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, 2000 0-16759 FIRST FINANCIAL CORPORATION (Exact name of registrant as specified in its charter) INDIANA 35-1546989 (State of Incorporation) (I.R.S. Employer Identification No.) One First Financial Plaza 47807 Terre Haute, IN (Address of principal executive offices) (Zip Code) Registrant's telephone number:(812) 238-6000 Securities registered pursuant to Section 12(b) of the Act: TITLE OF EACH CLASS NAME OF EACH EXCHANGE ON WHICH REGISTERED ------------------- ----------------------------------------- Common Stock, no par value Nasdaq Securities registered pursuant to Section 12(g) of the Act: None Indicated by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months, and (2) has been subject to such filing requirements for the past 90 days. Yes X No --- --- Indicate by check mark if disclosure of delinquent filers pursuant to item 405 of regulation 8-K is not contained herein, and will not be contained, to the of Registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of the Form 10-K or any amendment to the form 10-K. X --- As of January 31, 2001 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 $190,296,060. (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, 2001-6,694,237 shares. DOCUMENTS INCORPORATED BY REFERENCE Portions of the 2000 Annual Report to Shareholders are incorporated by reference into Parts I and II. Portions of the Definitive Proxy Statement for the First Financial Corporation Annual Meeting to be held April 18, 2001 are incorporated by reference into Part III.
2 FORM 10-K CROSS-REFERENCE INDEX <TABLE> <CAPTION> PAGE PART I <S> <C> <C> Item 1 Business . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .2 Item 2 Properties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .2 Item 3 Legal Proceedings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ..2 Item 4 Submission of Matters to a Vote of Security Holders . . . . . . . . . . . . . . . . . . . . ..2 PART II Item 5 Market for Registrant's Common Stock and Related Stockholder Matters . . . . . . . . . . . . .3 Item 6 Selected Financial Data . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ..3 Item 7 Management's Discussion and Analysis of Financial Conditions and Results of Operations . . . .3 Item 8 Financial Statements and Supplementary Data . . . . . . . . . . . . . . . . . . . . . . . . ..3 Item 9 Changes in and Disagreement with Accountants on Accounting and Financial Disclosures . . . . .3 PART III Item 10 Directors and Executive Officers of Registrant . . . . . . . . . . . . . . . . . . . . . . . .3 Item 11 Executive Compensation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .3 Item 12 Security Ownership of Certain Beneficial Owners and Management . . . . . . . . . . . . . . . .3 Item 13 Certain Relationships and Related Transactions . . . . . . . . . . . . . . . . . . . . . . . .3 PART IV Item 14 Exhibits, Financial Statement Schedules and Reports on Form 8-K . . . . . . . . . . . . . . ..4 Signatures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .4,5 Subsidiaries of the Registrant . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .6 Predecessor Auditor's Report . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .6 </TABLE> 1
3 PART I ITEM 1. BUSINESS First Financial Corporation (the Corporation) became a multi-bank holding company in 1984. For more information on the Corporation's business, please refer to the following sections of the 2000 Annual Report to Shareholders: 1. Description of services, affiliations, number of employees, and competition, on page 28. 2. Information regarding supervision of the Corporation, on page 14. 3. Details regarding competition, on page 28. ITEM 2. PROPERTIES First Financial Corporation is located in a four-story office building in downtown Terre Haute that was occupied in June 1988. It is leased to Terre Haute First National Bank, a wholly-owned subsidiary (the Bank). The Bank also owns two other facilities in downtown Terre Haute. One is leased to another party and the other is a 50,000-square-foot building housing operations and administrative staff and equipment. In addition, the Bank holds in fee four other branch buildings. One of the branch buildings is a single-story 44,000-square-foot building which is located in a Terre Haute suburban area. Six other branch bank buildings are leased by the Bank. The expiration dates on the leases are February 14, 2011, May 31, 2011, June 30, 2004, December 31, 2003, June 30, 2002, and September 1, 2001. Facilities of the Corporation's subsidiary, First State Bank, include branches in Clay City and Poland, Indiana and two branch facilities in Brazil, Indiana including the main office. The buildings are held in fee by First State. Facilities of the Corporation's subsidiary, First Citizens State Bank of Newport, include its main office in Newport, Indiana and three branch facilities in Cayuga and Clinton, Indiana. All four buildings are held in fee by First Citizens. Facilities of the Corporation's subsidiary, First Farmers State Bank, include its main office in Sullivan, Indiana and five branch facilities in Carlisle, Dugger, Farmersburg, Hymera, and Worthington, Indiana. All six buildings are held in fee by First Farmers. The facility of the Corporation's subsidiary, First Ridge Farm State Bank, includes an office facility in Ridge Farm, Illinois. The building is held in fee by First Ridge Farm State. Facilities of the Corporation's subsidiary, First Parke State Bank, include its main office in Rockville, Indiana and three branch facilities in Marshall, Montezuma and Rosedale, Indiana. All four buildings are held in fee by First Parke. The facility of the Corporation's subsidiary, First National Bank of Marshall, includes an office facility in Marshall, Illinois. The building is held in fee by First National Bank of Marshall. Facilities of the Corporation's subsidiary, First Crawford State Bank, include its main office in Robinson, Illinois and two branch facilities in Oblong and Sumner, Illinois. All three buildings are held in fee by First Crawford. The facility of the Corporation's subsidiary, The Morris Plan Company, includes an office facility in Terre Haute, Indiana. The building is held in fee by The Morris Plan Company. ITEM 3. LEGAL PROCEEDINGS There are no material pending legal proceedings which involve the Corporation or its subsidiaries. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS None 2
4 PART II ITEM 5. MARKET FOR REGISTRANT'S COMMON STOCK AND RELATED STOCKHOLDER MATTERS See "Market and Dividend information" on page 37 of the 2000 Annual Report. ITEM 6. SELECTED FINANCIAL DATA See "Five Year Comparison of Selected Financial Data" on page 9 of the 2000 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 28 through 35 of the 2000 Annual Report to Shareholders. ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK See "Interest Rate Risk" section of "Management's Discussion and Analysis" on pages 34 and 35 of the 2000 Annual Report to Shareholders. ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA See "Consolidated Balance Sheets" on page 10, "Consolidated Statements of Income" on page 11, "Consolidated Statements of Shareholders Equity" on page 12, "Consolidated Statements of Cash Flows" on page 13, and "Notes to Consolidated Financial Statement" on pages 14-26. "Responsibility for Financial Statements" and "Report of Independent Accountants" can be found on page 27. Statistical disclosure by Bank Holding Company include the following information: 1. "Volume/Rate Analysis," on page 29. 2. "Loan Portfolio," on page 30. 3. "Allowance for Possible Loan Losses," on page 31. 4. "Under-Performing Loans," on page 32. 5. "Deposits," on page 33. 6. "Short-Term Borrowings," on page 33. 7. "Consolidated Balance Sheet-Average Balances and Interest Rates," on page 36. ITEM 9. CHANGES IN AND DISAGREEMENT WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE None PART III ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF REGISTRANT See "Nominees for Terms to Expire in 2004," "Other Executive Officers of the Corporation" and "Section 16(a) Beneficial Ownership Reporting Compliance" on pages 2, 3 and 9 of the Annual Proxy Statement of First Financial Corporation. ITEM 11. EXECUTIVE COMPENSATION See "Compensation of Directors" on page 3, "Compensation of Officers" on pages 3 through 5, and "Comparative Performance Graph" and "Employment Contracts" on pages 7 and 8 of the Annual Proxy Statement of First Financial Corporation. ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT See "Nominees for Terms to Expire in 2004," "Other Executive Officers of the Corporation" and "Section 16(a) Beneficial Ownership Reporting Compliance" on pages 2, 3 and 9 and "Principal Shareholders and Security Ownership of Management" on page 9 of the Annual Proxy Statement of First Financial Corporation. 3
5 ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS See "Certain Relationships" on page 3, and "Transactions with Management" on pages 6 and 7 of the Annual Proxy Statement of First Financial Corporation. PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENTS SCHEDULES AND REPORTS ON FORM 8-K (a) (1) The following consolidated financial statements of the Registrant and its subsidiaries are included in the Annual Report of First Financial Corporation attached: Consolidated Balance Sheets-December 31, 2000 and 1999 Consolidated Statements of Income-Years ended December 31, 2000, 1999, and 1998 Consolidated Statements of Shareholders' Equity-Years ended December 31, 2000, 1999, and 1998 Consolidated Statements of Cash Flow-Years ended December 31, 2000, 1999, and 1998 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 23 Predecessor Auditor's Report (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 20, 2001 ---------------------------- 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. Name Date Donald E. Smith, Signed February 20, 2001 - ---------------------------------------- Donald E. Smith, President & Director (Principal Executive Officer) Walter A. Bledsoe, Signed February 20, 2001 - ---------------------------------------- Walter A. Bledsoe, Director B. Guille Cox, Jr., Signed February 20, 2001 - ---------------------------------------- B. Guille Cox, Jr., Director Thomas T. Dinkel, Signed February 20, 2001 - ---------------------------------------- Thomas T. Dinkel, Director Anton H. George, Signed February 20, 2001 - ---------------------------------------- Anton H. George, Director February 20, 2001 - ---------------------------------------- Mari H. George, Director Gregory L. Gibson, Signed February 20, 2001 - ---------------------------------------- Gregory L. Gibson, Director Norman L. Lowery, Signed February 20, 2001 - ---------------------------------------- Norman L. Lowery, Director February 20, 2001 - ---------------------------------------- William A. Niemeyer, Director Patrick O'Leary, Signed February 20, 2001 - ---------------------------------------- Patrick O'Leary, Director John W. Ragle, Signed February 20, 2001 - ---------------------------------------- John W. Ragle, Director February 20, 2001 - ---------------------------------------- Chapman J. Root II, Director Virginia L. Smith, Signed February 20, 2001 - ---------------------------------------- Virginia L. Smith, Director 5
7 FIRST FINANCIAL CORPORATION FIVE YEAR COMPARISON OF SELECTED FINANCIAL DATA <TABLE> <CAPTION> (Dollar amounts in thousands, except per share amounts) 2000 1999 1998 1997 1996 - -------------------------------------------------------------------------------------------------- <S> <C> <C> <C> <C> <C> BALANCE SHEET DATA: Total assets $2,043,267 $1,905,201 $1,849,752 $1,634,936 $1,619,642 Investments 568,405 594,319 633,365 527,993 582,744 Net loans 1,298,006 1,191,898 1,111,765 1,005,799 918,767 Deposits 1,322,559 1,256,115 1,260,365 1,194,524 1,175,228 Borrowings 507,771 445,821 385,700 256,214 278,352 Shareholders' equity 191,223 168,682 182,183 165,480 150,377 INCOME STATEMENT DATA: Interest income 146,417 133,576 129,137 122,372 115,836 Interest expense 80,583 66,815 66,430 62,072 57,810 Net interest income 65,834 66,761 62,707 60,300 58,026 Provision for loan losses 4,392 4,725 5,396 5,382 4,461 Other income 13,610 12,012 10,611 8,957 7,849 Other expenses 42,703 43,543 42,567 39,629 39,280 Net income 23,213 21,622 18,558 18,100 15,971 PER SHARE DATA: Net income 3.45 3.10 2.58 2.58 2.28 Cash dividends 1.08 .94 .84 .72 .61 PERFORMANCE RATIOS: Net income to average assets 1.18% 1.16% 1.07% 1.11% 1.03% Net income to average shareholders' equity 12.98 12.55 10.76 11.74 11.19 Average total capital to average assets 9.97 10.13 10.71 10.13 9.80 Average shareholders' equity to average assets 9.10 9.28 9.90 9.45 9.19 Dividend payout 31.19 30.10 32.54 28.06 26.85 </TABLE> 6
8 FIRST FINANCIAL CORPORATION CONSOLIDATED BALANCE SHEETS <TABLE> <CAPTION> DECEMBER 31, -------------------------- (Dollar amounts in thousands, except per share data) 2000 1999 - ------------------------------------------------------------------------------------------------- <S> <C> <C> ASSETS Cash and due from banks $ 68,755 $ 58,075 Federal funds sold 4,175 190 Available-for-sale securities 568,405 594,319 Loans, net of unearned income of $947 in 2000 and $1,987 in 1999 1,298,006 1,191,898 Less: Allowance for loan losses 19,072 17,949 ----------- ----------- Total Net Loans 1,278,934 1,173,949 Accrued interest receivable 17,803 14,703 Premises and equipment, net 26,363 26,095 Bank-owned life insurance 45,037 -- Other assets 33,795 37,870 ----------- ----------- TOTAL ASSETS $ 2,043,267 $ 1,905,201 =========== =========== LIABILITIES AND SHAREHOLDERS' EQUITY Deposits: Non-interest-bearing $ 148,922 $ 148,230 Interest-bearing: Certificates of deposit of $100 or more 258,260 218,515 Other interest-bearing deposits 915,377 889,370 ----------- ----------- 1,322,559 1,256,115 Short-term borrowings 18,708 63,499 Other borrowings 489,063 382,322 Other liabilities 21,714 34,583 ----------- ----------- TOTAL LIABILITIES 1,852,044 1,736,519 Shareholders' equity Common stock, $.125 stated value per share, Authorized shares - 40,000,000 Issued shares - 7,225,483 in 2000 and 1999 Outstanding shares - 6,694,237 in 2000 and 6,845,418 in 1999 903 903 Additional capital 66,680 66,680 Retained earnings 141,653 125,680 Accumulated other comprehensive income: Unrealized (losses) gains on investments, net of tax 3,900 (7,819) Less: Treasury shares at cost - 531,246 in 2000 and 380,065 in 1999 (21,913) (16,762) ----------- ----------- TOTAL SHAREHOLDERS' EQUITY 191,223 168,682 ----------- ----------- TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 2,043,267 $ 1,905,201 =========== =========== </TABLE> See accompanying notes. 7
9 CONSOLIDATED STATEMENTS OF INCOME <TABLE> <CAPTION> YEARS ENDED DECEMBER 31, ------------------------------- (Dollar amounts in thousands, except per share data) 2000 1999 1998 - ------------------------------------------------------------------------------------------------ <S> <C> <C> <C> INTEREST INCOME: Loans, including related fees $107,145 $ 96,175 $ 93,579 Securities: Taxable 30,535 28,500 27,091 Tax-exempt 8,357 8,049 7,810 Other 380 852 657 -------- -------- -------- TOTAL INTEREST INCOME 146,417 133,576 129,137 INTEREST EXPENSE: Deposits 49,892 45,337 50,388 Short-term borrowings 4,747 3,469 2,715 Other borrowings 25,944 18,009 13,327 -------- -------- -------- TOTAL INTEREST EXPENSE 80,583 66,815 66,430 -------- -------- -------- NET INTEREST INCOME 65,834 66,761 62,707 Provision for loan losses 4,392 4,725 5,396 -------- -------- -------- NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES 61,442 62,036 57,311 NON-INTEREST INCOME: Trust services income 2,678 2,522 2,179 Service charges and fees on deposit accounts 4,638 4,010 3,845 Other service charges and fees 4,626 3,763 1,679 Securities gains 145 189 905 Other 1,523 1,528 2,003 -------- -------- -------- TOTAL NON-INTEREST INCOME 13,610 12,012 10,611 NON-INTEREST EXPENSES: Salaries and employee benefits 23,055 24,558 23,519 Occupancy expense 3,105 2,887 2,823 Equipment expense 3,717 3,650 3,370 Printing and supplies expense 1,002 993 1,118 Other 11,824 11,455 11,737 -------- -------- -------- 42,703 43,543 42,567 -------- -------- -------- INCOME BEFORE INCOME TAXES 32,349 30,505 25,355 Provision for income taxes 9,136 8,883 6,797 -------- -------- -------- NET INCOME $ 23,213 $ 21,622 $ 18,558 ======== ======== ======== EARNINGS PER SHARE: NET INCOME $ 3.45 $ 3.10 $ 2.58 ======== ======== ======== Weighted average number of shares outstanding (in thousands) 6,730 6,964 7,206 ======== ======== ======== </TABLE> See accompanying notes. 8
10 FIRST FINANCIAL CORPORATION CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY <TABLE> <CAPTION> ACCUMULATED OTHER COMMON ADDITIONAL RETAINED COMPREHENSIVE TREASURY (Dollar amounts in thousands, except per share data) STOCK CAPITAL EARNINGS INCOME STOCK TOTAL - ------------------------------------------------------------------------------------------------------------------------------------ <S> <C> <C> <C> <C> <C> <C> Balance, January 1, 1998 $ 877 $ 59,787 $ 98,046 $ 6,770 $ -- $ 165,480 Comprehensive income: Net income -- -- 18,558 -- -- 18,558 Other comprehensive income, net of tax: Change in net unrealized gains/losses on available-for-sale securities -- -- -- 1,353 -- 1,353 -------- Total comprehensive income 19,911 Treasury stock purchase (91,093 shares) -- -- -- -- (4,089) (4,089) Morris Plan acquisition 26 6,893 -- -- -- 6,919 Cash dividends, $ .84 per share -- -- (6,038) -- -- (6,038) --------- --------- --------- --------- --------- --------- Balance, December 31, 1998 903 66,680 110,566 8,123 (4,089) 182,183 Comprehensive income: Net income -- -- 21,622 -- -- 21,622 Other comprehensive income, net of tax: Change in net unrealized gains/losses on available-for-sale securities -- -- -- (15,942) -- (15,942) -------- Total comprehensive income 5,680 Treasury stock purchase (288,972 shares) -- -- -- -- (12,673) (12,673) Cash dividends, $ .94 per share -- -- (6,508) -- -- (6,508) --------- --------- --------- --------- --------- --------- Balance, December 31, 1999 903 66,680 125,680 (7,819) (16,762) 168,682 Comprehensive income: Net income -- -- 23,213 -- -- 23,213 Other comprehensive income, net of tax: Change in net unrealized gains/losses on available-for-sale securities -- -- -- 11,719 -- 11,719 -------- Total comprehensive income 34,932 Treasury stock purchase (151,181 shares) -- -- -- -- (5,151) (5,151) Cash dividends, $1.08 per share -- -- (7,240) -- -- (7,240) --------- --------- --------- --------- --------- --------- Balance, December 31, 2000 $ 903 $ 66,680 $ 141,653 $ 3,900 $ (21,913) $ 191,223 ========= ========= ========= ========= ========= ========= </TABLE> See accompanying notes. 9
11 CONSOLIDATED STATEMENTS OF CASH FLOWS <TABLE> <CAPTION> YEARS ENDED DECEMBER 31, ------------------------------------ (Dollar amounts in thousands, except per share data) 2000 1999 1998 - -------------------------------------------------------------------------------------------- <S> <C> <C> <C> CASH FLOWS FROM OPERATING ACTIVITIES: Net income $ 23,213 $ 21,622 $ 18,558 Adjustments to reconcile net income to net cash provided by operating activities: Net (accretion) amortization on securities (2,171) 348 (745) Provision for loan losses 4,392 4,725 5,396 Securities gains (145) (189) (905) Depreciation and amortization 3,318 2,865 2,541 Provision for deferred income taxes 225 (341) (1,010) Net change in accrued interest receivable (3,100) 1 (618) Other, net (17,169) 14,904 723 --------- --------- --------- NET CASH PROVIDED BY OPERATING ACTIVITIES 8,563 43,935 23,940 --------- --------- --------- CASH FLOWS FROM INVESTING ACTIVITIES: Sales of available-for-sale securities 42,037 115,794 111,496 Maturities of available-for-sale securities 55,881 114,333 107,658 Purchases of available-for-sale securities (51,659) (219,117) (315,933) Purchase of bank-owned life insurance (45,000) -- -- Loans made to customers, net of repayments (108,050) (84,100) (77,742) Net change in federal funds sold (3,985) 260 230 Additions to premises and equipment (3,417) (4,881) (2,398) --------- --------- --------- NET CASH USED BY INVESTING ACTIVITIES (114,193) (77,711) (176,689) --------- --------- --------- CASH FLOWS FROM FINANCING ACTIVITIES: Net change in deposits 66,444 (4,250) 33,568 Net change in other short-term borrowings (44,791) (40,133) 52,335 Dividends paid (6,933) (6,224) (5,624) Purchases of treasury stock (5,151) (12,673) (4,089) Cash acquired resulting from merger -- -- 470 Proceeds from other borrowings 563,800 293,000 251,637 Repayments on other borrowings (457,059) (192,746) (174,486) --------- --------- --------- NET CASH PROVIDED BY FINANCING ACTIVITIES 116,310 36,974 153,811 --------- --------- --------- NET CHANGE IN CASH AND CASH EQUIVALENTS 10,680 3,198 1,062 CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR 58,075 54,877 53,815 --------- --------- --------- CASH AND CASH EQUIVALENTS, END OF YEAR $ 68,755 $ 58,075 $ 54,877 ========= ========= ========= SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION: Cash paid during the year for: Interest $ 80,514 $ 66,908 $ 66,233 ========= ========= ========= Income taxes $ 10,114 $ 10,182 $ 7,403 ========= ========= ========= See also Note 1 regarding Morris Plan acquisition </TABLE> See accompanying notes. 10
12 FIRST FINANCIAL CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 1. BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES: BUSINESS ORGANIZATION The consolidated financial statements of First Financial Corporation and its subsidiaries (the Corporation) include the parent company and its wholly-owned subsidiaries, Terre Haute First National Bank of Vigo County, Indiana (Terre Haute First), The Morris Plan Company of Terre Haute (Morris Plan), First State Bank of Clay County, Indiana (First State), First Citizens State Bank of Newport, Indiana (Citizens), First Farmers State Bank of Sullivan, Indiana (Farmers), First Parke State Bank of Rockville, Indiana (Parke), First Ridge Farm State Bank of Ridge Farm, Illinois (Ridge Farm), First National Bank of Marshall, Illinois (Marshall), First Crawford State Bank of Robinson, Illinois (Crawford) and First Financial Reinsurance Company, a corporation incorporated in the country of Turks and Caicos Islands (FFRC). Terre Haute First also has two investment subsidiaries, Global Portfolio Managers A (Global A) and Global Portfolio Managers B (Global B), which were incorporated in the state of Nevada to hold and manage certain securities. Global A and Global B subsequently entered into a limited partnership agreement, Global Portfolio Limited Partners. At December 31, 2000, $134.9 million of securities were owned by these subsidiaries. The Corporation, which is headquartered in Terre Haute, Indiana, offers a wide variety of financial services including commercial and consumer lending, lease financing, trust account services and depositor services through its nine subsidiaries. Terre Haute First is the largest bank in Vigo County. It operates 12 full-service banking branches within the county. It also has a main office in downtown Terre Haute and an operations center/office building in southern Terre Haute. The Corporation operates 37 branches in west-central Indiana and east-central Illinois. The Corporation's primary source of revenue is derived from loans to customers, primarily middle-income individuals, and investment activities. REGULATORY AGENCIES First Financial Corporation is a multi-bank holding company and as such is regulated by various banking agencies. The holding company is regulated by the Seventh District of the Federal Reserve System. The national bank subsidiaries are regulated by the Office of the Comptroller of the Currency. The state bank subsidiaries are jointly regulated by their respective state banking organizations and the Federal Deposit Insurance Corporation. SIGNIFICANT ACCOUNTING POLICIES USE OF ESTIMATES: To prepare financial statements in conformity with generally accepted accounting principles, management makes estimates and assumptions based on available information. These estimates and assumptions affect the amounts reported in the financial statements and disclosures provided, and future results could differ. The allowance for loan losses and the fair values of financial instruments are particularly subject to change. CASH FLOWS: Cash and cash equivalents include cash and demand deposits with other financial institutions. Net cash flows are reported for customer loan and deposit transactions and short-term borrowings. SECURITIES: The Corporation classifies all securities as "available for sale." Securities are classified as available for sale when they might be sold before maturity. Securities available for sale are carried at fair value with unrealized holdings gains and losses, net of taxes, reported in other comprehensive income and shareholders' equity. Other securities, such as Federal Home Loan Bank stock, are carried at cost. Interest income includes amortization of purchase premium or discount. Realized gains and losses on sales are based on the amortized cost of the security sold. Securities are written down to fair value if and when a decline in fair value is not temporary. LOANS: Loans are reported at the principal balance outstanding, net of unearned interest, deferred loan fees and costs, and allowance for loan losses. Loans held for sale are reported at the lower of cost or market, on an aggregate basis. Interest income is reported on the interest method and includes amortization of net deferred loan fees and costs over the loan term. Interest income is not reported when full loan repayment is in doubt, typically when the loan is impaired or payments are significantly past due. Payments received on such loans are reported as principal reductions. ALLOWANCE FOR LOAN LOSSES: The allowance for loan losses is a valuation allowance for probable credit losses, increased by the provision for loan losses and decreased by charge-offs less recoveries. Management estimates the allowance balance required using past loan loss experience, known and inherent risks in the nature and volume of the portfolio, information about specific borrower situations and estimated collateral values. Allocations of the allowance may be made for specific loans, but the entire allowance is available for any loan that, in management's judgment, should be charged off. A loan is impaired when full payment under the loan terms is not expected. Impairment is evaluated in total for smaller-balance loans of similar nature such as residential mortgages, consumer and credit card loans, and on an individual basis for other loans. If a loan is impaired, a portion of the allowance is allocated so that the loan is reported, net, at the present value of estimated future cash flows, using the loan's existing rate, or at the fair value of collateral if repayment is expected solely from the collateral. 11
13 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS FORECLOSED ASSETS: Assets acquired through or instead of loan foreclosures are initially recorded at fair value when acquired, establishing a new cost basis. If fair value declines, a valuation allowance is recorded through expense. Costs after acquisition are expensed. PREMISES AND EQUIPMENT: Premises and equipment are stated at cost less accumulated depreciation. Depreciation is computed over the useful lives of the assets. SERVICING RIGHTS: Servicing rights are recognized as assets for purchased rights and for the allocated value of retained servicing rights on loans sold. Servicing rights are expensed in proportion to, and over the period of, estimated net servicing revenues. Impairment is evaluated based on the fair value of the rights, using groupings of the underlying loans as to interest rates and then, secondarily, as to geographic and prepayment characteristics. Any impairment of a grouping is reported as a valuation allowance. MORRIS PLAN ACQUISITION: In March 1998, the Corporation acquired all of the outstanding common stock of Morris Plan in exchange for 210,000 shares of its common stock. The acquisition was accounted for using the purchase method of accounting and resulted in goodwill of approximately $2.4 million, which will be amortized over 15 years. Assets and liabilities assumed upon acquisition were each approximately $39 million, including cash of $470 thousand. REPURCHASE AGREEMENTS: Substantially all repurchase agreement liabilities represent amounts advanced by various customers. Securities are pledged to cover these liabilities, which are not covered by federal deposit insurance. The Corporation maintains possession of and control over these securities. BENEFIT PLANS: Pension expense is the net of service and interest cost, return on plan assets and amortization of gains and losses not immediately recognized. The amount contributed is determined by a formula as decided by the Board of Directors. INCOME TAXES: Income tax expense is the total of the current year income tax due or refundable and the change in deferred tax assets and liabilities. Deferred tax assets and liabilities are the expected future tax amounts for the temporary differences between carrying amounts and tax bases of assets and liabilities, computed using enacted tax rates. A valuation allowance, if needed, reduces deferred tax assets to the amount expected to be realized. FINANCIAL INSTRUMENTS: Financial instruments include credit instruments, such as commitments to make loans and standby letters of credit, issued to meet customer financing needs. The face amount for these items represents the exposure to loss, before considering customer collateral or ability to repay. EARNINGS PER SHARE: Earnings per common share is net income divided by the weighted average number of common shares outstanding during the period. The Corporation does not have any potentially dilutive securities. Earnings and dividends per share are restated for stock splits and dividends through the date of issue of the financial statements. COMPREHENSIVE INCOME: Comprehensive income consists of net income and other comprehensive income. Other comprehensive income includes unrealized gains and losses on securities available for sale which are also recognized as separate components of equity. NEW ACCOUNTING PRONOUNCEMENTS: Beginning January 1, 2001, a new accounting standard required all derivatives to be recorded at fair value. Unless designated as hedges, changes in these fair values will be recorded in the statements of income. Fair value changes involving hedges will generally be recorded by offsetting gains and losses on the hedge and on the hedged item, even if the fair value of the hedged item is not otherwise recorded. Adoption of this standard did not have a material effect on the Corporation's financial position or results of operations. LOSS CONTINGENCIES: Loss contingencies, including claims and legal actions arising in the ordinary course of business, are recorded as liabilities when the likelihood of loss is probable and an amount of range of loss can be reasonably estimated. Management does not believe there are currently such matters that will have a material effect on the financial statements. DIVIDEND RESTRICTION: Banking regulations require maintaining certain capital levels and may limit the dividends paid by the bank to the holding company or by the holding company to shareholders. FAIR MARKET VALUE OF FINANCIAL INSTRUMENTS: Fair values of financial instruments are estimated using relevant market information and other assumptions, as more fully disclosed in a separate note. Fair value estimates involve uncertainties and matters of significant judgment regarding interest rates, credit risk, prepayments and other factors, especially in the absence of broad markets for particular items. Changes in assumptions or market conditions could significantly affect the estimates. INDUSTRY SEGMENT: Internal financial information is aggregated and reported in one line of business, which is banking. 12
14 FIRST FINANCIAL CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 2. FAIR VALUES OF FINANCIAL INSTRUMENTS: Carrying amount is the estimated fair value for cash and due from banks, federal funds sold, short-term borrowings, Federal Home Loan Bank stock, accrued interest receivable and payable, demand deposits, short-term debt and variable-rate loans or deposits that reprice frequently and fully. Security fair values are based on market prices or dealer quotes, and if no such information is available, on the rate and term of the security and information about the issuer. For fixed-rate loans or deposits, variable rate loans or deposits with infrequent repricing or repricing limits, and for longer-term borrowings, fair value is based on discounted cash flows using current market rates applied to the estimated life and credit risk. Fair values for impaired loans are estimated using discounted cash flow analysis or underlying collateral values. Fair value of loans held for sale is based on market quotes. Fair value of debt is based on current rates for similar financing. The fair value of off-balance-sheet items is based on the current fees or cost that would be charged to enter into or terminate such arrangements and is nominal. The carrying amount and estimated fair value of financial instruments are presented in the table below and were determined based on the above assumptions: <TABLE> <CAPTION> DECEMBER 31, --------------------------------------------------------- 2000 1999 --------------------------------------------------------- CARRYING FAIR CARRYING FAIR (Dollar amounts in thousands) VALUE VALUE VALUE VALUE - ------------------------------------------------------------------------------------------- <S> <C> <C> <C> <C> Cash and due from banks $ 68,755 $ 68,755 $ 58,075 $ 58,075 Federal funds sold 4,175 4,175 190 190 Available-for-sale securities 568,405 568,405 594,319 594,319 Loans 1,298,953 1,289,348 1,193,885 1,189,417 Accrued interest receivable 17,803 17,803 14,703 14,703 Deposits (1,322,559) (1,331,640) (1,256,115) (1,257,134) Short-term borrowings (18,708) (18,708) (63,499) (63,499) Federal Home Loan Bank advances (482,460) (481,598) (375,713) (374,446) Other borrowings (6,603) (6,603) (6,609) (6,609) Accrued interest payable (6,731) (6,731) (5,696) (5,696) </TABLE> 3. RESTRICTIONS ON CASH AND DUE FROM BANKS: Certain affiliate banks are required to maintain average reserve balances with the Federal Reserve Bank. The amount of those reserve balances was approximately $15.5 million and $15.8 million at December 31, 2000 and 1999, respectively. 4. SECURITIES: The amortized cost and estimated fair value of year-end securities are as follows: DECEMBER 31, 2000 ------------------------------------------ UNREALIZED AMORTIZED --------------------- FAIR (Dollar amounts in thousands) COST GAINS LOSSES VALUE - -------------------------------------------------------------------------------- U.S. Government $ 650 $ -- $ -- $ 650 U.S. Government agencies 339,233 1,840 (3,025) 338,048 Collateralized mortgage obligations 6,686 1 (141) 6,546 State and municipal 163,018 3,873 (693) 166,198 Corporate obligations 57,026 422 (485) 56,963 -------- -------- -------- -------- TOTAL $566,613 $ 6,136 $ (4,344) $568,405 ======== ======== ======== ======== 13
15 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 1999 ------------------------------------------- UNREALIZED AMORTIZED -------------------- FAIR (Dollar amounts in thousands) COST GAINS LOSSES VALUE ------------------------------------------- U.S. Government $178,018 $ 188 $ (6,170) $172,036 U.S. Government agencies 215,824 241 (7,448) 208,617 Collateralized mortgage obligations 8,187 12 (320) 7,879 State and municipal 169,040 1,100 (4,082) 166,058 Corporate obligations 40,324 -- (595) 39,729 -------- -------- -------- -------- TOTAL $611,393 $ 1,541 $(18,615) $594,319 ======== ======== ======== ======== The Corporation invests in the equity securities of financial services companies. These investments are considered to be available-for-sale and are included in other assets on the consolidated balance sheet. Cost was $3.6 million and $3.2 million, and fair value was $8.3 million and $7.3 million at December 31, 2000 and 1999, respectively. During 2000, the Corporation purchased bank-owned life insurance for an initial premium of $45 million. The policies cover officers at the bank subsidiaries and the Corporation is the beneficiary. These policies are designated as separate account policies by the issuing insurance companies. The Corporation records its investment in the policies at their current surrender value, which is the fair value of the separate account assets plus or minus the value/obligation under stable value guarantees issued by the insurance companies. The stable value guarantees serve to set the annual change in surrender value of the policies at annually agreed upon levels by guaranteeing the period end value of the separate account assets. As of December 31, 2000, the Corporation does not have any securities from any issuer, other than the U.S. Government, with an aggregate book or fair value that exceeds ten percent of shareholders' equity. Investment securities with a par value amounting to approximately $62.6 million and $66.2 million at December 31, 2000 and 1999, respectively, were pledged as collateral for borrowings and for other purposes. Below is a summary of the gross gains and losses realized by the Corporation from investments sold during the years (Dollar amounts in thousands) 2000 1999 1998 - --------------------------------------------------------------------- Proceeds $ 42,037 $ 115,794 $ 111,496 Gross gains 262 627 967 Gross losses (117) (438) (62) Contractual maturities of debt securities at year-end 2000 were as follows. Securities not due at a single maturity date, primarily mortgage-backed securities, are shown separately. Also shown are the tax equivalent yields, computed using a 35% rate based on weighted average yields of securities maturing during each time period. <TABLE> <CAPTION> AVAILABLE-FOR-SALE --------------------- WEIGHTED AMORTIZED FAIR AVERAGE (Dollar amounts in thousands) COST VALUE YIELDS - --------------------------------------------------------------------------------------------------------- <S> <C> <C> <C> Due in one year or less $ 15,102 $ 15,122 6.76% ==== Due after one but within five years 40,119 40,754 7.55% ==== Due after five but within ten years 123,348 124,420 7.30% ==== Due after ten years 152,614 153,621 7.33% ==== Mortgage-backed securities, primarily issued by U.S. Government agencies 235,430 234,488 7.04% -------- -------- ==== TOTAL $566,613 $568,405 ======== ======== </TABLE> 14
16 FIRST FINANCIAL CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 5. LOANS: Loans are summarized as follows: DECEMBER 31, --------------------------- 2000 1999 --------------------------- CARRYING CARRYING (Dollar amounts in thousands) VALUE VALUE - -------------------------------------------------------------------------------- Commercial, financial and agricultural $ 282,904 $ 247,949 Real estate - construction 41,325 44,782 Real estate - mortgage 732,387 671,972 Installment 237,527 223,459 Lease financing 4,810 5,723 ----------- ----------- Total gross loans 1,298,953 1,193,885 Less: unearned income (947) (1,987) allowance for loan losses (19,072) (17,949) ----------- ----------- TOTAL $ 1,278,934 $ 1,173,949 =========== =========== 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 2000 the aggregate dollar amount of these loans to directors and executive officers who held office at the end of the year amounted to $43.2 million at the beginning of the year. During 2000, advances of $61.1 million and repayments of $60.3 million were made with respect to related party loans for an aggregate dollar amount outstanding of $44.0 million at December 31, 2000. Loans serviced for others, which are not reported as assets, total $110.8 million and $92.5 million at year-end 2000 and 1999. Capitalized mortgage servicing rights aggregated $792 thousand and $653 thousand at year-end, 2000 and 1999. 6. ALLOWANCE FOR LOAN LOSSES: Changes in the allowance for loan losses are summarized as follows: DECEMBER 31, ---------------------------------- (Dollar amounts in thousands) 2000 1999 1998 - ------------------------------------------------------------------------------- Balance at beginning of year $ 17,949 $ 16,429 $ 13,503 Allowance resulting from merger -- -- 970 Provision for loan losses 4,392 4,725 5,396 Recoveries of loans previously charged off 1,394 1,105 1,196 Loans charged off (4,663) (4,310) (4,636) -------- -------- -------- BALANCE AT END OF YEAR $ 19,072 $ 17,949 $ 16,429 ======== ======== ======== Impaired loans were as follows: DECEMBER 31, ---------------- (Dollar amounts in thousands) 2000 1999 - ----------------------------------------------------------------------------- Year-end loans with no allocated allowance for loan losses $ -- $ 839 Year-end loans with allocated allowance for loan losses 6,422 6,670 ------ ------ TOTAL $6,422 $7,509 ====== ====== Amount of the allowance for loan losses allocated $5,008 $2,312 Loans past due over 90 days still on accrual 5,499 5,229 Average of impaired loans during the year 4,274 6,787 15
17 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 7. PREMISES AND EQUIPMENT: Premises and equipment are summarized as follows: DECEMBER 31, --------------------- (Dollar amounts in thousands) 2000 1999 - ------------------------------------------------------------------------- Land $ 3,813 $ 3,678 Building and leasehold improvements 29,773 27,657 Furniture and equipment 24,574 23,494 -------- -------- 58,160 54,829 Less accumulated depreciation (31,797) (28,734) -------- -------- TOTAL $ 26,363 $ 26,095 ======== ======== 8. DEPOSITS AND SHORT-TERM BORROWINGS: Scheduled maturities of time deposits for the next five years were as follows: 2001 $591,445 2002 107,051 2003 29,917 2004 13,643 2005 19,092 -------- $761,148 ======== Year-end short-term borrowings were comprised of the following: (Dollar amounts in thousands) 2000 1999 - -------------------------------------------------- Federal funds purchased $ 5,510 $19,559 Repurchase agreements 12,269 35,718 Note payable - U.S. government 929 8,222 ------- ------- $18,708 $63,499 ======= ======= Federal funds purchased are generally due in one day and bear interest at market rates. Note payable - U.S. government is due on demand, secured by a pledge of securities and bears interest at market rates. 9. OTHER BORROWINGS: Long-term borrowings at December 31, 2000 and 1999 are summarized as follows: <TABLE> <CAPTION> (Dollar amounts in thousands) 2000 1999 - ------------------------------------------------------------------------------------- <S> <C> <C> FHLB advances $482,460 $375,713 City of Terre Haute, Indiana economic development revenue bonds 6,600 6,600 Other 3 9 -------- -------- TOTAL $489,063 $382,322 ======== ======== </TABLE> The aggregate minimum annual retirements of long-term borrowings are as follows: 2001 $ 89,833 2002 10,808 2003 34,765 2004 16,522 2005 -- Thereafter 337,135 ---------- $ 489,063 ========== 16
18 FIRST FINANCIAL CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS The economic development revenue bonds (bonds) require periodic interest payments each year until maturity or redemption. The interest rate, which was 5.0% at December 31, 2000, and 5.35% at December 31, 1999, is determined by a formula which considers rates for comparable bonds and is adjusted periodically. The bonds are collateralized by a first mortgage on the Corporation's headquarters building. The bonds mature December 1, 2015, but bondholders may periodically require earlier redemption. The Corporation maintains a letter of credit with another financial institution, which could be used to repay the bonds, should they be called. The letter of credit expires November 1, 2001, and will be automatically extended for one year should the bonds still be outstanding. Assuming redemption will be funded by the letter of credit, or by other similar borrowings, there are no anticipated principal maturities of the bonds within the next five years. The debt agreement requires the Corporation to meet certain financial covenants. The most restrictive covenants require the Corporation to maintain a Tier I capital ratio of at least 6.2% and net income to average assets of 0.6%. At December 31, 2000 and 1999, 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 $482.5 million at December 31, 2000, accrue interest, payable monthly, at annual rates varying from 4.6% to 8.0%. The advances are due at various dates through September 2017. FHLB advances are, generally, due in full at maturity. They are secured by a blanket pledge of eligible securities and real estate loan collateral. Certain advances may be prepaid, without penalty, prior to maturity. The FHLB can adjust the interest rate from fixed to variable on certain advances, but those advances may then be prepaid, without penalty. 10. INCOME TAXES: Income tax expense is summarized as follows: (Dollar amounts in thousands) 2000 1999 1998 - ---------------------------------------------------------------- Federal: Currently payable $ 7,372 $ 6,763 $ 5,526 Deferred 167 (256) (886) ------- ------- ------- 7,539 6,507 4,640 State: Currently payable 1,539 2,461 2,289 Deferred 58 (85) (132) ------- ------- ------- 1,597 2,376 2,157 ------- ------- ------- TOTAL $ 9,136 $ 8,883 $ 6,797 ======= ======= ======= The reconciliation of income tax expense with the amount computed by applying the statutory federal income tax rate of 35% to income before income taxes is summarized as follows: <TABLE> <CAPTION> (Dollar amounts in thousands) 2000 1999 1998 - ---------------------------------------------------------------------------------------- <S> <C> <C> <C> Federal income taxes computed at the statutory rate $ 11,322 $ 10,677 $ 8,829 Add (deduct) tax effect of: Tax exempt income (2,691) (2,679) (3,016) State tax, net of federal benefit 1,038 1,550 1,402 Affordable housing credits (529) (565) (587) Other, net (4) (100) 169 -------- -------- -------- TOTAL $ 9,136 $ 8,883 $ 6,797 ======== ======== ======== </TABLE> 17
19 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS The tax effects of temporary differences that give rise to significant portions of the deferred tax assets and liabilities at December 31, 2000 and 1999, are as follows: (Dollar amounts in thousands) 2000 1999 - -------------------------------------------------------------------------------- Deferred tax assets: Loan losses provision $ 7,475 $ 7,275 Deferred compensation 775 582 Compensated absences 333 314 Post-retirement benefits 708 729 Net unrealized losses on available-for-sale securities -- 5,220 Other 166 94 Valuation allowance for deferred tax assets -- -- -------- -------- GROSS DEFERRED ASSETS 9,457 14,214 -------- -------- Deferred tax liabilities: Net unrealized gains on available-for-sale securities (2,592) -- Depreciation (1,006) (1,176) Lease financing (176) (182) Originated servicing rights (311) (265) Pensions (1,503) (871) Other (677) (491) -------- -------- GROSS DEFERRED LIABILITIES (6,265) (2,985) -------- -------- NET DEFERRED TAX ASSETS $ 3,192 $ 11,229 ======== ======== 11. FINANCIAL INSTRUMENTS WITH OFF-BALANCE-SHEET RISK: The Corporation is a party to financial instruments with off-balance-sheet risk in the normal course of business to meet the financing needs of its customers. These financial instruments include conditional commitments and standby letters of credit. The financial instruments involve to varying degrees, elements of credit and interest rate risk in excess of amounts recognized in the financial statements. The Corporation's maximum exposure to credit loss in the event of nonperformance by the other party to the financial instrument for commitments to make loans is limited generally by the contractual amount of those instruments. The Corporation follows the same credit policy to make such commitments as is followed for those loans recorded in the consolidated financial statements. The Corporation had unused lines of credit of $184.0 million and $169.0 million and commitments to extend credit of $7.1 million as of December 31, 2000 and 1999. In addition, the Corporation had outstanding commitments of $2.1 million and $2.6 million under standby letters of credit as of December 31, 2000 and 1999, respectively. During 2000, the Corporation entered into an interest rate swap with a notional principal balance of $10 million. The agreement requires the Corporation to make variable rate payments, based on LIBOR, which rate was 6.58% at December 31, 2000, and entitle the Corporation to receive fixed rate payments at a rate of 6.817%. The swap had a 24-month term and was entered into to hedge a similar maturity fixed rate certificate of deposit special that generated approximately $13 million in deposits. At December 31, 2000, the swap has a fair value of approximately $321 thou- sand. The net settlement income or expense is recorded as interest expense. The Corporation is exposed to credit loss in the event the counterparty does not perform under the agreement in an amount equal to the rate differential when the fixed rate exceeds the variable rate. 18
20 FIRST FINANCIAL CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 12. RETIREMENT PLANS: Substantially all employees of the Corporation are covered by a retirement program that consists of a defined benefit plan and an employee stock ownership plan (ESOP). Plan assets consist primarily of the Corporation's stock and obligations of U.S. Government agencies. Benefits under the defined benefit plan are actuarially determined based on an employee's service and compensation, as defined, and funded as necessary. Assets in the ESOP are considered in calculating the funding to the defined benefit plan required to provide such benefits. Any shortfall of benefits under the ESOP are to be provided by the defined benefit plan. The ESOP may provide benefits beyond those determined under the defined benefit plan. Contributions to the ESOP are determined by the Corporation's Board of Directors. The Corporation made contributions to the defined benefit plan of $1,022 thousand, $1,021 thousand and $350 thousand in 2000, 1999 and 1998, respectively. The Corporation contributed $750 thousand, $873 thousand and $750 thousand to the ESOP in 2000, 1999 and 1998, respectively. Pension expense included the following components: <TABLE> <CAPTION> (Dollar amounts in thousands) 2000 1999 1998 - -------------------------------------------------------------------------------- <S> <C> <C> <C> Service cost - benefits earned $ 899 $ 927 $ 1,183 Interest cost on projected benefit obligation 1,780 1,858 2,091 Expected return on plan assets (1,801) (1,900) (2,361) Net amortization and deferral (26) 3 (159) ------- ------- ------- Total pension expense $ 852 $ 888 $ 754 ======= ======= ======= </TABLE> The information below sets forth the change in benefit obligation, reconciliation of plan assets, and the funded status of the Corporation's retirement program. Actuarial present value of benefits is based on service to date and present pay levels. <TABLE> <CAPTION> DECEMBER 31, --------------------- (Dollar amounts in thousands) 2000 1999 - ------------------------------------------------------------------------------------------------ <S> <C> <C> Change in benefit obligation: Benefit obligation at January 1 $ 31,018 $ 27,498 Service cost 899 927 Interest cost 1,780 1,858 Actuarial (gain) loss (6,099) 1,105 Benefits paid (388) (370) -------- -------- Benefit obligation at December 31 27,210 31,018 -------- -------- Reconciliation of fair value of plan assets: Fair value of plan assets at January 1 27,107 25,754 Actual return on plan assets (7,311) (171) Employer contributions 1,772 1,894 Benefits paid (388) (370) -------- -------- Fair value of plan assets at December 31 21,180 27,107 -------- -------- Funded status: Funded status at December 31 (6,030) (3,911) Unrecognized transition obligation -- (174) Unrecognized prior service cost 32 48 Unrecognized net actuarial cost 9,832 6,951 -------- -------- Prepaid pension asset recognized in the consolidated balance sheets $ 3,834 $ 2,914 ======== ======== Principal assumptions used: Discount rate 7.50% 7.00% Rate of increase in compensation levels 5.00 5.00 Expected long-term rate of return on plan assets 8.00 8.00 </TABLE> 19
21 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS The Corporation also provides medical benefits to its employees subsequent to their retirement. Accrued post-retirement benefits as of December 31, 2000 and 1999 are as follows: DECEMBER 31, (Dollar amounts in thousands) 2000 1999 - ---------------------------------------------------------- Change in benefit obligation: Benefit obligation at January 1 $ 2,938 $ 2,606 Service cost 64 57 Interest cost 201 195 Plan participants' contributions 24 10 Actuarial (gain) loss 104 262 Actual benefits paid (322) (192) ------- ------- Benefit obligation at December 31 $ 3,009 $ 2,938 ======= ======= Reconciliation of funded status: Funded status $ 3,009 2,938 Unrecognized transition obligation (784) (844) Unrecognized net gain (loss) (1,081) (1,022) ------- ------- Accrued benefit cost $ 1,144 $ 1,072 ======= ======= The post-retirement benefits paid in 2000 and 1999 of $322 thousand and $192 thousand, respectively, were fully funded by company and participant contributions. There were no other changes to plan assets in 2000 and 1999. Weighted-average assumptions as of December 31: DECEMBER 31, ---------------------- 2000 1999 - -------------------------------------------------------------------------------- Discount rate 7.50% 7.00% Initial weighted health care cost trend rate 7.50 10.00 Ultimate health care cost trend rate 5.00 5.00 Post-retirement health benefit expense included the following components: YEARS ENDED DECEMBER 31, -------------------------- (Dollar amounts in thousands) 2000 1999 1998 - -------------------------------------------------------------------- Service cost $ 64 $ 57 $ 48 Interest cost 201 195 165 Amortization of transition obligation 60 60 60 Recognized actuarial loss 45 48 30 ---- ---- ---- Net periodic benefit cost $370 $360 $303 ==== ==== ==== Assumed health care cost trend rates have a significant effect on the amounts reported for the health care plans. A one-percentage-point change in the assumed health care cost trend rates would have the following effects: 1% POINT 1% POINT INCREASE DECREASE --------------------- Effect on total of service and interest cost components $ 8 $ (7) Effect of post-retirement benefit obligation 100 (91) 20
22 FIRST FINANCIAL CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 13. OTHER COMPREHENSIVE INCOME: Other comprehensive income components and related taxes were as follows: <TABLE> <CAPTION> DECEMBER 31, -------------------------------- (Dollar amounts in thousands) 2000 1999 1998 - -------------------------------------------------------------------------------------------------------- <S> <C> <C> <C> Unrealized holding gains and losses on available-for-sale securities $ 19,676 $(26,382) $ 3,160 Less reclassification adjustments for gains and losses later recognized in income (145) (189) (905) -------- -------- -------- Net unrealized gains and losses 19,531 (26,571) 2,255 Tax effect (7,812) 10,629 (902) -------- -------- -------- Other comprehensive income $ 11,719 $(15,942) $ 1,353 ======== ======== ======== </TABLE> 14. REGULATORY MATTERS: The Corporation and its bank affiliates are subject to various regulatory capital requirements administered by the federal banking agencies. Failure to meet minimum capital requirements can initiate certain mandatory-and possibly additional discretionary-actions by regulators that, if undertaken, could have a direct material effect on the Corporation's financial statements. Further, the Corporation's primary source of funds to pay dividends to shareholders is dividends from its subsidiary banks and compliance with these capital requirements can affect the ability of the Corporation and its banking affiliates to pay dividends. At December 31, 2000, approximately $36.5 million of undistributed earnings of the subsidiary banks, included in consolidated retained earnings, were available for distribution to the Corporation without regulatory approval. Under capital adequacy guidelines and the regulatory framework for prompt corrective action, the Corporation must meet specific capital guidelines that involve quantitative measures of the Corporation's assets, liabilities, and certain off-balance-sheet items as calculated under regulatory accounting practices. The Corporation's capital amounts and classification are also subject to qualitative judgments by the regulators about components, risk weightings and other factors. Quantitative measures established by regulation to ensure capital adequacy require the Corporation to maintain minimum amounts and ratios of Total and Tier I Capital to risk-weighted assets, and of Tier I Capital to average assets. Management believes, as of December 31, 2000 and 1999, that the Corporation meets all capital adequacy requirements to which it is subject. As of December 31, 2000, the most recent notification from the respective regulatory agencies categorized the Corporation and its subsidiary banks as well capitalized under the regulatory framework for prompt corrective action. To be categorized as adequately capitalized the Corporation must maintain minimum total risk-based, Tier I risk-based and Tier I leverage ratios as set forth in the table. There are no conditions or events since that notification that management believes have changed the Corporation's category. The table on the following page presents the actual and required capital amounts and related ratios for the Corporation and the lead bank, Terre Haute First National Bank, at year end 2000 and 1999. 21
23 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS <TABLE> <CAPTION> FOR CAPITAL ACTUAL ADEQUACY PURPOSES --------------------- ------------------------------------------------------------------- (Dollar amounts in thousands) AMOUNT RATIO AMOUNT RATIO - ------------------------------------------------------------------------------------------------------------------------------------ <S> <C> <C> <C> <C> TOTAL RISK-BASED CAPITAL Corporation - 2000 $202,033 15.21% greater than or equal to $106,244 greater than or equal to 8.0% Corporation - 1999 188,719 15.91% greater than or equal to 94,893 greater than or equal to 8.0% Terre Haute First - 2000 127,391 15.22% greater than or equal to 66,939 greater than or equal to 8.0% Terre Haute First - 1999 117,432 15.75% greater than or equal to 59,468 greater than or equal to 8.0% TIER I RISK-BASED CAPITAL Corporation - 2000 $185,402 13.96% greater than or equal to $ 53,122 greater than or equal to 4.0% Corporation - 1999 173,853 14.66% greater than or equal to 47,446 greater than or equal to 4.0% Terre Haute First - 2000 117,122 14.00% greater than or equal to 33,469 greater than or equal to 4.0% Terre Haute First - 1999 108,104 14.50% greater than or equal to 29,824 greater than or equal to 4.0% TIER I LEVERAGE CAPITAL Corporation - 2000 $185,402 9.43% greater than or equal to $ 78,646 greater than or equal to 4.0% Corporation - 1999 173,853 9.36% greater than or equal to 74,272 greater than or equal to 4.0% Terre Haute First - 2000 117,122 9.26% greater than or equal to 50,598 greater than or equal to 4.0% Terre Haute First - 1999 108,104 9.04% greater than or equal to 47,837 greater than or equal to 4.0% <CAPTION> TO BE WELL CAPITALIZED UNDER PROMPT CORRECTIVE ACTION PROVISIONS ------------------------------------------------------------------------ (Dollar amounts in thousands) AMOUNT RATIO - ---------------------------------------------------------------------------------------------------------------- <S> <C> <C> TOTAL RISK-BASED CAPITAL greater than or equal to $132,805 greater than or equal to 10.0% Corporation - 2000 greater than or equal to 118,616 greater than or equal to 10.0% Corporation - 1999 greater than or equal to 83,674 greater than or equal to 10.0% Terre Haute First - 2000 greater than or equal to 73,560 greater than or equal to 10.0% Terre Haute First - 1999 TIER I RISK-BASED CAPITAL greater than or equal to $ 79,683 greater than or equal to 6.0% Corporation - 2000 greater than or equal to 71,170 greater than or equal to 6.0% Corporation - 1999 greater than or equal to 50,204 greater than or equal to 6.0% Terre Haute First - 2000 greater than or equal to 44,736 greater than or equal to 6.0% Terre Haute First - 1999 TIER I LEVERAGE CAPITAL greater than or equal to $ 98,308 greater than or equal to 5.0% Corporation - 2000 greater than or equal to 92,840 greater than or equal to 5.0% Corporation - 1999 greater than or equal to 63,248 greater than or equal to 5.0% Terre Haute First - 2000 greater than or equal to 59,797 greater than or equal to 5.0% Terre Haute First - 1999 </TABLE> 15. PARENT COMPANY CONDENSED FINANCIAL STATEMENTS: The parent company's condensed balance sheets as of December 31, 2000 and 1999, and the related condensed statements of income and cash flows for each of the three years in the period ended December 31, 2000, are as follows: BALANCE SHEETS DECEMBER 31, -------------------- (Dollar amounts in thousands) 2000 1999 - -------------------------------------------------------------------- ASSETS Cash deposits in affiliated banks $ 4,107 $ 8,647 Investments in bank subsidiaries 182,597 156,150 Land and headquarters building, net 6,789 6,902 Other 10,635 9,726 -------- -------- TOTAL ASSETS $204,128 $181,425 ======== ======== LIABILITIES AND SHAREHOLDERS' EQUITY Liabilities Long-term borrowings $ 6,780 $ 6,935 Dividends payable 3,749 3,442 Other liabilities 2,376 2,366 -------- -------- TOTAL LIABILITIES 12,905 12,743 Shareholders' equity 191,223 168,682 -------- -------- TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $204,128 $181,425 ======== ======== 22
24 FIRST FINANCIAL CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS STATEMENTS OF INCOME <TABLE> <CAPTION> YEARS ENDED DECEMBER 31, ----------------------------- (Dollar amounts in thousands) 2000 1999 1998 - ------------------------------------------------------------------------------------ <S> <C> <C> <C> Income: Dividends from bank subsidiaries $ 8,608 $17,457 $17,815 Other income 1,056 890 899 ------- ------- ------- Total income 9,664 18,347 18,714 Expenses: Interest on long-term borrowings 370 366 335 Other operating expenses 1,779 1,617 1,684 ------- ------- ------- Total operating expenses 2,149 1,983 2,019 ------- ------- ------- Income before income taxes and equity in undistributed earnings of bank subsidiaries 7,515 16,364 16,695 Income tax benefit 571 457 738 ------- ------- ------- Income before equity in undistributed earnings of bank subsidiaries 8,086 16,821 17,433 Equity in undistributed earnings of bank subsidiaries 15,127 4,801 1,125 ------- ------- ------- Net income $23,213 $21,622 $18,558 ======= ======= ======= </TABLE> STATEMENTS OF CASH FLOWS <TABLE> <CAPTION> YEARS ENDED DECEMBER 31, ---------------------------------- (Dollar amounts in thousands) 2000 1999 1998 - ---------------------------------------------------------------------------------------------- <S> <C> <C> <C> CASH FLOWS FROM OPERATING ACTIVITIES: Net income $ 23,213 $ 21,622 $ 18,558 Adjustments to reconcile net income to net cash provided by operating activities: Provision for depreciation and amortization 356 349 172 Equity in undistributed earnings of bank subsidiaries (15,127) (4,801) (1,125) (Decrease) increase in other liabilities 10 (331) 286 Increase in other assets (687) (204) (542) -------- -------- -------- NET CASH PROVIDED BY OPERATING ACTIVITIES 7,765 16,635 17,349 CASH FLOWS FROM FINANCING ACTIVITIES: Principal payments on long-term borrowings (155) (145) (145) Purchase of furniture and fixtures (66) -- -- Proceeds from reissuance of treasury stock -- -- (27) Purchase of treasury stock (5,151) (12,673) (4,089) Dividends paid (6,933) (6,224) (5,624) -------- -------- -------- NET CASH USED BY FINANCING ACTIVITIES (12,305) (19,042) (9,885) -------- -------- -------- NET (DECREASE) INCREASE IN CASH (4,540) (2,407) 7,464 CASH, BEGINNING OF YEAR 8,647 11,054 3,590 -------- -------- -------- CASH, END OF YEAR $ 4,107 $ 8,647 $ 11,054 ======== ======== ======== Supplemental disclosures of cash flow information: Cash paid during the year for: Interest $ 370 $ 362 $ 311 ======== ======== ======== Income taxes $ 10,114 $ 10,182 $ 7,403 ======== ======== ======== </TABLE> 23
25 RESPONSIBILITY FOR FINANCIAL STATEMENTS To the Shareholders and Board of Directors of First Financial Corporation: The management of First Financial Corporation has prepared and is responsible for the preparation and accuracy of the financial statements and other information included in this report. The financial statements have been prepared in accordance with generally accepted accounting principles and where appropriate, include amounts based on judgments and estimates by management. To fulfill its responsibility, the Corporation maintains and continues to refine a system of internal accounting controls and procedures to provide reasonable assurance that (i) the Corporation's assets are safeguarded; (ii) transactions are executed in accordance with proper management authorization; and (iii) financial records are reliable for the preparation of financial statements. The design, monitoring and revision of internal accounting control systems involve, among other things, management judgments with respect to the relative costs and expected benefits of such control procedures. Management assessed First Financial Corporation's internal control structure over financial reporting as of December 31, 2000. This assessment was based on criteria for effective internal control over financial reporting described in "Internal Control - Integrated Framework" issued by the Committee of Sponsoring Organizations of the Treadway Commission. Based on this assessment, management believes that the Corporation maintained an effective internal control structure over financial reporting as of December 31, 2000. Crowe, Chizek and Company LLP performs an independent audit of the Corporation's financial statements for the purpose of determining that such statements are presented in conformity with generally accepted accounting principles and their report appears below. The independent accountants are appointed based upon recommendations by the Examining and Trust Audit Committee and approved by the Board of Directors. The Examining and Trust Audit Committee of the Board of Directors, composed of three outside directors, meets periodically with the Corporation's management and the independent accountants to discuss the audit scope and findings as well as address internal control systems and financial reporting matters. The independent accountants have direct access to the Examining and Trust Audit Committee. /s/ DONALD E. SMITH /s/ MICHAEL A. CARTY Donald E. Smith Michael A. Carty President & Chief Executive Officer Treasurer REPORT OF INDEPENDENT ACCOUNTANTS To the Shareholders and Board of Directors of First Financial Corporation: We have audited the accompanying consolidated balance sheets of First Financial Corporation as of December 31, 2000 and 1999, and the related consolidated statements of income, changes in shareholders' equity and cash flows for the years then ended. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audit. The consolidated statements of income, changes in shareholders' equity and cash flows of First Financial Corporation for the year ended December 31, 1998, were audited by other auditors whose report dated January 22, 1999, expressed an unqualified opinion on those statements. 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 1999 and 2000 consolidated financial statements referred to above present fairly, in all material respects, the financial position of First Financial Corporation as of December 31, 2000 and 1999, and the results of its operations and its cash flows for the years then ended in conformity with generally accepted accounting principles. Indianapolis, Indiana /s/ CROWE, CHIZEK AND COMPANY LLP January 12, 2001 Crowe, Chizek and Company LLP 24
26 FIRST FINANCIAL CORPORATION MANAGEMENT'S DISCUSSION AND ANALYSIS Management's discussion and analysis reviews the financial condition of First Financial Corporation at December 31, 2000 and 1999, and the results of its operations for the three years ended December 31, 2000. Where appropriate, factors that may affect future financial performance are also discussed. The discussion should be read in conjunction with the accompanying consolidated financial statements, related footnotes and selected financial data. Forward-looking statements contained in the following discussion are based on estimates and assumptions that are subject to significant business, economic and competitive uncertainties, many of which are beyond the Corporation's control and are subject to change. These uncertainties can affect actual results and could cause actual results to differ materially from those expressed in any forward-looking statements in this discussion. First Financial Corporation (the Corporation) is a financial services company. The Corporation, which is headquartered in Terre Haute, Indiana, offers a wide variety of financial services including commercial and consumer lending, lease financing, trust account services and depositor services through its nine subsidiaries. At the close of business in 2000 the Corporation and its subsidiaries had 694 full-time equivalent employees. Terre Haute First is the largest bank in Vigo County. It operates 12 full-service banking branches within the county. In addition to its branches, it has a main office in downtown Terre Haute and a 50,000-square-foot commercial building on South Third Street in Terre Haute, which serves as the Corporation's operations center and provides additional office space. First State has five branch locations in Clay County, a county contiguous to Vigo County. Citizens has four branches, all of which are located in Vermillion County, a county contiguous to Vigo County. Farmers has six branches of which five are located in Sullivan County and one in Greene County. Sullivan County is contiguous to Vigo County. Morris Plan has one branch and is located in Vigo County. Ridge Farm has one branch and is located in Vermilion County, Illinois. Parke has four branches in Parke County, a county contiguous to Vigo County. Marshall has one branch and is located in Clark County, Illinois, a county contiguous to Vigo County. Crawford has two branches in Crawford County, Illinois, and one branch in Lawrence County, Illinois. Terre Haute First and Morris Plan face competition from other financial institutions in Vigo County. These competitors consist of two commercial banks, a mutual savings bank and other financial institutions, including consumer finance companies, brokerage firms and credit unions. The seven other bank subsidiaries have similar competition in their primary market areas. The number of competitors of each subsidiary is as follows: - FIRST STATE Three commercial banks, two credit unions and one brokerage firm in Clay County, Indiana. - CITIZENS Three commercial banks and two credit unions in Vermillion County, Indiana. - FARMERS Two commercial banks and one brokerage firm in Sullivan County, Indiana, and three commercial banks, one savings and loan, and one credit union in Greene County, Indiana. - PARKE Two commercial banks, five credit unions and two brokerage firms in Parke County, Indiana. - RIDGE FARM Four commercial banks, three savings and loans, ten credit unions and four brokerage firms in Vermilion County, Illinois. - MARSHALL Three commercial banks and one savings and loan in Clark County, Illinois. - CRAWFORD Four commercial banks, two credit unions and four brokerage firms in Crawford County, Illinois, and seven commercial banks and one credit union in Lawrence County, Illinois. The Corporation's business activities are centered in west-central Indiana and east-central Illinois. The Corporation has no foreign activities other than periodically investing available funds in time deposits held in foreign branches of domestic banks. 25
27 RESULTS OF OPERATIONS - SUMMARY FOR 2000 Net income for 2000 increased to $23.2 million from $21.6 million in 1999 and earnings per share increased to $3.45 for 2000 from $3.10 in 1999. This increase was primarily the result of improved non-interest income and reduced non-interest expense. 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 $1.86 billion in 2000 from $1.75 billion in 1999. The yield on these assets increased to 8.16% in 2000 from 7.90% in 1999. Total average interest-bearing liabilities amounted to $1.63 billion in 2000 compared to $1.52 billion in 1999. The yield on these interest-bearing liabilities increased to 4.94% in 2000 from 4.40% in 1999. On a tax equivalent basis, net interest income decreased $0.7 million from $71.5 million in 1999 to $70.8 million in 2000. The net interest margin decreased from 4.09% in 1999 to 3.82% in 2000. This decrease is primarily the result of borrowing rates increasing faster than the yield on earning assets. The following table sets forth the components of net interest income due to changes in volume and rate. The table information compares 2000 to 1999 and 1999 to 1998. <TABLE> <CAPTION> 2000 COMPARED TO 1999 1999 COMPARED TO 1998 INCREASE (DECREASE) DUE TO INCREASE (DECREASE) DUE TO -------------------------------------------- --------------------------------------------- VOLUME/ VOLUME/ (Dollar amounts in thousands) VOLUME RATE RATE TOTAL VOLUME RATE RATE TOTAL - ------------------------------------------------------------------------------------------------------------------------------- <S> <C> <C> <C> <C> <C> <C> <C> <C> Interest earned on interest-earning assets: Loans ((1)) ((2)) $ 8,762 $ 2,114 $ 192 $ 11,068 $ 7,528 $ (4,574) $ (366) $ 2,588 Taxable investment securities 179 1,844 12 2,035 906 487 16 1,409 Tax-exempt investment securities ((2)) 792 (299) (19) 474 383 (15) -- 368 Federal funds sold (560) 255 (167) (472) 263 (48) (20) 195 -------- -------- -------- -------- -------- -------- -------- -------- Total interest income 9,173 3,914 18 13,105 9,080 (4,150) (370) 4,560 -------- -------- -------- -------- -------- -------- -------- -------- Interest paid on interest-bearing liabilities: Transaction accounts 59 644 5 708 486 (635) (33) (182) Time deposits 628 3,164 55 3,847 (1,602) (3,400) 133 (4,869) Short-term borrowings 450 733 95 1,278 927 (130) (43) 754 Other borrowings 4,936 2,353 646 7,935 5,759 (751) (326) 4,682 -------- -------- -------- -------- -------- -------- -------- -------- Total interest expense 6,073 6,894 801 13,768 5,570 (4,916) (269) 385 -------- -------- -------- -------- -------- -------- -------- -------- Net interest income $ 3,100 $ (2,980) $ (783) $ (663) $ 3,510 $ 766 $ (101) $ 4,175 ======== ======== ======== ======== ======== ======== ======== ======== </TABLE> (1) For purposes of these computations, nonaccruing loans are included in the daily average loan amounts outstanding. (2) Interest income includes the effect of tax equivalent adjustments using a federal tax rate of 35%. PROVISION FOR LOAN LOSSES The provision for loan losses is established by charging current earnings with an amount which will maintain the allowance for loan losses at a level sufficient to provide for losses in the Corporation's loan portfolio. Management considers several factors in determining the provision, including loss experience, changes in the composition of the portfolio, the financial condition of borrowers, economic trends, and general economic conditions. The provision for loan losses totaled $4.4 million and $4.7 million for 2000 and 1999, respectively. Net charge-offs for 2000 increased to $3.3 million from $3.2 million in 1999. At December 31, 2000, the resulting allowance for loan losses was $19.1 million or 1.49% of total loans, net of unearned income. A year earlier the allowance was $17.9 million or 1.51% of total loans. 26
28 FIRST FINANCIAL CORPORATION RESULTS OF OPERATIONS - SUMMARY FOR 2000 OTHER INCOME Other income increased 13.3% in 2000 to $13.6 million from $12.0 million earned in 1999. Service charges and fees on deposit accounts and other service charges and fees increased $628 thousand and $863 thousand, respectively. These increases are the result of a focused effort to increase fee-based income. OTHER EXPENSES Other expenses totaled $42.7 million for 2000 compared to $43.5 million for 1999. This represents a decrease of $840 thousand or 1.2% for 2000. Salaries and related benefits, the largest component of this group, decreased from $24.6 million to $23.1 million or 6.1%. This decline resulted from lower employee benefit costs and a slight reduction in employees during 2000. All other expenses for 2000 increased to $19.6 million from $19.0 million as compared to 1999 as management focused on controlling the Corporation's overhead. INCOME TAXES The Corporation's federal income tax provision was $7.5 million in 2000 compared to a provision of $6.5 million in 1999. The overall effective tax rate in 2000 of 28.3% compares to a 1999 effective rate of 29.1%. COMPARISON OF 1999 TO 1998 Net income for 1999 was $21.6 million or $3.10 per share compared to $18.6 million in 1998 or $2.58 per share. This increased income was primarily the result of improved net interest and non-interest income. Net interest income increased $4.0 million in 1999 as compared to 1998. This increase was driven by growth as the net interest margin actually decreased slightly from 4.10% in 1998 to 4.09% in 1999. The Corporation's total assets increased to a record $2.04 billion at December 31, 2000, up from $1.91 billion a year earlier. Loans, net of unearned income, increased by $106 million, to $1.30 billion. While most categories increased, real estate mortgage and commercial loans increased by $60.4 million and $34.9 million to $732.4 million and $282.9 million, respectively. The increase resulted primarily because of favorable economic conditions. The overall increase in loans was primarily funded by deposits and advances from the Federal Home Loan Bank. Advances from the Federal Home Loan Bank at December 31, 2000, were $482.5 million. Total shareholders' equity increased to $191.2 million at December 31, 2000, compared to $168.7 million a year earlier. Higher net income was offset by increased dividends and the continued repurchase of corporate stock. During the year 151,181 shares were acquired at a cost of $5.2 million. In addition, during 2000, the Corporation recorded a net unrealized gain on available-for-sale securities of $11.7 million. While this fluctuation in fair value increased shareholders' equity, no gain is recognized in net income unless the security is actually sold. Following is an analysis of the components of the Corporation's balance sheet. Information describing the components of the Corporation's securities portfolio, and the market value, maturities and weighted average yields of the securities is included in Note 4 of the notes to the consolidated financial statements. LOAN PORTFOLIO Loans outstanding by major category as of December 31 for each of the last five years and the maturities and interest sensitivity of the loans outstanding as of December 31, 2000, are set forth in the following analysis. <TABLE> <CAPTION> (Dollar amounts in thousands) 2000 1999 1998 1997 1996 - --------------------------------------------------------------------------------------------------------- <S> <C> <C> <C> <C> <C> Loan Category Commercial, financial and agricultural $ 282,904 $ 247,949 $ 233,080 $ 229,855 $ 197,449 Real estate - construction 41,325 44,782 32,880 23,734 22,629 Real estate - mortgage 732,387 671,972 636,615 561,466 508,010 Installment 237,527 223,459 205,251 188,552 188,670 Lease financing 4,810 5,723 5,825 3,271 3,284 ---------- ---------- ---------- ---------- ---------- TOTAL $1,298,953 $1,193,885 $1,113,651 $1,006,878 $ 920,042 ========== ========== ========== ========== ========== </TABLE> 27
29 FINANCIAL CONDITION - SUMMARY <TABLE> <CAPTION> After One Within But Within After Five (Dollar amounts in thousands) One Year Five Years Years Total - ------------------------------------------------------------------------------------------ <S> <C> <C> <C> <C> MATURITY DISTRIBUTION Commercial, financial and agricultural $ 169,316 $ 65,760 $ 47,828 $ 282,904 Real estate - construction 20,370 10,611 10,344 41,325 ---------- ---------- ---------- ------- TOTAL $ 189,686 $ 76,371 $ 58,172 324,229 ========== ========== ========== Real estate - mortgage 732,387 Installment 237,527 Lease financing 4,810 ---------- TOTAL $1,298,953 ========== Loans maturing after one year with: Fixed interest rates $ 33,802 $ 46,026 Variable interest rates 42,569 12,146 ---------- ---------- TOTAL $ 76,371 $ 58,172 ========== ========== </TABLE> ALLOWANCE FOR LOAN LOSSES The activity in the Corporation's allowance for loan losses is shown in the following analysis: <TABLE> <CAPTION> (Dollar amounts in thousands) 2000 1999 1998 1997 1996 - ----------------------------------------------------------------------------------------------------------------- <S> <C> <C> <C> <C> <C> Amount of loans outstanding at December 31, $1,298,953 $1,193,885 $1,113,651 $1,006,878 $ 920,042 ========== ========== ========== ========== ========== Average amount of loans by year $1,256,505 $1,151,968 $1,066,537 $ 953,008 $ 885,964 ========== ========== ========== ========== ========== Allowance for loan losses at beginning of year $ 17,949 $ 16,429 $ 13,503 $ 10,756 $ 10,616 Allowance resulting from acquisition -- -- 970 -- -- Loans charged off: Commercial, financial and agricultural 1,055 344 1,195 487 2,577 Real estate - mortgage 406 932 614 596 207 Installment 3,196 3,034 2,827 2,732 2,016 Leasing 6 -- -- -- 2 ---------- ---------- ---------- ---------- ---------- Total loans charged off 4,663 4,310 4,636 3,815 5,401 ---------- ---------- ---------- ---------- ---------- Recoveries of loans previously charged off: Commercial, financial and agricultural 578 170 461 260 426 Real estate - mortgage 28 142 101 163 147 Installment 788 788 634 747 500 Leasing -- 5 -- 10 7 ---------- ---------- ---------- ---------- ---------- Total recoveries 1,394 1,105 1,196 1,180 1,080 ---------- ---------- ---------- ---------- ---------- Net loans charged off 3,269 3,205 3,440 2,635 4,321 Provision charged to expense 4,392 4,725 5,396 5,382 4,461 ---------- ---------- ---------- ---------- ---------- Balance at end of year $ 19,072 $ 17,949 $ 16,429 $ 13,503 $ 10,756 ========== ========== ========== ========== ========== Ratio of net charge-offs during period to average loans outstanding .26% .28% .32% .28% .49% ========== ========== ========== ========== ========== </TABLE> Management anticipates $3.8 million of commercial, financial and agricultural loans, $0.4 million of real estate mortgage loans and $2.3 million of installment loans will be charged off for 2001. 28
30 FIRST FINANCIAL CORPORATION FINANCIAL CONDITION - SUMMARY UNDER-PERFORMING LOANS Management monitors the components and status of under-performing loans as a part of the evaluation procedures used in determining the adequacy of the allowance for loan losses. It is the Corporation's policy to discontinue the accrual of interest on loans where, in management's opinion, serious doubt exists as to collectibility. The amounts shown below represent non-accrual loans, loans which have been restructured to provide for a reduction or deferral of interest or principal because of deterioration in the financial condition of the borrower and those loans which are past due more than 90 days where the Corporation continues to accrue interest. The interest income for non-accrual and restructured loans that would have been recorded in 2000, 1999 and 1998, under the original terms of the loans is $953 thousand, $364 thousand and $495 thousand, respectively. The Corporation recorded interest income on such loans in the amounts of $656 thousand, $119 thousand and $149 thousand for 2000, 1999 and 1998, respectively. (Dollar amounts in thousands) 2000 1999 1998 1997 1996 - -------------------------------------------------------------------------------- Non-accrual loans $ 8,316 $ 2,879 $ 4,103 $ 3,866 $ 2,504 Restructured loans 735 959 7 17 34 ------- ------- ------- ------- ------- 9,051 3,838 4,110 3,883 2,538 Accruing loans past due 5,499 5,229 8,184 4,384 5,296 ------- ------- ------- ------- ------- $14,550 $ 9,067 $12,294 $ 8,267 $ 7,834 ======= ======= ======= ======= ======= The ratio of the allowance for loan losses as a percentage of under-performing loans was 131% at December 31, 2000, compared to 198% in 1999. This decrease is the result of a significant increase in the amount of loans in non-accrual status, amounting to $8.3 million in 2000 as compared to $2.9 million in 1999. This increase is primarily due to the Corporation's portion of a loan made to a steel manufacturer, which accounts for more than 60% of the total. Management anticipates the charge-off of a significant portion of that credit in 2001. The following loan categories comprise significant components of the under-performing loans at December 31, 2000: (Dollar amounts in thousands) - -------------------------------------------------------------------------------- Non-accrual loans: 1-4 family residential $1,601 19% Commercial loans 6,019 72 Installment loans 696 9 Other, various -- -- ------ --- $8,316 100% ====== === Past due 90 days or more: 1-4 family residential $1,667 30% Commercial loans 2,986 54 Installment loans 818 15 Other, various 28 1 ------ --- $5,499 100% ====== === There are no material concentrations by industry within the under-performing loans. An element of the Corporation's asset quality management process is the ongoing review and grading of each affiliate's commercial loan portfolio. At December 31, 2000, approximately $26.2 million of commercial loans are graded doubtful or substandard, including the $9.0 million of non-accrual and past-due commercial loans listed above. The classification of these loans, however, does not imply that management expects losses on each of these loans, but believes that a higher level of scrutiny is prudent under the circumstances. Many of these loans are still accruing and are, generally, performing in accordance with their loan agreements. However, for reasons such as previous payment history, bankruptcy proceedings, industry concerns or information specific to that borrower, it is the opinion of management that these loans require close monitoring. 29
31 FINANCIAL CONDITION - SUMMARY DEPOSITS Total deposits increased to $1.32 billion at December 31, 2000, from $1.26 billion at December 31, 1999. The Corporation experienced a fluctuation between deposit types due to a rate-sensitive market environment. The information below presents the average amount of deposits and rates paid on those deposits for 2000, 1999 and 1998. <TABLE> <CAPTION> 2000 1999 1998 --------------------------------------------------------------------------------------- (Dollar amounts in thousands) Amount Rate Amount Rate Amount Rate - -------------------------------------------------------------------------------------------------------------------------- <S> <C> <C> <C> <C> <C> <C> Non-interest-bearing demand deposits $ 145,923 $ 143,551 $ 133,259 Interest-bearing demand deposits 168,579 1.34% 294,953 2.31% 277,051 2.43% Savings deposits 243,357 3.14% 114,326 2.09% 112,078 2.35% Time deposits: $100,000 or more 215,889 5.66% 200,133 5.16% 205,028 5.69% Other time deposits 500,401 5.55% 503,928 5.12% 527,640 5.56% ---------- ---------- ---------- TOTAL $1,274,149 $1,256,891 $1,255,056 ========== ========== ========== </TABLE> The maturities of certificates of deposit of $100 thousand or more outstanding at December 31, 2000, are summarized as follows: 3 months or less $ 75,683 Over 3 through 6 months 48,387 Over 6 through 12 months 45,685 Over 12 months 88,505 -------- TOTAL $258,260 ======== SHORT-TERM BORROWINGS A summary of the carrying value of the Corporation's short-term borrowings at December 31, 2000, 1999 and 1998 is presented below: (Dollar amounts in thousands) 2000 1999 1998 - ----------------------------------------------------------------- Federal funds purchased $ 5,510 $ 19,559 $ 48,022 Repurchase agreements 12,269 35,718 52,549 Other short-term borrowings 929 8,222 3,061 -------- -------- -------- $ 18,708 $ 63,499 $103,632 ======== ======== ======== Federal funds purchased amounted to $5.5 million in 2000 compared to $19.6 million in 1999. Repurchase agreements were $12.2 million in 2000, down from $35.7 million a year earlier. The amounts and interest rates related to federal funds purchased and repurchase agreements are presented below: <TABLE> <CAPTION> (Dollar amounts in thousands) 2000 1999 1998 - -------------------------------------------------------------------------------------- <S> <C> <C> <C> Average amount outstanding $ 71,040 $ 63,641 $ 45,266 Maximum amount outstanding at a month end 117,716 150,168 102,513 Average interest rate during year 6.35% 5.19% 5.51% Interest rate at year-end 5.47% 5.25% 5.60% </TABLE> 30
32 FIRST FINANCIAL CORPORATION FINANCIAL CONDITION - SUMMARY OTHER BORROWINGS Advances from the Federal Home Loan Bank increased to $482.5 million in 2000 compared to $375.7 million in 1999. The major reasons for the increase were to fund loan demand and reduce the dependency on short-term borrowings. The latter of these, because of an inverted yield curve for most of 2000, were some of the most expensive sources of funds. The Asset/Liability Committee reviews these investments and considers the related strategies on a weekly basis. See Interest Rate Sensitivity and Liquidity on the following page for more information. CAPITAL RESOURCES As of December 31, 2000, the Corporation's shareholders' equity was $191.2 million, an increase of 13.3% from the 1999 level of $168.7 million. This increase is in excess of increased dividends returned to shareholders and a stock repurchase plan, under which 151,181 shares were repurchased during 2000 for $5.2 million. In addition, during 2000, the Corporation recorded a net unrealized gain on available-for-sale securities of $11.7 million. While this fluctuation in fair value increased shareholders' equity, no gain is recognized in net income unless the security is sold. Bank regulatory agencies have established capital adequacy standards which are used extensively in their monitoring and control of the industry. These standards relate capital to level of risk by assigning different weightings to assets and certain off-balance-sheet activity. As shown in the footnote to the consolidated financial statements ("Regulatory Matters"), the Corporation's capital exceeds the requirements to be considered well capitalized at December 31, 2000. First Financial Corporation's objective continues to be to maintain adequate capital to merit the confidence of its customers and shareholders. To warrant this confidence, the Corporation's management maintains a capital position which they believe is sufficient to absorb unforeseen financial shocks without unnecessarily restricting dividends to its shareholders. The Corporation's dividend payout ratio for 2000 and 1999 was 31.2% and 30.1%, respectively. The Corporation expects to continue its policy of paying regular cash dividends, subject to future earnings and regulatory restrictions and capital requirements. INTEREST RATE SENSITIVITY AND LIQUIDITY First Financial Corporation charges the nine subsidiary banks with monitoring and managing their individual sensitivity to fluctuations in interest rates and assuring that they have adequate liquidity to meet loan and deposit demand or any potential unexpected deposit withdrawals. This function is facilitated by the Asset/Liability Committee. The primary goal of the committee is to maximize net interest income within the interest rate risk limits approved by the Board of Directors. This goal is accomplished through management of the subsidiary banks' balance sheet liquidity and interest rate risk exposures due to the changes in economic conditions and interest rate levels. INTEREST RATE RISK Management considers interest rate risk to be the Corporation's most significant market risk. Interest rate risk is the exposure to changes in net interest income as a result of changes in interest rates. Consistency in the Corporation's net income is largely dependent on the effective management of this risk. The Committee reviews a series of monthly reports to ensure that performance objectives are being met. The Committee monitors and controls interest rate risk through earnings simulation. Simulation modeling measures the effects of changes in interest rates, changes in the shape of the yield curve, and changes in prepayment speeds on net interest income. The primary measure of Interest Rate Risk is "Earnings at Risk." This measure projects the earnings effect of various rate movements over the next three years on net interest income. It is important to note that measures of interest rate risk have limitations and are dependent upon certain assumptions. These assumptions are inherently uncertain and, as a result, the model cannot precisely predict the impact of interest rate fluctuations on net interest income. Actual results will differ from simulated results due to timing, frequency and amount of interest rate changes as well as overall market conditions. The Committee has performed a thorough analysis and believes the assumptions to be valid and theoretically sound. The relationships are continuously monitored for behavioral changes. 31
33 FINANCIAL CONDITION - SUMMARY The Corporation does not significantly rely on any derivative products to manage interest rate risk, nor does it have a trading account. The Corporation does have certain assets, such as callable agency securities, and liabilities, such as callable FHLB advances, which contain embedded derivatives that are clearly and closely related to the underlying assets and liabilities. During 2000, the Corporation entered into an interest rate swap designed to hedge the interest rate risk associated with a fixed rate certificate of deposit promotion. Management will continue to evaluate the merits and attendant risks of financial instruments designed to facilitate the management of interest rate risk but does not expect the use of such products will become a significant part of the Corporation's interest rate risk management strategy. The table below shows the Corporation's estimated earnings sensitivity profile as of December 31, 2000. Given a 100 basis point increase in rates, net interest income would decrease 4.77% over the next 12 months and decrease 5.40% over the next 24 months. A 100 basis point decrease would result in a .73% increase in net interest income over the next 12 months and a .83% increase over the next 24 months. These estimates assume all rates changed overnight and management took no action as a result of this change. PERCENTAGE CHANGE IN NET INTEREST INCOME BASIS POINT ----------------------------------------- INTEREST RATE CHANGE 12 MONTHS 24 MONTHS 36 MONTHS - -------------------------------------------------------------------------------- Down 200 -0.32% -0.02% -3.76% Down 100 0.73 0.83 -1.03 Up 100 -4.77 -5.40 -3.60 Up 200 -9.39 -10.50 -6.85 Typical rate shock analysis does not reflect management's ability to react and thereby reduce the effects of rate changes, and represents a worst case scenario. The model assumes no actions are taken and prices change to the full extent of the rate shock. LIQUIDITY RISK Liquidity is measured by each bank's ability to raise funds to meet the obligations from its customers, including deposit withdrawals and credit needs. This is accomplished primarily by maintaining sufficient liquid assets in the form of investment securities and core deposits. The Corporation has $15.1 million of investments that mature throughout the coming 12 months. The Corporation also anticipates $36.1 million of principal payments from mortgage-backed securities. Given the current rate environment, the Corporation anticipates $82.9 million in securities to be called within 2000 or the next 12 months. OUTLOOK The Wabash Valley, the Corporation's primary market area, enjoyed economic growth similar to the national economy throughout 2000, including a clear slowing of economic activity during the latter part of the year. Although an economic slowdown could have an adverse impact on the local economy, historically the Wabash Valley has slowed at a lower rate than that of the country or state. This is due largely to the fact that the Wabash Valley is not dependent on any one industry segment but is a regional center for retail, education and health-related fields. Management anticipates that the outlook for 2001 will be somewhat slower than the previous year with growth in loans and deposits reflective of a slower economy. The Corporation also continues to look for merger or acquisition opportunities throughout the Wabash Valley that share First Financial's mission of quality service to their customers. These smaller institutions increasingly realize the need to align with an organization that has the resources to compete on a regional level. With the largest retail presence in the Wabash Valley, First Financial is poised to provide these resources. Like most other financial institutions, the Corporation has placed a high emphasis on marketing efforts. The goal is to attain a greater share of each customer's financial activities, commonly called "share of the wallet." To this end, First Financial has established a full-service brokerage, expanded its trust activities and is currently evaluating the delivery of certain insurance products. These activities are expected to provide an increased amount of fee-based income in the future. 32
34 FIRST FINANCIAL CORPORATION CONSOLIDATED BALANCE SHEET - AVERAGE BALANCES AND INTEREST RATES <TABLE> <CAPTION> DECEMBER 31, ---------------------------------------------------------------------------------------------------- 2000 1999 1998 -------------------------------- ------------------------------- ------------------------------- Average Yield/ Average Yield/ Average Yield/ (Dollar amounts in thousands) Balance Interest Rate Balance Interest Rate Balance Interest Rate - ------------------------------------------------------------------------------------------------------------------------------------ <S> <C> <C> <C> <C> <C> <C> <C> <C> <C> ASSETS Interest-earning assets: Loans ((1)) ((2)) $1,256,505 $ 107,633 8.57% $1,151,968 $ 96,565 8.38% $1,066,537 93,977 8.81% Taxable investment securities 430,467 30,535 7.09 427,781 28,500 6.66 413,941 27,091 6.54 Tax-exempt investment securities ((2)) 162,907 12,857 7.89 153,112 12,383 8.09 148,383 12,015 8.10 Federal funds sold 5,832 380 6.52 16,991 852 5.01 12,131 657 5.42 ---------- ---------- ---- ---------- ---------- ---- --------- ------- ---- Total interest-earning assets 1,855,711 151,405 8.16% 1,749,852 138,300 7.90% 1,640,992 133,740 8.15% ---------- ==== ------- ==== ------- ==== Non-interest earning assets: Cash and due from bank 63,158 58,212 54,909 Premises and equipment, net 26,404 24,847 24,723 Other assets 39,900 41,469 36,766 Less allowance for loan losses (19,017) (17,585) (15,690) ---------- ---------- ---------- TOTALS $1,966,156 $1,856,795 $1,741,700 ========== ========== ========== LIABILITIES AND SHAREHOLDERS' EQUITY Interest-bearing liabilities: Transactions accounts $ 411,936 9,901 2.40% $ 409,279 9,193 2.25% $389,129 9,375 2.41% Time deposits 716,290 39,991 5.58 704,061 36,144 5.13 732,668 41,013 5.60 Short-term borrowings 75,230 4,747 6.31 66,594 3,469 5.21 49,643 2,715 5.47 Other borrowings 429,383 25,944 6.04 337,007 18,009 5.34 235,333 13,327 5.66 ---------- ---------- ---- ---------- ---------- ---- --------- ------- ---- Total interest-bearing liabilities: 1,632,839 80,583 4.94% 1,516,941 66,815 4.40% 1,406,773 66,430 4.72% ------ ==== ------ ==== ------ ==== Non interest-bearing liabilities: Demand deposits 145,923 143,551 133,259 Other 8,491 23,973 29,223 ---------- ---------- ----------- 1,787,253 1,684,465 1,569,255 Shareholders' equity 178,903 172,330 172,445 ---------- ---------- ----------- TOTALS $1,966,156 $1,856,795 $ 1,741,700 ========== ========== =========== Net interest earnings $ 70,822 $ 71,485 67,310 ========== ========== ====== Net yield on interest-earning assets 3.82% 4.09% 4.10% ==== ==== ==== </TABLE> (1) For purposes of these computations, nonaccruing loans are included in the daily average loan amounts outstanding. (2) Interest income includes the effect of tax equivalent adjustments using a federal tax rate of 35%. 33
35 MARKET AND DIVIDEND INFORMATION At year-end 2000 shareholders owned 6,694,237 shares of the Corporation's common stock. The stock is traded over-the-counter under the NASDAQ National Market System with the symbol THFF. Such over-the-counter market quotations reflect inter-dealer prices, without retail mark-up, mark-down or commission and may not necessarily represent actual transactions. Historically, the Corporation has paid cash dividends semi-annually and currently expects that comparable cash dividends will continue to be paid in the future. The following table gives quarterly high and low trade prices and dividends per share during each quarter for 2000 and 1999. <TABLE> <CAPTION> 2000 1999 ----------------------------- --------------------------- Bid Quotation Cash Bid Quotation Cash Dividends Dividends Quarter ended High Low Declared High Low Declared - ------------------------------------------------------------------------------------------------------ <S> <C> <C> <C> <C> <C> <C> March 31 $41.22 $33.19 $51.50 $41.00 June 30 $34.68 $30.38 $ .52 $45.00 $36.41 $ .44 September 30 $33.62 $29.00 $38.25 $35.00 December 31 $32.94 $27.50 $ .56 $41.50 $34.50 $ .50 </TABLE> SELECTED QUARTERLY DATA <TABLE> <CAPTION> 2000 ---------------------------------------------------------- Net Provision Interest Interest Interest for Loan Net Net Income (Dollar amounts in thousands) Income Expense Income Losses Income Per Share - ------------------------------------------------------------------------------------------------------ <S> <C> <C> <C> <C> <C> <C> March 31 $35,151 $18,397 $16,754 $ 860 $5,415 $ .80 June 30 $36,286 $19,229 $17,057 $1,189 $6,081 $ .90 September 30 $37,134 $20,931 $16,203 $1,140 $5,974 $ .89 December 31 $37,846 $22,026 $15,820 $1,203 $5,743 $ .86 <CAPTION> 1999 ---------------------------------------------------------- Net Provision Interest Interest Interest for Loan Net Net Income (Dollar amounts in thousands) Income Expense Income Losses Income Per Share - ------------------------------------------------------------------------------------------------------ <S> <C> <C> <C> <C> <C> <C> March 31 $32,614 $16,283 $16,331 $1,482 $4,992 $ .71 June 30 $32,897 $16,328 $16,569 $1,078 $5,386 $ .77 September 30 $33,774 $16,692 $17,082 $1,084 $5,520 $ .80 December 31 $34,291 $17,512 $16,779 $1,081 $5,724 $ .83 </TABLE> 34