10-K405 1 c68404e10-k405.txt ANNUAL REPORT SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-K ANNUAL REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the Fiscal Year Ended Commission file number December 31, 2001 0-16759 FIRST FINANCIAL CORPORATION (Exact name of registrant as specified in its charter) INDIANA 35-1546989 (State of Incorporation) (I.R.S. Employer Identification No.) One First Financial Plaza 47807 Terre Haute, IN (Address of principal executive offices) (Zip Code) Registrant's telephone number: (812) 238-6000 Securities registered pursuant to Section 12(b) of the Act: TITLE OF EACH CLASS NAME OF EACH EXCHANGE ON WHICH REGISTERED ------------------- ----------------------------------------- Common Stock, no par value Nasdaq Securities registered pursuant to Section 12(g) of the Act: None Indicated by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months, and (2) has been subject to such filing requirements for the past 90 days. Yes X No --- --- Indicate by check mark if disclosure of delinquent filers pursuant to item 405 of regulation 8-K is not contained herein, and will not be contained, to the of Registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of the Form 10-K or any amendment to the form 10-K. X --- As of January 31, 2002 the aggregate market value of the voting stock held by nonaffiliates of the registrant based on the average bid and ask prices of such stock was $273,250,450. (For purposes of this calculation, the Corporation excluded the stock owned by certain beneficial owners and management and the Corporation's ESOP.) Shares of Common Stock outstanding as of January 31, 2002 -- 6,837,260 shares. DOCUMENTS INCORPORATED BY REFERENCE Portions of the 2001 Annual Report to Shareholders are incorporated by reference into Parts I and II. Portions of the Definitive Proxy Statement for the First Financial Corporation Annual Meeting to be held April 17, 2002 are incorporated by reference into Part III. FORM 10-K CROSS-REFERENCE INDEX

PAGE PART I Item 1 Business ...................................................................................... 2 Item 2 Properties .................................................................................... 2 Item 3 Legal Proceedings ............................................................................. 2 Item 4 Submission of Matters to a Vote of Security Holders ........................................... 2 PART II Item 5 Market for Registrant's Common Stock and Related Stockholder Matters .......................... 3 Item 6 Selected Financial Data ....................................................................... 3 Item 7 Management's Discussion and Analysis of Financial Conditions and Results of Operations ........ 3 Item 8 Financial Statements and Supplementary Data ................................................... 3 Item 9 Changes in and Disagreement with Accountants on Accounting and Financial Disclosures .......... 3 PART III Item 10 Directors and Executive Officers of Registrant ................................................ 3 Item 11 Executive Compensation ........................................................................ 3 Item 12 Security Ownership of Certain Beneficial Owners and Management ................................ 3 Item 13 Certain Relationships and Related Transactions ................................................ 4 PART IV Item 14 Exhibits, Financial Statement Schedules and Reports on Form 8-K ............................... 4 Signatures .................................................................................... 4, 5 Subsidiaries of the Registrant ................................................................ Exhibit 21

1 PART I ITEM 1. BUSINESS First Financial Corporation (the Corporation) became a multi-bank holding company in 1984 and a financial services holding company in 2001. For more information on the Corporation's business, please refer to the following sections of the 2001 Annual Report to Shareholders: 1. Description of services, affiliations, number of employees, and competition, on page 27. 2. Information regarding supervision of the Corporation, on page 12. 3. Details regarding competition, on page 27. ITEM 2. PROPERTIES First Financial Corporation is located in a four-story office building in downtown Terre Haute that was occupied in June 1988. It is leased to Terre Haute First National Bank, a wholly-owned subsidiary (the Bank). The Bank also owns two other facilities in downtown Terre Haute. One is leased to another party and the other is a 50,000-square-foot building housing operations and administrative staff and equipment. In addition, the Bank holds in fee four other branch buildings. One of the branch buildings is a single-story 44,000-square-foot building which is located in a Terre Haute suburban area. Six other branch bank buildings are leased by the Bank. The expiration dates on the leases are February 14, 2011, May 31, 2011, September 1, 2006, June 30, 2004, December 31, 2003 and June 30, 2002. Facilities of the Corporation's subsidiary, First State Bank, include its main office in Brazil, Indiana and four branch facilities in Brazil, Clay City and Poland, Indiana. All five buildings are held in fee by First State. Facilities of the Corporation's subsidiary, First Citizens State Bank of Newport, include its main office in Newport, Indiana and three branch facilities in Cayuga and Clinton, Indiana. All four buildings are held in fee by First Citizens. Facilities of the Corporation's subsidiary, First Farmers State Bank, include its main office in Sullivan, Indiana and seven branch facilities in Carlisle, Dugger, Farmersburg, Hymera, Monroe City, Sandborn and Worthington, Indiana. All eight buildings are held in fee by First Farmers. The facility of the Corporation's subsidiary, First Ridge Farm State Bank, includes an office facility in Ridge Farm, Illinois. The building is held in fee by First Ridge Farm State. Facilities of the Corporation's subsidiary, First Parke State Bank, include its main office in Rockville, Indiana and four branch facilities in Rockville, Marshall, Montezuma and Rosedale, Indiana. All five buildings are held in fee by First Parke. The facility of the Corporation's subsidiary, First National Bank of Marshall, includes an office facility in Marshall, Illinois. The building is held in fee by First National Bank of Marshall. Facilities of the Corporation's subsidiary, First Crawford State Bank, include its main office in Robinson, Illinois and two branch facilities in Oblong and Sumner, Illinois. All three buildings are held in fee by First Crawford. The facility of the Corporation's subsidiary, The Morris Plan Company, includes an office facility in Terre Haute, Indiana. The building is held in fee by The Morris Plan Company. Facilities of the Corporation's subsidiary, Forrest Sherer, Inc., include its main office and one satellite office in Terre Haute, Indiana. The buildings are held in fee by Forrest Sherer, Inc. ITEM 3. LEGAL PROCEEDINGS There are no material pending legal proceedings which involve the Corporation or its subsidiaries. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS None 2 PART II ITEM 5. MARKET FOR REGISTRANT'S COMMON STOCK AND RELATED STOCKHOLDER MATTERS See "Market and Dividend information" on page 37 of the 2001 Annual Report. ITEM 6. SELECTED FINANCIAL DATA See "Five Year Comparison of Selected Financial Data" on page 7 of the 2001 Annual Report to Shareholders. ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATION See "Management's Discussion and Analysis" on pages 27 through 35 of the 2001 Annual Report to Shareholders. ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK See "Interest Rate Risk" section of "Management's Discussion and Analysis" on pages 34 and 35 of the 2001 Annual Report to Shareholders. ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA See "Consolidated Balance Sheets" on page 8, "Consolidated Statements of Income" on page 9, "Consolidated Statements of Changes in Shareholders Equity" on page 10, "Consolidated Statements of Cash Flows" on page 11, and "Notes to Consolidated Financial Statement" on pages 12-25. "Responsibility for Financial Statements" and "Report of Independent Auditors" can be found on page 26. Statistical disclosure by Bank Holding Company include the following information: 1. "Volume/Rate Analysis," on page 28. 2. "Loan Portfolio," on page 30. 3. "Allowance for Loan Losses," on page 31. 4. "Under-Performing Loans," on page 32. 5. "Deposits," on page 33. 6. "Short-Term Borrowings," on page 33. 7. "Consolidated Balance Sheet-Average Balances and Interest Rates," on page 36. ITEM 9. CHANGES IN AND DISAGREEMENT WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE None PART III ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF REGISTRANT See "Nominees for Terms to Expire in 2005," "Other Executive Officers of the Corporation" and "Section 16(a) Beneficial Ownership Reporting Compliance" on pages 2, 3 and 9 of the Annual Proxy Statement of First Financial Corporation. ITEM 11. EXECUTIVE COMPENSATION See "Compensation of Directors" on page 3, "Compensation of Officers" on pages 3 through 5, and "Employment Contracts" and "Comparative Performance Graph" on pages 7 and 8 of the Annual Proxy Statement of First Financial Corporation. ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT See "Nominees for Terms to Expire in 2005," "Other Executive Officers of the Corporation" and "Section 16(a) Beneficial Ownership Reporting Compliance" on pages 2, 3 and 9 and "Principal Shareholders and Security Ownership of Management" on page 9 of the Annual Proxy Statement of First Financial Corporation. 3 ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS See "Certain Relationships" on page 3, and "Transactions with Management" on page 7 of the Annual Proxy Statement of First Financial Corporation. PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENTS SCHEDULES AND REPORTS ON FORM 8-K (a)(1) The following consolidated financial statements of the Registrant and its subsidiaries are included in the Annual Report of First Financial Corporation attached: Consolidated Balance Sheets -- December 31, 2001 and 2000 Consolidated Statements of Income -- Years ended December 31, 2001, 2000, and 1999 Consolidated Statements of Changes in Shareholders' Equity -- Years ended December 31, 2001, 2000, and 1999 Consolidated Statements of Cash Flows -- Years ended December 31, 2001, 2000, and 1999 Notes to Consolidated Financial Statements (2) Schedules to the Consolidated Financial Statements required by Article 9 of Regulation S-X are not required, inapplicable, or the required information has been disclosed elsewhere. (3) Listing of Exhibits: Exhibit Number Description -------------- ----------- 21 Subsidiaries (b) Reports on Forms 8-K -- None (c) Exhibits -- Exhibits to (a) (3) listed above are attached to this report. (d) Financial Statements Schedules -- No schedules are required to be submitted. See response to ITEM 14(a)(2). SIGNATURES Pursuant to the requirements of Section 13 or 15 (d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. First Financial Corporation _________________________________ Michael A. Carty, Signed Michael A. Carty, Treasurer (Principal Financial Officer and Principal Accounting Officer) Date: February 19, 2002 4 Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated. Name Date ---- ---- Donald E. Smith, Signed February 19, 2002 ------------------------------------- ----------------- Donald E. Smith, President & Director (Principal Executive Officer) Walter A. Bledsoe, Signed February 19, 2002 ------------------------------------- ----------------- Walter A. Bledsoe, Director B. Guille Cox, Jr., Signed February 19, 2002 ------------------------------------- ----------------- B. Guille Cox, Jr., Director Thomas T. Dinkel, Signed February 19, 2002 ------------------------------------- ----------------- Thomas T. Dinkel, Director February 19, 2002 ------------------------------------- ----------------- Anton H. George, Director February 19, 2002 ------------------------------------- ----------------- Mari H. George, Director Gregory L. Gibson, Signed February 19, 2002 ------------------------------------- ----------------- Gregory L. Gibson, Director Norman L. Lowery, Signed February 19, 2002 ------------------------------------- ----------------- Norman L. Lowery, Director February 19, 2002 ------------------------------------- ----------------- William A. Niemeyer, Director Patrick O'Leary, Signed February 19, 2002 ------------------------------------- ----------------- Patrick O'Leary, Director February 19, 2002 ------------------------------------- ----------------- Chapman J. Root II, Director Virginia L. Smith, Signed February 19, 2002 ------------------------------------- ----------------- Virginia L. Smith, Director 5 FIRST FINANCIAL CORPORATION FIVE YEAR COMPARISON OF SELECTED FINANCIAL DATA

(Dollar amounts in thousands, except per share amounts) 2001 2000 1999 1998 1997 ------------------------------------------------------------------------------------------------------------------- BALANCE SHEET DATA: Total assets $2,041,905 $2,043,267 $1,905,201 $1,849,752 $1,634,936 Securities 463,509 568,405 594,319 633,365 527,993 Net loans 1,348,461 1,298,006 1,191,898 1,111,765 1,005,799 Deposits 1,313,656 1,322,559 1,256,115 1,260,365 1,194,524 Borrowings 480,674 507,771 445,821 385,700 256,214 Shareholders' equity 217,511 191,223 168,682 182,183 165,480 INCOME STATEMENT DATA: Interest income 144,673 146,417 133,576 129,137 122,372 Interest expense 74,125 80,583 66,815 66,430 62,072 Net interest income 70,548 65,834 66,761 62,707 60,300 Provision for loan losses 6,615 4,392 4,725 5,396 5,382 Other income 21,468 13,610 12,012 10,611 8,957 Other expenses 53,329 42,703 43,543 42,567 39,629 Net income 24,196 23,213 21,622 18,558 18,100 PER SHARE DATA: Net income 3.56 3.45 3.10 2.58 2.58 Cash dividends 1.14 1.08 .94 .84 .72 PERFORMANCE RATIOS: Net income to average assets 1.19% 1.18% 1.16% 1.07% 1.11% Net income to average shareholders' equity 11.33 12.98 12.55 10.76 11.74 Average total capital to average assets 11.38 9.97 10.13 10.71 10.13 Average shareholders' equity to average assets 10.46 9.10 9.28 9.90 9.45 Dividend payout 32.02 31.19 30.10 32.54 28.06

6 FIRST FINANCIAL CORPORATION CONSOLIDATED BALANCE SHEETS

December 31, --------------------------- (Dollar amounts in thousands, except per share data) 2001 2000 ------------------------------------------------------------------------------------------------------ ASSETS Cash and due from banks $ 68,205 $ 68,755 Federal funds sold 43,376 4,175 Available-for-sale securities 463,509 568,405 Loans, net of allowance of $18,313 in 2001 and $19,072 in 2000 1,330,148 1,278,934 Accrued interest receivable 14,948 17,803 Premises and equipment, net 26,237 26,363 Bank-owned life insurance 47,756 45,037 Goodwill 7,102 2,136 Other intangible assets 3,767 292 Other assets 36,857 31,367 ----------- ------------ TOTAL ASSETS $ 2,041,905 $ 2,043,267 =========== =========== LIABILITIES AND SHAREHOLDERS' EQUITY Deposits: Non-interest-bearing $ 163,985 $ 148,922 Interest-bearing: Certificates of deposit of $100 or more 204,474 258,260 Other interest-bearing deposits 945,197 915,377 ----------- ------------ 1,313,656 1,322,559 Short-term borrowings 54,596 18,708 Other borrowings 426,078 489,063 Other liabilities 30,064 21,714 ----------- ------------ TOTAL LIABILITIES 1,824,394 1,852,044 Shareholders' equity Common stock, $.125 stated value per share, Authorized shares -- 40,000,000 Issued shares -- 7,225,483 Outstanding shares -- 6,844,260 in 2001 and 6,694,237 in 2000 903 903 Additional capital 66,680 66,680 Retained earnings 158,038 141,653 Accumulated other comprehensive income 8,299 3,900 Less: Treasury shares at cost -- 381,223 in 2001 and 531,246 in 2000 (16,409) (21,913) ----------- ------------ TOTAL SHAREHOLDERS' EQUITY 217,511 191,223 ----------- ------------ TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 2,041,905 $ 2,043,267 =========== ============

See accompanying notes. 7 CONSOLIDATED STATEMENTS OF INCOME

Years Ended December 31, -------------------------------- (Dollar amounts in thousands, except per share data) 2001 2000 1999 --------------------------------------------------------------------------------------------------- INTEREST INCOME: Loans, including related fees $108,658 $107,145 $ 96,175 Securities: Taxable 24,622 30,535 28,500 Tax-exempt 8,326 8,357 8,049 Other 3,067 380 852 -------- -------- -------- TOTAL INTEREST INCOME 144,673 146,417 133,576 INTEREST EXPENSE: Deposits 47,208 49,892 45,337 Short-term borrowings 2,514 4,747 3,469 Other borrowings 24,403 25,944 18,009 -------- -------- -------- TOTAL INTEREST EXPENSE 74,125 80,583 66,815 -------- -------- -------- NET INTEREST INCOME 70,548 65,834 66,761 Provision for loan losses 6,615 4,392 4,725 -------- -------- -------- NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES 63,933 61,442 62,036 NON-INTEREST INCOME: Trust and financial services 3,545 3,633 3,116 Service charges and fees on deposit accounts 5,470 4,638 4,010 Other service charges and fees 4,327 3,116 2,317 Securities gains 180 145 189 Insurance commissions 3,763 555 852 Sales of mortgage loans 2,209 275 446 Other 1,974 1,248 1,082 -------- -------- -------- TOTAL NON-INTEREST INCOME 21,468 13,610 12,012 NON-INTEREST EXPENSES: Salaries and employee benefits 30,544 23,055 24,558 Occupancy expense 3,692 3,105 2,887 Equipment expense 3,448 3,717 3,650 Printing and supplies expense 760 1,002 993 Other 14,885 11,824 11,455 -------- -------- -------- TOTAL NON-INTEREST EXPENSE 53,329 42,703 43,543 -------- -------- -------- INCOME BEFORE INCOME TAXES 32,072 32,349 30,505 Provision for income taxes 7,876 9,136 8,883 -------- -------- -------- NET INCOME $ 24,196 $ 23,213 $ 21,622 ======== ======== ======== EARNINGS PER SHARE: NET INCOME $ 3.56 $ 3.45 $ 3.10 ======== ======== ======== Weighted average number of shares outstanding (in thousands) 6,800 6,730 6,964 ======== ======== ========

See accompanying notes. 8 FIRST FINANCIAL CORPORATION CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY

Accumulated Other (Dollar amounts in thousands, except Common Additional Retained Comprehensive Treasury per share data) Stock Capital Earnings Income Stock Total ----------------------------------------------------------------------------------------------------------------------------------- Balance, January 1, 1999 $ 903 $ 66,680 $ 110,566 $ 8,123 $ (4,089) $ 182,183 Comprehensive income: Net income -- -- 21,622 -- -- 21,622 Other comprehensive income, net of tax: Change in net unrealized gains/losses on available-for-sale securities -- -- -- (15,942) -- (15,942) --------- Total comprehensive income 5,680 Treasury stock purchase (288,972 shares) -- -- -- -- (12,673) (12,673) Cash dividends, $ .94 per share -- -- (6,508) -- -- (6,508) --------- --------- --------- --------- --------- --------- Balance, December 31, 1999 903 66,680 125,680 (7,819) (16,762) 168,682 Comprehensive income: Net income -- -- 23,213 -- -- 23,213 Other comprehensive income, net of tax: Change in net unrealized gains/losses on available-for-sale securities -- -- -- 11,719 -- 11,719 --------- Total comprehensive income 34,932 Treasury stock purchase (151,181 shares) -- -- -- -- (5,151) (5,151) Cash dividends, $1.08 per share -- -- (7,240) -- -- (7,240) --------- --------- --------- --------- --------- --------- Balance, December 31, 2000 903 66,680 141,653 3,900 (21,913) 191,223 Comprehensive income: Net income -- -- 24,196 -- -- 24,196 Other comprehensive income, net of tax: Change in net unrealized gains/losses on available-for-sale securities -- -- -- 4,399 -- 4,399 --------- Total comprehensive income 28,595 Issuance of treasury stock (182,672 shares) 6,801 6,801 Treasury stock purchase (32,649 shares) -- -- -- -- (1,297) (1,297) Cash dividends, $1.14 per share -- -- (7,811) -- -- (7,811) --------- --------- --------- --------- --------- --------- Balance, December 31, 2001 $ 903 $ 66,680 $ 158,038 $ 8,299 $ (16,409) $ 217,511 ========= ========= ========= ========= ========= =========

See accompanying notes. 9 CONSOLIDATED STATEMENTS OF CASH FLOWS

Years Ended December 31, --------------------------------------- (Dollar amounts in thousands, except per share data) 2001 2000 1999 ------------------------------------------------------------------------------------------------------------------- CASH FLOWS FROM OPERATING ACTIVITIES: Net income $ 24,196 $ 23,213 $ 21,622 Adjustments to reconcile net income to net cash provided by operating activities: Net (accretion) amortization on securities (2,128) (2,171) 348 Provision for loan losses 6,615 4,392 4,725 Securities gains (180) (145) (189) Depreciation and amortization 3,500 3,318 2,865 Provision for deferred income taxes 110 225 (341) Net change in accrued interest receivable 2,855 (3,100) 1 Other, net (4,202) (17,169) 14,904 --------- --------- --------- NET CASH FROM OPERATING ACTIVITIES 30,766 8,563 43,935 --------- --------- --------- CASH FLOWS FROM INVESTING ACTIVITIES: Sales of available-for-sale securities 1,097 42,037 115,794 Maturities and principal reductions on available-for-sale securities 156,938 55,881 114,333 Purchases of available-for-sale securities (43,499) (51,659) (219,117) Purchase of bank-owned life insurance -- (45,000) -- Loans made to customers, net of repayments (57,521) (108,050) (84,100) Net change in federal funds sold (39,201) (3,985) 260 Purchase of Forrest Sherer (1,699) -- -- Additions to premises and equipment (2,548) (3,417) (4,881) --------- --------- --------- NET CASH FROM INVESTING ACTIVITIES 13,567 (114,193) (77,711) --------- --------- --------- CASH FLOWS FROM FINANCING ACTIVITIES: Net change in deposits (8,903) 66,444 (4,250) Net change in other short-term borrowings 35,888 (44,791) (40,133) Dividends paid (7,586) (6,933) (6,224) Purchases of treasury stock (1,297) (5,151) (12,673) Proceeds from other borrowings 78,923 563,800 293,000 Repayments on other borrowings (141,908) (457,059) (192,746) --------- --------- --------- NET CASH FROM FINANCING ACTIVITIES (44,883) 116,310 36,974 --------- --------- --------- NET CHANGE IN CASH AND CASH EQUIVALENTS (550) 10,680 3,198 CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR 68,755 58,075 54,877 --------- --------- --------- CASH AND CASH EQUIVALENTS, END OF YEAR $ 68,205 $ 68,755 $ 58,075 ========= ========= ========= SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION: Cash paid during the year for: Interest $ 76,911 $ 80,514 $ 66,908 ========= ========= ========= Income taxes $ 7,533 $ 10,114 $ 10,182 ========= ========= =========

See accompanying notes. 10 FIRST FINANCIAL CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 1. BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES: BUSINESS ORGANIZATION The consolidated financial statements of First Financial Corporation and its subsidiaries (the Corporation) include the parent company and its wholly-owned subsidiaries, Terre Haute First National Bank of Vigo County, Indiana (Terre Haute First), The Morris Plan Company of Terre Haute (Morris Plan), First State Bank of Clay County, Indiana (State), First Citizens State Bank of Vermillion County, Indiana (Citizens), First Farmers State Bank of Sullivan County, Indiana (Farmers), First Parke State Bank of Parke County, Indiana (Parke), First Ridge Farm State Bank of Vermilion County, Illinois (Ridge Farm), First National Bank of Marshall of Clark County, Illinois (Marshall), First Crawford State Bank of Crawford County, Illinois (Crawford) and First Financial Reinsurance Company, a corporation incorporated in the country of Turks and Caicos Islands (FFRC). In 2001 the Corporation acquired Forrest Sherer Inc., a full-line insurance agency headquartered in Terre Haute, Indiana. Terre Haute First also has two investment subsidiaries, Global Portfolio Managers A (Global A) and Global Portfolio Managers B (Global B), which were established to hold and manage certain securities as part of a strategy to manage taxable income and reduce taxable expense. Global A and Global B subsequently entered into a limited partnership agreement, Global Portfolio Limited Partners. At December 31, 2001, $110.7 million of securities were owned by these subsidiaries. The Corporation, which is headquartered in Terre Haute, Indiana, offers a wide variety of financial services including commercial, mortgage and consumer lending, lease financing, trust account services and depositor services through its nine subsidiaries. Terre Haute First is the largest bank in Vigo County. It operates 12 full-service banking branches within the county. It also has a main office in downtown Terre Haute and an operations center/office building in southern Terre Haute. The Corporation operates 40 branches in west-central Indiana and east-central Illinois. The Corporation's primary source of revenue is derived from loans to customers, primarily middle-income individuals, and investment activities. REGULATORY AGENCIES First Financial Corporation is a multi-bank holding company and as such is regulated by various banking agencies. The holding company is regulated by the Seventh District of the Federal Reserve System. The national bank subsidiaries are regulated by the Office of the Comptroller of the Currency. The state bank subsidiaries are jointly regulated by their respective state banking organizations and the Federal Deposit Insurance Corporation. SIGNIFICANT ACCOUNTING POLICIES USE OF ESTIMATES: To prepare financial statements in conformity with accounting principles generally accepted in the United States of America, management makes estimates and assumptions based on available information. These estimates and assumptions affect the amounts reported in the financial statements and disclosures provided, and future results could differ. The allowance for loan losses and the fair values of financial instruments are particularly subject to change. CASH FLOWS: Cash and cash equivalents include cash and demand deposits with other financial institutions. Net cash flows are reported for customer loan and deposit transactions and short-term borrowings. SECURITIES: The Corporation classifies all securities as "available for sale." Securities are classified as available for sale when they might be sold before maturity. Securities available for sale are carried at fair value with unrealized holdings gains and losses, net of taxes, reported in other comprehensive income within shareholders' equity. Other securities, such as Federal Home Loan Bank stock, are carried at cost. Interest income includes amortization of purchase premium or discount. Realized gains and losses on sales are based on the amortized cost of the security sold. Securities are written down to fair value if and when a decline in fair value is not temporary. LOANS: Loans are reported at the principal balance outstanding, net of unearned interest, deferred loan fees and costs, and allowance for loan losses. Loans held for sale are reported at the lower of cost or market, on an aggregate basis. Interest income is reported on the interest method and includes amortization of net deferred loan fees and costs over the loan term. Interest income is not reported when full loan repayment is in doubt, typically when the loan is impaired or payments are significantly past due. Payments received on such loans are reported as principal reductions. ALLOWANCE FOR LOAN LOSSES: The allowance for loan losses is a valuation allowance for probable incurred credit losses, increased by the provision for loan losses and decreased by charge-offs less recoveries. Management estimates the allowance balance required using past loan loss experience, the nature and volume of the portfolio, information about specific borrower situations and estimated collateral values, economic conditions and other factors. Allocations of the allowance may be made for specific loans, but the entire allowance is available for any loan that, in management's judgment, should be charged off. Loan losses are charged against the allowance when management believes the uncollectibility of a loan balance is confirmed. 11 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS A loan is impaired when full payment under the loan terms is not expected. Impairment is evaluated in total for smaller-balance loans of similar nature such as residential mortgages, consumer and credit card loans, and on an individual basis for other loans. If a loan is impaired, a portion of the allowance is allocated so that the loan is reported, net, at the present value of estimated future cash flows, using the loan's existing rate, or at the fair value of collateral if repayment is expected solely from the collateral. FORECLOSED ASSETS: Assets acquired through or instead of loan foreclosures are initially recorded at fair value when acquired, establishing a new cost basis. If fair value declines, a valuation allowance is recorded through expense. Costs after acquisition are expensed. PREMISES AND EQUIPMENT: Premises and equipment are stated at cost less accumulated depreciation. Depreciation is computed over the useful lives of the assets. SERVICING RIGHTS: Servicing rights are recognized as assets for purchased rights and for the allocated value of retained servicing rights on loans sold. Servicing rights are expensed in proportion to, and over the period of, estimated net servicing revenues. Impairment is evaluated based on the fair value of the rights, using groupings of the underlying loans as to interest rates and then, secondarily, as to geographic and prepayment characteristics. Any impairment of a grouping is reported as a valuation allowance. FORREST SHERER INC. ACQUISITION: In May 2001 the Corporation acquired all of the outstanding common stock of Forrest Sherer Inc., a full-line insurance agency headquartered in Terre Haute, Indiana, in exchange for $1.7 million in cash and 182,672 shares of its common stock. The acquisition was accounted for using the purchase method of accounting and resulted in the recording of goodwill of $5.4 million and other identified intangible assets of $3.1 million. Goodwill is amortizing using the straight line method over a period of 15 years. The other intangible asset is being amortized over 10 years using an accelerated method. The following table presents pro-forma revenue, net income and earnings per share determined as if the acquisition had been consummated at January 1, 2000. Key assumptions include the add-back of merger-related expenses paid by Forrest Sherer in the year 2001 of approximately $196 thousand and the annual amortization of intangible assets of approximately $607 thousand.

2001 2000 ------------------------------------------- Revenue 168,252 165,232 Net Income 24,280 23,443 Earnings per share 3.51 3.39

ACQUISITION OF COMMUNITY FINANCIAL CORPORATION: During March 2001, the Corporation executed a definitive agreement to acquire Community Financial Corporation (Community), based in Olney, Illinois. The transaction was consummated on January 31, 2002. The aggregate purchase price for Community was $33 million and the book value of assets acquired was $32 million. Management does not expect intangible assets will be significant. This transaction was accounted for using the purchase method. INTANGIBLE ASSETS: Intangible assets include goodwill associated with the First Crawford acquisition in 1996, the Morris Plan acquisition in 1998, the Forrest Sherer acquisition in 2001, and other identified intangible assets, primarily value attributed to customer lists, non-compete agreements and branch purchase intangibles. These assets are recorded at cost and amortized over their estimated lives. Amortization expense was $826 thousand, $219 thousand and $219 thousand in 2001, 2000 and 1999. LONG-TERM ASSETS: Premises and equipment and other long-term assets are reviewed for impairment when events indicate their carrying amount may not be recoverable from future undiscounted cash flows. If impaired, the assets are recorded at discounted amounts. REPURCHASE AGREEMENTS: Substantially all repurchase agreement liabilities represent amounts advanced by various customers. Securities are pledged to cover these liabilities, which are not covered by federal deposit insurance. The Corporation maintains possession of and control over these securities. BENEFIT PLANS: Pension expense is the net of service and interest cost, return on plan assets and amortization of gains and losses not immediately recognized. The amount contributed is determined by a formula as decided by the Board of Directors. INCOME TAXES: Income tax expense is the total of the current year income tax due or refundable and the change in deferred tax assets and liabilities. Deferred tax assets and liabilities are the expected future tax amounts for the temporary differences between carrying amounts and tax bases of assets and liabilities, computed using enacted tax rates. A valuation allowance, if needed, reduces deferred tax assets to the amount expected to be realized. 12 FIRST FINANCIAL CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS FINANCIAL INSTRUMENTS: Financial instruments include credit instruments, such as commitments to make loans and standby letters of credit, issued to meet customer financing needs. The face amount for these items represents the exposure to loss, before considering customer collateral or ability to repay. DERIVATIVES: Effective January 1, 2001, the Corporation implemented a new accounting standard that required all derivative instruments to be recorded at their fair values. If derivative instruments are designated as fair value hedges, both the change in the fair value of the hedge and in the fair value of the hedged item are included in current earnings. Fair value adjustments related to cash flow hedges are recorded in other comprehensive income and reclassified to earnings when the hedged transaction is reflected in earnings. Ineffective portions of hedges are reflected in income currently. EARNINGS PER SHARE: Earnings per common share is net income divided by the weighted average number of common shares outstanding during the period. The Corporation does not have any potentially dilutive securities. Earnings and dividends per share are restated for stock splits and dividends through the date of issue of the financial statements. COMPREHENSIVE INCOME: Comprehensive income consists of net income and other comprehensive income. Other comprehensive income includes unrealized gains and losses on securities available for sale which are also recognized as separate components of equity. LOSS CONTINGENCIES: Loss contingencies, including claims and legal actions arising in the ordinary course of business, are recorded as liabilities when the likelihood of loss is probable and an amount of range of loss can be reasonably estimated. Management does not believe there are currently such matters that will have a material effect on the financial statements. DIVIDEND RESTRICTION: Banking regulations require maintaining certain capital levels and may limit the dividends paid by the bank to the holding company or by the holding company to shareholders. FAIR MARKET VALUE OF FINANCIAL INSTRUMENTS: Fair values of financial instruments are estimated using relevant market information and other assumptions, as more fully disclosed in a separate note. Fair value estimates involve uncertainties and matters of significant judgment regarding interest rates, credit risk, prepayments and other factors, especially in the absence of broad markets for particular items. Changes in assumptions or market conditions could significantly affect the estimates. INDUSTRY SEGMENT: Internal financial information is aggregated and reported in one line of business, which is banking. NEW ACCOUNTING PRONOUNCEMENTS: New accounting standards affect the recording of business combinations and will affect accounting for intangible assets. Business combinations initiated after June 30, 2001, are to be recorded using the purchase method of accounting. Under the purchase method, all identifiable tangible and intangible assets and liabilities of the acquired company must be recorded at fair value at date of acquisition. The excess of the cost over the fair value of net assets acquired is goodwill. Identifiable intangible assets with finite useful lives will be separated from goodwill and will continue to be amortized under the new standard, whereas goodwill will no longer be amortized after December 31, 2001. Annual impairment testing will be required for goodwill with impairment being recorded if the carrying amount of goodwill exceeds its implied fair value. Adoption of this standard on January 1, 2002, is expected to reduce annual amortization expense by approximately $581 thousand. 13 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 2. FAIR VALUES OF FINANCIAL INSTRUMENTS: Carrying amount is the estimated fair value for cash and due from banks, federal funds sold, short-term borrowings, Federal Home Loan Bank stock, accrued interest receivable and payable, demand deposits, short-term debt and variable-rate loans or deposits that reprice frequently and fully. Security fair values are based on market prices or dealer quotes, and if no such information is available, on the rate and term of the security and information about the issuer. For fixed-rate loans or deposits, variable rate loans or deposits with infrequent repricing or repricing limits, and for longer-term borrowings, fair value is based on discounted cash flows using current market rates applied to the estimated life and credit risk. Fair values for impaired loans are estimated using discounted cash flow analysis or underlying collateral values. Fair value of loans held for sale is based on market quotes. Fair value of debt is based on current rates for similar financing. The fair value of off-balance-sheet items is based on the current fees or cost that would be charged to enter into or terminate such arrangements. The carrying amount and estimated fair value of financial instruments are presented in the table below and were determined based on the above assumptions:

December 31, ----------------------------------------------------------------- 2001 2000 ----------------------------- ----------------------------- Carrying Fair Carrying Fair (Dollar amounts in thousands) Value Value Value Value -------------------------------------------------------------------------------------------------------------- Cash and due from banks $ 68,205 $ 68,205 $ 68,755 $ 68,755 Federal funds sold 43,376 43,376 4,175 4,175 Available-for-sale securities 463,509 463,509 568,405 568,405 Loans 1,349,184 1,358,630 1,298,953 1,289,348 Accrued interest receivable 14,948 14,948 17,803 17,803 Deposits (1,313,656) (1,326,743) (1,322,559) (1,331,640) Short-term borrowings (54,596) (54,596) (18,708) (18,708) Federal Home Loan Bank advances (419,478) (428,177) (482,460) (481,598) Other borrowings (6,600) (6,600) (6,603) (6,603) Accrued interest payable (4,807) (4,807) (6,731) (6,731) Off-balance sheet financial instruments -- 759 -- 321

3. RESTRICTIONS ON CASH AND DUE FROM BANKS: Certain affiliate banks are required to maintain average reserve balances with the Federal Reserve Bank. The amount of those reserve balances was approximately $17.1 million and $15.5 million at December 31, 2001 and 2000, respectively. 4. SECURITIES: The amortized cost and estimated fair value of year-end securities are as follows:

December 31, 2001 --------------------------------------------------- Unrealized Amortized ---------------------- Fair (Dollar amounts in thousands) Cost Gains Losses Value -------------------------------------------------------------------------------------------- U.S. Government and its agencies $208,973 $ 4,776 $ (18) $213,731 Collateralized mortgage obligations 4,958 107 -- 5,065 State and municipal 162,886 4,547 (567) 166,866 Corporate obligations 77,576 810 (539) 77,847 -------- -------- -------- -------- TOTAL $454,393 $ 10,240 $ (1,124) $463,509 ======== ======== ======== ========

14 FIRST FINANCIAL CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

December 31, 2000 ------------------------------------------------- Unrealized Amortized ---------------------- Fair (Dollar amounts in thousands) Cost Gains Losses Value ------------------------------------------------------------------------------------------ U.S. Government and its agencies $339,883 $ 1,840 $ (3,025) $338,698 Collateralized mortgage obligations 6,686 1 (141) 6,546 State and municipal 163,018 3,873 (693) 166,198 Corporate obligations 57,026 422 (485) 56,963 -------- -------- -------- -------- TOTAL $566,613 $ 6,136 $ (4,344) $568,405 ======== ======== ======== ========

The Corporation invests in the equity securities of financial services companies. These investments are considered to be available-for-sale and are included in other assets on the consolidated balance sheet. Cost was $3.7 million and $3.6 million, and fair value was $8.4 million and $8.3 million at December 31, 2001 and 2000, respectively. During 2000, the Corporation purchased bank-owned life insurance for an initial premium of $45 million. The policies cover officers at the bank subsidiaries and the Corporation is the beneficiary. These policies are designated as separate account policies by the issuing insurance companies. The Corporation records its investment in the policies at their current surrender value, which is the fair value of the separate account assets plus or minus the value/obligation under stable value guarantees issued by the insurance companies. The stable value guarantees serve to set the annual change in surrender value of the policies at annually agreed upon levels by guaranteeing the period end value of the separate account assets. As of December 31, 2001, the Corporation does not have any securities from any issuer, other than the U.S. Government, with an aggregate book or fair value that exceeds ten percent of shareholders' equity. Investment securities with a par value amounting to approximately $57.3 million and $62.6 million at December 31, 2001 and 2000, respectively, were pledged as collateral for borrowings and for other purposes. Below is a summary of the gross gains and losses realized by the Corporation from investments sold during the years ended December 31, 2000, 1999 and 1998, respectively.

(Dollar amounts in thousands) 2001 2000 1999 -------------------------------------------------------------------------------- Proceeds $ 1,097 $ 42,037 $ 115,794 Gross gains 180 262 627 Gross losses -- (117) (438)

Contractual maturities of debt securities at year-end 2001 were as follows. Securities not due at a single maturity date, primarily mortgage-backed securities, are shown separately. Also shown are the tax equivalent yields, computed using a 35% rate based on weighted average yields of securities maturing during each time period.

Available-for-Sale ---------------------- Weighted Amortized Fair Average (Dollar amounts in thousands) Cost Value Yields ----------------------------------------------------------------------------------------------------------------- Due in one year or less $ 7,335 $ 7,418 7.15% ===== Due after one but within five years 41,185 42,768 7.56% ===== Due after five but within ten years 93,620 95,916 7.51% ===== Due after ten years 133,304 134,768 6.70% ===== Mortgage-backed securities, primarily issued by U.S. Government agencies 178,897 182,639 6.78% -------- -------- ===== TOTAL $454,393 $463,509 ======== ========

15 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 5. LOANS: Loans are summarized as follows:

December 31, ----------------------------- 2001 2000 ----------- ----------- Carrying Carrying (Dollar amounts in thousands) Value Value -------------------------------------------------------------------------------- Commercial, financial and agricultural $ 302,496 $ 282,904 Real estate - construction 34,610 41,325 Real estate - mortgage 757,345 732,387 Installment 249,710 237,527 Lease financing 5,023 4,810 ----------- ----------- Total gross loans 1,349,184 1,298,953 Less: unearned income (723) (947) allowance for loan losses (18,313) (19,072) ----------- ----------- TOTAL $ 1,330,148 $ 1,278,934 =========== ===========

In the normal course of business, the Corporation's subsidiary banks make loans to directors and executive officers and to their associates. These related party loans are consistent with sound banking practices and are within applicable bank regulatory lending limitations. In 2001 the aggregate dollar amount of these loans to directors and executive officers who held office at the end of the year amounted to $45.8 million at the beginning of the year. During 2001, advances of $68.7 million and repayments of $70.4 million were made with respect to related party loans for an aggregate dollar amount outstanding of $44.1 million at December 31, 2001. Loans serviced for others, which are not reported as assets, total $175.2 million and $110.8 million at year-end 2001 and 2000. Capitalized mortgage servicing rights aggregated $1.5 million and $792 thousand at year-end, 2001 and 2000. 6. ALLOWANCE FOR LOAN LOSSES: Changes in the allowance for loan losses are summarized as follows:

December 31, -------------------------------------- (Dollar amounts in thousands) 2001 2000 1999 -------------------------------------------------------------------------------------- Balance at beginning of year $ 19,072 $ 17,949 $ 16,429 Provision for loan losses 6,615 4,392 4,725 Recoveries of loans previously charged off 1,669 1,394 1,105 Loans charged off (9,043) (4,663) (4,310) -------- -------- -------- BALANCE AT END OF YEAR $ 18,313 $ 19,072 $ 17,949 ======== ======== ========

Impaired loans were as follows:

December 31, ----------------- (Dollar amounts in thousands) 2001 2000 -------------------------------------------------------------------------------- Year-end loans with no allocated allowance for loan losses $ -- $ -- Year-end loans with allocated allowance for loan losses 3,610 6,422 ------ ------ TOTAL $3,610 $6,422 ====== ====== Amount of the allowance for loan losses allocated $2,033 $5,008 Loans past due over 90 days still on accrual 4,925 5,499 Average of impaired loans during the year 5,978 4,274

16 FIRST FINANCIAL CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 7. PREMISES AND EQUIPMENT: Premises and equipment are summarized as follows:

December 31, ----------------------- (Dollar amounts in thousands) 2001 2000 -------------------------------------------------------------------------------- Land $ 3,885 $ 3,813 Building and leasehold improvements 30,533 29,773 Furniture and equipment 25,113 24,574 -------- -------- 59,531 58,160 Less accumulated depreciation (33,294) (31,797) -------- -------- TOTAL $ 26,237 $ 26,363 ======== ========

8. DEPOSITS AND SHORT-TERM BORROWINGS: Scheduled maturities of time deposits were as follows: 2002 $402,571 2003 86,106 2004 140,717 2005 22,411 2006 16,590 Thereafter 265 -------- $668,600 ======== Year-end short-term borrowings were comprised of the following:

(Dollar amounts in thousands) 2001 2000 -------------------------------------------------------------------------------- Federal funds purchased $ 9,920 $ 5,510 Repurchase agreements 37,400 12,269 Note payable - U.S. government 7,276 929 -------- -------- $ 54,596 $ 18,708 ======== ========

Federal funds purchased are generally due in one day and bear interest at market rates. Note payable - U.S. government is due on demand, secured by a pledge of securities and bears interest at market rates. 9. OTHER BORROWINGS: Long-term borrowings at December 31, 2001 and 2000 are summarized as follows:

(Dollar amounts in thousands) 2001 2000 ------------------------------------------------------------------------------------------- FHLB advances $419,478 $482,460 City of Terre Haute, Indiana economic development revenue bonds 6,600 6,600 Other -- 3 -------- -------- TOTAL $426,078 $489,063 ======== ========

The aggregate minimum annual retirements of long-term borrowings are as follows: 2002 $ 21,383 2003 34,626 2004 33,301 2005 -- 2006 440 Thereafter 336,328 -------- $426,078 ======== 17 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS The economic development revenue bonds (bonds) require periodic interest payments each year until maturity or redemption. The interest rate, which was 1.7% at December 31, 2001, and 5.0% at December 31, 2000, is determined by a formula which considers rates for comparable bonds and is adjusted periodically. The bonds are collateralized by a first mortgage on the Corporation's headquarters building. The bonds mature December 1, 2015, but bondholders may periodically require earlier redemption. The Corporation maintains a letter of credit with another financial institution, which could be used to repay the bonds, should they be called. The letter of credit expires November 1, 2002, and will be automatically extended for one year should the bonds still be outstanding. Assuming redemption will be funded by the letter of credit, or by other similar borrowings, there are no anticipated principal maturities of the bonds within the next five years. The debt agreement requires the Corporation to meet certain financial covenants. The most restrictive covenants require the Corporation to maintain a Tier I capital ratio of at least 6.2% and net income to average assets of 0.6%. At December 31, 2001 and 2000, the Corporation was in compliance with all of its debt covenants. All of the Corporation's Indiana subsidiary banks are members of the Federal Home Loan Bank (FHLB) of Indianapolis and, accordingly, are permitted to obtain advances. The advances from the FHLB, aggregating $419.5 million at December 31, 2001, accrue interest, payable monthly, at annual rates varying from 2.1% to 6.6%. The advances are due at various dates through August 2017. FHLB advances are, generally, due in full at maturity. They are secured by a blanket pledge of eligible securities and real estate loan collateral. Certain advances may be prepaid, without penalty, prior to maturity. The FHLB can adjust the interest rate from fixed to variable on certain advances, but those advances may then be prepaid, without penalty. 10. INCOME TAXES: Income tax expense is summarized as follows:

(Dollar amounts in thousands) 2001 2000 1999 -------------------------------------------------------------------------------- Federal: Currently payable $ 6,413 $ 7,372 $ 6,763 Deferred 68 167 (256) ------- ------- -------- 6,481 7,539 6,507 State: Currently payable 1,353 1,539 2,461 Deferred 42 58 (85) ------- ------- -------- 1,395 1,597 2,376 ------- ------- -------- TOTAL $ 7,876 $ 9,136 $ 8,883 ======= ======= ========

The reconciliation of income tax expense with the amount computed by applying the statutory federal income tax rate of 35% to income before income taxes is summarized as follows:

(Dollar amounts in thousands) 2001 2000 1999 ----------------------------------------------------------------------------------------------- Federal income taxes computed at the statutory rate $ 11,225 $ 11,322 $ 10,677 Add (deduct) tax effect of: Tax exempt income (3,683) (2,691) (2,679) State tax, net of federal benefit 907 1,038 1,550 Affordable housing credits (604) (529) (565) Other, net 31 (4) (100) -------- -------- -------- TOTAL $ 7,876 $ 9,136 $ 8,883 ======== ======== ========

18 FIRST FINANCIAL CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS The tax effects of temporary differences that give rise to significant portions of the deferred tax assets and liabilities at December 31, 2001 and 2000, are as follows:

(Dollar amounts in thousands) 2001 2000 --------------------------------------------------------------------------------- Deferred tax assets: Loan losses provision $ 7,177 $ 7,475 Deferred compensation 1,555 775 Compensated absences 383 333 Post-retirement benefits 762 708 Other 320 166 Valuation allowance for deferred tax assets -- -- -------- -------- GROSS DEFERRED ASSETS 10,197 9,457 -------- -------- Deferred tax liabilities: Net unrealized gains on available-for-sale securities (9,179) (2,592) Depreciation (1,022) (1,006) Lease financing (207) (176) Originated servicing rights (579) (311) Pensions (1,571) (1,503) Other (1,135) (677) -------- -------- GROSS DEFERRED LIABILITIES (13,693) (6,265) -------- -------- NET DEFERRED TAX ASSETS (LIABILITIES) $ (3,496) $ 3,192 ======== ========

11. FINANCIAL INSTRUMENTS WITH OFF-BALANCE-SHEET RISK: The Corporation is a party to financial instruments with off-balance-sheet risk in the normal course of business to meet the financing needs of its customers. These financial instruments include conditional commitments and standby letters of credit. The financial instruments involve to varying degrees, elements of credit and interest rate risk in excess of amounts recognized in the financial statements. The Corporation's maximum exposure to credit loss in the event of nonperformance by the other party to the financial instrument for commitments to make loans is limited generally by the contractual amount of those instruments. The Corporation follows the same credit policy to make such commitments as is followed for those loans recorded in the consolidated financial statements. The Corporation's customers had unused lines of credit of $208.4 million and $184.0 million and commitments to extend credit of $7.1 million as of December 31, 2001 and 2000. In addition, the Corporation had outstanding commitments of $5.6 million and $2.1 million under standby letters of credit as of December 31, 2001 and 2000, respectively. The Corporation uses derivative financial instruments, currently only limited amounts of interest rate swaps and caps, to facilitate the management of interest rate risk. The Corporation is exposed to credit loss in the event the counterparties to such agreements do not perform in accordance with the agreements. During 2000, the Corporation entered into an interest rate swap agreement with a 24-month term and a notional principal balance of $10 million, under which the Corporation makes variable rate payments, based on LIBOR, and receives fixed rate payments. The interest rate swap was designated as a hedge against a similar maturity certificate of deposit promotion. At year-end 2001 and 2000, the agreement had a fair market value of $513 thousand and $321 thousand, approximately the same amount as the fair value adjustment attributable to the certificates of deposit. The interest rate swap is included in time deposits on the consolidated statements of condition at December 31, 2001. Net settlement expense or benefit is included in interest expense. During 2001 the Corporation purchased an interest rate cap contract with a notional principal balance of $50 million. The agreement requires the counterparty to pay the Corporation the excess of the 3-month LIBOR over 6.00%. The cap has a 36-month term which runs through March 2004. No payments are currently required under the agreement. The agreement was entered into to help protect the Corporation's net interest income should interest rates increase in excess of the cap's trigger amount. The interest rate cap is carried at fair value, approximately $246 thousand at December 31, 2001, and is included in other assets on the statement of condition. 19 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 12. RETIREMENT PLANS: Substantially all employees of the Corporation are covered by a retirement program that consists of a defined benefit plan and an employee stock ownership plan (ESOP). Plan assets consist primarily of the Corporation's stock and obligations of U.S. Government agencies. Benefits under the defined benefit plan are actuarially determined based on an employee's service and compensation, as defined, and funded as necessary. Assets in the ESOP are considered in calculating the funding to the defined benefit plan required to provide such benefits. Any shortfall of benefits under the ESOP are to be provided by the defined benefit plan. The ESOP may provide benefits beyond those determined under the defined benefit plan. Contributions to the ESOP are determined by the Corporation's Board of Directors. The Corporation made contributions to the defined benefit plan of $907 thousand, $774 thousand and $1,021 thousand in 2001, 2000 and 1999, respectively. The Corporation contributed $350 thousand, $750 thousand and $873 thousand to the ESOP in 2001, 2000 and 1999, respectively. Pension expense included the following components:

(Dollar amounts in thousands) 2001 2000 1999 -------------------------------------------------------------------------------------- Service cost - benefits earned $ 698 $ 899 $ 927 Interest cost on projected benefit obligation 1,766 1,780 1,858 Expected return on plan assets (1,679) (1,801) (1,900) Net amortization and deferral 296 (26) 3 ------- ------- ------- Total pension expense $ 1,081 $ 852 $ 888 ======= ======= =======

The information below sets forth the change in benefit obligation, reconciliation of plan assets, and the funded status of the Corporation's retirement program. Actuarial present value of benefits is based on service to date and present pay levels.

December 31, ------------------------ (Dollar amounts in thousands) 2001 2000 --------------------------------------------------------------------------------------------------- Change in benefit obligation: Benefit obligation at January 1 $ 23,647 $ 25,427 Service cost 698 899 Interest cost 1,766 1,780 Actuarial (gain) loss 4,933 (3,891) Benefits paid (751) (568) -------- -------- Benefit obligation at December 31 30,293 23,647 -------- -------- Reconciliation of fair value of plan assets: Fair value of plan assets at January 1 20,929 24,212 Actual return on plan assets 4,452 (4,239) Employer contributions 1,257 1,524 Benefits paid (751) (568) -------- -------- Fair value of plan assets at December 31 25,887 20,929 -------- -------- Funded status: Funded status at December 31 (4,406) (2,718) Unrecognized prior service cost (232) (250) Unrecognized net actuarial cost 8,648 6,802 -------- -------- Prepaid pension asset recognized in the consolidated balance sheets $ 4,010 $ 3,834 ======== ======== Principal assumptions used: Discount rate 7.00% 7.50% Rate of increase in compensation levels 5.00% 5.00% Expected long-term rate of return on plan assets 8.00% 8.00%

20 FIRST FINANCIAL CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS The Corporation also provides medical benefits to its employees subsequent to their retirement. Accrued post-retirement benefits as of December 31, 2001 and 2000 are as follows:

December 31, ---------------------- (Dollar amounts in thousands) 2001 2000 -------------------------------------------------------------------------------- Change in benefit obligation: Benefit obligation at January 1 $ 3,009 $ 2,938 Service cost 63 64 Interest cost 215 201 Plan participants' contributions 38 24 Actuarial (gain) loss 355 104 Actual benefits paid (250) (322) ------- ------- Benefit obligation at December 31 $ 3,430 $ 3,009 ======= ======= Reconciliation of funded status: Funded status $ 3,430 $ 3,009 Unrecognized transition obligation (724) (784) Unrecognized net gain (loss) (1,463) (1,081) ------- ------- Accrued benefit cost $ 1,243 $ 1,144 ======= =======

The post-retirement benefits paid in 2001 and 2000 of $250 thousand and $322 thousand, respectively, were fully funded by company and participant contributions. There were no other changes to plan assets in 2001 and 2000. Weighted-average assumptions as of December 31:

December 31, ------------------ 2001 2000 -------------------------------------------------------------------------------- Discount rate 7.00% 7.50% Initial weighted health care cost trend rate 7.50 7.50 Ultimate health care cost trend rate 5.00 5.00

Post-retirement health benefit expense included the following components:

Years Ended December 31, ------------------------ (Dollar amounts in thousands) 2001 2000 1999 -------------------------------------------------------------------------------- Service cost $ 63 $ 64 $ 57 Interest cost 215 201 195 Amortization of transition obligation 60 60 60 Recognized actuarial loss 54 45 48 ---- ---- ---- Net periodic benefit cost $392 $370 $360 ==== ==== ====

Assumed health care cost trend rates have a significant effect on the amounts reported for the health care plans. A one-percentage-point change in the assumed health care cost trend rates would have the following effects:

1% Point 1% Point Increase Decrease ----------------------------------------------------------------------------------- Effect on total of service and interest cost components $ 8 $ (7) Effect on post-retirement benefit obligation 311 (243)

21 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 13. OTHER COMPREHENSIVE INCOME: Other comprehensive income components and related taxes were as follows:

December 31, ------------------------------- (Dollar amounts in thousands) 2001 2000 1999 ---------------------------------------------------------------------------------------------------------- Unrealized holding gains and losses on available-for-sale securities $ 7,512 $19,676 $(26,382) Less reclassification adjustments for gains and losses later recognized in income (180) (145) (189) ------- ------- -------- Net unrealized gains and losses 7,332 19,531 (26,571) Tax effect (2,933) (7,812) 10,629 ------- ------- -------- Other comprehensive income $ 4,399 $11,719 $(15,942) ======= ======= ========

14. REGULATORY MATTERS: The Corporation and its bank affiliates are subject to various regulatory capital requirements administered by the federal banking agencies. Failure to meet minimum capital requirements can initiate certain mandatory -- and possibly additional discretionary -- actions by regulators that, if undertaken, could have a direct material effect on the Corporation's financial statements. Further, the Corporation's primary source of funds to pay dividends to shareholders is dividends from its subsidiary banks and compliance with these capital requirements can affect the ability of the Corporation and its banking affiliates to pay dividends. At December 31, 2001, approximately $41.7 million of undistributed earnings of the subsidiary banks, included in consolidated retained earnings, were available for distribution to the Corporation without regulatory approval. Under capital adequacy guidelines and the regulatory framework for prompt corrective action, the Corporation must meet specific capital guidelines that involve quantitative measures of the Corporation's assets, liabilities, and certain off-balance-sheet items as calculated under regulatory accounting practices. The Corporation's capital amounts and classification are also subject to qualitative judgments by the regulators about components, risk weightings and other factors. Quantitative measures established by regulation to ensure capital adequacy require the Corporation to maintain minimum amounts and ratios of Total and Tier I Capital to risk-weighted assets, and of Tier I Capital to average assets. Management believes, as of December 31, 2001 and 2000, that the Corporation meets all capital adequacy requirements to which it is subject. As of December 31, 2001, the most recent notification from the respective regulatory agencies categorized the Corporation and its subsidiary banks as well capitalized under the regulatory framework for prompt corrective action. To be categorized as adequately capitalized the Corporation must maintain minimum total risk-based, Tier I risk-based and Tier I leverage ratios as set forth in the table. There are no conditions or events since that notification that management believes have changed the Corporation's category. The following table presents the actual and required capital amounts and related ratios for the Corporation and the lead bank, Terre Haute First National Bank, at year end 2001 and 2000. 22 FIRST FINANCIAL CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

For Capital Actual Adequacy Purposes --------------------- -------------------------------------------------- (Dollar amounts in thousands) Amount Ratio Amount Ratio ----------------------------------------------------------------------------------------------------------------- TOTAL RISK-BASED CAPITAL Corporation - 2001 $219,543 15.15% > or equals to $115,943 > or equals to 8.0% Corporation - 2000 202,033 15.21% > or equals to 106,244 > or equals to 8.0% Terre Haute First - 2001 135,783 14.70% > or equals to 73,912 > or equals to 8.0% Terre Haute First - 2000 127,391 15.22% > or equals to 66,939 > or equals to 8.0% TIER I RISK-BASED CAPITAL Corporation - 2001 $201,424 13.90% > or equals to $ 57,972 > or equals to 4.0% Corporation - 2000 185,402 13.96% > or equals to 53,122 > or equals to 4.0% Terre Haute First - 2001 126,555 13.70% > or equals to 36,956 > or equals to 4.0% Terre Haute First - 2000 117,122 14.00% > or equals to 33,469 > or equals to 4.0% TIER I LEVERAGE CAPITAL Corporation - 2001 $201,424 9.87% > or equals to $ 81,651 > or equals to 4.0% Corporation - 2000 185,402 9.43% > or equals to 78,646 > or equals to 4.0% Terre Haute First - 2001 126,555 9.85% > or equals to 51,418 > or equals to 4.0% Terre Haute First - 2000 117,122 9.26% > or equals to 50,598 > or equals to 4.0%

To Be Well Capitalized Under Prompt Corrective Action Provisions -------------------------------------------------- (Dollar amounts in thousands) Amount Ratio ------------------------------------------------------------------------------------- TOTAL RISK-BASED CAPITAL Corporation - 2001 > or equals to $144,929 > or equals to 10.0% Corporation - 2000 > or equals to 132,805 > or equals to 10.0% Terre Haute First - 2001 > or equals to 92,389 > or equals to 10.0% Terre Haute First - 2000 > or equals to 83,674 > or equals to 10.0% TIER I RISK-BASED CAPITAL Corporation - 2001 > or equals to $ 86,957 > or equals to 6.0% Corporation - 2000 > or equals to 79,683 > or equals to 6.0% Terre Haute First - 2001 > or equals to 55,434 > or equals to 6.0% Terre Haute First - 2000 > or equals to 50,204 > or equals to 6.0% TIER I LEVERAGE CAPITAL Corporation - 2001 > or equals to $102,064 > or equals to 5.0% Corporation - 2000 > or equals to 98,308 > or equals to 5.0% Terre Haute First - 2001 > or equals to 64,273 > or equals to 5.0% Terre Haute First - 2000 > or equals to 63,248 > or equals to 5.0%

15. PARENT COMPANY CONDENSED FINANCIAL STATEMENTS: The parent company's condensed balance sheets as of December 31, 2001 and 2000, and the related condensed statements of income and cash flows for each of the three years in the period ended December 31, 2001, are as follows: CONDENSED BALANCE SHEETS

December 31, ------------------------ (Dollar amounts in thousands) 2001 2000 -------- -------- ASSETS Cash deposits in affiliated banks $ 3,916 $ 4,107 Investments in subsidiaries 211,234 182,597 Land and headquarters building, net 6,660 6,789 Other 10,721 10,635 -------- -------- TOTAL ASSETS $232,531 $204,128 ======== ======== LIABILITIES AND SHAREHOLDERS' EQUITY Liabilities Borrowings $ 8,100 $ 6,780 Dividends payable 3,973 3,749 Other liabilities 2,947 2,376 -------- -------- TOTAL LIABILITIES 15,020 12,905 Shareholders' equity 217,511 191,223 -------- -------- TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $232,531 $204,128 ======== ========

23 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS CONDENSED STATEMENTS OF INCOME

Years Ended December 31, -------------------------------------------------------------- (Dollar amounts in thousands) 2001 2000 1999 -------- -------- -------- Dividends from subsidiaries $ 10,485 $ 8,608 $ 17,457 Other income 971 1,056 890 Interest on borrowings (314) (370) (366) Other operating expenses (2,801) (1,779) (1,617) Income before income taxes and equity -------- -------- -------- in undistributed earnings of subsidiaries 8,341 7,515 16,364 Income tax benefit 863 571 457 Income before equity in undistributed -------- -------- -------- earnings of subsidiaries 9,204 8,086 16,821 Equity in undistributed earnings of subsidiaries 14,992 15,127 4,801 -------- -------- -------- Net income $ 24,196 $ 23,213 $ 21,622 ======== ======== ========

CONDENSED STATEMENTS OF CASH FLOWS

Years Ended December 31, ------------------------------------------------------------ (Dollar amounts in thousands) 2001 2000 1999 -------- -------- -------- CASH FLOWS FROM OPERATING ACTIVITIES: Net income $ 24,196 $ 23,213 $ 21,622 Adjustments to reconcile net income to net cash provided by operating activities: Provision for depreciation and amortization 360 356 349 Equity in undistributed earnings of subsidiaries (14,992) (15,127) (4,801) Increase (decrease) in other liabilities 571 10 (331) Increase in other assets (1,009) (687) (204) -------- -------- -------- NET CASH FROM OPERATING ACTIVITIES 9,126 7,765 16,635 CASH FLOWS FROM INVESTING ACTIVITIES: Purchase of furniture and fixtures (55) (66) -- Purchase of Forrest Sherer Inc. (1,699) -- -- -------- -------- -------- NET CASH FROM INVESTING ACTIVITIES (1,754) (66) -- -------- -------- -------- CASH FLOWS FROM FINANCING ACTIVITIES: Proceeds from borrowings 1,500 -- -- Principal payments on long-term borrowings (180) (155) (145) Purchase of treasury stock (1,297) (5,151) (12,673) Dividends paid (7,586) (6,933) (6,224) -------- -------- -------- NET CASH FROM FINANCING ACTIVITIES (7,563) (12,305) (19,042) -------- -------- -------- NET (DECREASE) INCREASE IN CASH (191) (4,540) (2,407) CASH, BEGINNING OF YEAR 4,107 8,647 11,054 -------- -------- -------- CASH, END OF YEAR $ 3,916 $ 4,107 $ 8,647 ======== ======== ======== Supplemental disclosures of cash flow information: Cash paid during the year for: Interest $ 314 $ 370 $ 362 ======== ======== ======== Income taxes $ 7,533 $ 10,114 $ 10,182 ======== ======== ========

24 FIRST FINANCIAL CORPORATION RESPONSIBILITY FOR FINANCIAL STATEMENTS To the Shareholders and Board of Directors of First Financial Corporation: The management of First Financial Corporation has prepared and is responsible for the preparation and accuracy of the financial statements and other information included in this report. The financial statements have been prepared in accordance with generally accepted accounting principles and where appropriate, include amounts based on judgments and estimates by management. To fulfill its responsibility, the Corporation maintains and continues to refine a system of internal accounting controls and procedures to provide reasonable assurance that (i) the Corporation's assets are safeguarded; (ii) transactions are executed in accordance with proper management authorization; and (iii) financial records are reliable for the preparation of financial statements. The design, monitoring and revision of internal accounting control systems involve, among other things, management judgments with respect to the relative costs and expected benefits of such control procedures. Management assessed First Financial Corporation's internal control structure over financial reporting as of December 31, 2001. This assessment was based on criteria for effective internal control over financial reporting described in "Internal Control -- Integrated Framework" issued by the Committee of Sponsoring Organizations of the Treadway Commission. Based on this assessment, management believes that the Corporation maintained an effective internal control structure over financial reporting as of December 31, 2001. Crowe, Chizek and Company LLP performs an independent audit of the Corporation's financial statements for the purpose of determining that such statements are presented in conformity with generally accepted accounting principles and their report appears below. The independent accountants are appointed based upon recommendations by the Examining and Trust Audit Committee and approved by the Board of Directors. The Examining and Trust Audit Committee of the Board of Directors, composed of three outside directors, meets periodically with the Corporation's management and the independent accountants to discuss the audit scope and findings as well as address internal control systems and financial reporting matters. The independent accountants have direct access to the Examining and Trust Audit Committee. [Signed] [Signed] Donald E. Smith Michael A. Carty President & Chief Executive Officer Treasurer REPORT OF INDEPENDENT AUDITORS To the Shareholders and Board of Directors of First Financial Corporation: We have audited the accompanying consolidated balance sheets of First Financial Corporation as of December 31, 2001 and 2000, and the related consolidated statements of income, changes in shareholders' equity and cash flows for each of the three years in the period ended December 31, 2001. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audits in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of First Financial Corporation as of December 31, 2001 and 2000, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2001, in conformity with accounting principles generally accepted in the United States of America. As discussed in Note 1, during 2001 the Corporation adopted new accounting guidance on derivatives. Indianapolis, Indiana [Signed] January 11, 2002 Crowe, Chizek and Company LLP 25 MANAGEMENT'S DISCUSSION AND ANALYSIS Management's discussion and analysis reviews the financial condition of First Financial Corporation at December 31, 2001 and 2000, and the results of its operations for the three years ended December 31, 2001. Where appropriate, factors that may affect future financial performance are also discussed. The discussion should be read in conjunction with the accompanying consolidated financial statements, related footnotes and selected financial data. Forward-looking statements contained in the following discussion are based on estimates and assumptions that are subject to significant business, economic and competitive uncertainties, many of which are beyond the Corporation's control and are subject to change. These uncertainties can affect actual results and could cause actual results to differ materially from those expressed in any forward-looking statements in this discussion. First Financial Corporation (the Corporation) is a financial services company. The Corporation, which is headquartered in Terre Haute, Indiana, offers a wide variety of financial services including commercial, mortgage and consumer lending, lease financing, trust account services and depositor services through its nine subsidiaries. At the close of business in 2001 the Corporation and its subsidiaries had 706 full-time equivalent employees. Terre Haute First is the largest bank in Vigo County. It operates 12 full-service banking branches within the county. In addition to its branches, it has a main office in downtown Terre Haute and a 50,000-square-foot commercial building on South Third Street in Terre Haute, which serves as the Corporation's operations center and provides additional office space. First State has five branch locations in Clay County, a county contiguous to Vigo County. Citizens has four branches, all of which are located in Vermillion County, a county contiguous to Vigo County. Farmers has eight branches, of which five are located in Sullivan County, two in Knox County and one in Greene County. Sullivan County is contiguous to Vigo County. Morris Plan has one office and is located in Vigo County. Ridge Farm has one office and is located in Vermilion County, Illinois. Parke has five branches in Parke County, a county contiguous to Vigo County. Marshall has one office and is located in Clark County, Illinois, a county contiguous to Vigo County. Crawford has two branches in Crawford County, Illinois, and one branch in Lawrence County, Illinois. Terre Haute First and Morris Plan face competition from other financial institutions in Vigo County. These competitors consist of two commercial banks, a mutual savings bank and other financial institutions, including consumer finance companies, brokerage firms and credit unions. The seven other bank subsidiaries have similar competition in their primary market areas. The number of competitors of each subsidiary is as follows: - First State Three commercial banks, two credit unions and one brokerage firm in Clay County, Indiana. - Citizens Three commercial banks and two credit unions in Vermillion County, Indiana. - Farmers Two commercial banks and one brokerage firm in Sullivan County, Indiana, and three commercial banks, one savings and loan, and one credit union in Greene County, Indiana. - Parke Two commercial banks, five credit unions and two brokerage firms in Parke County, Indiana. - Ridge Farm Four commercial banks, three savings and loans, ten credit unions and four brokerage firms in Vermilion County, Illinois. - Marshall Three commercial banks and one savings and loan in Clark County, Illinois. - Crawford Four commercial banks, two credit unions and four brokerage firms in Crawford County, Illinois, and seven commercial banks and one credit union in Lawrence County, Illinois. The Corporation's business activities are centered in west-central Indiana and east-central Illinois. The Corporation has no foreign activities other than periodically investing available funds in time deposits held in foreign branches of domestic banks. Forrest Sherer Inc. is a premier regional supplier of insurance, surety and other financial products. The Forrest Sherer brand is well recognized in the Midwest, with more than 60 professionals and 80 years of successful service to both small and large businesses and to households in their market area. The agency has representation agreements with more than 40 regional and national insurers to market their products of property and casualty insurance, surety bonds, employee benefit plans, life insurance and annuities. 26 FIRST FINANCIAL CORPORATION RESULTS OF OPERATIONS -- SUMMARY FOR 2001 Net income through the fourth quarter of 2001 increased 4.2% to $24.2 million from $23.2 million reported in 2000, despite the decreasing interest rate environment and the expectation that the purchase of Forrest Sherer Inc., an insurance agency, was to be slightly dilutive. Earnings were driven by a $4.7 million or 7.2% increase in net interest income, a result of higher earning assets and an improving net interest margin. First Financial was in position to benefit from the significant decline in interest rates in 2001. Average loans were up $59.2 million or 4.7% over 2000, and even with the lower rates, loan interest income increased $1.5 million or 1.4%. Correspondingly, average interest-bearing liabilities were up $20.1 million or 1.2% over the same period in 2000; however, total interest expense decreased $6.5 million or 8.0%. NET INTEREST INCOME The principal source of the Corporation's earnings is net interest income, which represents the difference between interest earned on loans and investments and the interest cost associated with deposits and other sources of funding. Total average interest-earning assets increased to $1.92 billion in 2001 from $1.86 billion in 2000. The tax-equivalent yield on these assets decreased to 7.86% in 2001 from 8.16% in 2000. Total average interest-bearing liabilities amounted to $1.65 billion in 2001 compared to $1.63 billion in 2000. The average cost of these interest-bearing liabilities decreased to 4.48% in 2001 from 4.94% in 2000. On a tax equivalent basis, net interest income increased $6.0 million from $70.8 million in 2000 to $76.8 million in 2001. The net interest margin increased from 3.82% in 2000 to 4.00% in 2001. This increase is primarily the result of funding costs decreasing faster than the yield on earning assets. The following table sets forth the components of net interest income due to changes in volume and rate. The table information compares 2001 to 2000 and 2000 to 1999.

2001 Compared to 2000 2000 Compared to 1999 Increase (Decrease) Due to Increase (Decrease) Due to -------------------------------------------- -------------------------------------------- Volume/ (Dollar amounts in thousands) Volume Rate Rate Total Volume Rate Rate Total -------- -------- -------- -------- -------- -------- -------- -------- Interest earned on interest-earning assets: Loans (1)(2) $ 5,073 $ (3,587) $ (169) $ 1,317 $ 8,762 $ 2,114 $ 192 $ 11,068 Taxable investment securities (2,886) (3,343) 316 (5,913) 179 1,844 12 2,035 Tax-exempt investment securities(2) 3,259 797 202 4,258 792 (299) (19) 474 Federal funds sold 394 (248) (257) (112) (560) 255 (167) (472) -------- -------- -------- -------- -------- -------- -------- -------- Total interest income 5,840 (6,381) 92 (450) 9,173 3,914 18 13,105 -------- -------- -------- -------- -------- -------- -------- -------- Interest paid on interest-bearing liabilities: Transaction accounts 1,107 (845) (94) 167 59 644 5 708 Time deposits (1,216) (1,688) 51 (2,852) 628 3,164 55 3,847 Short-term borrowings (815) (1,712) 294 (2,233) 450 733 95 1,278 Other borrowings 528 (2,028) (41) (1,541) 4,936 2,353 646 7,935 -------- -------- -------- -------- -------- -------- -------- -------- Total interest expense (395) (6,273) 209 (6,459) 6,073 6,894 801 13,768 -------- -------- -------- -------- -------- -------- -------- -------- Net interest income $ 6,235 $ (108) $ (118) $ 6,009 $ 3,100 $ (2,980) $ (783) $ (663) ======== ======== ======== ======== ======== ======== ======== ========

(1) For purposes of these computations, nonaccruing loans are included in the daily average loan amounts outstanding. (2) Interest income includes the effect of tax equivalent adjustments using a federal tax rate of 35%. 27 RESULTS OF OPERATIONS -- SUMMARY FOR 2001 PROVISION FOR LOAN LOSSES The provision for loan losses is established by charging current earnings with an amount which will maintain the allowance for loan losses at a level sufficient to provide for probable incurred losses in the Corporation's loan portfolio. Management considers several factors in determining the provision, including loss experience, changes in the composition of the portfolio, the financial condition of borrowers, economic trends, and general economic conditions. The provision for loan losses totaled $6.6 million and $4.4 million for 2001 and 2000, respectively. Net charge-offs for 2001 increased to $7.4 million from $3.3 million in 2000. The majority of this amount relates to a single bankruptcy for a project which was and continues to be economically important to the Wabash Valley. Management believes the long-term benefit, both to the community and the Corporation, will outweigh the short-term impact of the charge-off. At December 31, 2001, the resulting allowance for loan losses was $18.3 million or 1.36% of total loans, net of unearned income. A year earlier the allowance was $19.1 million or 1.49% of total loans. OTHER INCOME Other income increased 57.7% in 2001 to $21.5 million from $13.6 million earned in 2000. Service charges and fees on deposit accounts and other service charges and fees increased $832 thousand and $1.2 million, respectively. These increases are the result of a focused effort to increase fee-based income. Insurance commissions increased $3.2 million due mainly to the acquisition of Forrest Sherer Inc., an insurance agency. Also, sales of mortgage loans increased $1.9 million to $2.2 million at December 31, 2001, from $275 thousand in 2000. Due to low interest rates, the majority of mortgage loans made in 2001 were sold in the secondary market to protect the bank from possible interest rate increases. OTHER EXPENSES Other expenses totaled $53.3 million for 2001 compared to $42.7 million for 2000. This represents an increase of $10.6 million or 24.9% for 2001. Salaries and related benefits, the largest component of this group, increased from $23.1 million to $30.5 million or 32.5%. This increase resulted from higher employee benefit costs and an increase in employees during 2001 with the addition of Forrest Sherer. In 2001 an incentive plan was approved by the Board for long-term retention of management. Expenses for this plan totaled $1.9 million in 2001. INCOME TAXES The Corporation's federal income tax provision was $6.4 million in 2001 compared to a provision of $7.5 million in 2000. The overall effective tax rate in 2001 of 24.6% compares to a 2000 effective rate of 28.3%. Over the past two years management has implemented a strategy which focuses on the taxability of income on securities. This strategy has benefitted the Corporation as income tax expense for 2001 declined by $1.3 million or 13.8% compared to 2000. COMPARISON OF 2000 TO 1999 Net income for 2000 was $23.2 million or $3.45 per share compared to $21.6 million in 1999 or $3.10 per share. This increased income was primarily the result of increased non-interest income and decreased non-interest expense for a combined $2.4 million positive impact. Increases in non-interest income were a result of a concerted effort by management to focus on fee-based income. This effort accounted for $1.5 million or 93% of the increase. The $840 thousand decrease in non-interest expenses in 2000 from 1999 was due mainly to the reduction of salary and fringe benefit expenses of $1.3 million. 28 FIRST FINANCIAL CORPORATION FINANCIAL CONDITION -- SUMMARY The Corporation's total assets declined slightly by $1.4 million at December 31, 2001, from a year earlier. Available-for-sale securities declined $104.9 million at December 31, 2001, from the previous year. As securities matured or were called, the proceeds were used to pay down long-term borrowings, which declined by $63.0 million, rather than reinvesting at the lower rates. Loans, net of unearned income, increased by $50.4 million, to $1.3 billion. This increase could have been greater as the Corporation sold approximately $114 million of real estate loans in the secondary market. Real estate mortgage, commercial and installment loans increased by $25.0 million, $19.6 million and $12.2 million to $757.3 million, $302.5 million and $249.7 million, respectively. The increase resulted primarily because of lower interest rates and favorable economic conditions. The increase in loans was primarily funded by the proceeds from securities and increased short-term borrowings. Total shareholders' equity increased to $217.5 million at December 31, 2001, compared to $191.2 million a year earlier. Higher net income was offset by increased dividends and the continued repurchase of corporate stock. During 2001, 32,649 shares were acquired at a cost of $1.3 million. In addition, during 2001, the Corporation recorded a net unrealized gain on available-for-sale securities of $4.4 million. While this fluctuation in fair value increased shareholders' equity, no gain is recognized in net income unless the security is actually sold. Following is an analysis of the components of the Corporation's balance sheet. Information describing the components of the Corporation's securities portfolio, and the market value, maturities and weighted average yields of the securities is included in Note 4 of the notes to the consolidated financial statements. LOAN PORTFOLIO Loans outstanding by major category as of December 31 for each of the last five years and the maturities are set forth in the following analyses.

(Dollar amounts in thousands) 2001 2000 1999 1998 1997 ---------- ---------- ---------- ---------- ---------- Loan Category Commercial, financial and agricultural $ 302,496 $ 282,904 $ 247,949 $ 233,080 $ 229,855 Real estate - construction 34,610 41,325 44,782 32,880 23,734 Real estate - mortgage 757,345 732,387 671,972 636,615 561,466 Installment 249,710 237,527 223,459 205,251 188,552 Lease financing 5,023 4,810 5,723 5,825 3,271 ---------- ---------- ---------- ---------- ---------- TOTAL $1,349,184 $1,298,953 $1,193,885 $1,113,651 $1,006,878 ========== ========== ========== ========== ==========

After One Within But Within After Five (Dollar amounts in thousands) One Year Five Years Years Total ---------- ---------- ---------- ---------- Maturity Distribution Commercial, financial and agricultural $ 177,049 $ 86,702 $ 38,745 $ 302,496 Real estate - construction 13,362 11,714 9,534 34,610 ---------- ---------- ---------- ---------- TOTAL $ 190,411 $ 98,416 $ 48,279 337,106 ========== ========== ========== ========== Real estate - mortgage 757,345 Installment 249,710 Lease financing 5,023 ---------- TOTAL $1,349,184 ========== Loans maturing after one year with: Fixed interest rates $ 40,052 $ 41,610 Variable interest rates 58,364 6,669 ---------- ---------- TOTAL $ 98,416 $ 48,279 ========== ==========

29 FINANCIAL CONDITION -- SUMMARY ALLOWANCE FOR LOAN LOSSES The activity in the Corporation's allowance for loan losses is shown in the following analysis:

(Dollar amounts in thousands) 2001 2000 1999 1998 1997 ---------- ---------- ---------- ---------- ---------- Amount of loans outstanding at December 31, $1,349,184 $1,298,953 $1,193,885 $1,113,651 $1,006,878 ========== ========== ========== ========== ========== Average amount of loans by year $1,315,725 $1,256,505 $1,151,968 $1,066,537 $ 953,008 ========== ========== ========== ========== ========== Allowance for loan losses at beginning of year $ 19,072 $ 17,949 $ 16,429 $ 13,503 $ 10,756 Allowance resulting from acquisition _ -- -- 970 -- Loans charged off: Commercial, financial and agricultural 4,079 1,055 344 1,195 487 Real estate - mortgage 557 406 932 614 596 Installment 4,395 3,196 3,034 2,827 2,732 Leasing 12 6 -- -- -- ---------- ---------- ---------- ---------- ---------- Total loans charged off 9,043 4,663 4,310 4,636 3,815 ---------- ---------- ---------- ---------- ---------- Recoveries of loans previously charged off: Commercial, financial and agricultural 819 578 170 461 260 Real estate - mortgage 60 28 142 101 163 Installment 790 788 788 634 747 Leasing -- -- 5 -- 10 ---------- ---------- ---------- ---------- ---------- Total recoveries 1,669 1,394 1,105 1,196 1,180 ---------- ---------- ---------- ---------- ---------- Net loans charged off 7,374 3,269 3,205 3,440 2,635 Provision charged to expense 6,615 4,392 4,725 5,396 5,382 ---------- ---------- ---------- ---------- ---------- Balance at end of year $ 18,313 $ 19,072 $ 17,949 $ 16,429 $ 13,503 ========== ========== ========== ========== ========== Ratio of net charge-offs during period to average loans outstanding .56% .26% .28% .32% .28% ========== ========== ========== ========== ==========

Management anticipates $3.6 million of commercial, financial and agricultural loans, $0.5 million of real estate-mortgage loans and $2.8 million of installment loans will be charged off for 2002. The allowance is maintained at an amount management believes sufficient to absorb probable incurred losses in the loan portfolio. Monitoring loan quality and maintaining an adequate allowance is an ongoing process overseen by senior management and the loan review function. On at least a quarterly basis, a formal analysis of the adequacy of the allowance is prepared and reviewed by management and the Board of Directors. This analysis serves as a point in time assessment of the level of the allowance and serves as a basis for provisions for loan losses. The loan quality monitoring process includes assigning loan grades and the use of a watch list to identify loans of concern. The analysis of the allowance for loan losses includes the allocation of specific amounts of the allowance to individual problem loans, generally based on an analysis of the collateral securing those loans. Portions of the allowance are also allocated to loan portfolios, based upon a variety of factors including historical loss experience, trends in the type and volume of the loan portfolios, trends in delinquent and non-performing loans, and economic trends affecting our market. These components are added together and compared to the balance of our allowance at the evaluation date. The following table presents the allocation of the allowance to the loan portfolios at year-end. 30 FIRST FINANCIAL CORPORATION FINANCIAL CONDITION -- SUMMARY

Years Ended December 31, ------------------------------- (Dollar amounts in thousands) 2001 2000 1999 ------- ------- ------- Commercial, financial and agricultural $11,151 $10,771 $ 6,990 Real estate - mortgage 1,330 1,060 1,348 Installment 4,489 3,509 3,506 Leasing 17 8 3 Unallocated 1,326 3,724 6,102 ------- ------- ------- TOTAL ALLOWANCE FOR LOAN LOSSES 18,313 19,072 17,949 ======= ======= =======

UNDER-PERFORMING LOANS Management monitors the components and status of under-performing loans as a part of the evaluation procedures used in determining the adequacy of the allowance for loan losses. It is the Corporation's policy to discontinue the accrual of interest on loans where, in management's opinion, serious doubt exists as to collectibility. The amounts shown below represent non-accrual loans, loans which have been restructured to provide for a reduction or deferral of interest or principal because of deterioration in the financial condition of the borrower and those loans which are past due more than 90 days where the Corporation continues to accrue interest. The interest income for non-accrual and restructured loans that would have been recorded in 2001, 2000 and 1999, under the original terms of the loans is $1.1 million, $953 thousand and $364 thousand, respectively. The Corporation recorded interest income on such loans in the amounts of $535 thousand, $656 thousand and $119 thousand for 2001, 2000 and 1999, respectively.

(Dollar amounts in thousands) 2001 2000 1999 1998 1997 ------- ------- ------- ------- ------- Non-accrual loans $ 8,854 $ 8,316 $ 2,879 $ 4,103 $ 3,866 Restructured loans 590 735 959 7 17 ------- ------- ------- ------- ------- 9,444 9,051 3,838 4,110 3,883 Accruing loans past due 4,925 5,499 5,229 8,184 4,384 ------- ------- ------- ------- ------- $14,369 $14,550 $ 9,067 $12,294 $ 8,267 ======= ======= ======= ======= =======

The ratio of the allowance for loan losses as a percentage of under-performing loans was 127% at December 31, 2001, compared to 131% in 2000. This results from the $759 thousand decline in the allowance during 2001, which more than offset the $181 thousand decline in under-performing loans. The following loan categories comprise significant components of the under-performing loans at December 31, 2001: (Dollar amounts in thousands) -------------------------------------------------------------------------------- Non-accrual loans: 1-4 family residential $3,033 34% Commercial loans 4,406 50 Installment loans 1,415 16 ------ --- Other, various $8,854 100% ====== === Past due 90 days or more: 1-4 family residential $1,587 32% Commercial loans 2,177 44 Installment loans 1,161 24 ------ --- Other, various $4,925 100% ====== === There are no material concentrations by industry within the under-performing loans. 31 FINANCIAL CONDITION -- SUMMARY An element of the Corporation's asset quality management process is the ongoing review and grading of each affiliate's commercial loan portfolio. At December 31, 2001, approximately $32.3 million of commercial loans are graded doubtful or substandard, including the $6.6 million of non-accrual and past-due commercial loans listed above. The classification of these loans, however, does not imply that management expects losses on each of these loans, but believes that a higher level of scrutiny is prudent under the circumstances. Many of these loans are still accruing and are, generally, performing in accordance with their loan agreements. However, for reasons such as previous payment history, bankruptcy proceedings, industry concerns or information specific to that borrower, it is the opinion of management that these loans require close monitoring. DEPOSITS Total deposits decreased to $1.31 billion at December 31, 2001, from $1.32 billion at December 31, 2000. The Corporation experienced a fluctuation between deposit types due to a rate-sensitive market environment. The information below presents the average amount of deposits and rates paid on those deposits for 2001, 2000 and 1999.

2001 2000 1999 ------------------------ ------------------------ ---------------------- (Dollar amounts in thousands) Amount Rate Amount Rate Amount Rate ---------- ---------- ---------- ---------- ---------- ---------- Non-interest-bearing demand deposits $ 148,931 $ 145,923 $ 143,551 Interest-bearing demand deposits 170,990 1.28% 168,579 1.34% 294,953 2.31% Savings deposits 287,012 2.74% 243,357 3.14% 114,326 2.09% Time deposits: $100,000 or more 198,575 5.32% 215,889 5.66% 200,133 5.16% Other time deposits 495,940 5.36% 500,401 5.55% 503,928 5.12% ---------- ---------- ---------- TOTAL $1,301,448 $1,274,149 $1,256,891 ========== ========== ==========

The maturities of certificates of deposit of $100 thousand or more outstanding at December 31, 2001, are summarized as follows: 3 months or less $ 57,239 Over 3 through 6 months 28,852 Over 6 through 12 months 36,845 Over 12 months 81,538 -------- TOTAL $204,474 ======== SHORT-TERM BORROWINGS A summary of the carrying value of the Corporation's short-term borrowings at December 31, 2001, 2000 and 1999 is presented below:

(Dollar amounts in thousands) 2001 2000 1999 ------- ------- ------- Federal funds purchased $ 9,920 $ 5,510 $19,559 Repurchase agreements 37,400 12,269 35,718 Other short-term borrowings 7,276 929 8,222 ------- ------- ------- $54,596 $18,708 $63,499 ======= ======= =======

The amounts and interest rates related to federal funds purchased and repurchase agreements are presented below:

(Dollar amounts in thousands) 2001 2000 1999 ----------- ----------- ----------- Average amount outstanding $ 59,603 $ 71,040 $ 63,641 Maximum amount outstanding at a month end 81,330 117,716 150,168 Average interest rate during year 4.46% 6.35% 5.19% Interest rate at year-end 2.32% 5.47% 5.25%

32 FIRST FINANCIAL CORPORATION FINANCIAL CONDITION -- SUMMARY OTHER BORROWINGS Advances from the Federal Home Loan Bank decreased to $419.5 million in 2001 compared to $482.5 million in 2000. The major reason for the decrease was that as investments had been called, the money was used to pay down debt rather than reinvest. Lowering interest rates influenced management's decision to pay down the debt. The Asset/Liability Committee reviews these investments and considers the related strategies on a weekly basis. See Interest Rate Sensitivity and Liquidity below for more information. CAPITAL RESOURCES As of December 31, 2001, the Corporation's shareholders' equity was $217.5 million, an increase of 13.8% from the 2000 level of $191.2 million. This increase is in excess of increased dividends returned to shareholders and a stock repurchase plan, under which 32,649 shares were repurchased during 2001 for $1.3 million. In addition, during 2001, the Corporation recorded a net unrealized gain on available-for-sale securities of $4.4 million. While this fluctuation in fair value increased shareholders' equity, no gain is recognized in net income unless the security is sold. Bank regulatory agencies have established capital adequacy standards which are used extensively in their monitoring and control of the industry. These standards relate capital to level of risk by assigning different weightings to assets and certain off-balance-sheet activity. As shown in the footnote to the consolidated financial statements ("Regulatory Matters"), the Corporation's capital exceeds the requirements to be considered well capitalized at December 31, 2001. First Financial Corporation's objective continues to be to maintain adequate capital to merit the confidence of its customers and shareholders. To warrant this confidence, the Corporation's management maintains a capital position which they believe is sufficient to absorb unforeseen financial shocks without unnecessarily restricting dividends to its shareholders. The Corporation's dividend payout ratio for 2001 and 2000 was 32.0% and 31.2%, respectively. The Corporation expects to continue its policy of paying regular cash dividends, subject to future earnings and regulatory restrictions and capital requirements. INTEREST RATE SENSITIVITY AND LIQUIDITY First Financial Corporation charges the nine subsidiary banks with monitoring and managing their individual sensitivity to fluctuations in interest rates and assuring that they have adequate liquidity to meet loan and deposit demand or any potential unexpected deposit withdrawals. This function is facilitated by the Asset/Liability Committee. The primary goal of the committee is to maximize net interest income within the interest rate risk limits approved by the Board of Directors. This goal is accomplished through management of the subsidiary banks' balance sheet liquidity and interest rate risk exposures due to the changes in economic conditions and interest rate levels. INTEREST RATE RISK Management considers interest rate risk to be the Corporation's most significant market risk. Interest rate risk is the exposure to changes in net interest income as a result of changes in interest rates. Consistency in the Corporation's net income is largely dependent on the effective management of this risk. The Committee reviews a series of monthly reports to ensure that performance objectives are being met. The Committee monitors and controls interest rate risk through earnings simulation. Simulation modeling measures the effects of changes in interest rates, changes in the shape of the yield curve, and changes in prepayment speeds on net interest income. The primary measure of Interest Rate Risk is "Earnings at Risk." This measure projects the earnings effect of various rate movements over the next three years on net interest income. It is important to note that measures of interest rate risk have limitations and are dependent upon certain assumptions. These assumptions are inherently uncertain and, as a result, the model cannot precisely predict the impact of interest rate fluctuations on net interest income. Actual results will differ from simulated results due to timing, frequency and amount of interest rate changes as well as overall market conditions. The Committee has performed a thorough analysis and believes the assumptions to be valid and theoretically sound. The relationships are continuously monitored for behavioral changes. 33 FINANCIAL CONDITION -- SUMMARY The Corporation does not significantly rely on any derivative products to manage interest rate risk, nor does it have a trading account. The Corporation does have certain assets, such as callable agency securities, and liabilities, such as callable FHLB advances, which contain embedded derivatives that are clearly and closely related to the underlying assets and liabilities. During 2000, the Corporation entered into an interest rate swap designed to hedge the interest rate risk associated with a fixed rate certificate of deposit promotion. In 2001 the Corporation purchased an interest rate cap to help protect the net interest income should interest rates increase in excess of the cap's trigger amount. Management will continue to evaluate the merits and attendant risks of financial instruments designed to facilitate the management of interest rate risk but does not expect the use of such products will become a significant part of the Corporation's interest rate risk management strategy. The table below shows the Corporation's estimated earnings sensitivity profile as of December 31, 2001. Given a 100 basis point increase in rates, net interest income would decrease 4.97% over the next 12 months and decrease 2.79% over the next 24 months. A 100 basis point decrease would result in a 2.33% increase in net interest income over the next 12 months and a .08% decrease over the next 24 months. These estimates assume all rates changed overnight and management took no action as a result of this change.

Percentage Change in Net Interest Income ------------------------------------------------- Basis Point Interest Rate Change 12 months 24 months 36 months ----------------------------------------------------------------------- Down 200 1.76% -2.89% -8.01% Down 100 2.33 -0.08 -2.68 Up 100 -4.97 -2.79 -0.71 Up 200 -9.81 -5.27 -1.00

Typical rate shock analysis does not reflect management's ability to react and thereby reduce the effects of rate changes, and represents a worst case scenario. The model assumes no actions are taken and prices change to the full extent of the rate shock. LIQUIDITY RISK Liquidity is measured by each bank's ability to raise funds to meet the obligations from its customers, including deposit withdrawals and credit needs. This is accomplished primarily by maintaining sufficient liquid assets in the form of investment securities and core deposits. The Corporation has $7.4 million of investments that mature throughout the coming 12 months. The Corporation also anticipates $108.9 million of principal payments from mortgage-backed securities. Given the current rate environment, the Corporation anticipates $22.4 million in securities to be called within the next 12 months. OUTLOOK The Wabash Valley, the Corporation's primary market area, experienced weakening in the economic climate similar to the national economy throughout 2001. Although an economic slowdown could have an adverse impact on the local economy, historically the Wabash Valley has slowed at a lower rate than that of the country or state. This is due largely to the fact that the Wabash Valley is not dependent on any one industry segment but is a regional center for retail, education and health-related fields. Management anticipates that the outlook for 2002 will be more positive beginning in the third quarter with growth in loans and deposits. The Corporation also continues to look for merger or acquisition opportunities throughout the Wabash Valley that share First Financial's mission of quality service to their customers. These smaller institutions increasingly realize the need to align with an organization that has the resources to compete on a regional level. With the largest retail presence in the Wabash Valley, First Financial is poised to provide these resources. Like most other financial institutions, the Corporation has placed a high emphasis on marketing efforts. The goal is to attain a greater share of each customer's financial activities, commonly called "share of the wallet." To this end, First Financial has established a full-service brokerage, expanded its trust activities and operates a full-lines insurance agency. These activities are expected to provide an increased amount of fee-based income in the future. 34 FIRST FINANCIAL CORPORATION CONSOLIDATED BALANCE SHEET - AVERAGE BALANCES AND INTEREST RATES

December 31, ------------------------------------------------------------------------------------- 2001 2000 ------------------------------------------- -------------------------------------- Average Yield/ Average Yield/ (Dollar amounts in thousands) Balance Interest Rate Balance Interest Rate -------------------------------------------------------------------------------------------------------------------------------- ASSETS Interest-earning assets: Loans (1)(2) $ 1,315,725 108,950 8.28% $ 1,256,505 $ 107,633 8.57% Taxable investment securities 389,776 24,622 6.32 430,467 30,535 7.09 Tax-exempt investments(2) 204,205 17,115 8.38 162,907 12,857 7.89 Federal funds sold 11,877 268 2.26 5,832 380 6.52 ----------- ------- ---- ----------- ----------- ---- Total interest-earning assets 1,921,583 150,955 7.86% 1,855,711 151,405 8.16% =========== ======= ==== =========== =========== ==== Non-interest earning assets: Cash and due from banks 58,703 63,158 Premises and equipment, net 26,624 26,404 Other assets 53,168 39,900 Less allowance for loan losses (18,796) (19,017) ----------- ----------- TOTALS $ 2,041,282 $ 1,966,156 =========== =========== LIABILITIES AND SHAREHOLDERS' EQUITY Interest-bearing liabilities: Transaction accounts $ 458,002 10,069 2.20% $ 411,936 9,901 2.40% Time deposits 694,515 37,139 5.35 716,290 39,991 5.58 Short-term borrowings 62,321 2,514 4.03 75,230 4,747 6.31 Other borrowings 438,123 24,403 5.57 429,383 25,944 6.04 Total interest-bearing ----------- ------- ---- ----------- ----------- ---- liabilities: $ 1,652,961 74,125 4.48% 1,632,839 80,583 4.94% =========== ======= ==== =========== =========== ==== Non interest-bearing liabilities: Demand deposits 148,931 145,923 Other 25,871 8,491 ----------- ----------- 1,827,763 1,787,253 Shareholders' equity 213,519 178,903 ----------- ----------- TOTALS $ 2,041,282 $ 1,966,156 =========== =========== Net interest earnings $ 76,831 $ 70,822 =========== =========== Net yield on interest-earning assets 4.00% 3.82% ==== ====

December 31, ------------------------------------------ 1999 ------------------------------------------ Average Yield/ (Dollar amounts in thousands) Balance Interest Rate ----------------------------------------------------------------------------------------- ASSETS Interest-earning assets: Loans (1)(2) $ 1,151,968 $ 96,565 8.38% Taxable investment securities 427,781 28,500 6.66 Tax-exempt investments(2) 153,112 12,383 8.09 Federal funds sold 16,991 852 5.01 ----------- ----------- ---- Total interest-earning assets 1,749,852 138,300 7.90% =========== =========== ==== Non-interest earning assets: Cash and due from banks 58,212 Premises and equipment, net 24,847 Other assets 41,469 Less allowance for loan losses (17,585) ----------- TOTALS $ 1,856,795 =========== LIABILITIES AND SHAREHOLDERS' EQUITY Interest-bearing liabilities: Transaction accounts $ 409,279 9,193 2.25% Time deposits 704,061 36,144 5.13 Short-term borrowings 66,594 3,469 5.21 Other borrowings 337,007 18,009 5.34 Total interest-bearing ----------- ----------- ---- liabilities: 1,516,941 66,815 4.40% =========== =========== ==== Non interest-bearing liabilities: Demand deposits 143,551 Other 23,973 ----------- 1,684,465 Shareholders' equity 172,330 ----------- TOTALS $ 1,856,795 =========== Net interest earnings $ 71,485 =========== Net yield on interest-earning assets 4.09% ====

(1) For purposes of these computations, nonaccruing loans are included in the daily average loan amounts outstanding. (2) Interest income includes the effect of tax equivalent adjustments using a federal tax rate of 35%. 35 MARKET AND DIVIDEND INFORMATION At year-end 2001 shareholders owned 6,844,260 shares of the Corporation's common stock. The stock is traded over-the-counter under the NASDAQ National Market System with the symbol THFF. Such over-the-counter market quotations reflect inter-dealer prices, without retail mark-up, mark-down or commission and may not necessarily represent actual transactions. Historically, the Corporation has paid cash dividends semi-annually and currently expects that comparable cash dividends will continue to be paid in the future. The following table gives quarterly high and low trade prices and dividends per share during each quarter for 2001 and 2000.

2001 2000 ---------------------------------- ---------------------------------- Bid Quotation Cash Bid Quotation Cash -------------------- Dividends -------------------- Dividends Quarter ended High Low Declared High Low Declared ------ ------ ------ ------ ------ ------ March 31 $40.00 $30.50 $41.22 $33.19 June 30 $48.14 $35.68 $ .56 $34.68 $30.38 $ .52 September 30 $46.25 $38.65 $33.62 $29.00 December 31 $44.63 $38.52 $ .58 $32.94 $27.50 $ .56

SELECTED QUARTERLY DATA (UNAUDITED)

2001 ------------------------------------------------------------------------------------------------------- Net Provision (Dollar amounts in Interest Interest Interest for Loan Net Net Income thousands) Income Expense Income Losses Income Per Share ------------------------------------------------------------------------------------------------------------------------------------ March 31 $37,468 $20,560 $16,908 $ 1,488 $ 5,907 $ .88 June 30 $36,480 $19,326 $17,154 $ 1,464 $ 5,783 $ .85 September 30 $36,048 $18,139 $17,909 $ 1,512 $ 6,293 $. 92 December 31 $34,677 $16,100 $18,577 $ 2,151 $ 6,213 $ .91

2000 ------------------------------------------------------------------------------------------------------- Net Provision (Dollar amounts in Interest Interest Interest for Loan Net Net Income thousands) Income Expense Income Losses Income Per Share ------------------------------------------------------------------------------------------------------------------------------------ March 31 $35,151 $18,397 $16,754 $ 860 $ 5,415 $ .80 June 30 $36,286 $19,229 $17,057 $ 1,189 $ 6,081 $ .90 September 30 $37,134 $20,931 $16,203 $ 1,140 $ 5,974 $ .89 December 31 $37,846 $22,026 $15,820 $ 1,203 $ 5,743 $ .86

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