ---
$61
- ------------------------------------------------------------------------------------------------- ---
</TABLE>
Rentals which are included in occupancy expense amount to $55,000,
$68,000, and $57,000 in 1997, 1996 and 1995, 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>
Contract or
Notional Amount
------------------
(In Thousands) 1997 1996
- ------------------------------------------------------------------------------- ------- -------
<S> <C> <C>
Financial instruments whose contract amount represent credit risk:
Commercial loan commitments .............................................. $13,552 $12,105
Unfunded lines-of-credit ................................................. 13,547 9,613
Letters of credit ........................................................ 4,562 2,974
- ------------------------------------------------------------------------------- ------- -------
Total .................................................................... $31,661 $24,692
- ------------------------------------------------------------------------------- ------- -------
</TABLE>
19
<PAGE> 135
FIRST FINANCIAL
CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
DECEMBER 31, 1997, 1996 AND 1995
- -------------------------------------------------------------------------------
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, 1997, 1996,
and 1995 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 $68,000 for 1997, $55,000 for 1996, and $45,000 for 1995.
- -------------------------------------------------------------------------------
(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 classification is also subject to qualitative
judgments about components, risk weightings and other factors. Those
qualitative judgments could also affect the Bank's capital status and
the amount of dividends the subsidiary may distribute. At December 31,
1997, 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, 1997, the Company and its bank
subsidiaries are required to have minimum Tier I and total risk-based
capital (total capital) ratios of 4% and 8%, respectively. The
Company's actual ratios at that date were 10.1% and 11.2%,
respectively. The subsidiary bank's Tier I ratio was 10.6% and the
total capital ratio was 11.7% at December 31, 1997. The leverage ratios
at December 31, 1997 were 7.4% for the Company and 7.7% 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 7,850 in 1997 and
7,224 in 1996 were sold to participants under the terms of the plan.
- -------------------------------------------------------------------------------
20
<PAGE> 136
FIRST FINANCIAL
CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
DECEMBER 31, 1997, 1996 AND 1995
- -------------------------------------------------------------------------------
(17) EARNINGS PER SHARE (EPS)
In 1997, Statement of Financial Accounting Standards ("SFAS") 128
"Earnings Per Share" established uniform standards for computing and
presenting earnings per share. SFAS 128 replaces the presentation of
primary earnings per share with the presentation of basic earnings per
share and diluted earnings per share. The computation of basic earnings
per share is based on the weighted average number of common shares
outstanding during the period. The computation of diluted earnings per
share begins with the basic earnings per share plus the effect of
common shares contingently issuable from stock options. In addition, on
April 18, 1996, the stockholders approved a two-for-one stock split
effective for stockholders of record on May 1, 1996. The weighted
average number of shares used in the computation of earnings per share
have been retroactively adjusted to reflect the provisions of SFAS 128
and the stock split. Dividends per share have also been retroactively
adjusted to reflect the stock split.
The following is a summary of the components comprising basic and
diluted earnings per share (EPS):
<TABLE>
<CAPTION>
(In Thousands, except share amounts) 1997 1996 1995
- ----------------------------------------------------- ------- -------- --------
<S> <C> <C> <C>
Basic EPS Computation:
Numerator - Income available to common stockholders $ 2,604 $ 2,350 $ 1,741
-------- -------- --------
Denominator - Weighted average number of common
shares outstanding .............................. 935,904 927,064 922,769
-------- -------- --------
Basic earnings per common share ................... $ 2.78 $ 2.53 $ 1.89
======== ======== ========
Diluted EPS Computation:
Numerator ......................................... $ 2,604 $ 2,350 $ 1,741
-------- -------- --------
Denominator:
Weighted average number of common shares
outstanding ................................... 935,904 927,064 922,769
Dilutive effect of stock options ................ 23,539 13,844 5,214
-------- -------- --------
959,443 940,908 927,983
-------- -------- --------
Diluted net earnings per common shares ............ $ 2.71 $ 2.50 $ 1.88
======== ======== ========
</TABLE>
- --------------------------------------------------------------------------------
(18) 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.
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.
21
<PAGE> 137
FIRST FINANCIAL
CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
DECEMBER 31, 1997, 1996 AND 1995
- -------------------------------------------------------------------------------
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 basic earnings per common share and diluted
earnings per common share would have been reduced to the proforma
amounts indicated below:
<TABLE>
<CAPTION>
(In Thousands) 1997 1996 1995
- ------------------------------------ --------- --------- ---------
<S> <C> <C> <C>
Net earnings
As Reported .................... $ 2,604 $ 2,350 $ 1,741
Proforma ....................... $ 2,582 $ 2,337 $ 1,728
Basic earnings per common share
As Reported .................... $ 2.78 $ 2.53 $ 1.89
Proforma ....................... $ 2.76 $ 2.52 $ 1.87
Diluted earnings per common shares
As Reported .................... $ 2.71 $ 2.50 $ 1.88
Proforma ....................... $ 2.69 $ 2.48 $ 1.86
--------- --------- ---------
</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 1997, 1996 and 1995 is as
follows:
<TABLE>
<CAPTION>
1997 1996 1995
---------------------- ---------------------- --------------------
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 114,030 $11.48 114,464 $11.44 80,872 $10.05
Granted ........................ 13,000 22.50 528 19.00 33,792 14.76
Exercised ...................... (2,808) 11.53 (962) 10.88 (200) 12.00
Forfeited ...................... -- -- -- -- -- --
-------- ------ -------- ------ -------- ------
Outstanding at end of year ..... 124,222 $12.63 114,030 $11.48 114,464 $11.44
- -------------------------------- -------- ------ -------- ------ -------- ------
Options exercisable at year end 49,524 38,993 27,616
- -------------------------------- -------- -------- --------
</TABLE>
22
<PAGE> 138
FIRST FINANCIAL
CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
DECEMBER 31, 1997, 1996 AND 1995
- -------------------------------------------------------------------------------
The following table summarizes information about fixed stock options
outstanding at December 31, 1997:
<TABLE>
<CAPTION>
Options Outstanding Options Exercisable
------------------------------------------- ----------------------------
Weighted
Weighted Average Weighted
Range of Number Average Remaining Number Average
Exercise Outstanding Exercise Contractual Exercisable Exercise
Prices at 12/31/97 Price Life at 12/31/97 Price
- --------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
$10 to $13 81,624 $ 10.18 5.1 years 37,924 $ 10.11
$15 to $22.50 42,520 $ 17.32 5.3 years 11,600 $ 15.64
- --------------------------------------------------------------------------------------------------
</TABLE>
- --------------------------------------------------------------------------------
(19) 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 retirement benefits. There were four participants in the
program at December 31, 1997 compared to six at December 31, 1996.
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 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, 1997, the deferred compensation
liability totaled $110,000 as compared to $100,000 at December 31,
1996. The Cash surrender value of life insurance was $211,000 and
$163,000 at December 31, 1997 and 1996, respectively. The face amount
of the insurance policies in force at December 31, 1997 approximated
$1,108,000. The program is not qualified under Section 401 of the
Internal Revenue Service.
- --------------------------------------------------------------------------------
23
<PAGE> 139
FIRST FINANCIAL
CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
DECEMBER 31, 1997, 1996 AND 1995
- -------------------------------------------------------------------------------
(20) FIRST FINANCIAL CORPORATION - PARENT COMPANY FINANCIAL INFORMATION
FIRST FINANCIAL CORPORATION (Parent Company Only)
BALANCE SHEETS
December 31, 1997 and 1996
<TABLE>
<CAPTION>
(In Thousands) 1997 1996
- -------------------------------------------------------------------------------- -------- --------
<S> <C> <C>
ASSETS
Cash ........................................................................... $ 44* $ 42*
Investment in commercial bank subsidiary ....................................... 16,482* 13,893*
Due from commercial bank subsidiary ............................................ 6* 9*
Other assets ................................................................... 34 34
- -------------------------------------------------------------------------------- -------- --------
Total assets .............................................................. $ 16,566 $ 13,978
- -------------------------------------------------------------------------------- -------- --------
LIABILITIES AND STOCKHOLDERS' EQUITY
Short-term borrowings .......................................................... $ 600 $ 800
Accrued interest payable ....................................................... 4 5
- -------------------------------------------------------------------------------- -------- --------
604 805
- -------------------------------------------------------------------------------- -------- --------
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 1,079,572 and 1,068,914 shares, respectively ....................... 2,699 2,672
Additional paid-in capital ................................................... 4,021 3,850
Retained earnings ............................................................ 10,250 7,879
Net unrealized gain on available-for-sale securities,
net of applicable income taxes of $152,000 and $18,000, respectively ...... 249 29
Less cost of 137,926 shares of treasury stock ................................ (1,257) (1,257)
- -------------------------------------------------------------------------------- -------- --------
Total stockholders' equity .............................................. 15,962 13,173
- -------------------------------------------------------------------------------- -------- --------
Total liabilities and stockholders' equity .............................. $ 16,566 $ 13,978
- -------------------------------------------------------------------------------- -------- --------
</TABLE>
FIRST FINANCIAL CORPORATION (Parent Company Only)
STATEMENTS OF EARNINGS
For the Three Years Ended December 31, 1997
<TABLE>
<CAPTION>
(In Thousands) 1997 1996 1995
- ------------------------------------------------------------ ------ ------ ------
<S> <C> <C> <C>
Income:
Dividends from commercial bank subsidiary .................. $ 300* $ 285* $ 360*
- -------------------------------------------------------------- ------ ------ ------
Expenses:
Interest expense ........................................... 57 69 87
Amortization of organizational costs ....................... -- 9 9
Other expenses ............................................. 49 39 26
- -------------------------------------------------------------- ------ ------ ------
106 117 122
- -------------------------------------------------------------- ------ ------ ------
Earnings before Federal income tax benefits and equity in
undistributed earnings of commercial bank subsidiary .. 194 168 238
Federal income tax benefits .................................. 40 44 46
Equity in undistributed earnings of commercial bank subsidiary 2,370* 2,138* 1,457*
- -------------------------------------------------------------- ------ ------ ------
Net earnings ............................................ $2,604 $2,350 $1,741
- -------------------------------------------------------------- ------ ------ ------
*Eliminated in consolidation
- -------------------------------------------------------------------------------------------
</TABLE>
24
<PAGE> 140
FIRST FINANCIAL
CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
DECEMBER 31, 1997, 1996 AND 1995
- -------------------------------------------------------------------------------
(20) FIRST FINANCIAL CORPORATION - PARENT COMPANY FINANCIAL INFORMATION
FIRST FINANCIAL CORPORATION (Parent Company Only)
STATEMENTS OF STOCKHOLDERS' EQUITY
For the Three Years Ended December 31, 1997
<TABLE>
<CAPTION>
Net
Unrealized
Gains (Losses)
Additional On Available-
Common Paid-In Retained For-Sale Treasury
(In Thousands, Except Shares) Stock Capital Earnings Securities Stock Total
- --------------------------------------- --------- ---------- -------- -------------- --------- --------
<S> <C> <C> <C> <C> <C> <C>
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 $103,000 ...... -- -- -- (168) -- (168)
- -------------------------------------------- ------ ------ -------- ----- ------- --------
Balance December 31, 1996 .................. 2,672 3,850 7,879 29 (1,257) 13,173
Net earnings for year ...................... -- -- 2,604 -- -- 2,604
Cash dividends declared
($.25 per share) ........................ -- -- (233) -- -- (233)
Issuance of 2,808 shares of common stock ... 7 26 -- -- -- 33
Issuance of 7,850 shares of common stock
pursuant to dividend reinvestment plan .. 20 145 -- -- -- 165
Net change in unrealized appreciation during
the year, net of taxes of $134,000 ...... -- -- -- 220 -- 220
- -------------------------------------------- ------ ------ -------- ----- ------- --------
BALANCE DECEMBER 31, 1997 .................. $2,699 $4,021 $ 10,250 $ 249 $(1,257) $ 15,962
- -------------------------------------------- ------ ------ -------- ----- ------- --------
</TABLE>
25
<PAGE> 141
FIRST FINANCIAL
CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
DECEMBER 31, 1997, 1996 AND 1995
- -------------------------------------------------------------------------------
(20) FIRST FINANCIAL CORPORATION - PARENT COMPANY FINANCIAL INFORMATION
FIRST FINANCIAL CORPORATION (Parent Company Only)
STATEMENTS OF CASH FLOWS
For the Three Years Ended December 31, 1997
Increase (Decrease) in Cash and Cash Equivalents
<TABLE>
<CAPTION>
(In Thousands) 1997 1996 1995
- ------------------------------------------------------------ ------- ------- --------
<S> <C> <C> <C>
Cash flows from operating activities:
Cash paid to suppliers ................................... $ (49) $ (39) $ (26)
Interest paid ............................................ (57) (72) (87)
Income taxes received .................................... 43 71 77
- ------------------------------------------------------------ ------- ------- -------
Net cash used in operating activities ............. (63) (40) (36)
- ------------------------------------------------------------ ------- ------- -------
Cash flows from investing activities:
Dividend received from commercial bank subsidiary ........ 300 285 360
Purchase of other assets ................................. -- (34) --
- ------------------------------------------------------------ ------- ------- -------
Net cash provided by investing activities ......... 300 251 360
- ------------------------------------------------------------ ------- ------- -------
Cash flows from financing activities:
Repayments of short-term borrowings ...................... (200) (196) (90)
Dividends paid ........................................... (233) (186) (161)
Payments made to acquire treasury stock .................. -- -- (5)
Issuance of common stock ................................. 198 130 2
- ------------------------------------------------------------ ------- ------- -------
Net cash used in financing activities ............. (235) (252) (254)
- ------------------------------------------------------------ ------- ------- -------
Net increase (decrease) in cash and cash equivalents ....... 2 (41) 70
Cash and cash equivalents at beginning of year ............. 42 83 13
- ------------------------------------------------------------ ------- ------- -------
Cash and cash equivalents at end of year ................... $ 44 $ 42 $ 83
- ------------------------------------------------------------ ------- ------- -------
Reconciliation of net earnings to net cash used in operating
activities:
Net earnings .......................................... $ 2,604 $ 2,350 $ 1,741
Adjustments to reconcile net earnings to net cash
used in operating activities:
Equity in earnings of commercial bank subsidiary ... (2,670) (2,423) (1,817)
Amortization of organization costs ................. -- 9 9
Decrease in due from bank subsidiary ............... 4 27 31
Decrease in accrued interest ....................... (1) (3) --
- ------------------------------------------------------------ ------- ------- -------
Total adjustments ................................. (2,667) (2,390) (1,777)
- ------------------------------------------------------------ ------- ------- -------
Net cash used in operating activities ............. $ (63) $ (40) $ (36)
- ------------------------------------------------------------ ------- ------- -------
</TABLE>
26
<PAGE> 142
FIRST FINANCIAL
CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
DECEMBER 31, 1997, 1996 AND 1995
- -------------------------------------------------------------------------------
(21) 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 those 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 e 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.
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.
27
<PAGE> 143
FIRST FINANCIAL
CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
DECEMBER 31, 1997, 1996 AND 1995
- -------------------------------------------------------------------------------
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.
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, 1997, 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, 1997 and 1996 are as
follows:
<TABLE>
<CAPTION>
------------------------------ ------------------------------
1997 1996
------------------------------ ------------------------------
Carrying Fair Carrying Fair
(In Thousands) Amount Value Amount Value
-------------- -------------- -------------- --------------
<S> <C> <C> <C> <C>
Financial assets:
Cash and short-term investments $ 15,400 $ 15,400 $ 9,137 $ 9,137
Securities 40,015 40,015 42,473 42,473
Loans 146,769 124,312
Less: allowance for loan losses (1,704) (1,541)
------------ ------------
Loans, net of allowance 145,065 144,520 122,771 122,729
------------ ------------
Loans held for sale 2,606 2,606 1,723 1,723
Financial liabilities:
Deposits 193,260 194,282 167,445 168,029
Short-term borrowings 600 600 800 800
Advances from Federal Home Loan Bank 942 997 993 995
Long-term debt 386 364 391 381
Unrecognized financial instruments:
Commitments to extend credit -- -- -- --
Standby letters of credit -- -- -- --
</TABLE>
28
<PAGE> 144
FIRST FINANCIAL
CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
DECEMBER 31, 1997, 1996 AND 1995
- -------------------------------------------------------------------------------
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, a 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.
29
<PAGE> 145
FIRST FINANCIAL
CORPORATION
<TABLE>
<S> <C> <C> <C>
Directors
- --------------------------------------------------------------------------------
GORDON BONE ART GARDNER DAN MIDGETT HAROLD SUTTON
BOB CALLIS DAVID MAJOR MONTY MIRES
DR. MORRIS FERGUSON DALE MCCULLOCH SAM SHORT
Officers
- --------------------------------------------------------------------------------
AMANDA BAIRD ALLEN HENSON GINGER POWELL PATRICK STANTON
Information Systems Senior Vice Vice President/ Vice President
officer President/Loans Mortgage Loans
LYNN BILBREY JORENE JEZWINSKI JOYCE RICHARDSON CHARLES STYLES
Vice President/ Assistant Vice Vice President/ Vice President
Internal Audit & President/ Branch Manager
Control Operations
MAJORIE BRITTAIN SALLY KIMBLE PAMELA SANDS JEANETTA WATSON
Vice President/ Senior Vice Vice President/ Vice President
Branch Manager President/ Mortgage Loans
Operations Manager
ALLISON CARTER JOY LEONARD LINDA SHIRA BARBARA WILKERSON
Assistant Vice Assistant Vice Loan Review Assistant Branch
President/Loan President Officer Manager
Administration
Officer
ED DAVENPORT DAVID MAJOR SAM SHORT SUSAN WILSON
Senior Vice President/CEO Executive Assistant Vice
President/ Vice President President/
Branch Manager Compliance Officer
STEVEN FORD CHET MELVIN PHIL SMARTT CHARLES WOMBLE
Banking Officer Mortgage Loan Vice President/ Senior Vice
Officer Branch Manager President
JEANETTE GLEAVES WILLIE MILLER VONDIE SMITH RON WRIGHT
Teller Services Vice President Vice President/ Vice President/
Officer Branch Manager Branch Manager
DAVID GRANDSTAFF BETTYE PARKS ADELINE SMOTHERMAN
Vice President/ Vice President Assistant Vice
Branch Manager President
GREGORY HAMILTON DAVID PENUEL KITTY STAFFORD
Vice President Senior Vice Assistant Branch
President Manager
Employees
- --------------------------------------------------------------------------------
MELODY AGEE DEBRA EDWARDS JAIME LOWE ROY STARTUP
CONNIE ANDERSON ELAINE ELLIS KATE MAJOR CARRIE STEVENS
KATHY BARBER LARRY ENGLES KAYLA MAY LAURA TAYLOR
KATHY BARNES DEBBIE FANN REGENIA MOORE PAY TEKULVE
BETTY BEASLEY BETTY FINCHUM KARA MURPHY ANGELA THOMPSON
TERESA BENSON CHARLCIE FINLEY NANCY MURPHY BARBARA THOMPSON
LINDA BERRONG BRIDGETTE FISHER PAT NABORS JULIA THOMPSON
DAYTON BOND RHONDA GALLOWAY ANGELA NELSON SHELLY THOMPSON
MONA BOWEN LYNETTE GRAZIER MITZI PELFREY JILL TRAPP
JACKIE BREWER ROBERTA GREGORY KIMIE PERRY LIZ VANTREASE
TAMMY BRADSHAW CRYSTAL GULLEY JOHN POPE BRENDA VAUGHAN
ROBYN BROCK SHANDRA HAMBLEN LEE PURNELL DEBRA WALKER
SHELIA BROWN STEPHANIE HOLLIS CYNTHIA ROACH KRISTY WARREN
ANGELA BRUCE REGINA JACOBS JOHNNIE SANDERS SANDRA WEBB
ANGELA BRYAN AMANDA JOHNSON JENN SCHROER SHELIA WELCH
KAY CASSETTY DORIS JONES ANGELA SCURLOCK MARGIE WHITE
GWEN CAUSEY BEVERLY KING VALARIE SEVIER LEANN WHITIFIELD
TERESA CLARK CASSIE KIRKUS AMANDA SHAFFER KATHY WILLIAMS
PEGGY COOK DEBBIE KNIGHT CATHY SHANNON BROOKE WIMPEE
MELISSA CRUNK GLORIA LANE CHRIS SHORES MICHAEL YOUNG
DIANNA DALE BARBARA LITWILLER ALYSSA SLOAN
DEBORAH DILLARD LISA LOKEY AL SMITH
</TABLE>
<PAGE> 146
FIRST FINANCIAL
CORPORATION
QUARTERLY FINANCIAL DATA (UNAUDITED)
DECEMBER 31, 1997 AND 1996
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
COMMON STOCK
- -------------------------------------------------------------------------- ----------------------------------
CALENDAR QUARTER (IN THOUSANDS) HIGH LOW
- --------------------------------------------------------------------------- ------------------- -------------
<S> <C> <C>
1997:
FOURTH QUARTER...................................................... $ 25.00 $ 25.00
THIRD QUARTER....................................................... 22.50 22.50
SECOND QUARTER...................................................... N/A N/A
FIRST QUARTER....................................................... 21.00 20.00
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
- ---------------------------------------------------------------------------------------------------------------
</TABLE>
FOR FINANCIAL INFORMATION CONTACT
Sally Kimble
Senior Vice President
(615) 754-2265
<PAGE> 1
EXHIBIT 3(i)
BYLAWS OF THE REGISTRANT
<PAGE> 2
BYLAWS
OF
FIRST FINANCIAL CORPORATION
ARTICLE I
MEETINGS OF SHAREHOLDERS
Section 1.1 Annual Meeting. The regular annual meeting of the shareholders to
elect directors and transact whatever other business may properly come before
the meeting, shall be held at the main office of the Corporation or such other
places as the board of directors may designate, unless otherwise scheduled by
the Board, on the 3rd Thursday of April of each year, unless that day is a
holiday, in which event such meeting shall be held on the next business day.
Notwithstanding the above, the Board may, in its discretion, and by majority
vote, schedule the annual shareholders meeting on any alternative date during
the first or second quarter of the year. Written or printed notice stating the
place, day, and hour of the meeting, and, in the case of a special meeting, the
purpose or purposes for which the meeting is called and the person or persons
calling the meeting may be communicated in person; by telephone, telegraph,
teletype or other form of wire or wireless communication; or by mail or private
carrier by or at the direction of the president, secretary, officer, or person
calling the meeting to each shareholder entitled to vote at the meeting. Such
notice shall be delivered not less than ten (10) days nor more than two months
before the date of the meeting, to each shareholder of record at least twenty
(20) calendar days before the date of the meeting, and shall be deemed to be
delivered when deposited in the United States mail addressed to the shareholder
at his last known address as it appears on the stock transfer books of the
Corporation, with postage thereon prepaid, or by confirmed telex; provided,
however, that any such notice may be waived in writing, either prior to or
subsequent to such meeting. If for any cause, an election of directors is not
made on that day, the board of directors shall order the election to be held on
some subsequent day, as soon thereafter as practicable, according to the
provisions of law, and notice shall be given in the manner herein provided for
the annual meeting.
Section 1.2 Special Meetings. Except as otherwise specifically provided by
statute, special meetings of the shareholders may be called for any purpose at
any time by one-third (1/3) or more of the members as the board of directors,
or by any one (1) or more shareholders owning, in the aggregate, not less than
twenty percent (20%) of the Corporation. Every such special meeting, unless
otherwise provided by law, shall be called by mailing, postage prepaid, not
less than ten (10) days prior to the date fixed for the meeting, to each
shareholder of record at least twenty (20) calendar days before the date of the
meeting at the address appearing on the books of the Corporation a notice
stating the purpose of the meeting.
Section 1.3 Nominations of Directors. Nominations for election to the board of
directors may be made by the board of directors or by any shareholder of any
outstanding class of capital stock of the Corporation entitled to vote for the
election of directors. Nominations, other than those made by or on behalf of
the existing management of the Corporation, shall be made in writing and shall
be delivered or mailed to the President of the Corporation not less than thirty
(30) days nor more than forty-five (45) days prior to any meeting of
shareholders called for the election of directors, provided, however, that if
less than twenty-one (21) days' notice of the meeting is given to shareholders,
such nomination shall be mailed or delivered to the President of the
Corporation not later than the close of business on the seventh day following
the day on which the notice of meeting was mailed. Such notification shall
contain the following information to the extent known to the notifying
shareholder:
The name and address of each proposed nominee.
The principal occupation of each proposed nominee.
<PAGE> 3
The total number of shares of capital stock of the Corporation that
will be voted for each proposed nominee.
The name and residence address of the notifying shareholder.
The number of shares of capital stock of the Corporation owned by the
notifying shareholder.
Nominations not made in accordance herewith may, in his/her
discretion, be disregarded by the chairperson of the meeting, and upon
his/her instructions, the vote tellers may disregard all votes cast
for each nominee.
Section 1.4 Judges of Election. Every election of directors shall be managed by
at least one (1) but not more than three (3) judges, who shall be appointed
from among the shareholders by the board of directors. The judge(s) of election
shall hold and conduct, together with the President of the Corporation, the
election at which they are appointed to serve. After the election, they shall
file with the President (or the President's designee) a certificate signed by
them, certifying the result thereof and the names of the directors elected. The
judge(s) of election, at the request of the President or other designated
chairperson of the meeting, shall act as teller(s) of any other vote by ballot
taken at such meeting, and shall certify the result thereof.
Section 1.5 Proxies. Shareholders may vote at any meeting of the shareholders
by proxies duly authorized and memorialized in writing. Proxies shall be valid
only for one meeting, to be specified therein, and any adjournment(s) of such
meeting. Proxies shall be dated and filed with the records of the meeting. No
proxy shall be voted if it bears a date more than eleven (11) months prior to
the date of any meeting (but shall be valid at any meeting, and adjournments of
such meetings, dated not more than eleven (11) months prior to such meeting.
Section 1.6 Quorum. A majority of the outstanding capital stock, represented in
person or by proxy, shall constitute a quorum at any meeting of shareholders,
unless otherwise provided by law, but less than a quorum may adjourn any
meeting, from time to time, and the meeting may be held as adjourned without
further notice. A majority of the votes cast shall decide every question or
matter submitted to the shareholders at any meeting, unless otherwise provided
by law or by the Charter of the Corporation.
Section 1.7 Record Date. The record date for the determination of shareholders
entitled to notice of and the right to vote at any meeting of shareholders, or
any adjournment thereof, may be fixed by the Board of Directors at not more
than seventy (70) nor fewer than ten (10) days prior to the date of such
meeting. If no record date is so established, the record date shall be deemed
to be the close of business on the day next preceding the day on which notice
of the meeting is sent.
Section 1.8 Shareholder Proposals. Shareholder proposals must be typed,
printed, or otherwise legibly transcribed, must bear on issues of interest or
related to the Corporation, and must be received by the Corporate Secretary on
or before January 31 of each year; provided, that any such proposals received
by the Corporate Secretary at least ninety (90) calendar days before any Annual
Meeting will be considered. Proposals unrelated to the Corporation or its
interests, or not timely received, will not be considered. Proposals shall be
addressed to the Corporate Secretary at the Corporation's main office.
ARTICLE II
DIRECTORS
Section 2.1 Board of Directors. The Board shall have the power to manage and
administer the business and affairs of the Corporation. Except as expressly
limited by law, all corporate powers of the Corporation shall be vested in and
may be exercised by the Board, including the power to declare dividends in
accordance with law.
Section 2.2 Qualification and Election. Directors need not be shareholders or
residents of this State but must be of legal age. They shall be elected by a
plurality of the votes cast at the annual meetings of the shareholders or at a
<PAGE> 4
special meeting of the shareholders called for that purpose. Each director
shall hold office until the expiration of the term for which he is elected, and
thereafter until his successor has been elected and qualified.
Section 2.3 Number. The Board shall consist of not fewer than five (5) nor more
than twenty-five (25) shareholders, the exact number within such minimum and
maximum limits to be fixed and determined from time to time by resolution of a
majority of the full Board or by resolution of the shareholders at any meeting
thereof.
Section 2.4 Organizational Meeting. The President, the Executive Vice
President, or the Secretary, upon receiving the certificate of the judges of
the result of any election, shall notify the directors-elect of their election
and of the time at which they are required to meet at the main office of the
Corporation to organize the new Board and elect and appoint officers of the
Corporation for the succeeding year. Such meeting shall be held on the day of
the election or as soon thereafter as practicable, and, in any event, within 30
days thereof. If, at the time fixed for such meeting, there shall be a quorum,
the directors present may adjourn the meeting, from time to time until a quorum
is obtained without further notice of the time, date, or place of meeting.
Section 2.5 Regular Meetings. A regular monthly meeting of the Board, without
notice, shall be held on such day as may be determined by a majority of the
Board by resolution.
Section 2.6 Special Meetings. Special meetings of the Board may be called by
the President, or by any two (2) executive officers of the Corporation, or at
the request of one-third (1/3) (rounded downward in the case of any fraction)
or more of the directors. Each member of the Board shall be given notice at
least twenty-four (24) hours in advance of the time of the meeting, stating the
time and place by telegram, letter, or in person, of each special meeting.
Section 2.7 Quorum and Vote. The presence of a majority of the directors shall
constitute a quorum for the transaction of business. A meeting may be adjourned
despite the absence of a quorum, and notice of an adjourned meeting need not be
given if the time and place to which the meeting is adjourned are fixed at the
meeting at which the adjournment is taken, and if the period of adjournment
does not exceed thirty (30) days in any one adjournment. The vote of a majority
of the directors present at a meeting at which a quorum is present shall be the
act of the board, unless the vote of a greater number is required by the
charter, these bylaws, or by the laws of the state of incorporation.
A director cannot vote by proxy or otherwise act by proxy at a meeting of the
Board. However, whenever the vote of directors at a meeting is required or
permitted to be taken in connection with any corporate action, the meeting and
vote of directors may be dispensed with, if all the directors who would have
been entitled to vote upon the action, if such meeting were held, shall consent
in writing to such corporate action being taken and/or consent in writing to
such action taken previously.
Section 2.8 Vacancies. When any vacancy occurs among the directors, the
remaining members of the Board, according to the laws of the State of
Tennessee, may appoint a director to fill such vacancy at any regular meeting
of the Board, or at a special meeting called for that purpose in conformance
with Section 2.2 of this Article 2.
Section 2.9 Increase in Number. The number of members of the Board of Directors
may be increased from time to time by either the directors or the shareholders.
The number of directors may be increased by the Board of Directors upon the
affirmative vote of a majority of the entire Board. If the number of directors
is increased by the Board, a vacancy or vacancies caused by such increase may
be filled by the vote of a majority of the directors then in office. The number
of directors may also be increased by the shareholders at any meeting thereof
by a majority vote of the shares represented and entitled to vote. If the
number of directors is increased by action of the shareholders, a vacancy or
vacancies caused by such increase shall be filled by the shareholders in the
same manner as at an annual meeting. Directors elected to fill vacancies caused
by increase in number of members of the Board shall hold office until the next
annual meeting of the shareholders and thereafter until their successors are
chosen and qualified.
<PAGE> 5
Section 2.10 Decrease in Number. The number of members of the Board of
Directors may be decreased by either the directors or the shareholders at any
time there is an unfilled vacancy or there are unfilled vacancies on the Board
of Directors, provided that the number of members may be decreased only to the
extent of the number of vacancies on the Board of Directors existing at that
time. If the number of directors is decreased by the Board, such action shall
be taken by the vote of a majority of the directors then in office. If the
number of directors is decreased by the shareholders, such action shall be
taken by a majority vote of the shares represented at any meeting and entitled
to vote thereat.
Section 2.11 Vacancies. In case there are vacancies on the Board of Directors,
other than vacancies created by the removal of a director or directors [which
shall be governed by paragraph 2.15] and other than vacancies created by an
increase in the number of directors [which shall be governed by paragraph 2.9],
the remaining directors, by a majority vote of the directors then in office,
may fill the vacancy until the next annual meeting of shareholders and
thereafter until his or their successors are chosen and qualified.
Section 2.12 Presiding Officer. The Chairperson of the Board shall preside at
all meetings of the Board, and if the Chairperson is absent or declines or is
unable to serve, the President shall preside; and if the President is likewise
absent, or unable or unwilling to serve, the directors who are present shall
elect one of their number to preside at such meeting.
Section 2.13 Residency Requirements. All directors shall be citizens of the
United States of America and shall satisfy any residency requirements of the
State of Tennessee.
Section 2.14 Compensation of Directors. Directors and members of the executive
or other committees, as such, shall not receive any stated salaries for their
service; provided, that by resolution of the Board, a fixed sum and expenses
for attendance at each regular or special meeting of the Board or the executive
committee (and such other committees of the Board as the Board may from time to
time designate) may be allowed, but provided further that nothing herein
contained shall be construed as precluding any directors from serving the
Corporation in any other capacity and receiving compensation therefor.
Section 2.15 Removal of Directors.
(a) By Shareholders. At any meeting of the shareholders, the entire
Board of Directors or any number of directors may be removed from
office, with or without cause, by a majority vote of the shares
represented and entitled to vote thereat.
(b) By Directors. At any meeting of the Board of Directors, any
director or directors may be removed from office for cause, as that
term is defined by applicable law, by a majority of the entire Board
of Directors.
(c) Replacement. When any director or directors are removed, new
directors may be elected to fill the vacancies created thereby at the
same meeting of the shareholders or Board of Directors, as the case
may be, for the unexpired term of the director or directors removed.
If the shareholders fail to elect persons to fill the unexpired term
or terms of the director or directors removed by them, such unexpired
terms shall be considered vacancies on the Board to be filled by the
remaining directors as provided in paragraph 2.11.
ARTICLE III
COMMITTEES OF THE BOARD
Section 3.1 Executive Committee. There shall be an executive committee composed
of a minimum of four (4) directors, appointed by the Board annually or more
often. The executive committee shall have the power to act in the place and
stead of the Board in all respects in accordance with any prior actions,
directives, or guidelines established by the Board. The executive committee
shall keep minutes of its meetings, and such minutes shall be
<PAGE> 6
submitted at the next regular meeting of the Board at which a quorum is
present, and any action taken by the Board with respect thereto shall be
entered in the minutes of the Board.
Section 3.2 Audit Committee. There shall be an audit committee composed of not
fewer than three (3) directors, exclusive of any active officers, appointed by
the Board annually or more often. The duty of that committee shall be to
examine at least once during each calendar year and within 15 months of the
last examination the affairs of the Corporation or cause suitable examinations
to be made by auditors responsible only to the Board and to report the result
of such examination in writing to the Board at the next regular meeting
thereafter. Such report shall contain such information and recommendations in
respect of such matters as the Board of Directors shall deem advisable.
The audit committee, upon its own recommendation and with the approval of the
Board, may employ a qualified firm of Certified Public Accountants or the
auditor's provided for such purpose by a correspondent Corporation to make the
examination and audit of the Corporation. If such procedure is followed, the
annual examination and audit of such firm and the presentation of its reports
to the Board, will be deemed sufficient to comply with the requirements of
these by-laws.
Section 3.3 Nominating Committee. The Board may create a Nominating Committee
composed of not fewer than three (3) directors to nominate proposed directors
for any meeting (annual or special) of the shareholders held to elect directors
of the Corporation.
Section 3.4 Other Committees. The Board may appoint, from time to time, from
its own members, other committee of one or more persons, for such purposes and
with such powers as the Board may determine.
ARTICLE IV
OFFICERS AND EMPLOYEES
Section 4.1 Election of Officers, Officials and Committees. At the Board's
organizational meeting or at their regular meeting immediately following such
organizational meeting subsequent to the annual meeting of shareholders in each
year, or at any other regular or special meeting of the Board, the Board shall
elect from their number a Chairperson of the Board and a President. They shall
select a Secretary and a Treasurer and may elect a Vice Chairperson, an
Executive Vice President, Senior Vice President, and such other Vice
Presidents, Internal Auditors, or other officers as the Board shall deem
necessary or appropriate from time to time, and shall prescribe the duties to
which such officer shall be assigned. The Board shall also have the authority
to appoint members of the executive committee, nominating committee, audit
committee, and such other committees as they deem necessary or appropriate.
Section 4.2 Chairperson of the Board. The Board shall appoint one of its
members to be the Chairperson of the Board to serve at its pleasure. Such
person shall preside at all meetings of the Board. The Chairperson of the Board
shall supervise the carrying out of the policies adopted or approved by the
Board, shall have general executive powers, as well as the specific powers
conferred by these by-laws, shall also have and may exercise such further
powers and duties as from time to time may be conferred upon, or assigned by
the Board.
Section 4.3 President. The Board shall appoint one of its members to be the
President of the Corporation. In the absence of the Chairperson, if the
Chairperson and the President are different persons, the President shall
preside at any meeting of the Board. The President shall have general executive
powers, and shall have and may exercise any and all other powers and duties
pertaining by law, regulation, or practice, to the office of President, or
imposed by these by-laws. The President shall also have and may exercise such
further powers and duties as from time to time may be conferred or assigned by
the Board.
Section 4.4 Vice President. The Board may appoint one or more vice presidents
and categories of vice presidents (including an executive vice president and a
senior vice president). Each vice president shall have such powers and duties
as may be assigned by the Board. One vice president shall be designated by the
Board, in the absence of the President, to perform all the duties of the
President.
<PAGE> 7
Section 4.5 Treasurer and Secretary. The Board shall appoint a Secretary,
Treasurer, or other designated officer who shall be secretary of the Board and
of the Corporation, and shall keep accurate minutes of all meetings. The
Secretary shall attend to the giving of all notices required by these by-laws;
shall be custodian of the corporate seal, records, documents and papers of the
Corporation; shall provide for the keeping of proper records of all
transactions of the Corporation, shall have and may exercise any and all other
powers and duties pertaining by law, regulation or practice, to the office of
Secretary, or imposed by these by-laws; and shall also perform such other
duties as may be assigned from time to time by the Board. The Treasurer shall
have and may exercise any and all other powers and duties pertaining by law,
regulation or practice, to the office of Treasurer, or imposed by these
by-laws; and shall also perform such other duties as may be assigned from time
to time by the Board. Unless otherwise designated by the Board, the Treasurer
shall be the Chief Financial and Accounting Officer of the Corporation.
Section 4.6 Other Officers. The Board may appoint (or authorize the President
to appoint) one or more assistant vice presidents, one or more assistant
secretaries, one or more assistant treasurers and such other officers and
attorneys in fact as from time to time may appear to the Board to be required
or desirable to transact the business of the Corporation. Such officers shall
respectively exercise such powers and perform such duties as pertain to their
several offices, or as may be conferred upon, or assigned to them by the Board,
the Chairperson of the Board, or the President.
Section 4.7 Tenure of Office. The President and all other officers shall serve
at the pleasure of the Board and shall hold office for one (1) year following
their election, unless they shall resign, become disqualified, or be removed,
and any vacancy occurring in the office of president shall be filled promptly
by the Board. The Board shall have power to remove any officer, with or without
cause, at any time, and the election of any officer shall not constitute a
contract of employment for any definite period of time. In its discretion, the
Board may authorize contracts of employment in excess of one (1) year, but the
contract rights therein created shall not limit the ability of the Board to
terminate the employment of any such officer or agent, although the said
contract rights may not be terminated or impaired in all circumstances by such
termination.
Section 4.8 Removal of Officers and Employees. Any and all officers and members
of committees, as well as all other employees of the Corporation, may be
removed at any regular or special meeting of the Board without the necessity of
any specification thereof in the call of the meeting, and any officer,
employee, or committee member may be suspended by the Chairperson of the Board,
or by the President, until the next meeting of the Board.
Section 4.9 Additional Offices. Any number of offices not inconsistent with
each other may be held by the same person; provided however, that the same
person may not hold the offices of President and Secretary or President and
Treasurer.
Section 4.10 Vacancies. Any vacancy occurring among the officers of the
Corporation shall be filled as soon as practicable, at the discretion of the
Board, by the Board at any regular or special meeting thereof, without the
necessity of any specification thereof in the call of any special or regular
meeting.
Section 4.11 Salaries. The officers of the Corporation shall receive as salary
or compensation for their services as officers and employees such sums as the
Board may determine from time to time.
ARTICLE V
ACTION BY CONSENT
Whenever the shareholders or directors 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, signed by all the persons or entities
entitled to vote thereon, and such action shall be as valid and effective as
any action taken at a regular or special meeting of the directors or
shareholders.
<PAGE> 8
ARTICLE VI
STOCK AND STOCK CERTIFICATES
Section 6.1 Transfers. Shares of stock shall be transferable on the books of
the Corporation, and a transfer book shall be kept in which all transfers of
stock shall be recorded. Every person becoming a shareholder by such transfer
shall, in proportion to his shares, succeed to all rights of the prior holder
of such shares.
Section 6.2 Stock Certificates. Certificates of stock shall bear the signature
of the President (which may be engraved, printed, or impressed), and shall be
signed manually or by facsimile process by the Secretary, Assistant Secretary,
or any other officer appointed by the Board for that purpose, to be known as an
authorized officer, and the seal of the Corporation shall be engraved thereon.
Each certificate shall recite on its face that the stock represented thereby is
transferable only upon the books of the Corporation properly endorsed.
Section 6.3 Lost Certificate(s). Duplicate certificate(s) may be issued in lieu
of lost certificate(s) upon proof of loss and indemnification satisfactory to
the Corporation.
ARTICLE VII
CORPORATE SEAL
The President, the Treasurer, the Secretary or any Assistant Secretary, or
other officer thereunto designated by the Board, shall have authority to affix
the corporate seal to any document requiring such seal, and to attest the same.
No document other than the certificate(s) of capital stock of the Corporation
shall be required to have the corporate seal. A facsimile of the corporate seal
printed on the certificate(s) of the capital stock of the Corporation shall be
fully effective as the corporate seal on such certificates. The seal need not
be imprinted on specimen certificates.
ARTICLE VIII
INDEMNIFICATION
Section 8.1 Indemnified Parties; Reliance; Contract Right. Except as expressly
limited by Section 48-18- 502(d) of the Tennessee Business Corporation Act (the
"TBCA"), every person (and the heirs and personal representatives of such
person) (each of whom may be referred to as an "Indemnitee") who is or was a
director, officer or employee of the Corporation, or any other entity in which
he or she served as such at the request of the Corporation, shall be
indemnified by the Corporation in accordance with the provisions of this
Article 8 against any and all liability and reasonable expense (including,
without limitation, counsel fees and disbursements, and amounts of judgments,
fines or penalties against, or amount paid in settlement by, a director,
officer, or employee) that may be incurred by him or her in connection with or
resulting from any claim, action, suit or proceeding, whether civil, criminal,
administrative or investigative, or in connection with any appeal relating
thereto, in which he or she may become involved, as a party or otherwise, or
with which he or she may be threatened, by reason of his or her being or having
been a director, officer, or employee of the Corporation or such other entity
or by reason of any action taken or omitted by him or her in his or her
capacity as such director, officer or employee, whether or not he or she
continues to be such at the time such liability or expense shall have been
incurred. Each person who shall act as a director, officer or employee of the
Corporation or any other entity referred to in this Section shall be deemed to
be doing so in reliance upon the right of indemnification provided for in this
Article 8.
This indemnification shall be a contract right and shall include the right to
receive payment in advance of any expenses incurred by any Indemnitee in
connection with any of the types of investigations and proceedings (all of
which may be referred to as a "Proceeding") referred to in this Article 8,
consistent with the provisions of these by-laws and applicable law as then in
effect.
Section 8.2 Indemnification As of Right. Every person (and the heirs and
personal representatives of such person) referred to in Section 8.1 of this
Article 8 who has been wholly successful on the merits with respect to any
claim, action, suit or proceeding of the character described in Section 8.1,
shall be entitled to indemnification as of right.
<PAGE> 9
Section 8.3 Indemnification Based on Review. Except as provided in Section 8.2
of this Article 8, any indemnification under this Article 8 shall be made in
the case of a claim, action, suit or proceeding (or other type of Proceeding)
only if the Board, acting by a quorum consisting of directors who are not
parties to such claim, action, suit or proceeding, shall find, or if a quorum
of disinterested directors cannot be obtained, the executive committee of the
Board shall find, or independent special legal counsel [who shall be selected
in the manner prescribed by TBCA Section 48-18-506(b)(3) and limited by TBCA
Section 48-18-506(c)] shall find, or the shareholders (excluding shares owned
by or voted under the control of a director who is a party to the Proceeding)
by the affirmative vote of a majority of the shares entitled to vote thereon
shall determine, that:
(1) in his or her capacity as a director, the director acted in
good faith in what he or she reasonably believed to be the
best interests of the Corporation or of such other entity, as
the case may be;
(2) in his or her capacity as an officer or employee of another
entity, the director of the Corporation acted in good faith
in what he or she reasonably believed was not opposed to the
best interests of the Corporation;
(3) in his or her capacity as an officer or employee of the
Corporation, the officer or employee acted in good faith in
what he or she reasonably believed to be in the best
interests of the Corporation;
(4) in his or her capacity as a director, officer or employee of
another entity, the officer or employee of the Corporation
acted in good faith in what he or she reasonably believed was
not opposed to the best interests of the Corporation; and, in
addition,
(5) in any criminal action or proceeding, the director, officer
or employee had no reasonable cause to believe that his or
her conduct was unlawful;
provided, however, that no indemnification under this Section 8.3 shall be made
with regard to (i) any claim, issue or other Proceeding by or in the right of
the Corporation as to which such director, officer or employee shall have been
adjudged to be liable to the Corporation unless and only to the extent that the
Court in which such action or suit was brought or another court of competent
jurisdiction shall determine that, despite the adjudication of liability but in
view of all the relevant circumstances of the case, such director, officer or
employee is fairly and reasonably entitled to indemnity for reasonable expenses
incurred which the court shall deem proper, or (ii) amounts paid, or expenses
incurred, in connection with the settlement of any such claim, action, suit or
proceeding, without the approval of a court of competent jurisdiction, or (iii)
in the case of any Proceeding charging improper personal benefit to a director,
officer or employee other than by or in the right of the Corporation, and such
director, officer, or employee was adjudged liable on the basis that a personal
benefit was improperly received by him or her.
The termination of any claim, action, suit or other Proceeding, civil,
criminal, administrative, or investigative, by judgment, settlement (either
with or without court approval) or conviction, upon a plea of guilty or of nolo
contendere or its equivalent, is not, of itself, determinative that a director,
officer or employee did not meet the standards of conduct set forth in this
Section.
Section 8.4 Employee Benefit Plans. For purposes of this Article 8, references
to "other enterprises" shall include employee benefit plans and employee
welfare benefit plans; references to "fines" shall include any excise taxes
assessed on a person with respect to any employee benefit plan; and references
to "serving at the request of the Corporation" shall include any service as a
director, officer, employee, or agent, of the Corporation which imposes duties
on, or involves services by, such director, officer, employee, or agent with
respect to an employee benefit plan, its participants, or beneficiaries; and a
person who acted in good faith and in a manner he reasonably believed to be in
the interest of the participants and beneficiaries of an employee benefit plan
shall be deemed to have acted in a manner not opposed to the best interests of
the Corporation.
Section 8.5 Contracts and Funding. The Corporation may enter into contracts
with any director, officer, employee, or agent of the Corporation in
furtherance of the provisions of this Article 8, and may create a trust fund,
<PAGE> 10
grant a security interest, or use other means (including, without limitation, a
letter of credit) to ensure the payment of such amounts as may be necessary to
effect indemnification as provided in this Article 8.
Section 8.6 Advancement of Expenses; Procedures. In furtherance, but not in
limitation, of the foregoing provisions, the following procedures and remedies
shall apply with respect to advancement of expenses and the right to
indemnification under this Article 8.
(a) Advancement of Expenses. All reasonable expenses incurred
by or on behalf of an Indemnitee in connection with any Proceeding
shall be advanced to the Indemnitee by the Corporation within twenty
(20) days after the receipt by the Corporation of a statement or
statements from the Indemnitee requesting such advance or advances
from time to time, whether prior to or after final disposition of a
Proceeding. The statement or statements shall reasonably evidence the
expenses incurred by the Indemnitee and, if required by law at the
time of such advance, shall include or be accompanied by an
undertaking by or on behalf of the Indemnitee to repay the amounts
advanced if it should ultimately be determined that the Indemnitee is
not entitled to be indemnified against such expenses.
(b) Written Request for Indemnification. To obtain
indemnification under this Article 8, an Indemnitee shall submit to
the Secretary of the Corporation a written request, including such
documentation and information as is reasonably available to the
Indemnitee and reasonably necessary to determine whether and to what
extent the Indemnitee is entitled to indemnification (the "Supporting
Documentation"). The determination of the Indemnitee's entitlement to
indemnification shall be made within a reasonable time after receipt
by the Corporation of the written request for indemnification together
with the Supporting Documentation. The Secretary of the Corporation,
promptly upon receipt of such request for indemnification, shall
advise the board of directors in writing that the Indemnitee has
requested indemnification.
(c) Procedure for Determination. An Indemnitee's entitlement
to indemnification under this Article VIII shall be determined:
(i) by the board of directors by majority vote of a
quorum (as defined in Article II of these By-Laws),
consisting of directors not at the time parties to the
Proceeding;
(ii) if a quorum cannot be obtained under
subdivision (i), by majority vote of a committee duly
designated by the board of directors (in which designation
directors who are parties may participate), consisting solely
of two (2) or more directors not at the time parties to the
Proceeding;
(iii) by independent special legal counsel;
(A) selected by the board of directors or
its committee in the manner prescribed in subdivision
(i) or (ii); or
(B) if a quorum of the board of directors
cannot be obtained under subdivision (i) and a
committee cannot be designated under subdivision
(ii), selected by majority vote of the full board of
directors (in which selection directors who are
parties may participate); or
(iv) by the shareholders, but shares owned by or
voted under the control of directors who are at the time
parties to the Proceeding may not be voted on the
determination.
Section 8.7 Indemnification Not Exclusive Right. The right of indemnification
and advancement of expenses provided in this Article 8 shall not be exclusive
of any other rights to which a person seeking indemnification may otherwise be
entitled, under any statute, by-law, agreement, vote of shareholders or
disinterested directors, or otherwise, both as to action in his official
capacity and as to action in another capacity while holding such office.
<PAGE> 11
The provisions of this Article 8 inure to the benefit of the heirs and legal
representatives of any person entitled to indemnity under this Article 8 and
shall be applicable to Proceedings commenced or continuing after the adoption
of this Article 8, whether arising from acts or omissions occurring before or
after such adoption.
Section 8.8 Insurance. This Corporation may purchase insurance to indemnify its
directors, officers and employees to the maximum extent permitted by the law of
the State of Tennessee.
ARTICLE IX
MISCELLANEOUS PROVISIONS
Section 9.1 Fiscal Year. The fiscal year of the Corporation shall be the
calendar year.
Section 9.2 Execution of Instruments. All agreements, indentures, mortgages,
deeds, conveyances, transfers, certificates, declarations, receipts,
discharges, releases, satisfactions, settlements, petitions, schedules,
accounts, affidavits, bonds, undertakings, proxies, and other instruments or
documents may be signed, executed, acknowledged, verified, delivered or
accepted on behalf of the Corporation by the Chairperson of the Board, or the
President, or any Executive Vice President, or by such other officers as the
Board may from time to time direct. The provisions of this Section 9.2 are
supplementary to any other provision of these by-laws.
Section 9.3 Records. The Charter of the Corporation, the by-laws, and the
proceedings of all meetings of the shareholders, the Board, and standing
committees of the Board, shall be recorded in appropriate minute books provided
for that purpose. The minutes of each meeting shall be signed by the Secretary,
Treasurer or other officer appointed to act as secretary of the meeting.
ARTICLE X
BY-LAWS
Section 10.1 Inspection. A copy of the by-laws, with all amendments, shall at
all times be kept in a convenient place at the main office of the Corporation,
and shall be open for inspection to all shareholders during corporate hours.
Section 10.2 Amendments. The by-laws may be amended, altered or repealed, at
any regular meeting of the Board, by a vote of a majority of the total number
of the directors.
CERTIFICATION
I, Daniel W. Small, certify that: (1) I am the Incorporator and the
duly constituted Assistant Secretary of First Financial Corporation and (2) the
foregoing by-laws are the by-laws of the Corporation, all of which are now in
full force and effect.
I certify that these Bylaws were adopted at a special meeting of the
Corporation held on the 26th day of August, 1991.
----------------------------------
Daniel W. Small, Incorporator
172 Second Avenue, North
Nashville, Tennessee 37201
<PAGE> 1
EXHIBIT 10.3
FIRST AMERICAN NATIONAL BANK LOAN DOCUMENTS
<PAGE> 2
MASTER PROMISSORY NOTE
$5,000,000.00 Nashville, Tennessee March 1, 1997
FOR VALUE RECEIVED, the undersigned, FIRST FINANCIAL CORPORATION, a Tennessee
corporation ("Maker"), promises to pay to the order of FIRST AMERICAN NATIONAL
BANK, a national banking association organized under the laws of the Unites
States of America ("Payee"), at its Main Office in Nashville, Tennessee, or at
such other place as the holder hereof may designate, the principal sum of Five
Million Dollars ($5,000,000.00), of the aggregate unpaid balance of advances
made by Payee pursuant to this Note, with interest thereon from date.
Maker shall have the right at any time to pay any part or all of the obligation
evidenced hereby without premium or penalty and without curtailing its right
further advances prior to the due date, i) except that such further advances,
shall never exceed the face amount hereof unless Payee, in its sole discretion,
elects otherwise, and ii) provided that any funds shall first be applied to
accrued but unpaid interest that is due and payable, if any, before funds are
applied toward principal reduction.
The rate of interest shall be at an effective annual rate equal to 7.79%,
beginning March 1, 1997. However, beginning June 1, 1997, Maker shall have the
right to choose between the two interest rate options, described below:
Option A
Interest shall be at an annual rate equal to the Index Rate from time
to time designated by First American National Bank as its "Index
Rate". The rate as set forth herein shall be adjusted on each day said
Index Rate changes. With this option, the Maker shall have the right
to change the interest rate to Option B, under such notification
criteria as is detailed under Option B or as is otherwise considered
reasonably appropriate by Payee.
Option B
Interest shall be fixed for three consecutive calendar months at an
annual rate that is 2.25% per annum above the three-month London
Interbank Offered Rate ("LIBOR") as quoted in the Wall Street Journal
published on the last business day of the calendar month preceding the
effective date of the rate change. An election of this option shall be
effective if the Payee receives notification, as is considered
reasonably appropriate by Payee, prior to the end of the month
preceding the month in which this option is to take effect. Under this
option, the Maker shall have the right to change to Option A as long
as Payee receives notification, as is considered reasonably
appropriate by Payee, of that decision by the last business day of the
month preceding the effective change. Any such change will become
effective on the first day of the month following the above-mentioned
notification.
At any time that this option is chosen, the rate shall adjust every
three months, as described under this option, unless Payee receives
notification, as described under this option, of the Maker's desire to
change to Option A.
Regardless of the interest rate option chosen, in no event shall the rate of
interest payable, in respect of the indebtedness evidenced hereby, be in excess
of the maximum formula contract rate of interest from time to time allowed by
the law to be charged by national banks located in Tennessee (the "Maximum
Rate"). Interest hereon shall be calculated on the basis of a 360-day year for
the actual number of days in each interest period. Interest hereon shall be
payable quarterly commencing the last day of May, 1997, continuing on the last
day of each February, May, August, and November
<PAGE> 3
thereafter until the indebtedness evidenced hereby is paid in full. The entire
balance of all advances outstanding hereunder plus any interest owed pursuant
to this Note shall be due and payable February 28, 1998.
Solely at the option of Payee, the outstanding principal balance as of February
28, 1998, may be payable in equal, consecutive annual installments, not to
exceed ten (10). If this option is taken, the first installment of principal
shall be due February 28, 1998, and installments shall continue on November 30
of each year thereafter until indebtedness evidenced hereby is paid in full. In
the event that this option is taken, the indebtedness evidenced hereby,
principal and interest, shall be due and payable in full no later that February
28, 2007.
The terms and conditions contained in a Loan Agreement dated September 22,
1992, as amended January 25, 1994 and November 30, 1994 between the parties
hereto shall be considered a part hereof to the same extent as if written
herein, and upon the occurrence of an Event of Default as defined in said Loan
Agreement then the entire principal sum and any accrued interest shall, at the
option of the holder of this Note, at once and without notice become due and
payable.
In the event of a failure to make any payment when due according to the terms
hereof, or upon the occurrence of any default or event of default under any
instrument or documents evidencing, securing, or in any way related to the
indebtedness evidenced hereby, at the option of the holder hereof and without
notice to the make, all accrued and unpaid interest, if any, shall be added to
the outstanding principal balance hereof, and the entire principal balance as
so adjusted shall be immediately due and payable in full and shall bear
interest thereafter until paid at the Maximum Rate, or at the option of the
holder hereof, the Maximum Rate in effect on the date hereof. The holder may
waive any default before or after the same has been declared and restore this
Note to full force and effect without impairing the right to declare this Note
due for a subsequent default, this right being a continuing one.
If any payment is past due by ten days or more, the Make agrees to pay the
Payee a late charge of (i) 5% of such payment amount or (ii) any lesser maximum
amount permitted under applicable law. No late charge, however, shall be
imposed on any payment made on time and in full solely by reason of any
previously accrued and unpaid late charge.
In the event this Note is placed in the hands of an attorney for collection or
for enforcement or protection of the security, or if the holder hereof incurs
any costs incident to the collection hereof or the enforcement or protection of
the security, the maker and any endorsers hereof agree to pay a reasonable
attorney's fee and all court and other costs and reasonable costs of any
collection efforts.
All parties hereto waive demand, notice, presentment and protest.
The indebtedness evidenced hereby is secured by a security interest in and
pledge of all of the capital stock of the First Bank & Trust, Mt. Juliet,
Tennessee.
FIRST FINANCIAL CORPORATION
By:
---------------------------------
Title:
------------------------------
<PAGE> 4
SECOND AMENDMENT TO LOAN AGREEMENT
This SECOND AMENDMENT TO LOAN AGREEMENT (hereinafter the "Amendment")
is entered into on this 30th day of November, 1994, by and between FIRST
FINANCIAL CORPORATION ("Borrower")a Tennessee Corporation, and FIRST AMERICAN
NATIONAL BANK ("Lender")a national banking association with its principal
offices located in Davidson County, Tennessee.
WITNESSETH:
WHEREAS, Borrower and Lender entered into a loan agreement on
September 22, 1992, as amended January 25, 1994, in connection with an
extension of credit from Lender to borrower, as described therein (hereinafter
referred to as the "Loan Agreement"); and
WHEREAS, Borrower has on this date executed a Master Promissory Note
evidencing $1,500,000 line of credit from Lender (the "Master Note", which term
shall include any and all extensions, renewals, modifications, and refinancings
thereof); and
WHEREAS, Borrower and Lender now wish to modify and amend the Loan
Agreement for the purpose stating that it remains in full force and applies to
the $1,500,000 Master Note; and
WHEREAS, Section 3.10 of the Loan Agreement requires the Borrower to
"cause Bank to maintain a total tangible capital to total tangible asset ratio
equal to the greater of that which is imposed by any regulatory authority with
jurisdiction over Borrower or Bank or that which is at least 7.5%."
NOW, THEREFORE for valuable consideration, the receipt of which is
mutually acknowledged, Section 3.10 of the Loan Agreement is hereby amended as
follows:
The 7.5% ratio requirement shall be amended to "7.0% through December
31, 1996." Furthermore, the following shall be added to that
paragraph: 1. Thereafter, Borrower shall cause Bank to maintain
capital at the greater of an amount at least equal to the regulatory
requirements for a "well-capitalized" bank or an amount that may be
otherwise required by the Bank's regulatory authorities. These
requirements will be tested quarterly based on financial data as of
each March 31, June 30, September 30 and December 31.
Except as modified and amended hereby, all the terms and conditions set forth
in the Loan Agreement remain unchanged and are hereby reaffirmed by Borrower as
of this date.
Executed on the date first written above.
FIRST FINANCIAL CORPORATION FIRST AMERICAN NATIONAL
BANK
("Borrower") ("Lender")
By: \s\ David Major
------------------------------- ------------------------------------
Title: President
<PAGE> 5
MASTER PROMISSORY NOTE
$1,500,000.00 Nashville, Tennessee November 30, 1994
FOR VALUE RECEIVED, the undersigned, FIRST FINANCIAL CORPORATION, a Tennessee
corporation ("Maker"), promises to pay to the order of FIRST AMERICAN NATIONAL
BANK, a national banking association organized under the laws of the United
States of America ("Payee"), at its Main Office in Nashville, Tennessee, or at
such other place as the holder hereof may designate, the principal sum of One
Million, Five Hundred Thousand Dollars ($1,500,000.00), or the aggregate unpaid
balance of advances made by Payee pursuant to this Note, with interest thereon
from date.
Maker shall have the right at any time to pay any part or all of the obligation
evidenced hereby without premium or penalty and without curtailing its right to
further advances prior to the due date, i) except that such further advances,
shall never exceed the face amount hereof unless Payee, in its sole discretion,
elects otherwise, and ii) provided that any funds must first be applied to
accrued but unpaid interest that is due and payable, if any, before funds are
applied toward principal reduction.
The rate of interest shall be at an effective annual rate equal to 8.24%,
beginning December 1,1994. However, beginning March 1, 1995, Maker shall have
the right to choose between the two interest rate options, described below:
Option A
Interest shall be at an annual rate equal to the Index Rate from time
to time designated by First American National Bank as its "Index
Rate". The rate as set forth herein shall be adjusted on each day said
Index Rate changes. With this option, the Maker shall have the right
to change the interest rate to Option B, under such notification
criteria as is detailed under Option B or as is otherwise considered
reasonably appropriate by Payee.
Option B
Interest shall be fixed for three consecutive calendar months at an
annual rate that is 2.25% per annum above the three-month London
Interbank Offered Rate("LIBOR") as quoted in the Wall Street Journal
published on the last business day of the calendar month preceding the
effective date of the rate change. An election of this option shall be
effective if the Payee receives notification, as is considered
reasonably appropriate by Payee, prior to the end of the month
preceding the month in which this option is to take effect. Under this
option, the Maker shall have the right to change to Option A as long
as Payee receives notification, as is considered reasonably
appropriate by Payee, of that decision by the last business day of the
month preceding the effective change. Any such change will become
effective on the first day of the month following the above-mentioned
notification.
At any time that this option is chosen, the rate shall adjust every
three months, as described under this option, unless Payee receives
notification, as described under this option, of the Maker's desire to
change to Option A.
Regardless of the interest rate option chosen, in no event shall the rate of
interest payable, in respect of the indebtedness evidenced hereby, be in excess
of the maximum formula contract rate of interest from time to time allowed by
the law to be charged by national banks located in Tennessee (the "Maximum
Rate"). Interest hereon shall be calculated on the basis of a 360-day year for
the actual number of days in each interest period. Interest hereon shall be
payable quarterly commencing the last day of February, 1995, continuing on the
last day of each February, May, August, and November thereafter until the
indebtedness evidenced hereby is paid in full. The entire balance of all
advances
<PAGE> 6
outstanding hereunder plus any interest owed pursuant to this Note shall be due
and payable November 30, 1995. Solely at the option of Payee, the outstanding
principal balance as of November 30, 1995.
Solely at the option of Payee, the outstanding principal balance as of November
30, 1995, may be payable in equal, consecutive annual installments, not to
exceed ten (10). If this option is taken the first installment of principal
shall be due November 30,1995, and installments shall continue on November 30
of each year thereafter until the indebtedness evidenced hereby is paid in
full. In the event that this option is taken, the indebtedness evidenced
hereby, principal and interest, shall be due and payable in full no later than
November 30, 2004.
The terms and conditions contained in a Loan Agreement dated September 22,1992,
as amended January 25, 1994 and November 30,1994 between the parties hereto
shall be considered a part hereof to the same extent as if written herein, and
upon the occurrence of an Event of Default as defined in said Loan Agreement
then the entire principal sum and any accrued interest shall, at the option of
the holder of this Note, at once and without notice become due and payable.
In the event of a failure to make any payment when due according to the terms
hereof, or upon the occurrence of any default or event of default under any
instrument or documents evidencing, securing, or in any way related to the
indebtedness evidenced hereby, at the option of the holder hereof and without
notice to the maker, all accrued and unpaid interest, if any, shall be added to
the outstanding principal balance hereof, and the entire principal balance as
so adjusted shall be immediately due and payable in full and shall bear
interest thereafter until paid at the Maximum Rate, or at the option of the
holder hereof, the Maximum Rate in effect on the date hereof, The holder may
waive any default before or after the same has been declared and restore this
Note to full force and effect without impairing the right to declare this Note
due for a subsequent default, this right being a continuing one.
If any payment is past due by ten days or more, the Maker agrees to pay the
Payee a late charge of (i) 5% of such payment amount or (ii) any lesser maximum
amount permitted under applicable Law. No late charge, however, shall be
imposed on any payment made on time and in full solely by reason of any
previously accrued and unpaid late charge.
In the event this Note is placed in the hands of an attorney for collection or
for enforcement or protection of the security, or if the holder hereof incurs
any costs incident to the collection hereof or the enforcement or protection of
the security, the maker and any endorsers hereof agree to pay a reasonable
attorney's fee and all court and other costs and reasonable costs of any
collection efforts.
All parties hereto waive demand, notice, presentment and protest.
The indebtedness evidenced hereby is secured by a security interest in and
pledge of all of the capital stock of the First Bank & Trust, Mt. Juliet,
Tennessee.
FIRST FINANCIAL CORPORATION
By: \s\ David Major
---------------------------------
Title: President & CEO
<PAGE> 7
AMENDMENT TO LOAN AGREEMENT
THIS AMENDMENT AGREEMENT is entered into as of the date set forth
below by and between FIRST FINANCIAL CORPORATION ("Borrower")and FIRST AMERICAN
NATIONAL BANK ("Bank").
WHEREAS, Borrower and Bank have entered into a Loan Agreement dated as
of September 22, 1992 (the "Loan Agreement");and,
WHEREAS, the indebtedness incurred under the Loan Agreement is secured
by that collateral (the "collateral") described in, and subject to the terms
of, a Pledge Agreement dated as of September 22, 1992 (the "Pledge Agreement");
and,
WHEREAS, the indebtedness incurred under the Loan Agreement and
secured under the Pledge Agreement is evidenced by a Master Promissory Note of
even date therewith in the face amount of $750,000.00 (the "Master Note"); and,
WHEREAS, Borrower is obtaining from Blank an increase in the line of
credit evidenced by the Master Note from $750,000.00 to $1,500,000.00, which
line of credit and the indebtedness now and hereafter outstanding thereunder
shall be evidenced by a master promissory note of even date herewith in that
amount (the "Replacement Master Note", which term shall include any and all
extensions, renewals, modifications, and refinancings thereof ,including any
subsequent increases or reductions in the line of credit evidenced thereby;
and,
WHEREAS, the Replacement Master Note is to be subject to the Loan
Agreement and will be secured by the Collateral under the Pledge Agreement
NOW, THEREFORE, in consideration of the recitals, and for other good
and valuable consideration, the receipt of which is mutually acknowledged,
Borrower and Bank agree as follows:
1. Any reference in the Loan Agreement to the "Note" shall henceforth
be deemed a reference to the Replacement Master Note.
2. Any reference in the Loan Agreement to the "Loan" shall henceforth
be deemed a reference to the indebtedness evidenced by the Replacement Master
Note.
3. Except as expressly amended hereby, the Loan Agreement shall remain
in full force and effect.
EXECUTED as of this 25th day of January, 1994.
FIRST FINANCIAL CORPORATION
By: \s\ David Major
-------------------------------------
Title: President & CEO
FIRST AMERICAN NATIONAL BANK
By:
------------------------------------
Title:
----------------------------------
<PAGE> 8
LOAN AGREEMENT
THIS LOAN AGREEMENT (hereinafter "Loan" is made and entered into the date
hereinafter written by and between FIRST FINANCIAL CORPORATION, a Tennessee
corporation (hereinafter called "Borrower") with its principal offices in Mt.
Juliet, Tennessee and FIRST AMERICAN NATIONAL BANK, a national banking
association (hereinafter called "Lender") having its principal office at
Nashville, Tennessee.
WITNESSETH:
FOR AND IN CONSIDERATION OF amounts now or hereafter advanced by
Lender to Borrower and other good and valuable consideration, receipt of all of
which is hereby acknowledged, this Agreement is made and entered into as
follows:
SECTION 1. LOAN DOCUMENTS AND PROCEEDS
1.1 LOAN. Subject to terms and conditions of this Agreement, Lender
agrees to lend to Borrower and Borrower agrees to borrow from Lender an amount
pursuant to a line of credit not to exceed Seven Hundred Fifty Thousand Dollars
($750,000). The line of credit shall be pursuant to the terms hereof and
evidenced by and payable according to the terms of a master promissory note in
form attached hereto as Exhibit A, executed by Borrower, as maker, and payable
to the order of and delivered to Lender contemporaneously with the execution
hereof. The line of credit, as renewed or extended from time to time, shall
hereinafter be referred to as the "Loan". The master promissory note together
with any amendments or modifications thereto and notes given in substitution or
renewal thereto are herein referred to as the "Note". This Agreement is executed
by Borrower and Lender for the purpose of setting forth certain warranties and
covenants of Borrower which forms a material inducement to Lender to make the
Loan and for the purpose of establishing certain terms and conditions concerning
the rights and duties of the parties throughout the term of the Loan.
1.2 COLLATERAL. The Loan shall be secured by the pledge and security
interest in all of the capital stock, and that which is to be convertible into
capital stock, of First Bank & Trust(hereinafter called "Bank"), Mt. Juliet,
Tennessee (the "Pledged Stock"). The pledge and security interest in the
Pledged Stock is granted pursuant to and evidenced by a Pledge Agreement of
even date herewith (the "Pledge Agreement") executed by Borrower and Lender,
and perfected by delivery by Borrower to Lender of all stock certificates
representing the Pledged stock, together with executed stock powers in form
satisfactory to Lender, and certain additional documentation as is deemed
necessary by Lender to effectuate and perfect said pledge and security
interest.
1.3 USE OF LOAN PROCEEDS. The Loan will be used to purchase and retire
capital stock of Borrower as it becomes available.
1.4 LOAN DOCUMENTS. The Note, this Loan Agreement, the Pledge
Agreement, and any other documents executed by Borrower in connection herewith
shall be referred to herein as the "Loan Documents".
SECTION 2. REPRESENTATIONS AND WARRANTIES
In order to induce Lender to enter into this Agreement and to make the
Loan, the Borrower represents and warrants to Lender that:
2.1 CORPORATE STATUS. The Borrower is a corporation duly organized and
validly existing in good standing under the laws of the state of Tennessee and
has the corporate power and authority to own the Pledged Stock and conduct its
affairs and business in connection with the ownership of the Pledged stock.
<PAGE> 9
2.2 CORPORATE POWER AND AUTHORITY. The Borrower has full power and
authority to enter into this Agreement, to borrow funds contemplated herein, to
execute and deliver the Loan Documents and to incur the obligations provided
for therein, all of which have been duly authorized by all proper and necessary
corporate action, and David Major is duly authorized by all necessary corporate
action to execute the Loan Documents in the name of Borrower. Any consents or
approvals of stockholders of Borrower required as a condition to the validity
of the Loan Documents have been obtained and the Loan Documents are valid,
legal, and binding obligations of Borrower fully enforceable in accordance with
their terms.
2.3 NO VIOLATION OF AGREEMENT OR LAW. Neither the Borrower nor the
Bank is in default under any indenture, agreement or instrument to which either
is a party or by which they may be bound. Neither Borrower nor Bank is in
violation of any state or federal statute, rule, ruling, or regulation
governing its operations and the conduct of its business, except for possible
immaterial violations which, in the aggregate, will not impair or render
insecure the rights and interests of the other party arising under or connected
with this Loan Agreement. Neither the execution and delivery of the Loan
Documents nor the consummation of the transactions therein contemplated, nor
compliance with the provisions thereof will violate any law or regulation, or
any order or decree of any court or administrative agency, or conflict with, or
result in the breach of, or constitute a default under, any indenture,
agreement or other instrument to which the Borrower or Bank is a party or by
which either may be bound, or result in the creation or imposition of any lien,
charge or encumbrance (other than a lien or encumbrance in Lender's favor as
set out in the Loan Documents) upon any of the property of the Borrower or
Bank, or violate or be in conflict with any provision of the charter, by-laws
or any preferred stock provisions of the Borrower or Bank.
2.4 COMPLIANCE WITH LAW: GOVERNMENT APPROVALS. Borrower has complied
with all requirements, made any and all applications, and submitted any and all
reports required by the Bank Holding Company Act of 1956, as amended and any
regulations or rulings issued in connection therewith, and any other applicable
state or federal statute, rule, rulings, or regulation in connection with the
borrowing of money or the pledging of the Pledged Stock as described herein, or
any other action of Borrower contemplated herein. Said actions and transactions
will not violate any of such statutes, rules, rulings or regulations nor will
the consummation of said actions and transactions cause Borrower or Bank to be
in violation thereof. Borrower has received any and all governmental approvals,
or governmental agency approvals, necessary for consummation of said actions
and transactions prior to any advancement of loan proceeds under this loan
agreement. Borrower agrees to furnish copies of any required applications and
approvals to Lender.
2.5 CONSOLIDATED TAX RETURNS. Borrower and Bank are entitled to file
consolidated federal income tax returns and the dividends received by Borrower
are not taxable under the Internal Revenue Code of 1954, as amended.
2.6 LITIGATION. There are no suits, proceedings, or other actions, to
the knowledge of the Borrower, either pending or threatened, against the
Borrower or Bank before any court, arbitrator or governmental or administrative
body or agency which, if adversely determined, would result in any material
adverse change in the financial conditions, business operations, or properties
or assets of the Borrower or Bank.
2.7 FINANCIAL CONDITION. The balance sheets and related statements of
income of Bank which have been delivered to the Lender prior to the execution
of this Agreement, are complete and correctly and fairly present the financial
condition of Borrower and the results of their operations and transactions as
of the dates and for the periods applicable. There are no liabilities, direct
or indirect, fixed or contingent, of Bank as of the dates of such balance
sheets which are not reflected therein or in the notes thereto. And, since
those dates, Bank has incurred no liabilities, direct or indirect, fixed or
contingent, except as disclosed to Lender and except for those incurred in the
normal course of business. There are no liabilities, direct or indirect, fixed
or contingent, except for those
<PAGE> 10
incurred in the normal course of business, of Borrower as of the date hereof.
Furthermore, since the balance sheet and income statement periods, there has
been no adverse change in the condition, financial or otherwise, of the Bank.
2.8 TAX LIABILITY. Borrower has filed all tax returns which are
required to be filed, and has paid, or made adequate provision for the payment
of, all taxes which have become due pursuant to such returns or pursuant to any
assessments received by Borrower.
2.9 DISCLOSURE. Neither the financial statements referred to in
section 2.7, nor any reports or financial information delivered to the Lender
by the Borrower or others in connection herewith or in connection with any
transaction contemplated hereby, nor this Agreement contain any un true
statements of a material fact or omit any material fact that would make any of
the statements misleading.
2.10 PLEDGED STOCK. The Pledged Stock is duly authorized and validly
issued by Bank. The Pledged Stock is owned by Borrower free and clear of all
liens, encumbrances, security interests or pledges except the pledge to Lender
described herein; is fully paid and non-assessable other than as provided by
appropriate banking law; the certificates delivered to Lender representing the
Pledged Stock are genuine and comply with applicable laws concerning form,
content, and manner of preparation and execution; there are no outstanding
warrants or options to acquire the Pledged Stock; there are outstanding no
securities convertible or exchangeable into shares of Pledged Stock; there are
no restrictions on the transfer of any shares of Pledged Stock. Borrower has
the right to grant to Lender a security interest in the Pledged Stock without
obtaining the consent of any other person, entity or government agency; and the
Pledge Agreement creates in Lender a first security interest in the Pledged
Stock, subject to no other interests or claims, except the ownership interest
of Borrower.
2.11 OTHER DEBTS AND LIENS. There are no other debts or liens with
respect to any assets of the Borrower except as disclosed in the above
mentioned financial statements or as set forth in writing to Lender.
2.12 REGULATORY ACTION No adverse or restrictive action has been
taken, or is in effect, by any applicable regulatory authority against the
Borrower or the Bank.
SECTION 3. COVENANTS.
The Borrower covenants and agrees that until all indebtedness
evidenced by the Note, both principal and interest thereon, and all of its
other indebtedness to the Lender under the terms of the Loan Documents are paid
in full, unless specifically waived by the Lender in writing:
3.l FINANCIAL STATEMENTS AND OTHER INFORMATION. The Borrower shall
deliver to Lender:
(a) as soon as practicable after the end of each fiscal year,
beginning at the 1993 fiscal year end, and in any event within 90 days
thereafter, (i) separate, in respect to Borrower only, and consolidated balance
sheets of the Borrower and Bank, and (ii) separate, in respect to Borrower
only, and consolidated statements of income and 0(pound) stockholder's equity
of the Borrower and Bank, setting forth in each case in comparative form
figures for the previous fiscal year, all in reasonable detail and accompanied
by the unqualified opinion thereon of independent certified public accountants
selected by the Borrower and satisfactory to Lender, which opinion shall state
that such financial statements have been prepared in accordance with generally
accepted accounting principals applied on a basis consistent with that of
preceding fiscal year (except for such changes, if any, as shall be specified
and approved by such accountants in such opinion); that the audit has been made
in accordance with generally accepted auditing standards; and that the
statements fairly present the financial condition of Borrower and Bank and the
results of their operations for the period then ended;
<PAGE> 11
(b) promptly upon receipt thereof, copies of all audit reports submitted
to the Borrower or Bank by independent certified public accountants in
connection with each special or interim audit of the books of Borrower or
Blank;
(c) copies of all reports, including regulatory quarterly call reports,
submitted to any federal or state regulatory agency having regulatory authority
over the Borrower, Bank, or any of the Borrower's other banking subsidiaries
contemporaneously with the time such reports are submitted to any such
regulatory agency;
(d) forthwith upon the obtaining of knowledge by any officer of the
Borrower of any condition or event that constitutes or, after notice or lapse
of time or both, would constitute an Event of Default, a certificate specifying
the nature and period of existence thereof, and what action the Borrower has
taken or is taking or proposes to take with respect thereto; and
(e) with reasonable promptness, such other information and data with
respect to the Borrower, Bank, and any of the Borrower's other subsidiaries as
from time to time may be reasonably requested. This shall include information
contained in all regulatory examination reports, but only to the extent
permitted by law.
3.2 TAXES AND CLAIMS. The Borrower shall duly pay and discharge or
cause to be paid and discharged all taxes, assessments and governmental charges
upon or against the Borrower and Bank or their assets prior to the date on
which penalties attach thereto, unless and to the extent that such taxes are
being diligently contested in good faith and by appropriate proceedings and
appropriate reserves therefore have been established.
3.3 PRESERVATION OF CORPORATE STATUS; COMPLIANCE WITH LAW. The
Borrower shall cause to be done all things necessary to preserve, renew or keep
in full force and effect it's and that of the Bank's corporate existence,
rights, licenses, permits, and franchises and to cause Borrower and Bank to
comply, in all material respects, with all statutes, rules, rulings, and
regulations applicable to Borrower and Bank, whether state or federal including
The Blank Holding Company Act of 1956, as amended, and all rules and
regulations issued thereunder, and to file all reports and statements required
thereunder in a timely manner in form required thereby.
3.4 INDEBTEDNESS. Except for the indebtedness incurred by the Borrower
and the Bank in their ordinary course of business, the Borrower will not
create, incur, assume or suffer to exist,contingently or otherwise,
indebtedness other than the indebtedness created by the Note.
3.5 INDEBTEDNESS TO LENDER AND OTHER COVENANTS. The Borrower shall (a)
make full and timely payment of the principal of and interest on the Loan and
all other indebtedness of the Borrower to the Lender, whether now existing or
hereafter arising, (b) duly comply with all the terms and covenants contained
in each of the instruments and documents given to the Lender pursuant to this
Agreement, all at the times and places and in the manner set forth therein, and
(a) at all times maintain the security interest provided for under the Pledge
Agreement as a valid and perfected security interest in the pledged Stock.
3.6 OWNERSHIP CHANGE. Borrower will promptly report to Lender any
change in the ownership of 10% or more of the outstanding common capital stock
of the Borrower or the Bank as disclosed or required to be disclosed under
applicable securities or banking laws or regulations promulgated thereunder.
3.7 MANAGEMENT CHANGE Borrower will promptly report to Lender any
change in the executive officers of Borrower or Bank.
<PAGE> 12
3.8 PRESERVATION OF ASSETS. Borrower shall cause Bank to maintain its
physical assets in good condition and repair and cause Bank to keep such assets
insured in reasonable amounts. Borrower will maintain, and cause Bank to
maintain, insurance in such amounts and against such risks as is customary in
its business without limiting the generality of the foregoing, the Bank will
maintain coverage under a banker's blanket bond in an amount acceptable to the
Bank a regulatory authority.
3.9 FURTHER ASSURANCES. The Borrower shall, at its cost and expenses,
upon request of the Lender, duly execute and deliver, or cause to be duly
executed and delivered, to the Lender such further instruments and do and cause
to be done such further acts that may be necessary or proper in the opinion of
Lender to carry out more effectively the provisions and purposes of the Loan
Documents. In the event of default of any covenants of this Loan Document on
the part of Borrower or Bank the Lender shall, at its discretion, have the
right to review and evaluate all assets of the Borrower and Bank, including all
loan and securities portfolios and any documents, including credit files or
computer print-cuts, relating thereto.
3.10 CAPITAL TO ASSET RATIO. Borrower shall cause Bank to maintain a
total tangible capital to total tangible asset ratio equal to the greater of
that which is imposed by any regulatory authority with jurisdiction over
Borrower or Bank or that which is at least 7.5%. Total tangible capital shall
be defined as the sum of shareholders equity and the loan loss reserve minus
any intangible assets. Total tangible assets shall be defined as total assets
minus intangible assets. Intangible assets shall be defined as those assets
considered as such under generally accepted accounting principles.
3.11 DESIGNATION or LOANS AS NON-ACCRUING. Borrower shall cause Bank
to place each loan made by Bank, including the pro-rata interest in loans which
Bank has purchased a participated interest on a non-recourse basis, on a
non-accrual basis on its books and records, if required by, and in accordance
with, the request rements and guidelines of the federal regulatory agency
having jurisdiction over Bank.
3.12 NON-PERFORMING ASSETS. Borrower shall cause Bank to maintain a
volume of non-performing assets below an amount equal to 3.25% of total loans
plus other real estate owned. The definition of non-performing assets shall be
that which is used by Bank's regulatory authority. This requirement shall be
tested on a semi-annual basis.
3.13 EARNINGS. Borrower shall cause Bank to maintain a return of net
income to total assets of at least .5% and an average of .75% for any two
consecutive fiscal years. These ratios shall be calculated on a fiscal basis
based on financial reports required by Section 3.1 of this agreement.
3.14 CONTINGENT LIABILITIES. Neither the Borrower nor the Bank shall,
without the prior consent of the Lender in advance,guarantee or become a surety
or otherwise contingently liable for any obligations of others, except (with
respect to Bank) pursuant to the deposit and collection of checks and similar
items and the issuance of letters of credit in the ordinary course of business
3.15 MERGER, DISSOLUTION, ETC. If Borrower or Bank is acquired by, or
enters into any transaction or merger or consolidation with, any third party
without Lender's consent,Lender may, at its option, demand full payment of
principal and interest on this Loan. The full payment shall not be due prior to
a six month period following that demand.
3.16 AFFILIATES AND SUBSIDIARIES. Without Lender's consent, neither
Borrower nor Bank shall create or establish affiliates or subsidiaries, or,
with respect to Borrower, acquire stock or any other interest in any bank other
than Bank, or currently existing affiliates and subsidiaries, that will cause
Borrower or Bank to be in default or any covenant or written agreement
contained in the Loan Documents. Borrower shall inform11NAR-OS-SO NON 10:30 AN
FIRST BANK AND
<PAGE> 13
TRUST FAX NO. 6157542285 P. 20/29 Lender of any such acquisition even if sueh
actions would not cause any defaults, as mentioned in this section.
SECTION 4. DEFAULTS AND REMEDIES
4.1 EVENTS OF DEFAULT. Any one or more of the following events shall
constitute a default ("Event of Default") by the Borrower under the terms of
this Agreement:
a) The failure of the Borrower to pay any installment of principal or
interest of the Note when and as the same shall become due and payable, whether
at maturity or by acceleration or otherwise, if such failure is not remedied
within ten (10) days after notice and demand by Lender;
(b) Default in the performance of any provision or breach of any
covenant of the Loan Documents, if such nonperformance or breach is not
remedied within thirty (30) days after notice from Lender, or if any of such
Documents shall become void and unenforceable;
(c) If any representation or warranty or any other statement of fact
contained herein or in any written, certificate, or report or statement at any
time furnished to Lender pursuant to or in connection with the Loan Documents,
or otherwise, shall prove to be false or misleading in any material respect,
unless such breach is cured within thirty (30) days after notice from Lender;
(d) If the Lender reasonably deems itself to be insecure in respect of
Borrower's ability to effect repayment of the Loan;
e) If the Borrower or Bank files a petition in bankruptcy or seeks
reorganization or arrangement under the Bankruptcy Code (as it now exists or as
amended); is unable or admits in writing its inability to pay its debts as they
become due; makes an assignment for the benefit of creditors; has a receiver
appointed voluntarily or otherwise, for its property; is adjudicated as
bankrupt; suspends its business; permits a judgment to be obtained against it
which is not promptly paid or promptly appealed and secured pending appeal;
becomes insolvent, however, otherwise evidenced, or defaults in payment of any
other indebtedness owed to other persons or permits the time of payment of such
indebtedness to be accelerated due to default;
(f) If Borrower or Bank is issued any Memorandum of Understanding,
Cease and Desist Order, injunction, restraining order, or any other restrictive
order or agreement, whether temporary or permanent, by or at the request of any
regulatory agency or court or other authority having jurisdiction over Borrower
or Bank relating to past or present business practices and procedures of
Borrower or Bank.
4.2 REMEDIES. In the event of any such Event of Default,and at any
time thereafter, Lender may, at its option, declare the indebtedness evidenced
by the Note and all other obligations owing by the Borrower to Lender, together
with accrued interest thereon to be immediately due and payable and the
Borrower forthwith pay the amounts declared due with presentment,
demand,protest, or notice of any kind all of which are expressly waived,
anything contained herein or in the Note to the contrary notwithstanding; in
addition, Lender, either before or after pursuing any other remedies provided
in the Loan Documents or by the Law, may immediately proceed to foreclose its
security interest on the Pledged Stock. The failure of Lender to exercise the
foregoing option or any other right or power granted to it under the Loan
Documents, on any one or more occasions, shall not be deemed a waiver of its
right to do so in the event of subsequent default, these being continuing
rights, nor shall any single or partial exercise of any right, power, or
privilege hereunder preclude any other right, power or privilege;
4.3 RIGHTS AND REMEDIES CUMULATIVE. No right or remedy herein
conferred upon Lender is intended to be excluding of any other right or remedy
contained in the Loan Documents or
<PAGE> 14
provided by law, and every such right or remedy contained therein or now or
hereafter existing at law or in equity or by statute or otherwise shall be
cumulative
SECTION 5. CONDITIONS PRECEDENT
The obligation of Lender to make the Loan shall be subject to the
following conditions precedent, all of which shall be fulfilled prior to or
concurrently with the execution of the Loan Documents
5.1 LOAN DOCUMENTS. Executed Loan Documents with appropriate supporting
documents as described in Section 2 hereof shall be delivered to Lender
5.2 CORPORATE RESOLUTIONS. Lender shall receive certified resolutions
of Borrower authorizing the borrowing of the Loan funds, and any other action
or transaction described herein, and designating an appropriate officer or
officers to execute said Documents.
5.3 CORRECTNESS OF WARRANTIES: NO DEFAULT. No warranties or
representations contained herein or in any of the Loan Documents shall be false
or misleading and there shall exist no Event or Default and no condition,
event, or act which, with notice or lapse of time or both, would constitute an
Event of Default
SECTION 6. MISCELLANEOUS
6.1 COLLECTION COSTS. In the event that the Lender shall retain or
engage an attorney or attorneys to collect or enforce or protect its rights or
collateral pursuant to the Loan Documents, the Borrower shall pay all of the
costs and expenses of such collection, enforcement or protection, including
reasonable attorney's fees, and the Lender may take judgment for all such
amounts, in addition to the unpaid principal balance of the Note and the
accrued interest thereon.
6.2 AMENDMENT MODIFICATION AND WAIVER. No amendment, modification or
waiver of any provision of the Loan Documents and no consent by the Lender to
any departure therefrom by the Borrower shall be effective unless such
amendment, modification or waiver shall be in writing and signed by a duly
authorized representative of the Lender, and the same shall then be effective
only for the period and on the conditions and for the specific instances and
purposes specified in such writing. No notice to or demand on the Borrower in
any case shall entitle the Borrower to any other or further notice or demand in
similar or other circumstances.
6.3 GOVERNING LAW. This Agreement shall be construed in accordance
with and be governed by the laws of the State of Tennessee;
6.4 CAPTIONS AND COUNTERPARTS. The captions of the various sections
and paragraphs of this Agreement have been inserted only for the purposes of
convenience; such captions are not a part of the Agreement and shall not be
deemed in any manner to modify, explain, enlarge or restrict any or the
provisions of this Agreement. This Loan Agreement may be executed in any number
of counterparts, each of which shall be an original, but all of which together
shall constitute one instrument.
6.5 NOTICES. All notices, requests, demands or other communications
provided for herein or in any instrument or document delivered pursuant hereto,
shall be in writing and shall be deemed to have been given upon personal
delivery or three days after sending by registered, certified, U.S., or express
mail,return receipt requested, postage prepaid, addressed, as the case may be,
to:
<PAGE> 15
Lender: First American National flank
First American Center
Nashville, Tennessee 37237
(Attention: Larry J. Brooks)
Borrower: First Financial Corporation
P. 0. Box 355
Mt. Juliet, TN 37122
(Attention: Chief Executive Officer)
or to such other addresses and attention as either party maydesignate
to the other in writing from time to time and forwarded in like manner.
6.6 BENEFIT. This Loan Agreement shall be binding upon and inure to
the benefit of the Borrower and the Lender and the irrespective successors and
assigns and all subsequent holders of the Note.
6.7 INVALID PROVISION TO AFFECT NO OTHERS. If fulfillment of any
provision hereof or any transaction related hereto at the time performance of
such provisions shall be due, shall involve transcending the limit of validity
prescribed by law; then ipsofacto, the obligation to be fulfilled shall be
reduced to the limit of such validity; and if any clause provisions herein
contained operates or would prospectively operate to invalidate this Agreement
in whole or in part, then such clause or provisiononly shall be held for
naught, as though not herein contained,and the remainder of this Agreement
shall remain operative and in full force and effect.
6.8 TERM OF AGREEMENT. This Agreement shall remain in full force and
effect so long as any portion of the Loan, whether principal, interest, or
costs, remains unpaid.
6.9 SURVIVAL OF REPRESENTATIONS, ETC. All agreements, representations
and warranties contained herein or made in writing by or on behalf of the
Borrower in connection with the transactions contemplated hereby shall survive
the execution and delivery of this Loan Agreement, any investigation at any
time made by the Lender or on its behalf, and the delivery of the Note and
payment therefore and any sale or other disposition of the Note. All statements
contained in any certificate or other instrument delivered by or on behalf of
the Borrower pursuant hereto or in connection with the transactions
contemplated hereby shall be deemed representations and warranties by the
Borrower hereunder.
IN WITNESS WHEREOF, the Borrower and the Lender have caused this
Agreement to be duly executed by their respective officers thereunto duly
authorized as of this 22nd day of September, 1992.
FIRST FINANCIAL CORPORATION
(BORROWER)
By: \s\ David Major
-------------------------------
Title: President
FIRST AMERICAN NATIONAL BANK
By:
-------------------------------
Title:
----------------------------
<PAGE> 16
In the event this Note is placed in the hands of an attorney for collection or
for enforcement or protection of the security, or if the holder hereof incurs
any costs incident to the collection hereof or the enforcement or protection of
the security, themaTter and any endorsers hereof agree to pay a reasonable
attorney's fee and all court and other costs and reasonable costs of any
collection efforts.
All parties hereto waive demand, notice, presentment and protest.
The indebtedness evidenced hereby is secured by a security interest in and
pledge of all of the capital stock of the First Bank & Trust, Mt. Juliet,
Tennessee.
FIRST FINANCIAL CORPORATION
By:
---------------------------------
Title:
------------------------------
<PAGE> 17
EXHIBIT A
MASTER PROMISSORY NOTE
$750, 000.00 Nashville, Tennessee 1992
-----
FOR VALUE RECEIVED, the undersigned, First Financial Corporationa Tennessee
corporation ("Maker"), promises to pay to the order of FIRST AMERICAN NATIONAL
BANK, a national banking association organized under the laws of the United
States of America at its Main Office in Nashville, Tennessee, or at such other
place as the holder hereof May designate, the principal sum of Seven Hundred
and Fitty Thousand and No/100 Dollars($750,000.00) or the aggregate unpaid
balance of advances made by Payee pursuant to this Note, with interest thereon
from date.
Maker shall have the right at any time to pay any part or all of the obligation
evidenced hereby without premium or penalty and without curtailing its right to
further advances prior to the due date, i) except that such further advances,
shall never exceed the face amount hereof unless Payee, in its sole
discretion,elects otherwise, and ii) provided that any funds shall first be
applied to accrued but unpaid interest, if any, before funds are applied toward
principal reduction. Interest shall be, at an annual rate equal to the interest
rate from time to time designated by First American National Bank, as its
"Index Rate". The rate as set forth herein shall be adjusted on each day said
Index Rate changes; provided, however, in no event shall the rate of interest
payable in respect of the indebtedness evidenced hereby be in excess of the
maximum formula contract rate of interest from time to time allowed by the law
to be charged by national banks located in Tennessee (the "Maximum Rate").
Interest hereon shall be calculated on the basis of a 360-day year. Interest
hereon shall be payable quarterly commencing Noven(pound)ber 30, 1992,
continuing on the first day of each quarter thereafter until the indebtedness
evidenced hereby is paid in full. The entire balance of all advances
outstanding hereunder plus any interest owed pursuant to this Note shall be due
and payable November 30, 1993.
Solely at the option of Payee, the outstanding principal balance as of November
30, 1993, may be payable in equal, consecutive annual installments, not to
exceed ten (10). If this option is taken, the first installment of principal
shall be due November 30, l, and installments shall continue on each November
30, of each year thereafter until the indebtedness evidenced hereby in paid in
full. In the event that this option is taken, the indebtedness evidenced
hereby, principal and interest, shall be due and payable in full no later than
November 30, 2002.
The terms and conditions contained in a Loan Agreement dated _____________ 1992,
between the parties hereto shall be considered part hereof to the same extent as
if written herein, and upon the occurrence of an Event of Default as defined in
said Loan Agreement then the entire principal sum and any accrued interest
shall, at the option of the holder of this Note, at once and without notice
become due and payable.
In the event of a failure to make any payment when due according to the terms
hereof, or upon the occurrence of any default or event of default under any
instrument or documents evidencing, securing, or in any way related to the
indebtedness evidenced hereby, at the option of tbe holder hereof and without
notice to the maker, all accrued and unpaid interest, if any, shall be added to
the outstanding principal balance hereof, and the entire principal balance as
so adjusted shall be immediately due and payable in full and shall bear
interest thereafter until paid at the Maximum Rate, or at the option of the
holder hereof, the Maximum Rate in effect on the date hereof. The holder may
waive any default before or after the same has been declared and restore this
Note to full force and effect without impairing the right to declare this Note
due for a subsequent default, this right being a continuing one.
<PAGE> 1
EXHIBIT 10.4
DIRECTOR AGREEMENT (GENERIC FORM)
<PAGE> 2
DIRECTOR AGREEMENT
The undersigned, being a current member of the Board of Directors of
First Bank & Trust, a Tennessee Banking Corporation, does hereby acknowledge
the receipt of the sum of $5,000.00 and for and in consideration thereof does
hereby agree as follows: (1) to stand for election as a Director of First Bank
& Trust at the 1998 annual First Bank & Trust Shareholder's meeting, and (2) if
elected, to serve as a Director of First Bank & Trust between the 1998 annual
shareholder's meeting and the 1999 annual shareholder's meeting for such
meeting fees as may be from time to time established and to carry out all
duties and responsibilities of a Director during said term to the best of my
ability.
THIS the __________day of__________________, 1998.
----------------------------------------
<PAGE> 1
EXHIBIT 21
SUBSIDIARY OF THE REGISTRANT
The following table sets forth the subsidiary of First Financial
Corporation at December 31, 1997. Such subsidiary is wholly owned by the
Company and it is included in the Company's consolidated financial statements:
<TABLE>
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
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> DEC-31-1997
<CASH> 6,100
<INT-BEARING-DEPOSITS> 0
<FED-FUNDS-SOLD> 9,300
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 40,015
<INVESTMENTS-CARRYING> 0
<INVESTMENTS-MARKET> 0
<LOANS> 147,671
<ALLOWANCE> 1,704
<TOTAL-ASSETS> 212,492
<DEPOSITS> 193,260
<SHORT-TERM> 600
<LIABILITIES-OTHER> 1,342
<LONG-TERM> 1,328
0
0
<COMMON> 2,699
<OTHER-SE> 13,263
<TOTAL-LIABILITIES-AND-EQUITY> 212,492
<INTEREST-LOAN> 13,732
<INTEREST-INVEST> 2,398
<INTEREST-OTHER> 522
<INTEREST-TOTAL> 16,652
<INTEREST-DEPOSIT> 7,583
<INTEREST-EXPENSE> 7,737
<INTEREST-INCOME-NET> 8,915
<LOAN-LOSSES> 350
<SECURITIES-GAINS> 47
<EXPENSE-OTHER> 6,690
<INCOME-PRETAX> 3,965
<INCOME-PRE-EXTRAORDINARY> 3,965
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,604
<EPS-PRIMARY> 2.78
<EPS-DILUTED> 2.71
<YIELD-ACTUAL> 4.99
<LOANS-NON> 481
<LOANS-PAST> 315
<LOANS-TROUBLED> 157
<LOANS-PROBLEM> 2,018
<ALLOWANCE-OPEN> 1,541
<CHARGE-OFFS> 209
<RECOVERIES> 22
<ALLOWANCE-CLOSE> 1,704
<ALLOWANCE-DOMESTIC> 1,704
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
