-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, N1biC12IkDmnaYes/gRq5AUzftEThDobbdCdRiwbz672hhuGRVff6wtCteXtVir5 W6aOafdNmrFlZfKSvBVLyA== 0000950137-96-000361.txt : 19960328 0000950137-96-000361.hdr.sgml : 19960328 ACCESSION NUMBER: 0000950137-96-000361 CONFORMED SUBMISSION TYPE: 10-K405 PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 19951231 FILED AS OF DATE: 19960327 SROS: NONE FILER: COMPANY DATA: COMPANY CONFORMED NAME: FIRST FINANCIAL CORP /IN/ CENTRAL INDEX KEY: 0000714562 STANDARD INDUSTRIAL CLASSIFICATION: STATE COMMERCIAL BANKS [6022] IRS NUMBER: 351546989 STATE OF INCORPORATION: IN FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K405 SEC ACT: 1934 Act SEC FILE NUMBER: 000-16759 FILM NUMBER: 96539018 BUSINESS ADDRESS: STREET 1: ONE FIRST FINANCIAL PLZ CITY: TERRE HAUTE STATE: IN ZIP: 47807 BUSINESS PHONE: 8122386000 MAIL ADDRESS: STREET 1: ONE FIRST FINANCIAL PLAZA CITY: TERRE HAUTE STATE: IN ZIP: 47807 FORMER COMPANY: FORMER CONFORMED NAME: TERRE HAUTE FIRST CORP DATE OF NAME CHANGE: 19850808 10-K405 1 FORM 10-K 1 SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-K ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 For the Fiscal Year Ended Commission file number December 31, 1995 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 Terre Haute, IN 47807 (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 Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months, 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, 1996 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 $139,251,864. (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, 1996--5,753,304 shares. DOCUMENTS INCORPORATED BY REFERENCE Portions of the 1995 Annual Report to Shareholders are incorporated by reference. Portions of the Definitive Proxy Statement for the First Financial Corporation Annual Meeting to be held April 17, 1996 are incorporated by reference into Part III. 2 FORM 10-K CROSS-REFERENCE INDEX PART I
PAGE 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 Disclosure........ 3 PART III Item 10 Directors and Executive Officers of Registrant............................................. 3 Item 11 Executive Compensation..................................................................... 3 Item 12 Security Ownership of Certain Beneficial Owners and Management............................. 3 Item 13 Certain Relationships and Related Transactions............................................. 3 PART IV Item 14 Exhibits, Financial Statement Schedules and Reports on Form 8-K............................ 4 Signatures................................................................................. 4, 5
1 3 PART I ITEM 1. BUSINESS First Financial Corporation became a multi-bank holding company in 1984. For more information on the Bank's business, please refer to the following sections of the 1995 Annual Report to Shareholders: 1. Description of bank services, affiliations, number of employees, and competition, on page 25. 2. Information regarding supervision of the Bank, on page 13. 3. Details regarding competition, on page 25. ITEM 2. PROPERTIES First Financial Corporation (the Corporation) is located in a four story office building in downtown Terre Haute that was occupied in June 1988. It is leased to Terre Haute First National Bank. This bank also owns two other facilities in downtown Terre Haute. One is leased to another party and the other 50,000 square foot building housed operations and administrative staff and equipment. In addition, the Bank holds in fee four other branch buildings and one of branch buildings is a single story 44,000 square foot which is located in a Terre Haute suburban area. Five other branch bank buildings are leased by the Bank. The expiration dates on the leases are February 14, 2011, May 31, 2011, September 1, 2001, June 30, 1999, and June 30, 1997. Facilities of the Corporation's subsidiary, First State Bank, include branches in Clay City and Poland, Indiana and two branch facilities in Brazil, Indiana including the main office. The buildings are held in fee by First State. Facilities of the Corporation's subsidiary, First Citizens State Bank of Newport, include its main office in Newport, Indiana and two branch facilities in Cayuga and Clinton, Indiana. All three buildings are held in fee by First Citizens. Facilities of the Corporation's subsidiary, First Farmers State Bank, include its main office in Sullivan, Indiana and five branch facilities in Carlisle, Dugger, Farmersburg, Hymera, and Worthington, Indiana. All six buildings are held in fee by First Farmers. The facility of the Corporation's subsidiary, First Ridge Farm State Bank, includes an office facility in Ridge Farm, Illinois. The building is held in fee by First Ridge Farm State. The facility of the Corporation's subsidiary, First Parke State Bank, include its main office in Rockville, Indiana and three branch facilities in Marshall, Montezuma and Rosedale, Indiana. All four buildings are held in fee by First Parke. The facility of the Corporation's subsidiary, First National Bank of Marshall, is an office facility in Marshall, Illinois. The building is held in fee by First National Bank of Marshall. ITEM 3. LEGAL PROCEEDINGS There are no material pending legal proceedings which involve the Corporation or its subsidiaries that are expected to materially affect the Corporation's future financial statements. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS None 2 4 PART II ITEM 5. MARKET FOR REGISTRANT'S COMMON STOCK AND RELATED STOCKHOLDER MATTERS See "Market and Dividend Information" on page 35 of the 1995 Annual Report. ITEM 6. SELECTED FINANCIAL DATA See "Five-Year Comparison of Selected Financial Data" on page 8 of the 1995 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 25 through 33 of the 1995 Annual Report to Shareholders. ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA See "Consolidated Statements of Condition" on page 9, "Consolidated Statements of Income" on page 10, "Consolidated Statements of Shareholders Equity" on page 11, "Consolidated Statements of Cash Flows" on page 12, and "Notes to Consolidated Financial Statements" on pages 13-22. "Responsibility for Financial Statements" and "Report of Independent Accountants" can be found on page 24. Statistical disclosure by Bank Holding Company includes the following information: 1. "Volume/Rate Analysis," on page 26. 2. "Loan Portfolio," on page 28. 3. "Allowance for Possible Loan Losses," on page 29. 4. "Under-Performing Loans," on page 30. 5. "Deposits," on page 31. 6. "Short-Term Borrowings," on page 31. 7. "Consolidated Balance Sheet-Average Balances and Interest Rates," on page 34. ITEM 9. CHANGES IN AND DISAGREEMENT WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE None PART III ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF REGISTRANT See pages 3 through 5 of the Annual Proxy Statement of First Financial Corporation. ITEM 11. EXECUTIVE COMPENSATION See pages 5 through 10 of the Annual Proxy Statement of First Financial Corporation. ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT See pages 13 through 14 of the Annual Proxy Statement of First Financial Corporation. ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS See "Certain Relationships" on page 4, and "Transactions with Management" on page 11 of the Annual Proxy Statement of First Financial Corporation. 3 5 PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENTS SCHEDULES AND REPORTS ON FORM 8-K (a)(1) The following consolidated financial statements of the Registrant and its subsidiaries are included in the Annual Report of First Financial Corporation attached: Consolidated Statements of Condition--December 31, 1995 and 1994 Consolidated Statements of Income--Years ended December 31, 1995, 1994, and 1993 Consolidated Statements of Shareholders' Equity--Years ended December 31, 1995, 1994, 1993 and 1992 Consolidated Statements of Cash Flow--Years ended December 31, 1995, 1994 and 1993 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 21, 1996 4 6 Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated. Donald E. Smith, signed February 21, 1996 - ------------------------------- Donald E. Smith, President & Director (Principal Executive Officer) John W. Perry, signed February 21, 1996 - ------------------------------- John W. Perry, Secretary Walter A. Bledsoe, signed February 21, 1996 - ------------------------------- Walter A. Bledsoe, Director B. Guille Cox, Jr, signed February 21, 1996 - ------------------------------- B. Guille Cox, Jr., Director Thomas T. Dinkel, signed February 21, 1996 - ------------------------------- Thomas T. Dinkel, Director Welby M. Frantz, signed February 21, 1996 - ------------------------------- Welby M. Frantz, Director Anton H. George, signed February 21, 1996 - ------------------------------- Anton H. George, Director - ------------------------------- Mari H. George, Director Max Gibson, signed February 21, 1996 - ------------------------------- Max Gibson, Director Norman L. Lowery, signed February 21, 1996 - ------------------------------- Norman L. Lowery, Director - ------------------------------- William A. Niemeyer, Director Patrick O'Leary, signed February 21, 1996 - ------------------------------- Patrick O'Leary, Director John W. Ragle, signed February 21, 1996 - ------------------------------- John W. Ragle, Director February 21, 1996 - ------------------------------- Chapman J. Root II, Director Virginia L. Smith, signed February 21, 1996 - ------------------------------- Virginia L. Smith, Director 5 7 EXHIBIT 21 EXHIBIT 21--SUBSIDIARIES OF THE REGISTRANT Terre Haute First National Bank is a wholly-owned subsidiary of the Registrant. It is a national banking association. It is an Indiana corporation. The bank conducts its business under the name of Terre Haute First National Bank. First State Bank is a wholly-owned subsidiary of the Registrant. It is a state corporation in Indiana. The bank conducts its business under the name of First State Bank. First Citizens State Bank of Newport is a wholly-owned subsidiary of the Registrant. It is a state corporation in Indiana. The bank conducts its business under the name of First Citizens State Bank. First Farmers State Bank is a wholly-owned subsidiary of the Registrant. It is a state corporation in Indiana. The bank conducts its business under the name of First Farmers State Bank. First Ridge Farm State Bank is a wholly-owned subsidiary of the Registrant. It is a state corporation in Illinois. The bank conducts its business under the name of First Ridge Farm State Bank. First Parke State Bank is a wholly-owned subsidiary of the Registrant. It is a state corporation in Indiana. The bank conducts its business under the name of First Parke State Bank. First National Bank of Marshall is a wholly-owned subsidiary of the Registrant. It is a national banking association. It is an Illinois corporation. The bank conducts its business under the name of First National Bank. 6 EX-13 2 ANNUAL REPORT 1 EXHIBIT 13 FINANCIAL REVIEW CONTENTS Five-Year Comparison of Selected Financial Data.............. 8 Audited Financial Statements and Related Notes............... 9 Reports of Management and Independent Accountants............ 24 Management's Discussion and Analysis......................... 25 Results of Operations -- Summary for 1995.................... 26 Financial Condition -- Summary............................... 28 Capital Resources............................................ 32 Interest Rate Sensitivity and Liquidity...................... 32 Average Consolidated Balance Sheet........................... 34 Market and Dividend Information.............................. 35 Selected Quarterly Financial Data............................ 35 NOTE: This Financial Review begins with page 7 of the annual Form 10-K, as filed with the Securities and Exchange Commission. Upon written request, the Corporation will provide without charge to each requesting shareholder a copy of the Corporation's annual report on Form 10-K, which is required to be filed with the Securities and Exchange Commission for the year ended December 31, 1995. Address all requests to: MICHAEL A. CARTY, TREASURER - FIRST FINANCIAL CORPORATION ONE FIRST FINANCIAL PLAZA - P.O. Box 540 - TERRE HAUTE, IN 47808 7 2 FIVE YEAR COMPARISON OF SELECTED FINANCIAL DATA
(Dollar amounts in thousands except per share amounts) 1995 1994 1993 1992 1991 - --------------------------------------------------------------------------------------------------------------- BALANCE SHEET DATA: Total assets $1,443,625 $1,260,084 $1,241,868 $1,225,114 $1,111,728 Investments 515,409 352,918 401,335 445,688 388,061 Net loans 823,667 797,051 738,824 684,222 606,527 Deposits 1,073,548 993,366 996,808 978,839 946,273 Long-term borrowings 56,721 25,638 41,299 26,556 9,523 Shareholders' equity 130,058 112,553 110,777 95,818 85,599 INCOME STATEMENT DATA: Interest income 99,277 84,892 85,409 90,607 91,260 Interest expense 50,647 37,467 38,423 42,049 50,222 Net interest income 48,630 47,425 46,986 48,558 41,038 Provision for possible loan losses 2,263 2,584 2,494 3,918 4,056 Other income 7,289 6,814 7,080 6,035 5,970 Other expenses 35,592 34,829 34,259 32,819 29,148 Net income 13,274 12,305 12,922 12,472 9,696 PER SHARE DATA: Net income 2.30 2.12* 2.22* 2.16* 1.67* Cash dividends .56 .52* .49* .44* .36* PERFORMANCE RATIOS: Net income to average assets 1.00% 1.00% 1.08% 1.10% .96% Net income to average shareholders' equity 10.99 11.06 12.88 13.86 11.93 Average total capital to average assets 9.78 9.72 9.12 8.63 8.84 Average shareholders' equity to average assets 9.08 9.04 8.39 7.89 8.08 Dividend payout 24.38 24.73 22.24 20.43 21.54
*Restated to retroactively reflect 1995 stock dividend. 8 3 CONSOLIDATED STATEMENTS OF CONDITION
YEARS ENDED DECEMBER 31, ------------------------------- (Dollar amounts in thousands) 1995 1994 - ----------------------------------------------------------------------------------------------- ASSETS Cash and due from banks $62,747 $51,947 Federal funds sold - 23,725 Investment securities: Held-to-maturity - 174,646 Available-for-sale 515,409 178,272 Loans 824,863 798,933 Less: Unearned income 1,196 1,882 Allowance for possible loan losses 10,087 9,649 ---------- ---------- 813,580 787,402 Accrued interest receivable 12,597 9,704 Premises and equipment 23,927 20,011 Other assets 15,365 14,377 ---------- ---------- TOTAL ASSETS $1,443,625 $1,260,084 ========== ========== LIABILITIES AND SHAREHOLDERS' EQUITY Deposits: Non-interest-bearing $ 128,672 $ 125,106 Interest-bearing: Certificates of deposit of $100,000 or more 143,009 109,306 Other interest-bearing deposits 801,867 758,954 ---------- ---------- 1,073,548 993,366 Short-term borrowings: Federal funds purchased and securities sold under agreements to repurchase 68,778 66,685 Treasury tax and loan open-end note 3,872 5,406 Advances from Federal Home Loan Bank 95,296 46,272 ---------- ---------- 167,946 118,363 Long-term borrowings: Advances from Federal Home Loan Bank 50,070 18,168 Other borrowings 6,651 7,470 Other liabilities 15,352 10,164 ---------- ---------- TOTAL LIABILITIES 1,313,567 1,147,531 Commitments and Contingencies Shareholders' equity Common stock, $.125 stated value per share authorized 10,000,000 shares in 1995 and 1994 issued 5,815,857 for 1995 and 1994, including treasury shares of 62,553 for 1995 and 19,600 for 1994 727 693 Additional capital 33,150 25,498 Retained earnings 91,751 89,399 Unrealized gains (losses) on available-for-sale securities, net of taxes 6,368 (2,429) Less treasury shares, at cost (1,938) (608) ---------- ---------- TOTAL SHAREHOLDERS' EQUITY 130,058 112,553 ---------- ---------- TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $1,443,625 $1,260,084 ========== ==========
The accompanying notes are an integral part of the consolidated financial statements. 9 4 CONSOLIDATED STATEMENTS OF INCOME
Years Ended December 31, -------------------------- (Dollar amounts in thousands except per share data) 1995 1994 1993 - ---------------------------------------------------------------------------------------- INTEREST INCOME: Loans $72,147 $62,790 $60,430 Investment securities: Taxable 19,371 15,079 19,715 Tax-exempt 7,029 6,549 4,763 Other interest income 730 474 501 ------- ------- ------- TOTAL INTEREST INCOME 99,277 84,892 85,409 INTEREST EXPENSE: Deposits 42,524 32,211 33,518 Short-term borrowings 5,706 3,252 3,016 Long-term borrowings 2,417 2,004 1,889 ------- ------- ------- TOTAL INTEREST EXPENSE 50,647 37,467 38,423 NET INTEREST INCOME 48,630 47,425 46,986 Provision for possible loan losses 2,263 2,584 2,494 ------- ------- ------- NET INTEREST INCOME AFTER PROVISION FOR POSSIBLE LOAN LOSSES 46,367 44,841 44,492 OTHER INCOME: Trust department income 1,448 1,267 1,165 Service charges on deposit accounts 1,222 1,215 1,345 Other service charges and fees 3,105 2,681 2,464 Investment securities gains (losses) 75 (57) 843 Other 1,439 1,708 1,263 ------- ------- ------- 7,289 6,814 7,080 OTHER EXPENSES: Salaries and employee benefits 17,941 16,972 16,519 Occupancy 2,755 2,339 2,032 Equipment 2,087 2,073 2,147 Data processing 2,031 1,929 1,720 FDIC insurance 1,167 2,237 2,188 Printing and supplies 1,127 1,108 1,076 Other 8,484 8,171 8,577 ------- ------- ------- 35,592 34,829 34,259 INCOME BEFORE INCOME TAXES 18,064 16,826 17,313 Income tax expense 4,790 4,521 4,391 ------- ------- ------- NET INCOME $13,274 $12,305 $12,922 ======= ======= ======= EARNINGS PER SHARE: NET INCOME $2.30 $2.12 $2.22 ======= ======= ======= Weighted average number of shares outstanding in thousands 5,769 5,816 5,816 ======= ======= =======
The accompanying notes are an integral part of the consolidated financial statements. 10 5 CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
Unrealized Common Additional Retained Gains Treasury (Dollar amounts in thousands except per share data) Stock Capital Earnings (Losses) Stock Total - ----------------------------------------------------------------------------------------------------------------------- Balance, January 1, 1992, as restated $ 693 $25,905 $60,166 $ - $(1,165) $ 85,599 Net income - - 12,472 - - 12,472 Treasury stock purchased - - - - (143) (143) Treasury stock reissuance - 165 - - 274 439 Cash dividends, $.44 per share - - (2,549) - - (2,549) ------ ------- ------- ------ ------- -------- Balance, December 31, 1992 693 26,070 70,089 - (1,034) 95,818 Net income - - 12,922 - - 12,922 Treasury stock reissuance - 188 - - 274 462 Treasury stock retirement - (760) - - 760 - Unrealized gains on available-for-sale securities - - - 4,449 - 4,449 Cash dividends, $.49 per share - - (2,874) - - (2,874) ------ ------- ------- ------ ------- -------- Balance, December 31, 1993 693 25,498 80,137 4,449 - 110,777 Net income - - 12,305 - - 12,305 Treasury stock purchased - - - - (608) (608) Unrealized losses on available-for-sale securities - - - (6,878) - (6,878) Cash dividends, $.52 per share - - (3,043) - - (3,043) ------ ------- ------- ------ ------- -------- Balance, December 31, 1994 693 25,498 89,399 (2,429) (608) 112,553 Stock dividend, 5% 34 7,652 (7,686) - - - Net income - - 13,274 - - 13,274 Treasury stock purchased - - - - (1,855) (1,855) Treasury stock reissuance - - - - 525 525 Unrealized gains on available-for-sale securities, net of taxes - - - 8,797 - 8,797 Cash dividends, $.56 per share - - (3,236) - - (3,236) ------ ------- ------- ------ ------- -------- Balance, December 31, 1995 $ 727 $33,150 $91,751 $6,368 $(1,938) $130,058 ====== ======= ======= ====== ======= ========
The accompanying notes are an integral part of the consolidated financial statements. 11 6 CONSOLIDATED STATEMENTS OF CASH FLOWS Years Ended December 31, ---------------------------- (Dollar amounts in thousands except per share data) 1995 1994 1993 - -------------------------------------------------------------------------------------- CASH FLOWS FROM OPERATING ACTIVITIES: Net income $13,274 $12,305 $12,922 Adjustments to reconcile net income to net cash provided by operating activities: Net amortization of premiums (discounts) on investment securities (1,918) 264 3,196 Provision for possible loan losses 2,263 2,584 2,494 Investment securities (gains) losses (75) 57 (843) Provision for depreciation and amortization 2,289 2,452 2,252 Provision for deferred income taxes (293) (704) 904 Net (increase) decrease in accrued interest receivable (2,893) (552) 1,426 Other, net (1,806) 917 (4,130) -------- ------- -------- NET CASH PROVIDED BY OPERATING ACTIVITIES 10,841 17,323 18,221 -------- ------- -------- CASH FLOWS FROM INVESTING ACTIVITIES Net increase from purchases and maturities of interest-bearing deposits with financial institutions - 1,181 4,798 Sales and maturities of investment securities - - 246,007 Maturity of held-to-maturity securities - 22,602 - Sales and maturities of available-for-sale securities 115,836 198,905 - Purchases of investment securities - - (199,176) Purchases of investment securities: Held-to-maturity securities - (66,215) - Available-for-sale securities (261,920) (117,774) - Loans made to customers, net of repayments (28,342) (59,151) (53,878) Net decrease (increase) in federal funds sold 23,725 4,110 (25,788) Additions to premises and equipment (5,687) (2,814) (1,828) -------- ------- -------- NET CASH USED BY INVESTING ACTIVITIES (156,388) (19,156) (29,865) -------- ------- -------- CASH FLOWS FROM FINANCING ACTIVITIES: Net increase (decrease) from sales and redemptions of certificates of deposit 84,121 15,089 (9,142) Net increase (decrease) in other deposits (3,939) (18,531) 26,345 Net increase (decrease) in short-term borrowings 49,582 32,996 (26,860) Cash dividends (3,171) (2,965) (2,624) Proceeds from reissuance of treasury stock 525 - 462 Purchases of treasury stock (1,855) (608) - Proceeds from long-term borrowings 31,098 - 14,892 Repayments of long-term borrowings (14) (15,661) (159) -------- ------- -------- NET CASH PROVIDED BY FINANCING ACTIVITIES $156,347 $10,320 $2,914 ======== ======= ======== NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 10,800 8,487 (8,730) CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR 51,947 43,460 52,190 -------- ------- -------- CASH AND CASH EQUIVALENTS, END OF YEAR $62,747 $51,947 $43,460 ======== ======= ======== SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION: Cash paid during the year for: Interest $49,557 $37,170 $38,525 ======== ======= ======== Income taxes $5,456 $4,091 $4,815 ======== ======= ========
The accompanying notes are an integral part of the consolidated financial statements. 12 7 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 accounts of the parent company and its wholly-owned subsidiaries, Terre Haute First National Bank (Terre Haute First), First State Bank of Clay County, Indiana (First State), First Citizens State Bank of Newport, Indiana (Citizens), First Farmers State Bank of Sullivan, Indiana (Farmers), First Parke State Bank of Rockville, Indiana (Parke), First Ridge Farm State Bank of Ridge Farm, Illinois (Ridge Farm), and First National Bank of Marshall, Illinois (Marshall). All significant inter-company balances and transactions have been eliminated. All dollar amounts, except per share amounts, presented in these notes have been rounded to the nearest thousand. The Corporation, which is headquartered in Terre Haute, Indiana, offers a wide variety of financial services including commercial and consumer lending, lease financing, trust account services and depositor services through its seven subsidiaries. Terre Haute First is the largest bank in Vigo County. At the close of business in 1995, it had almost 51% of the total deposits and almost 52% of the total loans of the banks within the county. It operates ten full-service banking branches within the county. In addition to its branches, it has a main office in downtown Terre Haute and a 44,000 square foot operations center in a suburban area of Terre Haute. In December 1994 the Corporation purchased a 50,000-square-foot commercial building on South Third Street in Terre Haute. The building was remodeled to accommodate an expanded operations center and additional office space. First State has five branch locations in Clay County, a county contiguous to Vigo County. Citizens has three branches, all of which are located in Vermillion County, a county contiguous to Vigo County. Farmers has six branches of which five are located in Sullivan County and one in Greene County. Sullivan County is contiguous to Vigo County. Ridge Farm is located in Vermilion County, Illinois. Parke has four branches in Parke County, a county contiguous to Vigo County. Marshall is located in Clark County, Illinois, a county contiguous to Vigo County. The Corporation operates 30 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 The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. The following is a summary of significant accounting policies used in the consolidated financial statements. INVESTMENT SECURITIES The Corporation classifies all investment securities into two categories as follows: - Securities classified as "available-for-sale" represent securities that may be sold prior to maturity due to changes in market interest rate risks, prepayment risk, the Corporation's management of its income tax position, general liquidity needs, increases in loan demand or similar factors. Available-for-sale securities are carried at fair value, with the unrealized gains and losses recorded, net of tax, as a separate component of shareholders' equity. Fluctuation in the securities' fair value has no effect on net income. - Securities classified as "held-to-maturity" represent those securities which the Corporation has the ability and positive intent to hold to maturity. The Corporation may dispose of such securities under certain unforeseen circumstances, such as issue credit deterioration or regulatory requirements. These securities are carried at amortized cost. On November 15, 1995, the Financial Accounting Standards Board (FASB) issued the Special Report, "A Guide to Implementation of Statement of Financial Accounting Standards No. 115 on Accounting for Certain Investments in Debt and Equity Securities," which provides for the one-time reassessment and reclassification of securities from the 13 8 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) held-to-maturity category during the period November 15 through December 31, 1995. In accordance with the Special Report, the Corporation transferred held-to-maturity securities with a carrying value of $164.1 million to the available-for-sale category. The fair value of the securities transferred exceeded their carrying value by $4.2 million. Realized gains and losses on the sales of investment securities are based on the adjusted cost of the specific security sold. LOANS Interest income on loans is recorded as earned. Loans are placed on non-accrual at the time the loan is 90 days delinquent unless the credit is well secured and in the process of collection. LEASE FINANCING Terre Haute First provides equipment financing to customers through a variety of lease arrangements. Leases are carried at the aggregate of lease payments receivable plus estimated residual values. Unearned income on the leases is amortized over the lease terms resulting in an approximate level rate of return. ALLOWANCE FOR POSSIBLE LOAN LOSSES The allowance for possible loan losses is maintained at a level considered adequate to provide for potential loan losses and is based on management's evaluation of potential losses in the loan portfolio, as well as prevailing and anticipated economic conditions. These evaluations take into consideration such factors as changes in the nature and volume of the loan portfolio, current economic conditions that may affect the borrowers' ability to pay, overall portfolio quality and review of specific problem loans. In May 1993, the FASB issued SFAS No. 114, "Accounting by Creditors for Impairment of a Loan." This Statement requires that impairment of certain loans be measured based on the present value of expected future cash flows discounted at the loan's effective interest rate, or the loan's observable market price or the fair value of the collateral if the loan is collateral dependent. SFAS No. 114, as amended by SFAS No. 118, was adopted by the Corporation on January 1, 1995, and did not result in additions to the allowance for loan losses. MORTGAGE SERVICING RIGHTS In May 1995, the FASB issued SFAS No. 122, "Accounting for Mortgage Servicing Rights." This Statement, which amends SFAS No. 65, requires mortgage banking enterprises to recognize an asset for originated mortgage servicing rights (OMSRs). The cost of originating a mortgage loan is allocated at the time of origination between the loan and the servicing rights based on their relative fair values. Gains are recognized when the loan is sold. The Corporation adopted SFAS No. 122 in the fourth quarter of 1995. As this Statement prohibits retroactive application to prior periods, 1994, 1993 and the first three quarters of 1995 were accounted for under SFAS No. 65. The effect of adopting SFAS No. 122 was not material to the Corporation's financial statements. PREMISES AND EQUIPMENT Premises and equipment are recorded on the basis of cost less accumulated depreciation. The provision for depreciation is computed primarily by the straight-line method over the estimated useful lives of the assets. Any gain or loss on the retirement of assets, which was not significant in 1995, 1994 or 1993, is recognized currently. INCOME TAXES The Corporation utilizes the liability method in accounting for income taxes. Under this method, deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. CASH AND CASH EQUIVALENTS For purposes of cash flows, cash and cash equivalents include cash and due from banks. RECLASSIFICATIONS Certain amounts in the 1993 and 1994 consolidated financial statements have been reclassified to conform with the 1995 presentation. 2. FAIR VALUES OF FINANCIAL INSTRUMENTS The accompanying notes to the consolidated financial statements include certain disclosures for financial instruments recorded on the consolidated statements of condition at December 31, 1995 and 1994. The fair value estimates are made at a discrete point in time based on relevant market and financial instrument information. Since a market may not exist for a significant portion of the Corporation's financial instruments, these estimates are based on judgment regarding future expected loss experience, current economic conditions, credit risk characteristics, and other factors. These estimates are subjective in nature, involve uncertainties and matters of significant judgment, and cannot be determined with precision. Changes in assumptions could significantly affect the estimates. The fair value estimates are based on existing on- and off-balance-sheet financial instruments without attempting to estimate the value of anticipated future business and values of assets and liabilities not considered financial instruments. The following methodologies and assumptions were used to estimate fair value disclosures for financial instruments: 14 9 CASH AND DUE FROM BANKS, INTEREST-BEARING DEPOSITS WITH FINANCIAL INSTITUTIONS AND FEDERAL FUNDS SOLD: The carrying values for these financial instruments approximate their fair values. INVESTMENT SECURITIES: Fair values for investment securities are based on quoted market prices, where available. If quoted market prices are not available, fair values are based on quoted market prices of comparable instruments or dealer quotes. LOANS: For variable-rate loans that reprice frequently with no significant change in credit risk, carrying value approximates fair value. The fair values for conforming residential mortgage loans are based on quoted market prices of similar loans sold in the secondary market. The fair values for residential mortgage loans held for investment, commercial loans, real estate loans, consumer loans, and lease financing are estimated using discounted cash flow analyses, using interest rates being offered for loans with similar terms and credit risk. For significant non-performing loans, fair value is based upon discounted cash flows using a rate commensurate with the credit risk or recent appraisals. The carrying value of accrued interest, adjusted for credit risk, approximates its fair value. DEPOSITS: The fair values disclosed for non-interest- and interest-bearing demand and savings deposits approximate their carrying values. The fair value of retaining deposit relationships in the future, known as a core deposit intangible which is material, is not considered in the fair value disclosed nor is it recorded in the balance sheet. Fair values for fixed rate time deposits are estimated using a discounted cash flow calculation that applies interest rates currently being offered for deposits with comparable maturities. The carrying value of accrued interest on deposits is assumed to approximate its fair value. SHORT-TERM BORROWINGS: The fair values of federal funds purchased, borrowings under repurchase agreements, and other short-term borrowings approximate their carrying values. LONG-TERM BORROWINGS: The fair values of the long-term borrowings are estimated using discounted cash flow analyses, based on rates available to the Corporation for similar types of borrowings. OFF-BALANCE-SHEET INSTRUMENTS: Fair values for off-balance-sheet instruments (guarantees and commitments) are based on fees currently charged to enter similar agreements, considering the remaining terms of the agreements and the counterparties' credit standing. The fair values of the Corporation's off-balance-sheet financial instruments at December 31, 1995 and 1994 were immaterial. The following table presents a summary of the carrying amounts and fair values of the Corporation's financial instruments at December 31, 1995 and 1994.
DECEMBER 31, --------------------------------------------- 1995 1994 --------------------- ------------------ CARRYING FAIR CARRYING FAIR (Dollar amounts in thousands) VALUE VALUE VALUE VALUE - ------------------------------------------------------------------------------------ Cash and due from banks $ 62,747 $ 62,747 $ 51,947 $ 51,947 Federal funds sold - - 23,725 23,725 Investment securities (Note 4) Available-for-sale securities 515,409 515,409 178,272 178,272 Held-to-maturity securities - - 174,646 168,879 Loans (Note 5) 824,863 837,151 798,933 786,369 Accrued interest receivable 12,597 12,597 9,704 9,704 Deposits (Note 8) 1,073,548 1,075,671 993,366 989,733 Short-term borrowings (Note 8) 167,946 167,946 118,363 118,363 Long-term borrowings (Note 9) 56,721 57,147 25,638 24,428
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 for the period including December 31, 1995, was approximately $14.0 million. 15 10 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) 4. INVESTMENT SECURITIES: As of December 31, 1995, the Corporation does not have any securities from any issuer with an aggregate book value or fair value that exceeds ten percent of shareholders' equity. The amortized cost, estimated fair value and carrying value of investment securities are summarized as follows:
December 31, 1995 ----------------------------------------------------------------- Unrealized Amortized ---------------------- Fair Carrying (Dollar amounts in thousands) Cost Gains Losses Value Value - -------------------------------------------------------------------------------------------------------------- AVAILABLE-FOR-SALE: United States Government $ 5,660 $ 35 $ - $ 5,695 $ 5,695 United States Government agencies 285,752 4,401 (551) 289,602 289,602 Collateralized mortgage obligations 66,264 1,506 (158) 67,612 67,612 State and municipal 139,435 4,085 (523) 142,997 142,997 Corporate obligations 8,776 734 (7) 9,503 9,503 -------- ------- ------- -------- -------- TOTAL $505,887 $10,761 $(1,239) $515,409 $515,409 ======== ======= ======= ======== ======== December 31, 1995 ----------------------------------------------------------------- Unrealized Amortized ---------------------- Fair Carrying (Dollar amounts in thousands) Cost Gains Losses Value Value - -------------------------------------------------------------------------------------------------------------- AVAILABLE-FOR-SALE: United States Government $ 4,805 $ - $ (79) $ 4,726 $ 4,726 United States Government agencies 138,520 281 (4,605) 134,196 134,196 Collateralized mortgage obligations 39,908 46 (604) 39,350 39,350 -------- ------- ------- -------- -------- 183,233 327 (5,288) 178,272 178,272 -------- ------- ------- -------- -------- HELD-TO-MATURITY: State and municipal 142,058 567 (5,493) 137,132 142,058 Corporate obligations 15,913 39 (271) 15,681 15,913 United States Government agencies 16,675 1 (610) 16,066 16,675 -------- ------- ------- -------- -------- 174,646 607 (6,374) 168,879 174,646 -------- ------- ------- -------- -------- TOTAL $357,879 $ 934 $(11,662) $347,151 $352,918 ======== ======= ======= ======== ========
Investment securities with a par value amounting to approximately $100.6 million at December 31, 1995, were pledged as collateral for borrowings and for other purposes. The carrying value and estimated fair values of investment securities as of December 31, 1995, by contractual maturity, are shown below. Expected maturities may differ from contractual maturities because borrowers have the right to call or prepay obligations with or without penalties. Also shown for 1995 are the weighted average yields computed on a tax equivalent basis, assuming a federal income tax rate of 34%.
Available-for-Sale ----------------------- Weighted Amortized Fair Average (Dollar amounts in thousands) Cost Value Yields - ------------------------------------------------------------------------------- Due in one year or less $127,801 $129,294 7.60% ===== Due after one but within five years 105,444 107,374 6.91% ===== Due after five but within ten years 78,803 80,578 7.41% ===== Due after ten years 5,356 5,579 8.10% ===== Mortgage backed securities 188,483 192,584 7.37% -------- -------- ===== TOTAL $505,887 $515,409 ======== ========
16 11 Below is a summary of the gross gains and losses and the net gain (loss) realized by the Corporation from investments sold during the years ended December 31, 1995, 1994 and 1993. Sales proceeds from available-for-sale securities aggregated $60.3 million in 1995.
(Dollar amounts in thousands) 1995 1994 1993 - ------------------------------------------------------------------------- Gross gains $ 202 $ 1,039 $1,009 Gross losses (127) (1,096) (166) ------- ------- ------ Net gain (loss) $ 75 $ (57) $ 843 ======= ======= ======
5. LOANS: Loans are summarized as follows:
December 31, 1995 --------------------------------------------- 1995 1994 ----------------- --------------------- Carrying Fair Carrying Fair (Dollar amounts in thousands) Value Value Value Value - --------------------------------------------------------------------------------------------- Commercial, financial and agricultural $170,179 $166,031 $163,268 $158,777 Real estate - construction 22,134 21,788 20,446 20,003 Real estate - mortgage 430,673 450,189 424,427 419,647 Installment 197,726 194,915 185,533 182,529 Lease financing 4,151 4,228 5,259 5,413 -------- -------- -------- -------- TOTAL $824,863 $837,151 $798,933 $786,369 ======== ======== ======== ========
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 1995 the aggregate dollar amount of these loans to directors and executive officers who held office at the end of the year amounted to $35.1 million at the beginning of the year. During 1995, advances of $22.5 million and repayments of $25.1 million were made with respect to related party loans for an aggregate dollar amount of $32.5 million at December 31, 1995. The amount of such loans aggregated $32.2 million at December 31, 1994. 6. ALLOWANCE FOR POSSIBLE LOAN LOSSES: Changes in the allowance for possible loan losses are summarized as follows:
December 31, --------------------------- (Dollar amounts in thousands) 1995 1994 1993 - ----------------------------------------------------------------------------- Balance at beginning of year $9,649 $9,060 $9,875 Provision for possible loan losses 2,263 2,584 2,494 Recoveries of loans previously charged off 1,276 892 811 Loans charged off (3,101) (2,887) (4,120) ------- ------ ------ BALANCE AT END OF YEAR $10,087 $9,649 $9,060 ======= ====== ======
At December 31, 1995, the Corporation had $3.4 million in impaired loans calculated under SFAS No. 114. Based on the estimated fair market value of the related collateral as measured in accordance with SFAS No. 114, $3.3 million of these impaired loans have an allowance of $779 thousand to cover estimated collateral deficiencies. Interest payments on impaired loans are typically applied to principal unless collectability of the principal amount is fully assured, in which case interest is recognized on the cash basis for certain troubled debt restructuring as included in the impaired loan data above. 17 12 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) 7. PREMISES AND EQUIPMENT: Premises and equipment are summarized as follows:
December 31, -------------------- (Dollar amounts in thousands) 1995 1994 - ------------------------------------------------------------ Land $2,861 $2,793 Building and leasehold improvements 21,510 20,563 Furniture and equipment 18,459 14,055 ------- ------- 42,830 37,411 Less accumulated depreciation (18,903) (17,400) ------- ------- TOTAL $23,927 $20,011 ======= =======
8. DEPOSITS AND SHORT-TERM BORROWINGS: The carrying and fair values of deposits are as follows at December 31, 1995 and 1994: 1995 1994 ------------------------ ---------------------- Carrying Fair Carrying Fair (Dollar amounts in thousands) Value Value Value Value - ------------------------------------------------------------------------------------------ Non-interest-bearing demand deposits $128,672 $128,672 $125,106 $125,106 Interest-bearing demand deposits 268,091 268,091 258,636 258,636 Savings deposits 111,239 111,239 130,919 130,919 Time deposits: $100,000 or more 143,009 143,835 109,306 108,569 Other time deposits 422,537 423,834 369,399 366,503 ---------- ---------- -------- -------- $1,073,548 $1,075,671 $993,366 $989,733 ========== ========== ======== ========
9. LONG-TERM BORROWINGS: Long-term borrowings at December 31, 1995 and 1994 are summarized as follows:
1995 1994 ------------------------ -------------------------- Carrying Fair Carrying Fair (Dollar amounts in thousands) Value Value Value Value - ------------------------------------------------------------------------------------------------------------- City of Terre Haute, Indiana adjustable tender economic development revenue bonds, series 1985 $6,600 $6,600 $ 6,600 $ 6,600 Term promissory note - bank - - 805 790 Other 51 51 65 65 --------- --------- -------- ---------- TOTAL $6,651 $ 6,651 $ 7,470 $ 7,455 ========= ========= ======== ========== Advances from the Federal Home Loan Bank $145,366 $145,792 $64,440 $ 63,245 Advances classified as short-term borrowings (95,296) (95,296) (46,272) (46,272) --------- --------- -------- ---------- Advances classified as long-term debt $50,070 $50,496 $18,168 $ 16,973 ========= ========= ======== ==========
The aggregate minimum annual retirements of long-term borrowings are as follows: 1996 $95,296 1997 7,852 1998 22,703 1999 13,322 2000 2,103 Thereafter 10,741 -------- $152,017 Less current portion (95,296) -------- $56,721 ========
18 13 The economic development revenue bonds (bonds) require periodic interest payments each year until maturity or redemption. The interest rate, which was 3.90% at December 31, 1995, is determined by a formula which considers rates for comparable bonds and is adjusted periodically based on the frequency selected by the bondholder at the date of purchase. The bonds are collateralized by a first mortgage on the Corporation's headquarters building. The bonds mature December 1, 2015, and bondholders may periodically require earlier redemption. The Corporation may use funds available under a letter of credit from another financial institution to repay principal on bonds redeemed during the term of the letter of credit. The letter of credit expires November 1, 1996, with an option to renew for another five-year period. Funds advanced under the letter of credit are due five years from the date of the advance. No bonds were redeemed during 1995. Assuming that any redemptions required under the bonds will be funded by the letter of credit, or by other similar borrowings, if redemptions occur after 1996, there are no principal maturities of the bonds within the next five years. The above debt agreements require the Corporation to meet certain financial covenants. The most restrictive covenants require the Corporation to maintain a Tier I capital ratio of at least 6.2% and net income to average assets of 0.6%. At December 31, 1995, 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 $145.4 million at December 31, 1995, accrue interest at annual rates varying from 5.56% to 8.0%. The advances are due at various dates through April 2003. 10. INCOME TAXES: Income tax expense is summarized as follows:
(Dollar amounts in thousands) 1995 1994 1993 - ------------------------------------------------------- Federal: Currently payable $3,404 $3,684 $2,390 Deferred (230) (584) 1,385 ------ ------ ------ 3,174 3,100 3,775 State: Currently payable 1,679 1,541 1,097 Deferred (63) (120) (481) ------ ------ ------ 1,616 1,421 616 ------ ------ ------ TOTAL $4,790 $4,521 $4,391 ====== ====== ======
Income tax expense (credit) with respect to investment securities gains amounted to approximately $20 thousand, $(15) thousand and $214 thousand in 1995, 1994 and 1993, respectively. The major components of deferred income taxes are as follows:
(Dollar amounts in thousands) 1995 1994 1993 ------------------------------------------------------- Provision for possible loan losses $174 $ (747) $925 Lease financing (11) (200) (455) Depreciation (20) 41 - Pension expense 3 32 - Deferred compensation 132 (5) 219 Other, net 15 175 215 ----- ----- ---- TOTAL $293 $ (704) $904 ===== ===== ====
19 14 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) The reconciliation of income tax expense with the amount computed by applying the statutory federal income tax rate to income before income taxes is summarized as follows:
(Dollar amounts in thousands) 1995 1994 1993 - ---------------------------------------------------------------------------------------------- Federal income taxes computed at the statutory rate $6,185 $ 5,721 $ 5,886 Add (deduct) tax effect of: Nontaxable income from tax-exempt investments and loans (2,283) (2,154) (1,876) State tax, net of federal benefit 1,067 938 724 Investment tax credit (280) (211) (91) Other, net 101 227 (252) ------- ------- ------- (1,395) (1,200) (1,495) ------- ------- ------- TOTAL $4,790 $ 4,521 $ 4,391 ======= ======= =======
The tax effects of temporary differences that give rise to significant portions of the deferred tax assets and liabilities at December 31, 1995 and 1994, are as follows:
(Dollar amounts in thousands) 1995 1994 - ------------------------------------------------------------------------------------------------ Deferred tax assets: Loans, principally the allowance for loan losses $3,995 $3,821 Unrealized losses on available-for-sale securities - 1,347 Deferred compensation 517 385 Compensated absences, principally due to accrual for financial reporting purposes 231 216 Other 177 59 ------- ------- Total gross deferred tax assets $4,920 $5,828 ------- ------- Deferred tax liabilities: Unrealized gains on available-for-sale securities (4,632) - Premises and equipment, principally due to differences in depreciation (676) (656) Lease financing, principally due to bases differences between tax and financial reporting (407) (396) Pensions, principally due to amounts that are nondeductible until paid (583) (586) Loans, principally due to deferred fees and costs (42) (88) Other (164) - ------- ------- Total gross deferred liabilities (6,504) (1,726) ------- ------- Net deferred tax assets (liabilities) $(1,584) $4,102 ======= =======
The Corporation has paid income taxes during the last three preceding years that exceed the recorded deferred income tax asset. 11. SHAREHOLDERS' EQUITY: The Corporation's Board of Directors approved a 5% stock dividend payable on July 3, 1995, to shareholders of record on June 20, 1995. Accordingly, the Corporation transferred $7.7 million from retained earnings to reflect this dividend. All share and per share information has been restated. At December 31, 1995, approximately $27.2 million of undistributed earnings of the subsidiary banks, included in consolidated retained earnings, were available for distribution to the parent company as dividends without regulatory approval. In practice, the Corporation further limits dividends to maintain adequate capital. 20 15 12. COMMITMENTS AND CONTINGENCIES: Terre Haute First is obligated to pay minimum fees approximating $599 thousand in 1996 under a facilities management contract for data processing services, which expires April 1996. In addition, the Terre Haute First Board of Directors approved changing the facilities management contract to in-house processing. Terre Haute First is obligated to pay $370 thousand in 1996 related to this conversion. The minimum payment for the perpetual license and maintenance fee is $96 thousand annually. In the normal course of business, the Corporation is subject to various claims and other pending and possible legal actions. Management believes that the results of these claims and possible legal actions will not have a material adverse effect on the Corporation's financial position or results of operations. 13. FINANCIAL INSTRUMENTS WITH OFF-BALANCE-SHEET RISK: The Corporation grants loans to customers primarily in west central Indiana and eastern Illinois. Substantially all loans are collateralized by specific items including accounts receivable, inventory, property, plant and equipment, consumer assets, residential and commercial real estate and income-producing commercial properties. 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 financial statements. The Corporation had unused lines of credit of $62.4 million and $59.3 million and commitments to extend credit of $4.3 million and $3.3 million as of December 31, 1995 and 1994, respectively. In addition, the Corporation had outstanding commitments of $1.8 million and $2.6 million under standby letters of credit as of December 31, 1995 and 1994, respectively. The fair values of the Corporation's off-balance-sheet financial instruments at December 31, 1995 and 1994 were immaterial. 14. RETIREMENT PLANS: Substantially all employees of the Corporation are covered by a retirement program that consists of a defined benefit plan and an employee stock ownership plan (ESOP). Benefits under the defined benefit plan are actuarially determined based on an employee's service and compensation, as defined, and funded as necessary. Assets in the ESOP are considered in calculating the funding to the defined benefit plan required to provide such benefits. Any shortfall of benefits under the ESOP are to be provided by the defined benefit plan. The ESOP may provide benefits beyond those determined under the defined benefit plan. Contributions to the ESOP are determined by the Corporation's Board of Directors. During 1995, 1994 and 1993, the Corporation made no contribution to the defined benefit plan. The Corporation contributed $525, $525 and $462 to the ESOP in 1995, 1994 and 1993, respectively. Pension expense included the following components:
(Dollar amounts in thousands) 1995 1994 1993 - ---------------------------------------------------------------------------------------- Service cost - benefits earned $ 765 $ 763 $ 611 Interest cost on projected benefit obligation 777 694 674 Actual (return) loss on plan assets (1,252) 838 (3,704) Net amortization and deferral 240 (1,864) 2,948 ------- ------- ------- Total pension expense $ 530 $ 431 $ 529 ======= ======= =======
The information on the following page sets forth the funded status of the Corporation's retirement program. Actuarial present value of benefits is based on service to date and present pay levels. 21 16 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
December 31, ------------------- (Dollar amounts in thousands) 1995 1994 - ------------------------------------------------------------------------------------------------ Vested $10,978 $ 7,499 Nonvested 354 (217) ------- -------- Accumulated benefits obligation 11,332 7,282 ------- -------- Additional amounts related to projected pay increases 4,467 2,422 ------- -------- Total projected benefit obligation $15,799 $ 9,704 Assets at fair value, consisting primarily of the Corporation's common stock 15,996 14,607 ------- -------- Excess of assets over projected benefits 197 4,903 Unrecognized net loss (871) (2,491) Unrecognized prior service cost 111 126 Unrecognized net transition asset 2,051 (1,045) ------- -------- Prepaid pension asset recognized in the statement of condition $ 1,488 $ 1,493 ======= ======= Principal assumptions used: Discount rate 6.00% 8.00% ======= ======= Rate of increase in compensation levels 6.00% 5.50% ======= ======= Expected long-term rate of return on plan assets 7.00% 7.00% ======= =======
15. PARENT COMPANY CONDENSED FINANCIAL STATEMENTS: The parent company's condensed statements of condition as of December 31, 1995 and 1994, and the related condensed statements of income and retained earnings and cash flows for each of the three years in the period ended December 31, 1995, are as follows:
STATEMENTS OF CONDITION December 31, ---------------------- (Dollar amounts in thousands) 1995 1994 - ------------------------------------------------------------------------------------ ASSETS Cash deposits in affiliated banks $ 1,926 $ 1,811 Investments in bank subsidiaries 128,262 111,111 Land and headquarters building, net 7,565 7,801 Other 3,484 3,108 -------- -------- TOTAL ASSETS $141,237 $123,831 ======== ======== LIABILITIES AND SHAREHOLDERS' EQUITY LIABILITIES: Long-term borrowings $ 7,457 $ 8,371 Dividends payable 1,611 1,547 Other liabilities 2,111 1,360 -------- -------- TOTAL LIABILITIES 11,179 11,278 -------- -------- SHAREHOLDERS' EQUITY: Common stock 727 693 Additional capital 33,150 25,498 Retained earnings 91,751 89,399 Unrealized gains (losses) on available-for-sale securities of bank subsidiaries, net of tax 6,368 (2,429) Less treasury shares, at cost (1,938) (608) -------- -------- TOTAL SHAREHOLDERS' EQUITY 130,058 112,553 -------- -------- TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $141,237 $123,831 ======== ========
22 17 STATEMENTS OF INCOME AND RETAINED EARNINGS
Years Ended December 31, --------------------------------- (Dollar amounts in thousands) 1995 1994 1993 - ------------------------------------------------------------------------------------------------- Income: Dividends from bank subsidiaries $ 5,065 $ 3,270 $ 3,051 Other income 847 833 834 ------- ------- ------- Total income 5,912 4,103 3,885 Expenses: Interest on long-term borrowings 460 435 411 Other operating expenses 718 604 703 ------- ------- ------- Total operating expenses 1,178 1,039 1,114 ------- ------- ------- Income before income taxes and equity in undistributed earnings of bank subsidiaries 4,734 3,064 2,771 Income tax (expense) credit 83 (574) 268 ------- ------- ------- Income before equity in undistributed earnings of bank subsidiaries 4,817 2,490 3,039 Equity in undistributed earnings of bank subsidiaries 8,457 9,815 9,883 ------- ------- ------- Net income $13,274 $12,305 $12,922 ======= ======= =======
STATEMENTS OF CASH FLOWS
Years Ended December 31, (Dollar amounts in thousands) 1995 1994 1993 - ------------------------------------------------------------------------------------ CASH FLOWS FROM OPERATING ACTIVITIES: Net income $13,274 $12,305 $12,922 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation 165 160 160 Equity in undistributed earnings of bank subsidiaries (8,457) (9,815) (9,883) Increase in other liabilities 540 839 11 Decrease (increase) in other assets 8 (3) 273 ------- ------- ------- NET CASH PROVIDED BY OPERATING ACTIVITIES $ 5,530 $ 3,486 $ 3,483 CASH FLOWS FROM INVESTING ACTIVITIES: Additional investment in bank subsidiaries - - (328) ------- ------- ------- NET CASH USED IN INVESTING ACTIVITIES - - (328) ------- ------- ------- CASH FLOWS FROM FINANCING ACTIVITIES: Principal payments on long-term borrowings (914) (216) (210) Proceeds from reissuance of treasury stock 525 - 462 Purchase of treasury stock (1,855) (608) - Dividends paid (3,171) (2,965) (2,576) ------- ------- ------- NET CASH USED BY FINANCING ACTIVITIES (5,415) (3,789) (2,324) ------- ------- ------- NET INCREASE (DECREASE) IN CASH 115 (303) 831 CASH, BEGINNING OF YEAR 1,811 2,114 1,283 ------- ------- ------- CASH, END OF YEAR 1,926 1,811 2,114 ======= ======= ======= Supplemental disclosures of cash flow information: Cash paid during the year for: Interest $458 $435 $410 ======= ======= ======= Income taxes $ 5,456 $ 4,091 $ 4,815 ======= ======= =======
23 18 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. Coopers & Lybrand L.L.P. 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 independent 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. Donald E. Smith Michael A. Carty Donald E. Smith Michael A. Carty President & Chief Executive Officer Treasurer REPORT OF INDEPENDENT ACCOUNTANTS We have audited the accompanying consolidated statements of condition of First Financial Corporation and subsidiaries as of December 31, 1995 and 1994, and the related consolidated statements of income, shareholders' equity and cash flows for each of the three years in the period ended December 31, 1995. These financial statements are the responsibility of the Corporation's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the 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 consolidated financial position of First Financial Corporation and subsidiaries as of December 31, 1995 and 1994, and the consolidated results of their operations and their cash flows for each of the three years in the period ended December 31, 1995, in conformity with generally accepted accounting principles. Coopers and Lybrand L.L.P. Indianapolis, Indiana February 9, 1996 24 19 MANAGEMENT'S DISCUSSION AND ANALYSIS The following information provides management's discussion and analysis of First Financial Corporation's financial condition and the results of its operations. The information presented should be read in conjunction with the audited financial statements and related footnotes appearing elsewhere in this report. First Financial Corporation (the Corporation) is a multi-bank holding company. The Corporation, which is headquartered in Terre Haute, Indiana, offers a wide variety of financial services including commercial and consumer lending, lease financing, trust account services and depositor services through its seven subsidiaries. The Corporation's principal subsidiary is Terre Haute First National Bank (Terre Haute First) located in Vigo County. The Corporation's other six wholly-owned bank subsidiaries are First State Bank of Clay County, Indiana (First State), First Citizens State Bank of Newport, Indiana (Citizens), First Farmers State Bank of Sullivan, Indiana (Farmers), First Ridge Farm State Bank of Ridge Farm, Illinois (Ridge Farm), First Parke State Bank of Rockville, Indiana (Parke), and First National Bank of Marshall, Illinois (Marshall). At the close of business in 1995, the Corporation and its subsidiaries had 642 full time equivalent employees. Terre Haute First is the largest bank in Vigo County. At the close of business in 1995, it had almost 51% of the total deposits and almost 52% of the total loans of the banks within the county. It operates ten full-service banking branches within the county. In addition to its branches, it has a main office in downtown Terre Haute and a 44,000 square foot operations center in a suburban area of Terre Haute. In December 1994 the Corporation purchased a 50,000-square-foot commercial building on South Third Street in Terre Haute. The building was remodeled to accommodate an expanded operations center and additional office space. First State has five branch locations in Clay County, a county contiguous to Vigo County. Citizens has three branches, all of which are located in Vermilion County, a county contiguous to Vigo County. Farmers has six branches of which five are located in Sullivan County and one in Greene County. Sullivan County is contiguous to Vigo County. Ridge Farm is located in Vermilion County, Illinois. Parke has four branches in Parke County, a county contiguous to Vigo County. Marshall is located in Clark County, Illinois, a county contiguous to Vigo County. Terre Haute First faces competition from other financial institutions in Vigo County. These competitors include three commercial banks, a mutual savings bank and other financial institutions, including consumer finance companies, credit unions and one federal savings bank. The six 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, two credit unions and one brokerage firm in Vermilion County, Indiana. FARMERS--Two commercial banks, one savings and loan, and one brokerage firm in Sullivan County, Indiana, and three commercial banks in Greene County, Indiana. PARKE--Two commercial banks, five credit unions and two brokerage firms in Parke County, Indiana. RIDGE FARM--Four commercial banks, one savings and loan, five credit unions and two brokerage firms in Vermilion County, Illinois. MARSHALL--Three commercial banks and one savings and loan in Clark 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. The economy of the Wabash Valley, our market area, performed better in 1995 in terms of employment growth and lower unemployment rate than the nation. Our banks' policies of normally making loans in their market area has resulted in a geographic concentration of loans. However, our loan-to-deposit ratio of 76.7% is comparable to the average ratio of bank holding companies of a similar size. The banks have the ability to fund continued growth, which should result in improved net interest margin and net income. In 1995 there has been continued retail and industrial construction in the Wabash Valley. This should provide a base for a steady, modest growth in our market area during the coming year. In December 1995, the Corporation reached an agreement to merge with Crawford Bancorp, Inc., with total assets of approximately $103 million. The merger is expected to be completed in the third quarter of 1996, subject to customary closing conditions, including regulatory approvals. There are no other presently known trends, events or uncertainties that will have or that are reasonably likely to have a material effect on the Corporation's liquidity, capital resources or operations for 1996. 25 20 RESULTS OF OPERATIONS--SUMMARY FOR 1995 Net income for 1995 was $13.3 million or $2.30 per share. The increased earnings over 1994 net income of $12.3 million or $2.12 per share were primarily the result of improved net interest income, increased income from sources other than interest and a reduction in the amount paid for insurance from the Federal Deposit Insurance Corporation. The primary components of income and expense affecting net income are discussed in the following analysis. NET INTEREST INCOME The principal source of the Corporation's earnings is net interest income, which represents the difference between interest earned on loans and investments and the interest cost associated with deposits and other sources of funding. Total average interest-earning assets increased to $1,248.8 million or 8.2% from $1,154.2 million in 1994 and the yield on these assets increased 7.7% from 7.68% in 1994 to 8.27% in 1995. Total average interest-bearing liabilities amounted to $1,076.1 million in 1995 compared to $997.5 million in 1994, while the yield on these interest-bearing liabilities increased 25.6% from 3.75% in 1994 to 4.71% in 1995. On a tax equivalent basis, net interest income increased $1.5 million from $51.2 million in 1994 to $52.7 million in 1995. Although the net interest income increased as compared to the same period of 1994, the net interest margin for the year decreased from 4.43% in 1994 to 4.22% in 1995. This decrease is the result of higher costs of interest-bearing liabilities because of strong competition for funds. The following table sets forth the components of net interest income due to changes in volume and rate. The table information compares 1995 to 1994 and 1994 to 1993.
1995 COMPARED TO 1994 1994 COMPARED TO 1993 INCREASE (DECREASE) DUE TO INCREASE (DECREASE) DUE TO ------------------------------------ ------------------------------------- VOLUME/ VOLUME/ (DOLLAR AMOUNTS IN THOUSANDS) VOLUME RATE RATE TOTAL VOLUME RATE RATE TOTAL - -------------------------------------------------------------------------------------------------------------------- Interest earned on interest-earning assets: Loans (1) $4,760 $4,331 $ 327 $9,418 $5,699 $(3,048) $ (286) $2,365 Taxable investment securities 1,917 2,108 268 4,293 (4,584) (69) 17 (4,636) Tax-exempt investment securities (1) 270 445 12 727 3,332 (428) (198) 2,706 Federal funds sold 139 113 36 288 (91) 196 (47) 58 Interest-bearing deposits: Domestic (32) (32) 32 (32) (17) (9) 3 (23) Foreign - - - - (64) (64) 64 (64) ------ ------ ------ ------- ------ ------- ------ ------ Total interest income $7,054 $6,965 $ 675 $14,694 $4,275 $(3,422) $ (447) $ 406 ------ ------ ------ ------- ------ ------- ------ ------ Interest paid on interest-bearing liabilities: Savings deposits (1,172) 573 (66) (665) 560 (1,303) (67) (810) Time deposits 4,720 5,155 1,103 10,978 (157) (352) 2 (507) Federal funds purchased and securities sold under agreement to repurchase (349) 855 (150) 356 (486) 603 (145) (28) Other 1,643 585 296 2,524 156 207 11 374 ------ ------ ------- ------- ------ ------- ------ ------ Total interest expense 4,842 7,168 1,183 13,193 73 (845) (199) (971) ------ ------ ------- ------- ------ ------- ------ ------ Net interest income $2,212 $(203) $ (508) $ 1,501 $4,202 $(2,577) $ (248) $1,377 ====== ====== ======= ======= ====== ======= ====== ======
(1) Changes in interest income include the effect of tax equivalent adjustments using a federal tax rate of 34%. 26 21 PROVISION FOR POSSIBLE LOAN LOSSES The provision for possible loan losses is established by charging current earnings with an amount which will maintain the allowance for possible loan losses at a level sufficient to provide for potential 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 possible loan losses totaled $2.3 million for 1995 as compared to $2.6 million for 1994. Net charge-offs for 1995 decreased to $1.8 million or 8.5% from 1994. At December 31, 1995, the resulting allowance for possible loan losses was $10.1 million or 1.22% of total loans, net of unearned income. A year earlier the allowance was 1.21% of total loans. OTHER INCOME Other income increased in 1995 to $7.3 million from $6.8 million earned in 1994. There were no major contributing factors for this increase. Most of the components of other income increased slightly. OTHER EXPENSES Other expenses totaled $35.6 million for 1995 compared to $34.8 million for 1994. This represents an increase of $763 thousand or 2.2% for 1995. Although the Corporation had a decrease of $1.0 million or 47.8% in the FDIC insurance adjustment, it was offset by most of the other components of other expenses, which increased slightly for 1995. Salaries and related benefits, the largest component of this group, increased from $17.0 million to $17.9 million or 5.7%. The primary reasons for this increase were higher average salaries and a larger number of full time equivalent employees for 1995 of 642 compared to 624 at the end of 1994. Occupancy expenses increased 17.8% from 1994 levels. All other expenses for 1995 increased to $8.5 million from $8.2 million as compared to the same period of 1994. INCOME TAXES The Corporation's federal income tax provision was $3.2 million in 1995 compared to a provision of $3.1 million in 1994. The overall effective tax rate in 1995 of 26.5% compares to a 1994 effective rate of 26.9%. In 1995, state tax expense also increased slightly to $1.6 million from $1.4 million in 1994. COMPARISON OF 1994 TO 1993 Net income for 1994 was $12.3 million or $2.12 per share compared to $12.9 million in 1993 or $2.22 per share. This decreased income was primarily the result of recognizing $57 thousand of losses on securities sold for 1994 while recognizing $843 thousand of gains on securities sold in 1993. Net interest income for 1994 as compared to 1993 remained almost unchanged. Net yield on interest-earning assets was 4.43% for both years. 27 22 FINANCIAL CONDITION--SUMMARY The Corporation's total assets increased to a record $1,444 million at December 31, 1995, up from $1,260 million a year earlier. Loans, net of unearned income, increased by $26.6 million, to $823.7 million. The increase in loans was primarily funded by deposits and advances from the Federal Home Loan Bank. Advances from the Federal Home Loan Bank at December 31, 1995, were $145.4 million, of which $95.3 million represents short-term obligations. Total shareholders' equity at December 31, 1995, was $130.1 million compared to $112.6 million a year earlier. Following is an analysis of the components of the Corporation's statement of condition. Information describing the components of the Corporation's investment securities, the market value, maturities and weighted average yields of the investments is included in Note 4 of the related notes to the consolidated financial statements. LOAN PORTFOLIO Loans outstanding by major category as of December 31 for each of the last five years and the maturities and interest sensitivity of the loans outstanding as of December 31, 1995, are set forth in the following analysis.
(Dollar amounts in thousands) 1995 1994 1993 1992 1991 - -------------------------------------------------------------------------------------------------------- LOAN CATEGORY Commercial, financial and agricultural $170,179 $163,268 $153,841 $158,707 $141,586 Real estate - construction 22,134 20,446 17,109 16,255 14,340 Real estate - mortgage 430,673 424,427 400,594 362,138 306,473 Installment 197,726 185,533 163,486 143,579 140,975 Lease financing 4,151 5,259 7,121 9,183 13,053 -------- -------- -------- -------- -------- TOTAL $824,863 $798,933 $742,151 $689,862 $616,427 ======== ======== ======== ======== ======== After One After Within But Within Five (Dollar amounts in thousands) One Year Five Years Years Total - -------------------------------------------------------------------------------------------------------- MATURITY DISTRIBUTION Commercial, financial and agricultural $78,015 $38,306 $53,858 $170,179 Real estate - construction 11,265 3,337 7,532 22,134 ------- ------- ------- --------- TOTAL $89,280 $41,643 $61,390 $192,313 ======= ======= ======= ========= Real estate - mortgage 430,673 Installment 197,726 Lease financing 4,151 --------- TOTAL LOANS $824,863 ========= Loans maturing after one year with: Fixed interest rates $20,446 $13,305 Variable interest rates 21,197 48,085 ------- ------- TOTAL $41,643 $61,390 ======= =======
28 23 ALLOWANCE FOR POSSIBLE LOAN LOSSES The activity in the Corporation's allowance for possible loan losses is shown in the following analysis:
(Dollar amounts in thousands) 1995 1994 1993 1992 1991 - ---------------------------------------------------------------------------------------------------- Amount of loans outstanding at December 31, $824,863 $798,933 $742,151 $689,862 $616,427 ======== ======== ======== ======== ======== Average amount of loans by year $822,401 $764,750 $699,191 $626,827 $574,488 ======== ======== ======== ======== ======== Allowance for possible loan losses at beginning of year $ 9,649 $ 9,060 $ 9,875 $ 8,479 $ 6,545 Loans charged off: Commercial, financial and agricultural 1,086 1,482 1,433 1,218 1,215 Real estate - mortgage 165 124 1,438 519 578 Installment 1,702 1,279 1,146 1,195 1,091 Leasing 148 2 103 58 119 -------- -------- -------- -------- -------- Total loans charged off 3,101 2,887 4,120 2,990 3,003 -------- -------- -------- -------- -------- Recoveries of loans previously charged off: Commercial, financial and agricultural 712 382 377 104 316 Real estate - mortgage 137 127 94 65 292 Installment 420 374 313 232 260 Leasing 7 9 27 67 13 -------- -------- -------- -------- -------- Total recoveries 1,276 892 811 468 881 -------- -------- -------- -------- -------- Net loans charged off 1,825 1,995 3,309 2,522 2,122 Provision charged to expense 2,263 2,584 2,494 3,918 4,056 -------- -------- -------- -------- -------- Balance at end of year $ 10,087 $ 9,649 $ 9,060 $ 9,875 $ 8,479 ======== ======== ======== ======== ======== Ratio of net charge-offs during period to average loans outstanding .22% .26% .47% .40% .37% ======== ======== ======== ======== ========
Management anticipates $943 thousand of commercial, financial and agricultural loans, $201 thousand of real estate-mortgage loans, $1.2 million of installment loans, and $100 thousand of leases will be charged off for 1996. The remaining $7.6 million or 76% of the allowance will be available for losses resulting from unforeseen circumstances. 29 24 FINANCIAL CONDITION--SUMMARY (continued) 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 possible 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 1995, 1994 and 1993, under the original terms of the loans is $316 thousand, $467 thousand and $311 thousand, respectively. The Corporation recorded interest income on such loans in the amounts of $63 thousand, $377 thousand and $137 thousand for 1995, 1994 and 1993, respectively.
(Dollar amounts in thousands) 1995 1994 1993 1992 1991 - --------------------------------------------------------------------------------------- Non-accrual loans $2,782 $3,486 $2,925 $4,234 $6,436 Restructured loans 185 217 1,259 1,287 639 ------ ------ ------ ------ ------ 2,967 3,703 4,184 5,521 7,075 Accruing loans past due 5,809 1,992 1,385 1,453 2,283 ------ ------ ------ ------ ------ $8,776 $5,695 $5,569 $6,974 $9,358 ====== ====== ====== ====== ======
The ratio of the allowance for loan losses as a percentage of non-performing loans was 115% at December 31, 1995, compared to 169% in 1994. This decrease is the result of an increase in the amount of loans past due 90 days or more amounting to $5.8 million compared to $2.0 million in 1994. This increase was primarily the result of one commercial real estate loan amounting to $1.4 million which became past due 90 days or more and a general increase in loan delinquencies in most categories of loans on a consolidated basis. The commercial real estate loan is secured by a commercial building. Management anticipates the proceeds from a fair market value sale will equal or exceed the carrying value of the loan. The following loan categories comprise significant components of the non- performing loans at December 31, 1995:
(Dollar amounts in thousands) - ------------------------------------------------------------ Non-accrual loans: Construction and land development $ 585 21% 1-4 family residential 485 18 Non-farm, non-residential 565 20 Other, various 1,093 41 ------- ---- 2,728 100% ======= ==== Past due 90 days or more: 1-4 family residential $2,098 36% Commercial loans 2,536 44 Installment loans 601 10 Other, various 574 10 ------- ---- $5,809 100% ======= ====
There are no material concentrations by industry within the non-performing loans. In addition to the above under-performing loans, certain loans are felt by management to be impaired for reasons other than current repayment status. Such reasons may include, but not be limited to previous payment history, bankruptcy proceedings, industry concerns, or information related to a specific borrower that may result in a negative future event to that borrower. The Corporation had $1.8 million of doubtful loans which are still in accrual status. 30 25 DEPOSITS Total deposits increased to $1,073.5 million or 8.1% in 1995. The Corporation experienced a significant fluctuation between deposit types due to a rate-sensitive market environment. Savings decreased $19.7 million or 15.0%, while large certificates of deposit increased $33.7 million or 30.8%. Other time deposits increased $53.1 million or 14.4% in 1995. The aggregate carrying value of short-term borrowings was $167.9 million and $118.4 million at December 31, 1995 and 1994, respectively. The weighted average interest rate was 5.76% and 4.89% for 1995 and 1994, respectively. The information below presents the average amount of deposits and rates paid on those deposits for 1995, 1994 and 1993.
1995 1994 1993 ---------------- -------------- --------------- (Dollar amounts in thousands) Amount Rate Amount Rate Amount Rate - ------------------------------------------------------------------------------------------------ Non-interest-bearing demand deposits $ 121,063 $ 113,864 $ 94,781 Interest-bearing demand deposits 243,202 2.70% 254,816 2.60% 239,973 2.80% Savings deposits 116,243 2.52% 151,566 2.25% 146,647 2.89% Time deposits: $100,000 or more 148,718 5.72% 123,379 4.43% 133,509 3.98% Other time deposits 434,326 5.65% 356,918 4.65% 350,146 4.92% ---------- ---------- -------- TOTALS $1,063,552 $1,000,543 $965,056 ========== ========== ========
The maturities of certificates of deposit of $100 thousand or more outstanding at December 31, 1995, are summarized as follows (in thousands of dollars): 3 months or less $55,500 Over 3 through 6 months 25,434 Over 6 through 12 months 26,995 ------- Over 12 months 35,080 =======
SHORT-TERM BORROWINGS A summary of the carrying value of the Corporation's short-term borrowings at December 31, 1995, 1994 and 1993 is presented below:
(Dollar amounts in thousands) 1995 1994 1993 - ---------------------------------------------------------------------------------- Federal funds purchased $ 52,800 $ 3,495 $ 4,491 Securities sold under agreements to repurchase 15,978 63,190 67,123 Advances from Federal Home Loan Bank 95,296 46,272 4,341 Other short-term borrowings 3,872 5,406 9,412 -------- -------- ------- $167,946 $118,363 $85,367 ======== ======== =======
Federal funds purchased amounted to $52.8 million in 1995 compared to $3.5 million in 1994. The primary reasons for this increase were the funding of some investment securities with short-term maturities prior to other securities maturing in 1996, and a year end increase in funds that were not available for investment until the first week of January. The investments were primarily in 6-month to one-year callable federal agencies. Securities sold under agreements to repurchase decreased by $47 million or 74.7% in 1995 from the same period in 1994 because of the lack of incentive to have funds held in this category compared to prior years. Advances from the Federal Home Loan Bank increased to $95.3 million in 1995 compared to $46.3 million in 1994. The major reasons for the increase were for temporary liquidity and to arbitrage several investments with these funds. The difference between the investment yield and borrowing rate provided a positive return to the Corporation. The difference in spread was either matched in index (LIBOR) or the Corporation did assume basis and/or option risk. With the increase in capital, it was determined to add more leverage to the Balance Sheet and increase the net income. This strategy was primarily implemented in the fourth quarter of 1995 and should continue on in 1996. As of December 31, 1995, the total investments in such programs totaled $67.2 million. The Asset/Liability Committee reviews these investments weekly. 31 26 FINANCIAL CONDITION--SUMMARY (continued) The amounts and interest rates related to federal funds purchased and securities sold under agreements to repurchase are presented below:
(Dollar amounts in thousands) 1995 1994 1993 ----------------------------- ---- ----- ---- Average amount outstanding $40,313 $48,868 $64,322 Maximum amount outstanding at a month end 68,778 66,685 78,343 Average interest rate during year 5.83% 4.08% 3.14% Interest rate at year end 6.00% 4.22% 3.26%
CAPITAL RESOURCES As of December 31, 1995, the Corporation's shareholders' equity was $130.1 million, an increase of 15.5% from the 1994 level of $112.6 million. The primary reason for this increase was the increase in unrealized gains on available-for-sale securities, net of tax, to $6.4 million in 1995 from negative $2.4 million in 1994. The Corporation transferred all of its held-to-maturity securities to the available-for-sale category in November 1995. 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. Capital is measured by two risk-based ratios: Tier I capital and total capital, which includes Tier II capital. The rules require that companies have minimum ratios of 4% and 8% for Tier I and total capital, respectively. As of December 31, 1995, the Corporation had Tier I capital of 14.41% and total capital of 15.58%, significantly exceeding regulatory minimum standards. Additionally, a Tier I leverage ratio is also used by bank regulators as another measure of capital strength. This ratio compares Tier I capital to total reported assets reduced by goodwill. The regulatory minimum level of this ratio is 3%, and it acts as a constraint on the degree to which a company can leverage its equity base. The Corporation's Tier I leverage ratio was 9.30% at December 31, 1995. First Financial Corporation's objective is 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 1995 and 1994 was 24.4% and 24.7%, 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 seven 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. This function is accomplished through the Asset/Liability Committee. The primary goal of the committee is to maximize net interest income within the interest rate risk limits set by the Committee. The Committee reviews a series of monthly reports to insure that performance objectives are being met. The Committee also monitors and controls its interest rate risk through the use of a microcomputer model. The first measure of interest rate risk utilized is static gap analysis. Asset and liability classifications are identified by repricing and maturity schedules. This identifies potential risk in the mismatch of assets and liabilities as interest rates change. The second measure of interest rate risk is earnings simulation. Utilizing the model, management can measure the effects that any variety of scenarios may have on income. Simulation incorporates changes in interest rates, the shape of the yield curve and prepayments into its calculations. At the discretion of management, they may assume alternate volumes, reinvestment strategies and interest rate relationships. 32 27 It is important to note that each measure of interest rate risk has its limitations and that each is dependent upon certain assumptions. The Committee has performed a thorough analysis of these inputs and believes the assumptions to be valid and theoretically sound. Furthermore, the relationships are continuously monitored for behavioral changes. The Committee believes that the combination of reports and information represents a fairly comprehensive view of interest rate risk. For the next 12 months, the Corporation is liability sensitive with $79.5 million more liabilities repricing than assets, with a .86 sensitivity ratio. This represents 5.51% of total assets. Under corporate policy, the sensitivity ratio should fall within .8 and 1.2 and gap should not exceed 20% of total assets. Thus, the current position is well within the stated guidelines. The Corporation has $164.9 million of investments that mature throughout the year to meet its liquidity needs. The following table illustrates the Corporation's year end position at differing time intervals. Utilizing the Corporation's position at year end, the earnings simulations model projects that under the current rate environment, net income will increase by 22.2% in 1996, all things being equal. Although actual results will undoubtedly differ from this projection due to changes in many variables, this represents a 1.2% return on assets. The earnings assets yield 7.7% and interest-bearing liabilities cost 3.9%; thus, the margin is 3.8%. Management actively monitors the Corporation's position and periodically implements strategies to meet all of the Corporation's objectives. Rate Sensitivity Analysis at December 31, 1995
(DOLLAR AMOUNTS IN THOUSANDS) RATE SENSITIVE WITHIN: 1-3 MONTHS 4-6 MONTHS 7-12 MONTHS 1-5 YEARS 5-PLUS YEARS TOTAL - -------------------------------------------------------------------------------------------------------------------- Earning assets: Investments $ 44,474 $ 57,436 $ 62,986 $212,258 $138,255 $ 515,409 Loans 159,718 53,626 100,740 399,103 100,393 813,580 --------- -------- --------- -------- -------- ----------- TOTAL EARNING ASSETS 204,192 111,062 163,726 611,361 238,648 1,328,989 Other assets - - - - 114,636 114,636 --------- -------- --------- -------- -------- ----------- TOTAL ASSETS $204,192 $111,062 $ 163,726 $611,361 $353,284 $1,443,625 ========= ======== ========= ======== ======== =========== Interest-bearing liabilities: Interest-bearing deposits $ 82,481 $ 68,813 $ 131,363 $116,320 $402,890 $801,867 Interest-bearing deposits over $100 55,500 25,434 26,995 22,617 12,463 143,009 Borrowed funds 146,042 801 21,103 - - 167,946 Long-term debt - - - 45,932 10,789 56,721 --------- -------- --------- -------- -------- ----------- TOTAL INTEREST- BEARING LIABILITIES 284,023 95,048 179,461 184,869 426,142 1,169,543 Other liabilities - - - - 144,024 144,024 Capital - - - - 130,058 130,058 --------- -------- --------- -------- -------- ----------- TOTAL LIABILITIES AND CAPITAL $284,023 $ 95,048 $ 179,461 $184,869 $700,224 $1,443,625 ========= ======== ========= ======== ======== =========== Rate sensitivity gap (assets-liabilities) $(79,831) $ 16,014 $ (15,735) $426,492 Cumulative sensitivity ratio 0.72 0.83 0.86 1.47 Cumulative gap percent of total assets -5.53% -4.42% -5.51% 24.03%
33 28 CONSOLIDATED BALANCE SHEET--AVERAGE BALANCES AND INTEREST RATES
December 31, ------------------------------------------------------------------------------------------- 1995 1994 1993 ---------------------------- ---------------------------- -------------------------- Average Yield/ Average Yield/ Average Yield/ (Dollar amounts in thousands) Balance Interest Rate Balance Interest Rate Balance Interest Rate - --------------------------------------------------------------------------------------------------------------------------------- ASSETS Interest-earning assets: Loans (1) (2) $ 822,401 $ 72,564 8.82% $ 764,750 $63,146 8.26% $ 699,191 $60,780 8.69% Taxable investment securities 273,739 19,371 7.08% 242,869 15,079 6.21 316,428 19,715 6.23 Tax-exempt investment securities (2) 140,068 10,650 7.60% 136,353 9,923 7.28 93,287 7,217 7.74 Federal funds sold 12,577 730 5.80% 9,562 442 4.62 12,542 384 3.06 Interest-bearing deposits in other banks: Domestic - - - 636 32 5.03 923 55 5.96 Foreign - - - - - - 1,118 64 5.72 ---------- -------- ---- ---------- ------- ----- ---------- ------- ---- Total interest-earning assets $1,248,785 $103,315 8.27% $1,154,170 $88,622 7.68% $1,123,489 $88,215 7.85% -------- ==== ------- ===== ------- ==== Non-interest earning assets: Cash and due from bank 49,489 49,390 44,630 Premises and equipment, net 21,465 18,948 18,705 Other assets 20,213 16,972 18,713 Less allowance for loan losses (10,122) (9,264) (9,548) ---------- ---------- ---------- TOTALS $1,329,830 $1,230,216 $1,195,989 ========== ========== ========== LIABILITIES AND SHAREHOLDERS' EQUITY Interest-bearing liabilities: Savings deposits 359,445 9,481 2.64 406,382 10,146 2.50 386,620 10,956 2.83% Time deposits 583,044 33,043 5.67 480,297 22,065 4.59 483,655 22,571 4.67 Federal funds purchased and securities sold under agreement to repurchase 40,313 2,350 5.83 48,868 1,994 4.08 64,322 2,022 3.14 Other 93,296 5,773 6.19 61,950 3,262 5.27 58,765 2,874 4.89 ---------- -------- ---- ---------- ------- ----- ---------- ------- ---- Total interest-bearing liabilities: $1,076,098 $50,647 4.71% $997,497 $37,467 3.75% $993,362 $38,423 3.87% -------- ==== ------- ===== ------- ==== Non interest-bearing liabilities: Demand deposits 120,773 113,864 94,781 Other 12,160 7,627 7,493 ---------- ---------- ---------- 1,209,031 1,118,988 1,095,636 Shareholders' equity 120,799 111,228 100,353 ---------- ---------- ---------- TOTALS $1,329,830 $1,230,216 $1,195,989 ========== ========== ========== Net interest earnings $52,668 $51,155 $49,792 ======== ======= ======= Net yield on interest-earning assets 4.22% 4.43% 4.43% ===== ===== ====
(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 34%. 34 29 EFFECTS OF INFLATION The effects of inflation on an enterprise's reported results of operations vary depending on the components of the enterprise's assets and liabilities. Except for a bank's premises and equipment, which comprise a relatively small portion of total assets, a bank's assets and liabilities are primarily monetary in nature. Consequently, because a bank's monetary assets exceed monetary liabilities, banks generally experience a loss in purchasing power during periods of inflation. However, when considering the effects of inflation on banks, it is important to remember that interest rates, which affect the bank's costs for funds, do not always move in correlation with consumer prices. MARKET AND DIVIDEND INFORMATION At year-end 1995 shareholders owned 5,753,304 shares of the Corporation's common stock. The stock was held by approximately 1,033 shareholders and traded over-the-counter under the NASDAQ National Market System. 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 1995 and 1994.
1995 1994 ---------------------------- ----------------------------------- CASH CASH BID QUOTATION DIVIDENDS BID QUOTATION DIVIDENDS HIGH LOW DECLARED HIGH LOW DECLARED - ------------------------------------------------------------------------------------------------ March 31 $30.00 $28.56 $33.33 $29.53 June 30 29.00 26.68 $.28 33.37 31.91 $.257 September 30 30.00 29.00 32.86 31.19 December 31 31.50 29.50 $.28 31.19 28.58 $.267 - ------------------------------------------------------------------------------------------------
SELECTED QUARTERLY FINANCIAL DATA 1995 -------------------------------------------------------------------------------- NET PROVISION INTEREST INTEREST INTEREST FOR POSSIBLE NET NET INCOME (Dollar amounts in thousands) INCOME EXPENSE INCOME LOAN LOSSES INCOME PER SHARE - --------------------------------------------------------------------------------------------------------- March 31 $23,427 $11,832 $11,595 $540 $2,720 $.47* June 30 24,312 12,315 11,997 540 2,987 .52* September 30 25,250 13,051 12,199 543 3,455 .60 December 31 26,288 13,449 12,839 640 4,112 .71 1994 ---------------------------------------------------------------------------- NET PROVISION INTEREST INTEREST INTEREST FOR POSSIBLE NET NET INCOME (Dollar amounts in thousands) INCOME EXPENSE INCOME LOAN LOSSES INCOME PER SHARE* - ---------------------------------------------------------------------------------------------------------- March 31 $20,267 $8,915 $11,352 $963 $2,510 $.43 June 30 20,632 8,991 11,641 430 3,121 .54 September 30 21,561 9,476 12,085 471 3,217 .55 December 31 22,432 10,085 12,347 720 3,457 .60
*Restated to retroactively reflect 1995 stock dividend. 35 EX-99 3 NOTICE AND PROXY STATEMENT 1 EXHIBIT 99 SCHEDULE 14A INFORMATION PROXY STATEMENT PURSUANT TO SECTION 14(A) OF THE SECURITIES EXCHANGE ACT OF 1934 (AMENDMENT NO. ) Filed by the Registrant [X] Filed by a Party other than the Registrant [ ] Check the appropriate box: [ ] Preliminary Proxy Statement [X] Definitive Proxy Statement [ ] Definitive Additional Materials [ ] Soliciting Material Pursuant to Rule 240.14a-11(c) or Rule 240.14a-12 FIRST FINANCIAL CORPORATION - ------------------------------------------------------------------------------- (Name of Registrant as Specified in Its Charter) FIRST FINANCIAL CORPORATION - ------------------------------------------------------------------------------- (Name of Person(s) Filing Proxy Statement) Payment of Filing Fee (Check the appropriate box): [X] $125 per Exchange Act Rules 0-11(c)(1)(ii), 14a-6(I)(1), or 14a-6(j)(2). [ ] $500 per each party to the controversy pursuant to Exchange Act Rule 14a-6(I)(3). [ ] Fee computed on table below per Exchange Act Rules 14a-6(I)(4) and 0-11. 1) Title of each class of securities to which transaction applies: ________________________________________________________________________ 2) Aggregate number of securities to which transaction applies: ________________________________________________________________________ 3) Per unit price or other underlying value of transaction computed pursuant to Exchange Act Rule 0-11* ________________________________________________________________________ 4) Proposed maximum aggregate value of transaction: ________________________________________________________________________ *Set forth the amount on which the filing fee is calculated and state how it was determined. [ ] Check box if any part of the fee is offset as provided by Exchange Act Rule 0-11(a)(2) and identify the filing for which the offsetting fee was paid previously. Identify the previous filing by registration statement number, or the Form or Schedule and the date of its filing. 1) Amount Previously Paid:_____________________________________________________ 2) Form, Schedule or Registration statement no.:_______________________________ 3) Filing Party:_______________________________________________________________ 4) Date Filed:_________________________________________________________________ 2 FIRST FINANCIAL CORPORATION ONE FIRST FINANCIAL PLAZA P.O. BOX 540 TERRE HAUTE, INDIANA 47808 THIS PROXY SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS The undersigned hereby appoints King A. Fasig and Earl W. Kickler, or either of them as Proxies, each with the power to appoint his substitute, and hereby authorizes them to represent and to vote, as designated below, all shares of common stock of First Financial Corporation which the undersigned is entitled to vote at the Annual Meeting of Shareholders to be held at One First Financial Plaza, Terre Haute, Indiana on Wednesday, April 17, 1996, at 11:00 a.m. (local time), or any adjournment thereof, on the following matters: 1. Election of Directors / / FOR all nominees listed below (except as marked to the contrary below) / / WITHHOLD AUTHORITY to vote for all nominees listed below: Walter A. Bledsoe Mari H. George Patrick O'Leary B. Guille Cox, Jr. Gregory L. Gibson John W. Ragle Thomas T. Dinkel Max L. Gibson Chapman J. Root II Welby M. Frantz Norman L. Lowery Donald E. Smith Anton H. George William A. Niemeyer Virginia L. Smith (INSTRUCTIONS: TO WITHHOLD AUTHORITY TO VOTE FOR ANY INDIVIDUAL, STRIKE A LINE THROUGH THE NOMINEE'S NAME IN THE LIST ABOVE.) 2. In their discretion, on such other matters as may properly come before the meeting. THIS PROXY WHEN PROPERLY EXECUTED WILL BE VOTED AS DIRECTED OR IF NO DIRECTION IS INDICATED, WILL BE VOTED FOR PROPOSAL NO. 1. Please sign exactly as name appears below. If there are two or more owners, both should sign. When signing as attorney, executor, administrator, trustee or guardian, please give full title as such. If a corporation, please sign in full corporate name by President or other authorized officer. If a partnership, please sign in partnership name by authorized person. Dated:_______________, 1996 _________________________________________ (Signature) _________________________________________ (Signature, if held jointly) YOUR VOTE IS IMPORTANT. PLEASE MARK, SIGN, DATE AND RETURN THIS PROXY PROMPTLY USING THE ENCLOSED ENVELOPE. 3 FIRST FINANCIAL CORPORATION ONE FIRST FINANCIAL PLAZA P.O. BOX 540 TERRE HAUTE, INDIANA 47808 NOTICE OF ANNUAL MEETING OF SHAREHOLDERS TO BE HELD APRIL 17, 1996 Notice is hereby given that, pursuant to the call of its Directors, an Annual Meeting of Shareholders of First Financial Corporation ("Corporation") will be held on April 17, 1996 at 11:00 o'clock a.m., local time, at One First Financial Plaza, Terre Haute, Indiana. The purposes of the meeting are: (1) To elect the Board of Directors of the Corporation to serve for the ensuing year. (2) To transact such other business as may properly be presented at the meeting. Only shareholders of record at the close of business on March 19, 1996 will be entitled to notice of and to vote at the meeting. By Order of the Board of Directors DONALD E. SMITH DONALD E. SMITH Chairman of the Board and President March 22, 1996 IMPORTANT--PLEASE MAIL YOUR PROXY PROMPTLY IN ORDER THAT THERE MAY BE PROPER REPRESENTATION AT THE MEETING, YOU ARE URGED TO COMPLETE, SIGN, DATE AND RETURN THE ENCLOSED PROXY IN THE ENVELOPE PROVIDED. NO POSTAGE IS REQUIRED IF MAILED IN THE UNITED STATES. 4 PROXY STATEMENT OF FIRST FINANCIAL CORPORATION ONE FIRST FINANCIAL PLAZA P.O. BOX 540 TERRE HAUTE, INDIANA 47808 (812) 238-6000 ANNUAL MEETING OF SHAREHOLDERS TO BE HELD APRIL 17, 1996 GENERAL INFORMATION This Proxy Statement is furnished in connection with the solicitation by the Board of Directors of First Financial Corporation (the "Corporation") of Proxies for use at an Annual Meeting of Shareholders of the Corporation to be held on April 17, 1996 at 11:00 a.m. at One First Financial Plaza, Terre Haute, Indiana, and at any and all adjournment of such meeting. This Proxy Statement and accompanying form of proxy were first mailed to the shareholders on or about March 22, 1996. The Corporation is a multi-bank holding company which owns Terre Haute First National Bank ("Terre Haute First"), First State Bank, First Citizens State Bank, First Farmers State Bank, First Ridge Farm State Bank, First Parke State Bank and First National Bank of Marshall. Only shareholders of record as of March 19, 1996, will be entitled to notice of, and to vote at, the Annual Meeting. As of March 1, 1996 the Corporation had issued and outstanding 5,767,175 shares of common stock, which were held by approximately 1,030 shareholders of record. There are no other outstanding securities of the Corporation entitled to vote. For the matter to be voted on at this Annual Meeting, each share is entitled to one vote, exercisable in person or by proxy. Approval of a plurality of the votes cast at the meeting, assuming a quorum is present, is required for election of each nominated director. Action on any other matters to come before the meeting must be approved by an affirmative vote of a majority of the shares present, in person, or by proxy. Abstentions, broker non-votes, and instructions on the accompanying proxy card to withhold authority to vote for one or more of the named nominees will result in the respective nominee receiving fewer votes. The cost of soliciting proxies will be borne by the Corporation. In addition to use of the mails, proxies may be solicited personally or by telephone by officers, directors and certain employees who will not be specially compensated for such soliciting. 1 5 Any shareholder giving a proxy has the right to revoke it at any time before it is exercised. Therefore, execution of the proxy will not affect the shareholder's right to vote in person if he or she attends the meeting. Revocation may be made prior to the meeting (i) by written notice sent to John W. Perry, Secretary, First Financial Corporation, One First Financial Plaza, P.O. Box 540, Terre Haute, Indiana 47808, (ii) personally upon oral or written request at the Annual Meeting, or (iii) by duly executing a proxy bearing a later date. The shares represented by proxies will be voted as instructed by the shareholders giving the proxies. In the absence of specific instructions to the contrary, proxies will be voted in favor of the election as directors of the fifteen (15) persons named as nominees in this Proxy statement. If for any reason any of the director/nominees becomes unable or is unwilling to serve at the time of the meeting (an event which the Board of Directors does not anticipate), the persons named as proxies in the accompanying form of proxy will have discretionary authority to vote for a substitute nominee or nominees named by the Board of Directors if the Board of Directors elects to fill such nominees' positions. Any other matters that may properly come before the meeting will be acted upon by the persons named as proxies in the accompanying form of proxy in accordance with their discretion. ELECTION OF DIRECTORS The Board of Directors is composed of fifteen (15) members, all of whom hold office for a term of one (1) year or until other respective successors are duly elected and qualified. For each of the fifteen (15) nominees for director listed below there is a brief summary of his or her present principal occupation, other business experience during the last five years, age, and the year such individual first became a director. [THE REST OF THIS PAGE INTENTIONALLY LEFT BLANK] 2 6
NAME AND AGE YEAR BECAME TITLE OR POSITION PRINCIPAL OCCUPATION A DIRECTOR WITH CORPORATION FOR THE LAST FIVE YEARS - ------------------------------------------------------------------------------------------ Walter A. Bledsoe, 80 1983* Director Personal Investments B. Guille Cox, Jr., 50 1987 Director Attorney-At-Law with Cox Zwerner Gambill & Sullivan Thomas T. Dinkel, 45 1989 Director President of Sycamore Engineering, Inc. Welby M. Frantz, 83 1983* Director Business Consultant Anton H. George, 36 1987 Director President, Indianapolis Motor Speedway Corp., Director, Indiana Energy, Inc. Mari H. George, 61 1989 Director Chairman, Indianapolis Motor Speedway Corp. Gregory L. Gibson, 33 1994 Director President, ReTec, Inc. Max L. Gibson, 55 1983* Director President of Majax Company, Director, IPALCO, Inc. Norman L. Lowery, 49 1989 Vice Chairman President of Terre Haute First (effective January 1, 1996), Attorney-At-Law with Wright Shagley & Lowery through 1995 William A. Niemeyer, 73 1983* Director President of Niemeyer Coal Co. Patrick O'Leary, 59 1983* Director President of Contract Services, LLC John W. Ragle, 69 1983* Director President of Ragle & Company, Inc. Chapman J. Root II, 46 1989 Director President, Root Company, Director International Speedway Corp. Donald E. Smith, 69 1983* Chairman of President of Terre Haute First and the Board and First Financial Corporation through President 1995. Director, Southern Indiana Gas and Electric Company Virginia L. Smith, 48 1987 Director President of R.J. Oil Co., Inc.
*First Financial Corporation was formed in 1983. 3 7 ADDITIONAL INFORMATION CONCERNING BOARD OF DIRECTORS ATTENDANCE AT MEETINGS. During 1995, the Board of Directors of the Corporation held 12 regular meetings and a total of 19 meetings. No director standing for re-election attended fewer than 75% of the aggregate number of Board meetings and meetings on committees on which he or she served, except Mr. Root, who attended 63%. CERTAIN RELATIONSHIPS. Certain family relationships exist among the directors of the Corporation. Donald E. Smith is the father of Virginia L. Smith and father-in-law of Norman L. Lowery. Mari H. George is the mother of Anton H. George. Max L. Gibson is the father of Gregory L. Gibson. There are no arrangements or understandings between any of the directors pursuant to which any of them have been selected for their respective positions. COMMITTEES. The Board of Directors had no standing nominating or any committee performing similar functions during 1995; such functions are performed by the Board of Directors as a whole. The Corporation's Examining Committee, which consists of John W. Ragle, Max Gibson, and Patrick O'Leary, reviews the Corporation's accounting functions, operations and management and the adequacy and effectiveness of the internal controls and internal auditing methods and procedures. This Committee recommends to the Board the appointment of the independent public accountants for the Corporation. This Committee met twice during 1995. The Corporation's Compensation Committee, which consists of Messrs. O'Leary, Smith, Frantz, M. Gibson, Niemeyer, A. George, and Lowery, overviews the compensation of the officers of subsidiary banks and recommends salaries and bonus amounts to the full Board of Directors. Such Committee met four times in 1995. COMPENSATION OF DIRECTORS. Directors of the Corporation received a fee of $100 per meeting during 1995 if the meeting was held as a joint meeting with the Board of Directors of Terre Haute First. Only one meeting of the Board of Directors of the Corporation was not held as a joint meeting with the Board of Directors of Terre Haute First during 1995. For meetings of the Board of Directors of the Corporation which were not joint meetings with the Board of Directors of Terre Haute First, directors received a fee of $500 per such meeting attended. Directors of Terre Haute First, a wholly-owned banking subsidiary of the Corporation, received a fee in 1995 of $500 for each meeting attended and a semi-annual fee of $1,800. In addition, Directors of Terre Haute First, other than those employed by Terre Haute First, receive a fee of $300 for each Loan Discount Committee meeting attended. Directors of Terre Haute First that are not yet seventy (70) have the option of participating in a deferred director's fee program, pursuant to which each year, for five years, $6,000 of Director's fees are deferred until the participant reaches the age of sixty-five (65) or seventy (70), at which point the Director may elect to receive payments over a ten year period. For 1995, the allocated cost of the deferred Director's fees was $141,313, which is funded by Terre Haute First with insurance products. 4 8 Directors of First State Bank, a wholly-owned banking subsidiary of the Corporation, received a fee of $200 for each meeting attended. Directors of First Citizens State Bank, a wholly-owned banking subsidiary of the Corporation, received a fee of $300 for each meeting attended. Directors of First Farmers State Bank, a wholly-owned banking subsidiary of the Corporation, received a fee of $200 for each meeting attended. Directors of First Ridge Farm State Bank, a wholly-owned banking subsidiary of the Corporation, received a fee of $200 for each meeting attended. Directors of First Parke State Bank, a wholly-owned banking subsidiary of the Corporation, received a fee of $200 for each meeting attended. Directors of First National Bank of Marshall, a wholly-owned banking subsidiary of the Corporation, received a fee of $325 for each meeting attended. EXECUTIVE OFFICERS OF THE CORPORATION The executive officers of the Corporation, all of whom serve for a one year term, consist of Donald E. Smith, Chairman of the Board and President of the Corporation; Norman L. Lowery, Vice Chairman; John W. Perry, Secretary of the Corporation; Michael A. Carty, Treasurer of the Corporation; and W. Edward Jukes, Chief Credit Officer of the Corporation. Mr. Perry, age fifty-two, was Treasurer of the Corporation from 1983 through 1990 and has been Secretary from 1990 through the present. For the past nine years, Mr. Perry's principal occupation has been as the Senior Vice President of Terre Haute First. Mr. Carty, age forty-five, has been Senior Vice President of Terre Haute First since 1990 and was Vice President of Terre Haute First from 1983 until 1990. Mr. Jukes, age fifty-three, has been Senior Vice President of Terre Haute First since 1989. For additional information concerning Mr. Smith and Mr. Lowery, see "ELECTION OF DIRECTORS." COMPENSATION OF OFFICERS COMPENSATION COMMITTEE REPORT Decisions on compensation of the Corporation's executives are made by the Compensation Committee of the Board, which also serves as the Compensation Committee of Terre Haute First. Each member of the Compensation Committee, except Mr. Smith, was a non-employee director. All decisions of the Compensation Committee relating to the compensation of the Corporation's executive officers are reviewed by the full Board. Pursuant to rules of the Securities and Exchange Commission designed to enhance disclosure of corporation policies toward executive compensation, set forth on the following page is a report submitted by Messrs. O'Leary (Chairman), Smith, Frantz, M. Gibson, Niemeyer, A. George and Lowery in their capacity as the Board's Compensation Committee addressing the Corporation's compensation policies for 1995 as they affected Mr. Smith and Messrs. Perry and Jukes, the two other executive officers other than Mr. Smith who, for 1995, were the Corporation's most highly paid executives whose total annual salary and bonus exceeded $100,000 (collectively with Mr. Smith, the "senior executives"). 5 9 COMPENSATION POLICIES TOWARD EXECUTIVE OFFICERS. The Compensation Committee's executive compensation policies are designed to provide competitive levels of compensation to the executive officers and to reward officers for satisfactory individual performance and for satisfactory performance of the Corporation as a whole. There are no established goals or standards relating to performance of the Corporation which have been utilized in setting compensation of individual employees. BASE SALARY. Each executive officer is reviewed individually by the Compensation Committee, which review includes an analysis of the performance of the Corporation and Terre Haute First. In addition, the review includes, among other things, an analysis of the individual's performance during the past fiscal year, focusing primarily upon the following aspects of the individual's job or characteristics of the individual exhibited during the most recent fiscal year: quality and quantity of work; supervisory skills; dependability; initiative; attendance; overall skill level; and overall value to the Corporation. ANNUAL BONUS AMOUNTS. The Compensation Committee determines whether a bonus should be paid based primarily upon the overall performance of the Corporation. For 1995, Mr. Smith received a bonus of $115,000 and Messrs. Perry and Jukes each received a bonus equal to their 1994 bonus of $12,673 and $10,069, respectively. OTHER COMPENSATION PLANS. At various times in the past the Corporation has adopted certain broad-based employee benefit plans in which the senior executives are permitted to participate on the same terms as non-executive employees who meet applicable eligibility criteria, subject to any legal limitations on the amount that may be contributed or the benefits that may be payable under the plans. BENEFITS. The Corporation provides medical and pension benefits to the senior executives that are generally available to other Corporation employees. The amount of perquisites, as determined in accordance with the rules of the Securities and Exchange Commission relating to executive compensation, did not exceed 10% of salary and bonus for fiscal 1995. MR. SMITH'S 1995 COMPENSATION. Regulations of the Securities and Exchange Commission require that the Compensation Committee disclose the Committee's basis for compensation reported for Mr. Smith in 1995. Mr. Smith's salary and bonus are determined in the same manner as discussed above for other senior executives, except that $75,000 of Mr. Smith's $115,000 bonus was made in connection with an employment agreement providing for a split dollar life insurance arrangement between the Corporation, Terre Haute First, and Mr. Smith. The Compensation Committee believes that Mr. Smith has managed the Corporation well. Members of the 1995 Compensation Committee Welby M. Frantz Anton H. George Max L. Gibson Norman L. Lowery William A. Niemeyer Patrick O'Leary Donald E. Smith 6 10 COMPENSATION COMMITTEE INSIDER PARTICIPATION During the past fiscal year, Mr. Smith, the Corporation's Chief Executive Officer, served on the Compensation Committee but did not participate in any discussion or voting with respect to his salary or bonus as an executive officer and excused himself from the room during the discussion by the Compensation Committee of his compensation. In addition, Mr. Lowery, the son-in-law of Mr. Smith, abstained from discussion and voting on any recommended salary or bonus for Mr. Smith. SUMMARY COMPENSATION TABLE The following table sets forth for the fiscal years ending December 31, 1995, 1994, and 1993 the cash compensation paid by the Corporation, as well as certain other compensation paid or awarded during those years, to the Chief Executive Officer and any other executive officer whose total annual salary and bonus exceeded $100,000 during the fiscal year ended December 31, 1995.
NAME AND PRINCIPAL YEAR ANNUAL COMPENSATION (1) ALL OTHER POSITION SALARY BONUS (2) COMPENSATION (3) - ---------------------------------------------------------------------------- Donald E. Smith 1995 $263,604 $115,000 $7,781 President, CEO 1994 $253,465 $ 40,000 $29,027 and Director 1993 $242,550 $ 36,400 $26,991 John W. Perry 1995 $131,801 $ 12,673 $1,247 Secretary 1994 $126,732 $ 12,673 $1,247 1993 $115,500 $ 10,510 $1,247 W. Edward Jukes 1995 $104,723 $ 10,069 $1,394 Chief Credit Officer 1994 $100,695 $ 10,069 $1,394 1993 $ 91,770 $ 8,351 $1,394
(1) While officers enjoy certain perquisites, such perquisites do not exceed the lesser of $50,000 or 10% of such officer's salary and bonus and are not required to be disclosed by applicable rules of the Securities and Exchange Commission. (2) The bonus amounts are payable pursuant to determinations made by the Compensation Committee of the Corporation, as described in the "Compensation Committee Report." 7 11 (3) These amounts represent Corporation payments on behalf of the above-named individuals pursuant to a life insurance program ("Life Insurance Program") for the executive officers of Terre Haute First which began in 1985. Under the Life Insurance Program, Terre Haute First purchased a life insurance policy on behalf of each executive officer of Terre Haute First (including the three listed above). The policy is owned by the individual and will be paid at age 65 for those presently 55 or older, and at age 60 for those who are less than 55 years of age. The annual cost of this insurance for those reported was as follows: $1,247 for Mr. Perry; and $1,394 for Mr. Jukes. In addition, this amount includes the annual premium payment in the amount of approximately $285,000 for a life insurance policy for Mr. Smith. Mr. Smith no longer participates in the group term life insurance policy of the Corporation (which coverage would terminate upon his retirement). The Corporation determined to purchase a policy of life insurance for Mr. Smith which would continue to be in effect following his retirement as an executive officer of the Corporation and Terre Haute First. Beginning in 1995, the Corporation paid for the term portion of a split dollar insurance policy on Mr. Smith. The dollar value of the benefit to Mr. Smith of the remainder of the premium paid by the Corporation or Terre Haute First in connection with such policy, which was issued pursuant to an Employment Agreement between the Corporation, Terre Haute First, and Mr. Smith, was $7,781. The Corporation expects to recover the premiums it pays for such policy from the proceeds of such policy. Allocations to the named individual's respective account in the Corporation's Employee Stock Ownership Plan ("ESOP"), which are properly includable in this column, were not calculable as of the date of this Proxy Statement. Such amounts for 1994 were as follows: $7,117 for Mr. Smith; $6,836 for Mr. Perry; and $5,450 for Mr. Jukes. EMPLOYEE BENEFIT PLANS Employee Stock Ownership Plan. The Corporation sponsors the First Financial Corporation Employee Stock Ownership Plan ("ESOP") and the First Financial Corporation Employees' Pension Plan ("Pension Plan") for the benefit of substantially all of the employees of the Corporation and its subsidiaries. As discussed below, these plans constitute a "floor-offset" retirement program. The Pension Plan is a defined benefit "floor" plan which provides each participant with a minimum benefit or "floor" which is offset by the benefit provided by the ESOP. Thus, if a participant's benefit under the ESOP is insufficient to fund the minimum "floor" of benefits specified by the Pension Plan, the Pension Plan will make up the difference. If a participant's benefit under the ESOP is higher than the minimum or "floor" benefit under the Pension Plan, the participant receives the higher benefit under the ESOP. All employees of the Corporation and its subsidiaries become participants in the ESOP after completing one year of service for the Corporation or its subsidiaries and attaining age 21. Under the terms of the ESOP, the Corporation or its subsidiaries, as participating employers, may contribute Corporation common stock to the ESOP or contribute cash to the ESOP which will be primarily invested in the Corporation's common stock. The amount of contributions, when they are made, is determined by the Board of Directors of the Corporation. No participant contributions are required or allowed under the ESOP. For a discussion of the forms in which benefits may be distributed under the ESOP, see the discussion under "Defined Benefit Plan" below. 8 12 Participants have the right to direct the voting of the shares of the Corporation's stock allocated to their accounts under the ESOP on all corporate matters. For the year ended December 31, 1995, the Corporation contributed to the ESOP $525,000 in Corporate Stock. The stock will be allocated to the individual ESOP accounts of the participants effective as of December 31, 1995, although no allocation to the individual accounts had been made or calculated as of the date of mailing of this Proxy Statement. Defined Benefit Plan. As described above, the Pension Plan was adopted in conjunction with, but is separate from, the ESOP. Employees become participants in the Pension Plan after completing one year of service for the Corporation or its subsidiaries and attaining age 21. All employees of the Corporation and its subsidiaries are eligible to become participants. No participant contributions are required or allowed under the Pension Plan. The Pension Plan, in conjunction with the ESOP, is designed to provide participants with a minimum retirement benefit. The monthly guaranteed minimum benefit under the Pension Plan is reduced by the monthly benefit derived from the participant's vested portion of his ESOP account balance, calculated by the actuary for the Pension Plan as a single life annuity. The normal retirement benefit will begin at age 65 and be paid monthly for as long as the participant lives. The normal form of retirement benefit under the ESOP and Pension Plan is a monthly life annuity. A married participant will receive an actuarially equivalent joint and 50% survivor annuity (a monthly payment for the participant's life with the surviving spouse receiving 50% of that amount for life), unless the participant otherwise elects and the participant's spouse consents to such election. A participant may also elect to receive his retirement income from the ESOP and Pension Plan in the form of: a monthly income payable for life; a monthly income payable for life with either 50%, 66-2/3%, or 100% of the participant's benefit paid to the participant's designated beneficiary starting upon the participant's death and continuing for long as beneficiary lives; or a monthly income payable for life with 60, 120 or 180 monthly payments guaranteed, provided that the number of guaranteed monthly payments cannot be for a period greater than the joint life expectancy of the participant and his spouse. The ESOP also provides that a participant's benefit may be distributed in a single lump sum or substantially equal monthly, quarterly or annual installments over a period which does not exceed the participant's life expectancy (or the joint life expectancy of the participant and his spouse). However, a participant may be deemed that all or any part of the distribution from the ESOP be made in whole shares of the Corporation's common stock prior to the date specified for distribution, with any fractional shares distributed in cash. The following table sets forth the years of service under the Pension Plan, with respect to the executive officers named in the Summary Compensation Table under "COMPENSATION OF OFFICERS." 9 13 NAME OF INDIVIDUAL YEARS OF BENEFIT SERVICE ------------------ ------------------------ Donald E. Smith 27 John W. Perry 21 W. Edward Jukes 6
The following table shows the estimated annual benefits payable under the Pension Plan upon retirement at age 65 for various periods of Benefit Service at specified levels of remuneration. The benefit amounts presented in the totals are annual straight life annuity amounts without deduction for social security or other offset amounts. A participant's Final Average Annual Compensation shown under the Pension Plan is generally based on the compensation set forth in the Summary Compensation Table. ESTIMATED MINIMUM ANNUAL RETIREMENT BENEFIT (1) FINAL AVERAGE ANNUAL COMPENSATION YEARS OF BENEFIT 250K SERVICE 70K 100K 130K 160K 190K 220K OR MORE ---------- ----- ---- ---- ---- ---- ---- ------- 10 $16,795 $24,745 $32,695 $40,123 $45,688 $51,253 $54,191 20 33,590 49,490 65,390 81,158 94,673 108,188 115,324 30 43,600 64,235 85,085 106,793 120,000 120,000 120,000 40 46,148 67,973 89,798 111,623 120,000 120,000 120,000
(1) Maximum benefits under the Pension Plan are subject to the annual limitation ($120,000 for 1996) imposed on qualified plans by the Internal Revenue Code. (2) The maximum compensation which may be taken into account for any purpose under the Pension Plan is limited by the Internal Revenue Code to $150,000 for 1996. 10 14 TRANSACTIONS WITH MANAGEMENT Directors and principal officers of the Corporation and their associates were customers of, and have had transactions with, the Corporation and its subsidiary banks in the ordinary course of business during 1995. Comparable transactions may be expected to take place in the future. During 1995 various directors and officers of the Corporation and their respective associates were indebted to the subsidiary banks from time to time. These loans were made in the ordinary course of business on substantially the same terms, including interest rates and collateral, as those prevailing at the time for similar transactions with other persons and did not involve more than the normal risk of collectability or present other unfavorable features. The law offices of B. Guille Cox, Jr., in which Mr. Cox is a partner, were paid $14,448 in legal fees by the Corporation and its subsidiaries for the fiscal year ending December 31, 1995. The law offices of Norman L. Lowery, in which Mr. Lowery was a partner, were paid $127,183 in legal fees by the Corporation and its subsidiaries for the fiscal year ending December 31, 1995. [THE REST OF THIS PAGE INTENTIONALLY LEFT BLANK] 11 15 COMPARATIVE PERFORMANCE GRAPH The following graph compares cumulative total shareholder return on the Corporation's common stock over the last five fiscal years with the returns of the CRSP Total Return Index for the NASDAQ Stock Market (U.S.) and the CRSP Total Return Index for NASDAQ bank stocks. The graph assumes $100.00 was invested on January 1, 1990 in the Corporation's common stock and in each of the two indices shown, and the reinvestment of all dividends. FFC STOCK TOTAL RETURN COMPARISON [PERFORMANCE GRAPH]
NASDAQ Market (US) NASDAQ Bank FFC Stock 12/90 100.00 100.00 100.00 12/91 160.65 160.70 91.36 12/92 186.87 238.85 149.83 12/93 214.51 272.39 215.41 12/94 209.69 271.41 202.58 12/95 296.30 404.30 219.60
EMPLOYMENT CONTRACTS On January 3, 1995, the Corporation, Terre Haute First, and Mr. Smith entered into an Employment Agreement ("Agreement") whose term expires on December 31, 2000 (although the Agreement may be renewed for successive one (1) year terms as agreed upon by the parties). The Agreement provides that Mr. Smith will serve as President and Chief Executive Officer of the Corporation during the term of the Agreement and perform such other duties as may be established by the Board of Directors of the Corporation and Terre Haute First. Under the terms of the Agreement, Mr. Smith will be paid an annual salary as set by the Board of Directors of the Corporation and Terre Haute First. In addition, the Agreement required that the Corporation and Terre Haute First establish a split dollar life insurance arrangement with Mr. Smith which will insure the lives of Mr. Smith and his spouse. Under the terms of the Agreement, the Corporation and Terre Haute First expect to recover the premiums they pay for such policy from the proceeds of such policy. 12 16 PRINCIPAL SHAREHOLDERS AND SECURITY OWNERSHIP OF MANAGEMENT The following table contains information concerning individuals or entities who, to the knowledge of the Corporation, beneficially owned on March 1, 1996, more than 5% of the common stock of the Corporation:
NAME AND ADDRESS OF SHARES BENEFICIALLY OWNED PERCENT OF CLASS BENEFICIAL OWNER First Financial Corporation 452,521 (1) 7.85% Employee Stock Ownership Plan ("ESOP") One First Financial Plaza Terre Haute, Indiana 47807 Mary F. Hulman 683,873 11.86% 900 Wabash Avenue Terre Haute, Indiana 47807 Princeton Mining Company 551,655 9.57% State Road 46 South Terre Haute, Indiana 47803
(1) Represents shares held in trust by the Corporation's subsidiary, Terre Haute First. The Trust Departments of four (4) subsidiary banks of the Corporation which have trust departments hold, as of March 1, 1996, 971,927 shares of the Corporation's common stock for the beneficiaries of certain trusts, estates and agencies administered by the subsidiary banks. The respective trust departments are authorized to vote 345,215 shares of the Corporation's common stock which such trust departments hold of record, either in person or by proxy, so long as each vote is in the best interest of any such trust, estate or agency and the beneficiaries or principals thereof. All shares held by such trust departments will be voted in accordance with the instructions of co-fiduciaries, beneficiaries or principals, as applicable. SECURITY OWNERSHIP MANAGEMENT The following table sets forth as of March 1, 1996 the total number of shares of common stock of the Corporation beneficially owned by each Director and certain executive officers of the Corporation and by all Directors and executive officers as a group. The number of shares shown as being beneficially owned by each Director and executive officer are those over which he or she has sole or shared voting or investment power. 13 17
NAME OF BENEFICIAL OWNER SHARES BENEFICIALLY OWNED (1) PERCENT OF CLASS Walter A. Bledsoe 13,599 .24% B. Guille Cox, Jr. 38,776 .67%(2) Thomas T. Dinkel 4,150 .07% Welby M. Frantz 3,880 .07% Anton H. George 281 .01% Mari H. George 210 .01% Gregory L. Gibson 24,849 .43% Max L. Gibson 108,106 1.87% Norman L. Lowery 9,234 .16% William A. Niemeyer 3,964 .07% Patrick O'Leary 22,041 .38% John W. Ragle 51,697 .90% Chapman J. Root II 277,773 4.82%(3) Donald E. Smith 59,768 1.04% Virginia L. Smith 8,470 .15% John W. Perry 9,107 .16% W. Edward Jukes 10,387 .18% All Directors and Executive Officers as a group (18 individuals)(4) 650,418 11.28%
(1) The information contained in this column is based upon stockholder records of the Corporation and information furnished to the Corporation by the individuals identified above. (2) Mr. Cox, under certain circumstances, has the power, with the consent of others, to vote an additional 207,922 shares (3.61%). These shares are not reflected in the above amount. (3) Includes 277,426 shares held by the 1992 Root Children's Business Trust, of which Mr. Root is a trustee. Mr. Root disclaims beneficial ownership with respect to all such shares in the trust except those in which he is the beneficiary. 14 18 (4) Excludes 207,922 shares over which Mr. Cox may, under certain circumstances, exercise voting control. Includes shares held for the accounts of Donald E. Smith, John W. Perry, Michael A. Carty, and W. Edward Jukes in the First Financial Corporation Employee Stock Ownership Plan described above. CERTAIN FILINGS Section 16(a) of the Securities and Exchange Act of 1934 requires the Corporation's directors and executive officers, and persons who own more than ten percent of a registered class of the Corporation's equity securities, to file with the Securities and Exchange Commission ("SEC") initial reports of ownership and reports of changes in ownership of Corporation common stock and other equity securities of the Corporation. Officers, directors and greater than ten-percent shareholders are required by SEC regulations to furnish the Corporation with copies of all Section 16(a) forms they file. To the best knowledge of the Corporation, during the most recent fiscal year all officers, directors and greater than ten-percent beneficial owners of the Corporation complied with all Section 16(a) filing requirements applicable to them. INDEPENDENT ACCOUNTANTS The Board of Directors appointed Coopers & Lybrand L.L.P., Certified Public Accountants, as independent accountants to audit the books, records and accounts of the Corporation for 1995. The Board of Directors anticipates that it will appoint an independent public accountant to audit the books, records, and accounts of the Corporation for 1996 in April, 1996. Representatives of Coopers & Lybrand L.L.P. are expected to be in attendance at the annual meeting and will be provided an opportunity to make a statement should they desire to do so and to respond to appropriate inquiries from the shareholders. Coopers & Lybrand L.L.P. have been independent accountants for the Corporation since 1984. SHAREHOLDERS PROPOSALS Any proposals which shareholders desire to present at the 1997 Annual meeting must be received by the Corporation at its principal executive offices on or before November 22, 1996 to be considered for inclusion in the Corporation's proxy material for that meeting. ANNUAL REPORT TO SHAREHOLDERS The 1995 Annual Report to Shareholders, containing financial statements for the year ended December 31, 1995, and other information concerning the operations of the Corporation is enclosed herewith, but is not to be regarded as proxy soliciting material. 15 19 UPON WRITTEN REQUEST, THE CORPORATION WILL PROVIDE WITHOUT CHARGE TO EACH REQUESTING SHAREHOLDER, A COPY OF THE CORPORATION'S ANNUAL REPORT ON FORM 10-K, WHICH IS REQUIRED TO BE FILED WITH THE SECURITIES AND EXCHANGE COMMISSION FOR THE YEAR ENDED DECEMBER 31, 1995. ADDRESS ALL REQUESTS TO: MICHAEL A. CARTY, TREASURER FIRST FINANCIAL CORPORATION ONE FIRST FINANCIAL PLAZA P.O. BOX 540 TERRE HAUTE, INDIANA 47808 OTHER MATTERS The Annual Meeting is called for the purposes set forth in the Notice. The Board of Directors of the Corporation does not know of any matters for action by shareholders at such Annual Meeting other than the matters described in the notice. However, the enclosed Proxy will confer discretionary authority with respect to matters which are not known to the Board of Directors at the time of the printing hereof and which may properly come before the Annual Meeting. It is the intention of the persons named in the Proxy to vote pursuant to the Proxy with respect to such matters in accordance with their best judgment. By Order of the Board of Directors DONALD E. SMITH SIGNATURE DONALD E. SMITH Chairman of the Board and President 16 -----END PRIVACY-ENHANCED MESSAGE-----