-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, U+Mn59nYnK6xUR1WMS34nuPDsE9rVlf9Nmw2bXXk88Fq4UkhbeJgZumUC6AEJsoV +eNIlU90St0odO0QyYc0hQ== 0000950137-04-001844.txt : 20040315 0000950137-04-001844.hdr.sgml : 20040315 20040315105150 ACCESSION NUMBER: 0000950137-04-001844 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 7 CONFORMED PERIOD OF REPORT: 20031231 FILED AS OF DATE: 20040315 FILER: COMPANY DATA: COMPANY CONFORMED NAME: FIRST FINANCIAL CORP /IN/ CENTRAL INDEX KEY: 0000714562 STANDARD INDUSTRIAL CLASSIFICATION: STATE COMMERCIAL BANKS [6022] IRS NUMBER: 351546989 STATE OF INCORPORATION: IN FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K SEC ACT: 1934 Act SEC FILE NUMBER: 000-16759 FILM NUMBER: 04668090 BUSINESS ADDRESS: STREET 1: ONE FIRST FINANCIAL PLAZA CITY: TERRE HAUTE STATE: IN ZIP: 47807 BUSINESS PHONE: (812) 238-6000 MAIL ADDRESS: STREET 1: ONE FIRST FINANCIAL PLAZA CITY: TERRE HAUTE STATE: IN ZIP: 47807 FORMER COMPANY: FORMER CONFORMED NAME: TERRE HAUTE FIRST CORP DATE OF NAME CHANGE: 19850808 10-K 1 c83720e10vk.txt ANNUAL REPORT SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-K ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the Fiscal Year Ended Commission file number December 31, 2003 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: None Securities registered pursuant to Section 12(g) of the Act:
TITLE OF EACH CLASS NAME OF EACH EXCHANGE ON WHICH REGISTERED - ------------------- ----------------------------------------- Common Stock, no par value Nasdaq
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 S-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. [ ] Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Act). Yes X No --- --- As of June 30, 2003 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 $337,295,810. (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 February 29, 2004--13,563,770 shares. DOCUMENTS INCORPORATED BY REFERENCE Portions of the 2003 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 of Shareholders to be held April 21, 2004 are incorporated by reference into Part III. FORM 10-K CROSS-REFERENCE INDEX
PAGE PART I Item 1 Business ...................................................................................... 2 Item 2 Properties .................................................................................... 2 Item 3 Legal Proceedings ............................................................................. 2 Item 4 Submission of Matters to a Vote of Security Holders ........................................... 2 PART II Item 5 Market for Registrant's Common Stock and Related Stockholder Matters .......................... 3 Item 6 Selected Financial Data ....................................................................... 3 Item 7 Management's Discussion and Analysis of Financial Condition and Results of Operation .......... 3 Item 7A Quantitative and Qualitative Disclosures about Market Risk .................................... 3 Item 8 Financial Statements and Supplementary Data ................................................... 3 Item 9 Changes in and Disagreements with Accountants on Accounting and Financial Disclosures ......... 3 Item 9A Controls and Procedures ....................................................................... 3, 4 PART III Item 10 Directors and Executive Officers of Registrant ............................................... 4 Item 11 Executive Compensation ....................................................................... 4 Item 12 Security Ownership of Certain Beneficial Owners and Management and Related Shareholder Matters 4 Item 13 Certain Relationships and Related Transactions ............................................... 4 Item 14 Principal Accountant Fees and Services ....................................................... 4 PART IV Item 15 Exhibits, Financial Statement Schedules and Reports on Form 8-K .............................. 5 Signatures ................................................................................... 6, 7
1 PART I ITEM 1. BUSINESS First Financial Corporation (the "Corporation") is a financial services holding company formed under Indiana law in 2001. The Corporation was originally organized as a multi-bank holding company in 1984. For more information on the Corporation's business, please refer to the following sections of the 2003 Annual Report to Shareholders: 1. Description of services, affiliations, number of employees, and competition, on page 30. 2. Information regarding supervision of the Corporation, on page 14. 3. Details regarding competition, on page 30. ITEM 2. PROPERTIES First Financial Corporation is located in a four-story office building in downtown Terre Haute, Indiana that was first occupied in June 1988. It is leased to First Financial Bank N.A., formerly known as 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 six other branch buildings. One of the branch buildings is a single story 36,000-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 June 30, 2012, May 31, 2011, February 14, 2011, December 31, 2008, September 1, 2006, and June 30, 2004. Facilities of the Corporation's subsidiary, First State Bank, include its main office in Brazil, Indiana and four branch facilities in Brazil, Clay City and Poland, Indiana. All five buildings are held in fee by First State. Facilities of the Corporation's subsidiary, First Citizens State Bank of Newport, include its main office in Newport, Indiana and three branch facilities in Cayuga and Clinton, Indiana. All four buildings are held in fee by First Citizens. Facilities of the Corporation's subsidiary, First Farmers State Bank, include its main office in Sullivan, Indiana and seven branch facilities in Carlisle, Dugger, Farmersburg, Hymera, Monroe City, Sandborn and Worthington, Indiana. All eight buildings are held in fee by First Farmers. Facilities of the Corporation's subsidiary, First Parke State Bank, include its main office in Rockville, Indiana and four branch facilities in Rockville, Marshall, Montezuma and Rosedale, Indiana. All five buildings are held in fee by First Parke. 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 leased by The Morris Plan Company. The expiration date on the lease is August 31, 2008. Facilities of the Corporation's subsidiary, Forrest Sherer, Inc., include its main office and one satellite office in Terre Haute, Indiana. The buildings are held in fee by Forrest Sherer, Inc. Facilities of the Corporation's subsidiary, First Community Bank, N.A., include its main office in Olney, Illinois, and five branch facilities in Olney, Lawrenceville, Fairfield, Newton and Charleston, Illinois. All of the buildings are held in fee by First Community Bank, N.A., except the Olney branch, which is leased. The expiration date on the lease is March 1, 2005. ITEM 3. LEGAL PROCEEDINGS There are no material pending legal proceedings which involve the Corporation or its subsidiaries. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS None 2 PART II ITEM 5. MARKET FOR REGISTRANT'S COMMON STOCK AND RELATED STOCKHOLDER MATTERS See "Market and Dividend Information" on page 41 of the 2003 Annual Report. That portion of the Annual Report is incorporated by reference into this Form 10-K. ITEM 6. SELECTED FINANCIAL DATA See "Five Year Comparison of Selected Financial Data" on page 9 of the 2003 Annual Report to Shareholders. That portion of the Annual Report is incorporated by reference into this Form 10-K. ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATION See "Management's Discussion and Analysis" on pages 30 through 39 of the 2003 Annual Report to Shareholders. That portion of the Annual Report is incorporated by reference into this Form 10-K. ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK See "Interest Rate Risk" section of "Management's Discussion and Analysis" on pages 38 and 39 of the 2003 Annual Report to Shareholders. That portion of the Annual Report is incorporated by reference into this Form 10-K. ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA See "Consolidated Balance Sheets" on page 10, "Consolidated Statements of Income" on page 11, "Consolidated Statements of Changes in Shareholders Equity" on page 12, "Consolidated Statements of Cash Flows" on page 13, and "Notes to Consolidated Financial Statements" on pages 14-28. "Responsibility for Financial Statements" and "Report of Independent Auditors" can be found on page 29. Those portions of the Annual Report are incorporated by reference into this Form 10-K. Statistical disclosure by the Corporation includes the following information: 1. "Volume/Rate Analysis," on page 32. 2. "Loan Portfolio," on page 34. 3. "Allowance for Loan Losses," on page 35. 4. "Under-Performing Loans," on page 36. 5. "Deposits," on page 37. 6. "Short-Term Borrowings," on page 37. 7. "Consolidated Balance Sheet-Average Balances and Interest Rates," on page 40. ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE None ITEM 9A CONTROLS AND PROCEDURES EVALUATION OF DISCLOSURE CONTROLS AND PROCEDURES As of the end of the period covered by this report, we carried out an evaluation (the "Evaluation"), under the supervision and with the participation of our President and Chief Executive Officer ("CEO") and Chief Financial Officer ("CFO"), of the effectiveness of the design and operation of our disclosure controls and procedures ("Disclosure Controls"). Based on the Evaluation, our CEO and CFO concluded that, subject to the limitations noted below, our Disclosure Controls are effective in alerting them in a timely way to material information required to be included in our periodic SEC reports. CHANGES IN INTERNAL CONTROLS We have also evaluated our internal controls for financial reporting, and there have been no significant changes in our internal controls subsequent to the date of their last evaluation. 3 LIMITATIONS ON THE EFFECTIVENESS OF CONTROLS A control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. Further, the design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any within the Corporation, have been detected. These inherent limitations include the realities that judgements in decision-making can be faulty, and that breakdowns can occur because of simple error or mistake. Additionally, controls can be circumvented by the individual acts of some persons, by collusion of two or more people, or by management override of the control. The design of any system of controls also is based in part upon certain assumptions about the likelihood of future events, and there can only be reasonable assurance that any design will succeed in achieving its stated goals under all potential future conditions; over time, control may become inadequate because of changes in conditions, or the degree of compliance with the policies or procedures may deteriorate. Because of the inherent limitations in a cost-effective control system, misstatements due to error or fraud may occur and may not be detected. PART III ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF REGISTRANT In accordance with the provisions of General Instruction G to Form 10-K, the information required for the remainder of the required disclosures under Item 10 is not set forth herein because the Corporation intends to file with the Securities and Exchange Commission a definitive Proxy Statement pursuant to Regulation 14A not later than 120 days following the end of its 2003 fiscal year, which Proxy Statement will contain such information. The information required by Item 10 is incorporated by reference to such Proxy Statement. ITEM 11. EXECUTIVE COMPENSATION In accordance with the provisions of General Instruction G to Form 10-K, the information required for the remainder of the required disclosures under Item 11 is not set forth herein because the Corporation intends to file with the Securities and Exchange Commission a definitive Proxy Statement pursuant to Regulation 14A not later than 120 days following the end of its 2003 fiscal year, which Proxy Statement will contain such information. The information required by Item 11 is incorporated by reference to such Proxy Statement. ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT In accordance with the provisions of General Instruction G to Form 10-K, the information required for the remainder of the required disclosures under Item 12 is not set forth herein because the Corporation intends to file with the Securities and Exchange Commission a definitive Proxy Statement pursuant to Regulation 14A not later than 120 days following the end of its 2003 fiscal year, which Proxy Statement will contain such information. The information required by Item 12 is incorporated by reference to such Proxy Statement. ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS In accordance with the provisions of General Instruction G to Form 10-K, the information required for the remainder of the required disclosures under Item 13 is not set forth herein because the Corporation intends to file with the Securities and Exchange Commission a definitive Proxy Statement pursuant to Regulation 14A not later than 120 days following the end of its 2003 fiscal year, which Proxy Statement will contain such information. The information required by Item 13 is incorporated by reference to such Proxy Statement. ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES In accordance with the provisions of General Instruction G to Form 10-K, the information required for the remainder of the required disclosures under Item 14 is not set forth herein because the Corporation intends to file with the Securities and Exchange Commission a definitive Proxy Statement pursuant to Regulation 14A not later than 120 days following the end of its 2003 fiscal year, which Proxy Statement will contain such information. The information required by Item 14 is incorporated by reference to such Proxy Statement. 4 PART IV ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K (a) (1) The following consolidated financial statements of the Registrant and its subsidiaries are included in the 2003 Annual Report of First Financial Corporation attached: Consolidated Balance Sheets--December 31, 2003 and 2002 Consolidated Statements of Income--Years ended December 31, 2003, 2002, and 2001 Consolidated Statements of Changes in Shareholders' Equity--Years ended December 31, 2003, 2002, and 2001 Consolidated Statements of Cash Flows--Years ended December 31, 2003, 2002, and 2001 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 -------------- ----------- 13 Annual Report 21 Subsidiaries 31.1 Certification for Annual Report of Form 10-K by Principal Executive Officer 31.2 Certification for Annual Report of Form 10-K by Principal Financial Officer 32.1 Certification of Principal Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 32.2 Certification of Principal Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (b) Reports on Forms 8-K--First Financial furnished a Form 8-K to the Securities and Exchange Commission on November 3, 2003 in connection with the announcement of its earnings for the third quarter of 2003 and on November 21, 2003 in connection with the announcement of its declaration of a semi-annual dividend. (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 15(a)(2). 5 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 17, 2004 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 17, 2004 - ----------------------- ----------------- Donald E. Smith, President & Director Michael A. Carty, Signed February 17, 2004 - ------------------------ ----------------- Michael A. Carty, Treasurer (Principal Financial Officer and Principal Accounting Officer) B. Guille Cox, Jr., Signed February 17, 2004 - -------------------------- ----------------- B. Guille Cox, Jr., Director Thomas T. Dinkel, Signed February 17, 2004 - ------------------------ ----------------- Thomas T. Dinkel, Director Anton H. George, Signed February 17, 2004 - ----------------------- ----------------- Anton H. George, Director Mari H. George, Signed February 17, 2004 - ---------------------- ----------------- Mari H. George, Director Gregory L. Gibson, Signed February 17, 2004 - ------------------------- ----------------- Gregory L. Gibson, Director Norman L. Lowery, Signed February 17, 2004 - ------------------------ ----------------- Norman L. Lowery, Director (Principal Executive Officer) William A. Niemeyer, Signed February 17, 2004 - --------------------------- ----------------- William A. Niemeyer, Director Patrick O'Leary, Signed February 17, 2004 - ----------------------- ----------------- Patrick O'Leary, Director - ---------------------------- Chapman J. Root II, Director February 17, 2004 ----------------- Virginia L. Smith, Signed - ------------------------- Virginia L. Smith, Director February 17, 2004 -----------------
6 EX-13 3 c83720exv13.txt ANNUAL REPORT TO SHAREHOLDERS . . . 2003 ANNUAL REPORT FIVE YEAR COMPARISON OF SELECTED FINANCIAL DATA
(Dollar amounts in thousands, except per share amounts) 2003 2002 2001 2000 1999 - -------------------------------------------------------------------------------------------------------------------------------- BALANCE SHEET DATA: Total assets $2,223,057 $2,169,748 $2,041,905 $2,043,267 $1,905,201 Securities 567,733 511,548 463,509 568,405 594,319 Net loans 1,429,525 1,432,564 1,348,461 1,298,006 1,191,898 Deposits 1,479,347 1,434,654 1,313,656 1,322,559 1,256,115 Borrowings 451,862 457,645 480,674 507,771 445,821 Shareholders' equity 255,279 241,971 217,511 191,223 168,682 INCOME STATEMENT DATA: Interest income 122,661 136,262 144,673 146,417 133,576 Interest expense 48,225 58,086 74,125 80,583 66,815 Net interest income 74,436 78,176 70,548 65,834 66,761 Provision for loan losses 7,455 9,478 6,615 4,392 4,725 Other income 30,819 30,468 21,468 13,610 12,012 Other expenses 62,461 63,317 53,329 42,703 43,543 Net income 26,493 28,640 24,196 23,213 21,622 PER SHARE DATA: Net income 1.95 2.10 1.78 1.72 1.55 Cash dividends .70 .62 .57 .54 .47 PERFORMANCE RATIOS: Net income to average assets 1.21% 1.30% 1.19% 1.18% 1.16% Net income to average shareholders' equity 10.57 12.01 11.33 12.98 12.55 Average total capital to average assets 12.45 11.73 11.38 9.97 10.13 Average shareholders' equity to average assets 11.43 10.80 10.46 9.10 9.28 Dividend payout 35.88 29.57 32.28 31.19 30.10
FIRST FINANCIAL CORPORATION CONSOLIDATED BALANCE SHEETS
December 31, --------------------------------- (Dollar amounts in thousands, except per share data) 2003 2002 - ----------------------------------------------------------------------------------------------------------------- ASSETS Cash and due from banks $ 94,198 $ 96,043 Federal funds sold 5,850 50 Available-for-sale securities 567,733 511,548 Loans, net of allowance of $21,239 in 2003 and $21,249 in 2002 1,408,286 1,411,315 Accrued interest receivable 13,073 15,199 Premises and equipment, net 29,322 29,809 Bank-owned life insurance 50,279 47,736 Goodwill 7,102 7,102 Other intangible assets 3,651 4,289 Other real estate owned 6,424 5,006 Other assets 37,139 41,651 ----------- ----------- TOTAL ASSETS $ 2,223,057 $ 2,169,748 =========== =========== LIABILITIES AND SHAREHOLDERS' EQUITY Deposits: Non-interest-bearing $ 179,517 $ 146,585 Interest-bearing: Certificates of deposit of $100 or more 192,185 200,325 Other interest-bearing deposits 1,107,645 1,087,744 ----------- ----------- 1,479,347 1,434,654 Short-term borrowings 68,629 34,355 Other borrowings 383,233 423,290 Other liabilities 36,569 35,478 ----------- ----------- TOTAL LIABILITIES 1,967,778 1,927,777 Shareholders' equity Common stock, $.125 stated value per share, Authorized shares -- 40,000,000 Issued shares -- 14,450,966 Outstanding shares -- 13,578,770 in 2003 and 13,618,890 in 2002 1,806 903 Additional capital 67,181 66,809 Retained earnings 194,294 178,209 Accumulated other comprehensive income 11,463 14,276 Less: Treasury shares at cost -- 872,196 in 2003 and 832,076 in 2002 (19,465) (18,226) ----------- ----------- TOTAL SHAREHOLDERS' EQUITY 255,279 241,971 ----------- ----------- TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 2,223,057 $ 2,169,748 =========== ===========
See accompanying notes. 2003 ANNUAL REPORT CONSOLIDATED STATEMENTS OF INCOME
Years Ended December 31, -------------------------------------------- (Dollar amounts in thousands, except per share data) 2003 2002 2001 - -------------------------------------------------------------------------------------------------------------------- INTEREST AND DIVIDEND INCOME: Loans, including related fees $ 96,536 $105,566 $108,658 Securities: Taxable 15,714 19,129 24,622 Tax-exempt 7,816 8,326 8,326 Other 2,595 3,241 3,067 -------- -------- -------- TOTAL INTEREST AND DIVIDEND INCOME 122,661 136,262 144,673 INTEREST EXPENSE: Deposits 26,925 34,607 47,208 Short-term borrowings 431 687 2,514 Other borrowings 20,869 22,792 24,403 -------- -------- -------- TOTAL INTEREST EXPENSE 48,225 58,086 74,125 -------- -------- -------- NET INTEREST INCOME 74,436 78,176 70,548 Provision for loan losses 7,455 9,478 6,615 -------- -------- -------- NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES 66,981 68,698 63,933 NON-INTEREST INCOME: Trust and financial services 3,762 3,419 3,545 Service charges and fees on deposit accounts 8,066 6,183 5,470 Other service charges and fees 8,063 5,369 4,327 Securities gains 237 154 180 Insurance commissions 6,282 6,136 3,763 Gain on sale of mortgage loans 2,027 2,767 2,209 Gain on life insurance benefit -- 3,916 -- Other 2,382 2,524 1,974 -------- -------- -------- TOTAL NON-INTEREST INCOME 30,819 30,468 21,468 NON-INTEREST EXPENSES: Salaries and employee benefits 36,696 36,528 30,544 Occupancy expense 3,830 3,707 3,692 Equipment expense 3,224 3,306 3,448 Other 18,711 19,776 15,645 -------- -------- -------- TOTAL NON-INTEREST EXPENSE 62,461 63,317 53,329 -------- -------- -------- INCOME BEFORE INCOME TAXES 35,339 35,849 32,072 Provision for income taxes 8,846 7,209 7,876 -------- -------- -------- NET INCOME $ 26,493 $ 28,640 $ 24,196 ======== ======== ======== EARNINGS PER SHARE: NET INCOME $ 1.95 $ 2.10 $ 1.78 ======== ======== ======== Weighted average number of shares outstanding (in thousands) 13,588 13,652 13,600 ======== ======== ========
See accompanying notes. FIRST FINANCIAL CORPORATION CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
Accumulated Other (Dollar amounts in thousands, except per share Common Additional Retained Comprehensive Treasury data) stock Capital Earnings Income Stock Total - ------------------------------------------------------------------------------------------------------------------------ BALANCE, JANUARY 1, 2001 $ 903 $ 66,680 $ 141,653 $ 3,900 $ (21,913) $ 191,223 Comprehensive income: Net income - - 24,196 - - 24,196 Other comprehensive income, net of tax: Change in net unrealized gains/losses on available-for-sale securities - - - 4,399 - 4,399 --------- Total comprehensive income 28,595 Issuance of treasury stock (365,344 shares) - - - - 6,801 6,801 Treasury stock purchase (65,298 shares) - - - - (1,297) (1,297) Cash dividends, $ .57 per share - - (7,811) - - (7,811) --------- --------- --------- --------- --------- --------- BALANCE, DECEMBER 31, 2001 903 66,680 158,038 8,299 (16,409) 217,511 Comprehensive income: Net income - - 28,640 - - 28,640 Other comprehensive income, net of tax: Change in net unrealized gains/losses on available-for-sale securities - - - 5,977 - 5,977 --------- Total comprehensive income 34,617 Contribution of 41,500 shares to ESOP - 129 - - 909 1,038 Treasury stock purchase (111,130 shares) - - - - (2,726) (2,726) Cash dividends, $ .62 per share - - (8,469) - - (8,469) --------- --------- --------- --------- --------- --------- BALANCE, DECEMBER 31, 2002 903 66,809 178,209 14,276 (18,226) 241,971 Comprehensive income: Net income - - 26,493 - - 26,493 Other comprehensive income, net of tax: Change in net unrealized gains/losses on available-for-sale securities - - - (2,813) - (2,813) --------- Total comprehensive income 23,680 Two-for-one stock split 903 - (903) - - - Contribution of 40,000 shares to ESOP - 372 - - 884 1,256 Treasury stock purchase (80, 120 shares) - - - - (2,123) (2,123) Cash dividends, $ .70 per share - - (9,505) - - (9,505) --------- --------- --------- --------- --------- --------- BALANCE, DECEMBER 31, 2003 $ 1,806 $ 67,181 $ 194,294 $ 11,463 $ (19,465) $ 255,279 ========= ========= ========= ========= ========= =========
See accompanying notes. 2003 ANNUAL REPORT CONSOLIDATED STATEMENTS OF CASH FLOWS
Years Ended December 31, ------------------------------------------------- (Dollar amounts in thousands, except per share data) 2003 2002 2001 - --------------------------------------------------------------------------------------------------------------------------------- CASH FLOWS FROM OPERATING ACTIVITIES: Net income $ 26,493 $ 28,640 $ 24,196 Adjustments to reconcile net income to net cash provided by operating activities: Net (accretion) amortization on securities 558 (941) (2,128) Provision for loan losses 7,455 9,478 6,615 Securities gains (237) (154) (180) Depreciation and amortization 2,883 2,950 3,500 Provision for deferred income taxes (252) (827) 110 Net change in accrued interest receivable 2,126 1,036 2,855 Contribution of shares to ESOP 1,256 1,038 - Other, net 4,527 (6,342) (4,202) --------- --------- --------- NET CASH FROM OPERATING ACTIVITIES 44,809 34,878 30,766 --------- --------- --------- CASH FLOWS FROM INVESTING ACTIVITIES: Sales of available-for-sale securities 8,308 9,736 1,097 Maturities and principal reductions on available-for-sale securities 189,049 131,304 156,938 Purchases of available-for-sale securities (258,551) (140,015) (43,499) Loans made to customers, net of repayments (5,844) 6,237 (57,521) Net change in federal funds sold (5,800) 43,326 (39,201) Purchase of Forrest Sherer Inc. - - (1,699) Purchase of Community Financial Corp. - 14,554 - Additions to premises and equipment (1,758) (2,442) (2,548) --------- --------- --------- NET CASH FROM INVESTING ACTIVITIES (74,596) 62,700 13,567 --------- --------- --------- CASH FLOWS FROM FINANCING ACTIVITIES: Net change in deposits 44,693 (25,638) (8,903) Net change in other short-term borrowings 34,274 (25,379) 35,888 Dividends paid (8,845) (8,209) (7,586) Purchases of treasury stock (2,123) (2,726) (1,297) Proceeds from other borrowings 18,013 21,006 78,923 Repayments on other borrowings (58,070) (28,794) (141,908) --------- --------- --------- NET CASH FROM FINANCING ACTIVITIES 27,942 (69,740) (44,883) --------- --------- --------- NET CHANGE IN CASH AND CASH EQUIVALENTS (1,845) 27,838 (550) CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR 96,043 68,205 68,755 --------- --------- --------- CASH AND CASH EQUIVALENTS, END OF YEAR $ 94,198 $ 96,043 $ 68,205 ========= ========= ========= SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION: Cash paid during the year for: Interest $ 48,791 $ 58,925 $ 76,049 ========= ========= ========= Income taxes $ 8,016 $ 11,388 $ 7,533 ========= ========= =========
See accompanying notes. 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, First Financial Bank, N.A. of Vigo County, Indiana (First Financial Bank, formerly known as Terre Haute First), The Morris Plan Company of Terre Haute (Morris Plan), First State Bank of Clay County, Indiana (State), First Citizens State Bank of Vermillion County, Indiana (Citizens), First Farmers State Bank of Sullivan County, Indiana (Farmers), First Parke State Bank of Parke County, Indiana (Parke), First Crawford State Bank of Crawford County, Illinois (Crawford), First Community Bank, N.A. of Richland County, Illinois (Community), First Financial Reinsurance Company, a corporation incorporated in the country of Turks and Caicos Islands (FFRC) and Forrest Sherer Inc., a full-line insurance agency headquartered in Terre Haute, Indiana. Inter-company transactions and balances have been eliminated. First Financial Bank also has two investment subsidiaries, Portfolio Management Specialists A (Specialists A) and Portfolio Management Specialists B (Specialists B), which were established to hold and manage certain securities as part of a strategy to manage taxable income and reduce tax expense. Specialists A and Specialists B subsequently entered into a limited partnership agreement, Global Portfolio Limited Partners. At December 31, 2003, $230.9 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, mortgage and consumer lending, lease financing, trust account services and depositor services through its ten subsidiaries. First Financial Bank is the largest bank in Vigo County. It operates 12 full-service banking branches within the county and one each in Ridge Farm, Illinois and Marshall, Illinois. It also has a main office in downtown Terre Haute and an operations center/office building in southern Terre Haute. The Corporation operates 46 branches in west-central Indiana and east-central Illinois. The Corporation's primary source of revenue is derived from loans to customers, primarily middle-income individuals, and investment activities. REGULATORY AGENCIES: First Financial Corporation is a multi-bank holding company and as such is regulated by various banking agencies. The holding company is regulated by the Seventh District of the Federal Reserve System. The national bank subsidiaries are regulated by the Office of the Comptroller of the Currency. The state bank subsidiaries are jointly regulated by their respective state banking organizations and the Federal Deposit Insurance Corporation. SIGNIFICANT ACCOUNTING POLICIES USE OF ESTIMATES: To prepare financial statements in conformity with accounting principles generally accepted in the United States of America, management makes estimates and assumptions based on available information. These estimates and assumptions affect the amounts reported in the financial statements and disclosures provided, and actual results could differ. The allowance for loan losses, carrying value of intangible assets, loan servicing rights and the fair values of financial instruments are particularly subject to change. CASH FLOWS: Cash and cash equivalents include cash and demand deposits with other financial institutions. Net cash flows are reported for customer loan and deposit transactions and short-term borrowings. SECURITIES: The Corporation classifies all securities as "available for sale." Securities are classified as available for sale when they might be sold before maturity. Securities available for sale are carried at fair value with unrealized holdings gains and losses, net of taxes, reported in other comprehensive income within shareholders' equity. Other securities, such as Federal Home Loan Bank stock, are carried at cost. Interest income includes amortization of purchase premium or discount. Realized gains and losses on sales are based on the amortized cost of the security sold. Securities are written down to fair value if and when a decline in fair value is not temporary. LOANS: Loans that management has the intent and ability to hold for the foreseeable future until maturity or pay-off 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. All interest accrued but not received for loans placed on nonaccrual is reversed against interest income. Interest received on such loans is accounted for on the cash-basis or cost-recovery method, until qualifying for return to accrual. Loans are returned to accrual status when all the principal and interest amounts contractually due are brought current and future payments are reasonably assured. 2003 ANNUAL REPORT NOTES TO CONSOLIDATED FINANCIAL STATEMENTS ALLOWANCE FOR LOAN LOSSES: The allowance for loan losses is a valuation allowance for probable incurred credit losses, increased by the provision for loan losses and decreased by charge-offs less recoveries. Management estimates the allowance balance required using past loan loss experience, the nature and volume of the portfolio, information about specific borrower situations and estimated collateral values, economic conditions and other factors. Allocations of the allowance may be made for specific loans, but the entire allowance is available for any loan that, in management's judgment, should be charged off. Loan losses are charged against the allowance when management believes the uncollectibility of a loan balance is confirmed. A loan is impaired when full payment under the loan terms is not expected. Impairment is evaluated in total for smaller-balance loans of similar nature such as residential mortgages, consumer and credit card loans, and on an individual basis for other loans. If a loan is impaired, a portion of the allowance is allocated so that the loan is reported, net, at the present value of estimated future cash flows, using the loan's existing rate, or at the fair value of collateral if repayment is expected solely from the collateral. FORECLOSED ASSETS: Assets acquired through or instead of loan foreclosures are initially recorded at fair value when acquired, establishing a new cost basis. If fair value declines, a valuation allowance is recorded through expense. Costs after acquisition are expensed. PREMISES AND EQUIPMENT: Premises and equipment are stated at cost less accumulated depreciation. Depreciation is computed over the useful lives of the assets, which range from three to 39 years. SERVICING RIGHTS: Servicing rights are recognized as assets 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. GOODWILL AND OTHER INTANGIBLE ASSETS: Goodwill results from prior business acquisitions and represents the excess of the purchase price over the fair value of acquired tangible assets and liabilities and identifiable intangible assets. Upon adopting new accounting guidance in 2002, the Corporation ceased amortizing goodwill. Goodwill is assessed at least annually for impairment and any such impairment will be recognized in the period identified. The effect on net income of ceasing goodwill amortization in 2002 was $513 thousand. Other intangible assets consist of core deposit and acquired customer relationship intangible assets arising from the whole bank, insurance agency and branch acquisitions. They are initially measured at fair value and then are amortized on an accelerated method over their estimated useful lives, which are 12 and 10 years, respectively. LONG-TERM ASSETS: Premises and equipment and other long-term assets are reviewed for impairment when events indicate their carrying amount may not be recoverable from future undiscounted cash flows. If impaired, the assets are recorded at fair value. 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. Such financial instruments are recorded when they are funded. DERIVATIVES: All derivative instruments are recorded at their fair values. If derivative instruments are designated as fair value hedges, both the change in the fair value of the hedge and in the fair value of the hedged item are included in current earnings. Fair value adjustments related to cash flow hedges are recorded in other comprehensive income and reclassified to earnings when the hedged transaction is reflected in earnings. Ineffective portions of hedges are reflected in income currently. EARNINGS PER SHARE: Earnings per common share is net income divided by the weighted average number of common shares outstanding during the period. The Corporation does not have any potentially dilutive securities. Earnings and dividends per share are restated for stock splits and dividends through the date of issue of the financial statements. FIRST FINANCIAL CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS COMPREHENSIVE INCOME: Comprehensive income consists of net income and other comprehensive income. Other comprehensive income includes unrealized gains and losses on securities available for sale, which are also recognized as separate components of equity. LOSS CONTINGENCIES: Loss contingencies, including claims and legal actions arising in the ordinary course of business, are recorded as liabilities when the likelihood of loss is probable and an amount of range of loss can be reasonably estimated. Management does not believe there are currently such matters that will have a material effect on the financial statements. DIVIDEND RESTRICTION: Banking regulations require maintaining certain capital levels and may limit the dividends paid by the bank to the holding company or by the holding company to shareholders. FAIR 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. OPERATING SEGMENT: While the Corporation's chief decision-makers monitor the revenue streams of the various products and services, the identifiable segments are not material and operations are managed and financial performance is evaluated on a corporate-wide basis. Accordingly, all of the Corporation's financial service operations are considered by management to be aggregated in one reportable operating segment, which is banking. ADOPTION OF NEW ACCOUNTING STANDARDS: During 2003, the Corporation adopted FASB Statement 143, Accounting for Asset Retirement Obligations; FASB Statement 145, Rescission of FASB Statement 4, 44 and 64, Amendment of FASB 13 and Technical Corrections; FASB Statement 146, Accounting for Cost Associated with Exit or Disposal Activities; FASB Statement 149, Amendment of Statement 133 on Derivative Investments and Hedging Activities; FASB Statement 150, Accounting for Certain Financial Instruments with Characteristics of both Liabilities and Equities; FASB Statement 132 (revised 2003), Employers' Disclosures about Pensions and Other Postretirement Benefits; FASB Interpretation 45, Guarantor's Accounting and Disclosure Requirements for Guarantees; and FASB Interpretation 46, Consolidation of Variable Interest Entities. Adoption of the new standards did not materially affect the Corporation's operating results or financial condition. RECLASSIFICATIONS: Some items in prior year financial statements were reclassified to conform to the current presentation. 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 debt is based on current rates for similar financing. The fair value of derivatives is based on the current fees or cost that would be charged to enter into or terminate such arrangements. The carrying amount and estimated fair value of financial instruments are presented in the table below and were determined based on the above assumptions:
December 31, ----------------------------------------------------------------------------- 2003 2002 --------------------------------- --------------------------------- Carrying Fair Carrying Fair (Dollar amounts in thousands) Value Value Value Value - ----------------------------------------------------------------------------------------------------------------------- Cash and due from banks $ 94,198 $ 94,198 $ 96,043 $ 96,043 Federal funds sold 5,850 5,850 50 50 Available-for-sale securities 567,733 567,733 511,548 511,548 Loans 1,430,084 1,432,640 1,433,212 1,438,723 Accrued interest receivable 13,073 13,073 15,199 15,199 Deposits (1,479,347) (1,488,240) (1,434,654) (1,446,483) Short-term borrowings (68,629) (68,629) (34,355) (34,355) Federal Home Loan Bank advances (358,633) (363,413) (397,190) (399,145) Other borrowings (24,600) (24,600) (26,100) (26,100) Accrued interest payable (3,435) (3,435) (4,001) (4,001) Derivative financial instruments - - 3 3
2003 ANNUAL REPORT NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 3. RESTRICTIONS ON CASH AND DUE FROM BANKS: Certain affiliate banks are required to maintain average reserve balances with the Federal Reserve Bank that do not earn interest. The amount of those reserve balances was approximately $28.5 million and $23.7 million at December 31, 2003 and 2002, respectively. 4. SECURITIES: The fair value of available-for-sale securities and related gains and losses recognized in accumulated other comprehensive income were as follows:
December 31, 2003 -------------------------------------------------------------------- Unrealized Amortized ----------------------------- Fair (Dollar amounts in thousands) Cost Gains Losses Value - ----------------------------------------------------------------------------------------------------------------- U.S. Government and its agencies $ 269,228 $ 4,143 $ (1,362) $ 272,009 Collateralized mortgage obligations 18,022 31 (29) 18,024 State and municipal 152,719 9,421 (150) 161,990 Corporate obligations 113,736 2,097 (123) 115,710 --------- --------- --------- --------- TOTAL $ 553,705 $ 15,692 $ (1,664) $ 567,733 ========= ========= ========= =========
December 31, 2002 -------------------------------------------------------------------- Unrealized Amortized ----------------------------- Fair (Dollar amounts in thousands) Cost Gains Losses Value - ----------------------------------------------------------------------------------------------------------------- U.S. Government and its agencies $ 204,114 $ 8,451 $ (15) $ 212,550 Collateralized mortgage obligations 29,049 400 (3) 29,446 State and municipal 162,897 9,151 (316) 171,732 Corporate obligations 96,250 1,808 (238) 97,820 --------- --------- --------- --------- TOTAL $ 492,310 $ 19,810 $ (572) $ 511,548 ========= ========= ========= =========
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 $4.1 million and $3.9 million, and fair value was $9.2 million and $8.4 million at December 31, 2003 and 2002, respectively. The Corporation invested in bank-owned life insurance for an initial premium of $45 million in 2000. 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, 2003, 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. Securities with a carrying value of approximately $31.3 million and $98.5 million at December 31, 2003 and 2002, respectively, were pledged as collateral for short-term borrowings and for other purposes. FIRST FINANCIAL CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Below is a summary of the gross gains and losses realized by the Corporation on investments during the years ended December 31, 2003, 2002 and 2001, respectively.
(Dollar amounts in thousands) 2003 2002 2001 - ----------------------------- ------ ------ ------ Proceeds $8,308 $9,736 $1,097 Gross gains 237 154 180 Gross losses -- -- --
Contractual maturities of debt securities at year-end 2003 were as follows. Securities not due at a single maturity date, primarily mortgage-backed securities, are shown separately. Also shown are the tax equivalent yields, computed using a 35% rate based on weighted average yields of securities maturing during each time period.
Available-for-Sale ----------------------------- Amortized Fair Average (Dollar amounts in thousands) Cost Value Yields ----------------------------- --------- --------- ------- Due in one year or less $ 19,191 $ 19,476 7.32% ==== Due after one but within five years 65,958 69,144 6.83% ==== Due after five but within ten years 64,578 70,179 7.52% ==== Due after ten years 135,669 138,191 5.13% ==== Mortgage-backed securities, primarily issued by U.S. Government agencies 268,309 270,743 3.91% ==== --------- --------- TOTAL $ 553,705 $ 567,733 ========= =========
The following table shows the securities' gross unrealized losses and fair value, aggregated by investment category and length of time that individual securities have been in continuous unrealized loss position, at December 31, 2003.
Less Than 12 Months More Than 12 Months Total ---------------------- ---------------------- ---------------------- Unrealized Unrealized Unrealized (Dollar amounts in thousands) Fair Value Losses Fair Value Losses Fair Value Losses - --------------------------------------- ---------- --------- ---------- ---------- ---------- ---------- U.S. Government and its agencies $ 87,414 $ (1,354) $ 121 $ (8) $ 87,535 $ (1,362) Collateralized mortgage obligations 18,021 (29) -- -- 18,021 (29) State and municipal obligations 4,140 (51) 484 (99) 4,624 (150) Corporate obligations 25,453 (71) 945 (52) 26,398 (123) ---------- ---------- ---------- ---------- ---------- ---------- Total temporarily impaired securities $ 135,028 $ (1,505) $ (1,550) $ (159) $ 136,578 $ (1,664) ========== ========== ========== ========== ========== ==========
These losses represent negative adjustments to market value relative to the rate of interest paid on the securities and not losses related to the creditworthiness of the issuer. Management believes the full amount of principal will be received upon maturity of these securities. 5. LOANS: Loans are summarized as follows:
December 31, ------------------------- (Dollar amounts in thousands) 2003 2002 - -------------------------------------- ---------- ---------- Commercial, financial and agricultural $ 374,638 $ 331,316 Real estate - construction 35,361 42,930 Real estate - mortgage 766,911 789,618 Installment 248,290 268,067 Lease financing 4,884 1,281 ---------- ---------- Total gross loans 1,430,084 1,433,212 Less: unearned income (559) (648) allowance for loan losses (21,239) (21,249) ---------- ---------- TOTAL $1,408,286 $1,411,315 ========== ==========
2003 ANNUAL REPORT NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 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 2003 the aggregate dollar amount of these loans to directors and executive officers who held office at the end of the year amounted to $65.6 million at the beginning of the year. During 2003, advances of $29.0 million and repayments of $55.6 million were made with respect to related party loans for an aggregate dollar amount outstanding of $39.0 million at December 31, 2003. Loans serviced for others, which are not reported as assets, total $374.9 million and $282.9 million at year-end 2003 and 2002. Activity for capitalized mortgage servicing rights and the related valuation allowance was as follows:
December 31, ------------------------- (Dollar amounts in thousands) 2003 2002 - -------------------------------------- ---------- ---------- Servicing rights: Beginning of year $ 2,548 $ 1,478 Additions 1,961 2,229 Amortized to expense (1,395) (1,159) ---------- ---------- End of year $ 3,114 $ 2.548 ========== ========== Valuation allowance: Beginning of year $ 500 $ - Additions expensed - 500 Reductions credited to expense (300) - ---------- ---------- End of year $ 200 $ 500 ========== ==========
Third party valuations are conducted periodically for mortgage servicing rights. Based on these valuations, fair values approximate carrying values. 6. ALLOWANCE FOR LOAN LOSSES: Changes in the allowance for loan losses are summarized as follows:
December 31, --------------------------------- (Dollar amounts in thousands) 2003 2002 2001 - ------------------------------------------ --------- --------- ---------- Balance at beginning of year $ 21,249 $ 18,313 $ 19,072 Addition resulting from acquisition - 1,711 - Provision for loan losses 7,455 9,478 6,615 Recoveries of loans previously charged off 1,475 1,885 1,669 Loans charged off (8,940) (10,138) (9,043) --------- --------- --------- BALANCE AT END OF YEAR $ 21,239 $ 21,249 $ 18,313 ========= ========= =========
Impaired loans were as follows:
December 31, -------------------- (Dollar amounts in thousands) 2003 2002 - ---------------------------------------------------------- --------- -------- Year-end loans with no allocated allowance for loan losses $ 3,254 $ - Year-end loans with allocated allowance for loan losses 5,914 8,812 --------- -------- TOTAL 9,168 8,812 ========= ======== Amount of the allowance for loan losses allocated $ 2,835 $ 3,283 Average of impaired loans during the year 8,992 5,288 Nonperforming loans: Loans past due over 90 days still on accrual 5,384 5,899 Non-accrual loans 8,429 11,807
FIRST FINANCIAL CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 7. PREMISES AND EQUIPMENT: Premises and equipment are summarized as follows:
December 31, -------------------- (Dollar amounts in thousands) 2003 2002 - ---------------------------------------- -------- -------- Land $ 4,501 $ 4,512 Building and leasehold improvements 34,135 33,615 Furniture and equipment 26,542 25,368 -------- -------- 65,178 63,495 Less accumulated depreciation (35,856) (33,686) -------- -------- TOTAL $ 29,322 $ 29,809 ======== ========
8. GOODWILL AND INTANGIBLE ASSETS: The Corporation has goodwill totaling $7.1 million associated with the acquisitions of The Morris Plan Company of Terre Haute in 1998 and Forrest Sherer Inc. in 2001. No additional goodwill was recorded during 2003 or 2002. The Corporation completed its annual impairment testing of goodwill during the second quarter and management does not believe any amount of the goodwill is impaired. The $7.1 million of goodwill is net of accumulated amortization of $737 thousand. Goodwill is no longer amortized starting in 2002. Had this accounting treatment been effective in 2001, net income for the year would not have included goodwill amortization of $399 thousand and would have been $24.6 million. Earnings per share would have been $1.81. Intangible assets subject to amortization at December 31, 2003 and 2002 are as follows:
2003 2004 -------------------- --------------------- Gross Accumulated Gross Accumulated (Dollar amounts in thousands) Amount Amortization Amount Amortization - ----------------------------- ------ ------------ ------- ------------ Customer list intangible $3,108 $ 1,086 $ 3,108 $ 730 Core deposit intangible 2,193 775 2,193 605 Non-compete agreements 500 289 500 177 ------ ---------- ------- --------- $5,801 $ 2,150 $ 5,801 $ 1,512 ====== ========== ======= =========
Aggregate amortization expense was $638 thousand, $692 thousand and $826 thousand for 2003, 2002 and 2001, respectively. Estimated amortization expense for the next five years is as follows:
In thousands 2004 $ 565 2005 533 2006 463 2007 392 2008 392
9. DEPOSITS AND SHORT-TERM BORROWINGS: Scheduled maturities of time deposits were as follows:
In thousands 2004 $ 383,822 2005 184,527 2006 43,337 2007 61,541 2008 18,983 Thereafter 513 --------- $ 692,723 =========
2003 ANNUAL REPORT Notes TO CONSOLIDATED FINANCIAL STATEMENTS Year-end short-term borrowings were comprised of the following:
(Dollar amounts in thousands) 2003 2002 - ------------------------------ -------- -------- Federal funds purchased $ 61,524 $ 16,311 Repurchase agreements 5,130 13,237 Note payable - U.S. government 1,975 4,807 -------- -------- $ 68,629 $ 34,355 ======== ========
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. 10. OTHER BORROWINGS: Other borrowings at December 31, 2003 and 2002 are summarized as follows:
(Dollar amounts in thousands) 2003 2002 - --------------------------------------------------------------- -------- -------- FHLB advances $358,633 $397,190 Note payable to a financial institution 18,000 19,500 City of Terre Haute, Indiana economic development revenue bonds 6,600 6,600 -------- -------- TOTAL $383,233 $423,290 ======== ========
The aggregate minimum annual retirements of other borrowings are as follows: 2004 $ 49,659 2005 -- 2006 273 2007 387 2008 52,419 Thereafter 280,495 -------- $383,233 ========
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 $358.6 million at December 31, 2003, accrue interest, payable monthly, at annual rates varying from 3.64% to 6.6%. The advances are due at various dates through August 2017. FHLB advances are, generally, due in full at maturity. They are secured by eligible securities totaling $193.0 million and a blanket pledge on 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. On December 31, 2003, the Corporation entered into a revolving credit loan agreement (Note) with a financial institution. The total principal amount of loans outstanding at one time under this Note may not exceed $20 million. The Note matures on December 31, 2004, but is renewable annually, and requires quarterly payments of interest and a commitment fee of 0.15% on the average daily amount of the commitment. The Note bears an interest rate equal to the average daily federal funds rate plus 0.875% and adjusts daily. At December 31, 2003, the interest rate was 1.87%. The Note is unsecured but requires the Corporation to meet certain financial covenants. The Corporation was in compliance with all its debt covenants. The proceeds from this loan were used to repay an outstanding line of credit with similar terms. The economic development revenue bonds (bonds) require periodic interest payments each year until maturity or redemption. The interest rate, which was 1.2% at December 31, 2003, and 1.6% at December 31, 2002, 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, 2004, 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 for the bonds requires the Corporation to meet certain financial covenants. These 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, 2003 and 2002, the Corporation was in compliance with all of its debt covenants. FIRST FINANCIAL CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 11. INCOME TAXES: Income tax expense is summarized as follows:
(Dollar amounts in thousands) 2003 2002 2001 - ----------------------------- -------- ------- ------- Federal: Currently payable $ 8,046 $ 6,880 $ 6,413 Deferred (544) (960) 68 -------- ------- ------- 7,502 5,920 6,481 State: Currently payable 1,052 1,156 1,353 Deferred 292 133 42 -------- ------- ------- TOTAL 1,344 1,289 1,395 -------- ------- ------- $ 8,846 $ 7,209 $ 7,876 ======== ======= =======
The reconciliation of income tax expense with the amount computed by applying the statutory federal income tax rate of 35% to income before income taxes is summarized as follows:
(Dollar amounts in thousands) 2003 2002 2001 - --------------------------------------------------- -------- -------- -------- Federal income taxes computed at the statutory rate $ 12,369 $ 12,547 $ 11,225 Add (deduct) tax effect of: Tax exempt income (3,738) (5,705) (3,683) State tax, net of federal benefit 873 838 907 Affordable housing credits (507) (604) (604) Other, net (151) 133 31 -------- -------- -------- TOTAL $ 8,846 $ 7,209 $ 7,876 ======== ======== ========
The tax effects of temporary differences that give rise to significant portions of the deferred tax assets and liabilities at December 31, 2003 and 2002, are as follows:
(Dollar amounts in thousands) 2003 2002 - ------------------------------------------------------- -------- --------- Deferred tax assets: Loan losses provision $ 8,480 $ 8,340 Deferred compensation 2,792 2,173 Compensated absences 467 468 Post-retirement benefits 721 594 State net operating loss carry forward 348 602 Other 641 131 -------- --------- GROSS DEFERRED ASSETS 13,449 12,308 -------- --------- Deferred tax liabilities: Net unrealized gains on available-for-sale securities (7,644) (9,518) Depreciation (1,184) (1,144) Federal Home Loan Bank stock dividends (821) -- Originated servicing rights (1,158) (803) Pensions (1,339) (1,652) Other (2,185) (2,199) -------- --------- GROSS DEFERRED LIABILITIES (14,331) (15,316) -------- --------- NET DEFERRED TAX ASSETS (LIABILITIES) $ (882) $ (3,008) ======== =========
2003 ANNUAL REPORT NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 12. FINANCIAL INSTRUMENTS WITH OFF-BALANCE-SHEET RISK AND DERIVATIVE INSTRUMENTS: The Corporation is a party to financial instruments with off-balance-sheet risk in the normal course of business to meet the financing needs of its customers. These financial instruments include conditional commitments and standby letters of credit. The financial instruments involve to varying degrees, elements of credit and interest rate risk in excess of amounts recognized in the financial statements. The Corporation's maximum exposure to credit loss in the event of nonperformance by the other party to the financial instrument for commitments to make loans is limited generally by the contractual amount of those instruments. The Corporation follows the same credit policy to make such commitments as is followed for those loans recorded in the consolidated financial statements. The Corporation's customers had unused lines of credit of $235.3 million and $230.8 million as of December 31, 2003 and 2002. In addition, the Corporation had outstanding commitments of $5.6 million and $5.8 million under standby letters of credit as of December 31, 2003 and 2002, respectively. The majority of these commitments bear variable interest rates. The Corporation is exposed to credit loss in the event the counterparties to such agreements do not perform in accordance with the agreements. During 2001 the Corporation purchased an interest rate cap contract with a notional principal balance of $50 million. The agreement requires the counterparty to pay the Corporation the excess of the 3-month LIBOR over 6.00%. The cap has a 36-month term which runs through March 2004. No payments are currently required under the agreement. The agreement was entered into to help protect the Corporation's net interest income should interest rates increase in excess of the cap's trigger amount. The interest rate cap had no value at December 31, 2003. 13. 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 $1.55 million, $1.32 million and $1.15 million in 2003, 2002 and 2001. The Corporation contributed $1.26 million, $1.04 million and $350 thousand to the ESOP in 2003, 2002 and 2001. The Corporation uses a measurement date of December 31, 2003. Pension expense included the following components:
(Dollar amounts in thousands) 2003 2002 2001 - --------------------------------------------- ------- ------- ------- Service cost - benefits earned $ 2,166 $ 2,065 $ 698 Interest cost on projected benefit obligation 2,025 1,880 1,766 Expected return on plan assets (2,334) (2,062) (1,679) Net amortization and deferral 240 181 296 ------- ------- ------- Total pension expense $ 2,097 $ 2,064 $ 1,081 ======= ======= =======
The information on the next page sets forth the projected 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. FIRST FINANCIAL CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollar amounts in thousands) 2003 2002 - -------------------------------------------- --------- -------- Change in benefit obligation: Benefit obligation at January 1 $ 31,274 $ 30,293 Service cost 2,166 2,065 Interest cost 2,025 1,880 Actuarial (gain) loss 4,057 (2,349) Benefits paid (3,222) (615) --------- -------- Benefit obligation at December 31 36,300 31,274 --------- -------- Reconciliation of fair value of plan assets: Fair value of plan assets at January 1 29,296 25,887 Actual return on plan assets 5,790 1,665 Employer contributions 2,801 2,359 Benefits paid (3,222) (615) --------- -------- Fair value of plan assets at December 31 34,665 29,296 --------- -------- Funded status: Funded status at December 31 (1,635) (1,978) Unrecognized prior service cost (195) (213) Unrecognized net actuarial cost 6,839 6,496 --------- -------- Prepaid pension asset recognized in the consolidated balance sheets $ 5,009 $ 4,305 ========= ========
The accumulated benefit obligation for the defined benefit pension plan was $30,788 and $25,943 at year end 2003 and 2002. Principal assumptions used: Discount rate 6.00% 6.50% Rate of increase in compensation levels 4.00 4.00 Expected long-term rate of return on plan assets 8.00 8.00
The expected long-term rate of return was estimated using market benchmarks for equities and bonds applied to the plan's target asset allocation. Management estimated the rate by which plan assets would perform based on historical experience as adjusted for changes in asset allocations and expectations for future return on equities as compared to past periods. PLAN ASSETS -- The Corporation's pension plan weighted-average asset allocation for the years 2003 and 2002 by asset category are as follows:
Pension Plan ESOP Pension Plan ESOP Percentage of Plan Assets Percentage of Plan Target Allocation Target Allocation at December 31, Assets at December 31, Asset Category 2004 2004 2003 2002 2003 2002 - -------------- ---- ---- ---- ---- ---- ---- Equity securities 63-63% 99-99% 61% 54% 98% 99% Debt services 35-35 0-0 30 35 0 0 Real estate 0-0 0-0 0 0 0 0 Other 2-2 1-1 9 11 2 1 --- --- --- --- TOTAL 100% 100% 100% 100%
The investment objective for the retirement program is to maximize total return without exposure to undue risk. Asset allocation favors equities, with a target allocation of approximately 88%. This target includes the Corporation's ESOP, which is 98% invested in corporate stock. Other investment allocations include 8% in fixed income securities and 4% in cash. Equity securities include First Financial Corporation common stock in the amount of $25.9 million (75 percent of total plan assets) and $21.2 million (72 percent of total plan assets) at December 31, 2003, and 2002, respectively. 2003 ANNUAL REPORT NOTES TO CONSOLIDATED FINANCIAL STATEMENTS CONTRIBUTIONS -- The Corporation expects to contribute $1.57 million to its pension plan and $1.2 million to ESOP in 2004. The Corporation also provides medical benefits to its employees subsequent to their retirement. The Corporation uses a measurement date of December 31, 2003. Accrued post-retirement benefits as of December 31, 2003 and 2002 are as follows:
December 31, --------------------- (Dollar amounts in thousands) 2003 2002 ----------------------------- -------- ------- Change in benefit obligation: Benefit obligation at January 1 $ 4,081 $ 3,430 Service cost 102 76 Interest cost 252 226 Plan participants' contributions 90 58 Actuarial (gain) loss 256 647 Actual benefits paid (497) (356) -------- ------- Benefit obligation at December 31 $ 4,284 $ 4,081 ======== ======= Reconciliation of funded status: Funded status $ 4,284 $ 4,081 Unrecognized transition obligation (603) (663) Unrecognized net gain (loss) (2,167) (2,031) -------- ------- Accrued benefit cost $ 1,514 $ 1,387 ======== =======
The post-retirement benefits paid in 2003 and 2002 of $497 thousand and $356 thousand, respectively, were fully funded by company and participant contributions. There were no other changes to plan assets in 2003 and 2002. Weighted-average assumptions as of December 31:
December 31, ------------------ 2003 2002 ---- ---- Discount rate 6.00% 6.50% Initial weighted health care cost trend rate 7.50 7.50 Ultimate health care cost trend rate 5.00 5.00
Post-retirement health benefit expense included the following components:
Years Ended December 31, ------------------------ (Dollar amounts in thousands) 2003 2002 2001 ----------------------------- ------ ------ ------ Service cost $ 102 $ 76 $ 63 Interest cost 252 226 215 Amortization of transition obligation 60 60 60 Recognized actuarial loss 120 80 54 ------ ------ ------ Net periodic benefit cost $ 534 $ 442 $ 392 ====== ====== ======
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 $ 26 $ (20) Effect on post-retirement benefit obligation 302 (235)
CONTRIBUTIONS -- The Corporation expects to contribute $233 thousand to its other post-retirement benefit plan in 2004. FIRST FINANCIAL CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 14. OTHER COMPREHENSIVE INCOME: Other comprehensive income components and related taxes were as follows:
(Dollar amounts in thousands) December 31, ----------------------------- ----------------------------- 2003 2002 2001 ------- ------- ------- Unrealized holding gains and losses on available-for-sale securities $(4,450) $10,116 $ 7,512 Reclassification adjustments for gains and losses later recognized in income (237) (154) (180) ------- ------- ------- Net unrealized gains and losses (4,687) 9,962 7,332 Tax effect 1,874 (3,985) (2,933) ------- ------- ------- Other comprehensive income $(2,813) $ 5,977 $ 4,399 ======= ======= =======
15. 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, 2003, approximately $57.2 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, 2003 and 2002, that the Corporation meets all capital adequacy requirements to which it is subject. As of December 31, 2003, the most recent notification from the respective regulatory agencies categorized the Corporation and its subsidiary banks as well capitalized under the regulatory framework for prompt corrective action. To be categorized as adequately capitalized the Corporation must maintain minimum total risk-based, Tier I risk-based and Tier I leverage ratios as set forth in the table. There are no conditions or events since that notification that management believes have changed the Corporation's category. The following table presents the actual and required capital amounts and related ratios for the Corporation and the lead bank, First Financial Bank, N.A., at year end 2003 and 2002. 2003 ANNUAL REPORT NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
To Be Well Capitalized For Capital Under Prompt Corrective Actual Adequacy Purposes Action Provisions ------ ----------------- ----------------- (Dollar amounts in thousands) Amount Ratio Amount Ratio Amount Ratio - ----------------------------- ------ ----- ------ ----- ------ ----- TOTAL RISK-BASED CAPITAL Corporation - 2003 $252,924 15.67% > or = $129,081 > or = 8.0% > or = $161,351 > or =10.0% Corporation - 2002 235,985 14.83% > or = 127,296 > or = 8.0% > or = 159,120 > or =10.0% First Financial Bank - 2003 169,725 16.35% > or = 83,039 > or = 8.0% > or = 103,799 > or =10.0% First Financial Bank - 2002 149,778 15.56% > or = 76,992 > or = 8.0% > or = 96,241 > or =10.0% TIER I RISK-BASED CAPITAL Corporation - 2003 $232,746 14.43% > or = $ 64,540 > or = 4.0% > or = $ 96,811 > or = 6.0% Corporation - 2002 216,078 13.58% > or = 63,648 > or = 4.0% > or = 95,472 > or = 6.0% First Financial Bank - 2003 157,920 15.21% > or = 41,520 > or = 4.0% > or = 62,280 > or = 6.0% First Financial Bank - 2002 139,590 14.50% > or = 38,496 > or = 4.0% > or = 57,744 > or = 6.0% TIER I LEVERAGE CAPITAL Corporation - 2003 $232,746 10.67% > or = $ 87,278 > or = 4.0% > or = $109,097 > or = 5.0% Corporation - 2002 216,078 9.79% > or = 88,323 > or = 4.0% > or = 110,404 > or = 5.0% First Financial Bank - 2003 157,920 11.78% > or = 53,605 > or = 4.0% > or = 67,006 > or = 5.0% First Financial Bank - 2002 139,590 10.85% > or = 51,446 > or = 4.0% > or = 64,308 > or = 5.0%
16. PARENT COMPANY CONDENSED FINANCIAL STATEMENTS: The parent company's condensed balance sheets as of December 31, 2003 and 2002, and the related condensed statements of income and cash flows for each of the three years in the period ended December 31, 2003, are as follows: CONDENSED BALANCE SHEETS
December 31, ----------------------- (Dollar amounts in thousands) 2003 2002 ----------------------------- -------- -------- ASSETS Cash deposits in affiliated banks $ 7,629 $ 5,037 Investments in subsidiaries 269,062 256,608 Land and headquarters building, net 6,351 6,516 Other 10,137 10,688 -------- -------- TOTAL ASSETS $293,179 $278,849 ======== ======== LIABILITIES AND SHAREHOLDERS' EQUITY LIABILITIES Borrowings $ 28,636 $ 29,900 Dividends payable 4,891 4,229 Other liabilities 4,373 2,749 -------- -------- TOTAL LIABILITIES 37,900 36,878 SHAREHOLDERS' EQUITY 255,279 241,971 -------- -------- TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $293,179 $278,849 ======== ========
FIRST FINANCIAL CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS CONDENSED STATEMENTS OF INCOME
Years Ended December 31, ------------------------------------ (Dollar amounts in thousands) 2003 2002 2001 ----------------------------- -------- -------- -------- Dividends from subsidiaries $ 12,418 $ 5,676 $ 10,485 Other income 1,006 913 971 Interest on borrowings (663) (673) (314) Other operating expenses (2,759) (2,953) (2,801) -------- -------- -------- Income before income taxes and equity in undistributed earnings of subsidiaries 10,002 2,963 8,341 Income tax benefit 907 1,074 863 -------- -------- -------- Income before equity in undistributed earnings of subsidiaries 10,909 4,037 9,204 Equity in undistributed earnings of subsidiaries 15,584 24,603 14,992 -------- -------- -------- Net income $ 26,493 $ 28,640 $ 24,196 ======== ======== ========
CONDENSED STATEMENTS OF CASH FLOWS
Years Ended December 31, ------------------------ (Dollar amounts in thousands) 2003 2002 2001 - ----------------------------- ---- ---- ---- CASH FLOWS FROM OPERATING ACTIVITIES: Net income $ 26,493 $ 28,640 $ 24,196 Adjustments to reconcile net income to net cash provided by operating activities: Provision for depreciation and amortization 215 258 360 Equity in undistributed earnings of subsidiaries (15,584) (24,603) (14,992) Contribution of shares to ESOP 1,256 1,038 - Increase (decrease) in other liabilities 1,626 (202) 571 (Increase) decrease in other assets 852 (127) (1,009) -------- -------- -------- NET CASH FROM OPERATING ACTIVITIES 14,858 5,004 9,126 CASH FLOWS FROM INVESTING ACTIVITIES: Purchase of furniture and fixtures (34) (49) (55) Purchase of Community Financial Corp. - (14,699) - Purchase of Forrest Sherer Inc. - - (1,699) -------- -------- -------- NET CASH FROM INVESTING ACTIVITIES (34) (14,748) (1,754) -------- -------- -------- CASH FLOWS FROM FINANCING ACTIVITIES: Proceeds from borrowings 18,236 22,300 1,500 Principal payments on long-term borrowings (19,500) (500) (180) Purchase of treasury stock (2,123) (2,726) (1,297) Dividends paid (8,845) (8,209) (7,586) -------- -------- -------- NET CASH FROM FINANCING ACTIVITIES (12,232) 10,865 (7,563) -------- -------- -------- NET (DECREASE) INCREASE IN CASH 2,592 1,121 (191) CASH, BEGINNING OF YEAR 5,037 3,916 4,107 -------- -------- -------- CASH, END OF YEAR $ 7,629 $ 5,037 $ 3,916 ======== ======== ======== Supplemental disclosures of cash flow information: Cash paid during the year for: Interest $ 663 $ 644 $ 314 ======== ======== ======== Income taxes $ 8,016 $ 11,388 $ 7,533 ======== ======== ========
2002 ANNUAL REPORT 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 accounting principles generally accepted in the United States of America 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, 2003. 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, 2003. Crowe Chizek and Company LLC performs an independent audit of the Corporation's financial statements for the purpose of determining that such statements are presented in conformity with accounting principles generally accepted in the United States of America and their report appears below. The independent accountants are appointed based upon recommendations by the Audit Committee and approved by the Board of Directors. The 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 Audit Committee. /s/ Norman L. Lowery /s/ Michael A. Carty Chief Executive Officer Treasurer REPORT OF INDEPENDENT AUDITORS To the Shareholders and Board of Directors of First Financial Corporation: We have audited the accompanying consolidated balance sheets of First Financial Corporation as of December 31, 2003 and 2002, and the related consolidated statements of income, changes in shareholders' equity and cash flows for each of the three years in the period ended December 31, 2003. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of First Financial Corporation as of December 31, 2003 and 2002, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2003, in conformity with accounting principles generally accepted in the United States of America. /s/ Crowe Chizek and Company LLC Indianapolis, Indiana January 16, 2004 FIRST FINANCIAL CORPORATION MANAGEMENT'S DISCUSSION AND ANALYSIS Management's discussion and analysis reviews the financial condition of First Financial Corporation at December 31, 2003 and 2002, and the results of its operations for the three years ended December 31, 2003. 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. A cautionary note about forward-looking statements: In its oral and written communication, First Financial Corporation from time to time includes forward-looking statements, within the meaning of the Private Securities Litigation Reform Act of 1995. Such forward-looking statements can include statements about estimated cost savings, plans and objectives for future operations and expectations about performance, as well as economic and market conditions and trends. They often can be identified by the use of words such as "expect," "may," "could," "intend," "project," "estimate," "believe" or "anticipate." First Financial Corporation may include forward-looking statements in filings with the Securities and Exchange Commission, in other written materials such as this Annual Report and in oral statements made by senior management to analysts, investors, representatives of the media and others. It is intended that these forward-looking statements speak only as of the date they are made, and First Financial Corporation undertakes no obligation to update any forward-looking statement to reflect events or circumstances after the date on which the forward-looking statement is made or to reflect the occurrence of unanticipated events. By their nature, forward-looking statements are based on assumptions and are subject to risks, uncertainties and other factors. Actual results may differ materially from those contained in the forward-looking statement. The discussion in this "Management's Discussion and Analysis of Results of Operations and Financial Condition" lists some of the factors which could cause actual results to vary materially from those in any forward-looking statements. Other uncertainties which could affect First Financial Corporation's future performance include the effects of competition, technological changes and regulatory developments; changes in fiscal, monetary and tax policies; market, economic, operational, liquidity, credit and interest rate risks associated with First Financial Corporation's business; inflation; competition in the financial services industry; changes in general economic conditions, either nationally or regionally, resulting in, among other things, credit quality deterioration; and changes in securities markets. Investors should consider these risks, uncertainties and other factors in addition to those mentioned by First Financial Corporation in its other filings from time to time when considering any forward-looking statement. First Financial Corporation (the Corporation) is a financial services company. The Corporation, which is headquartered in Terre Haute, Indiana, offers a wide variety of financial services including commercial, mortgage and consumer lending, lease financing, trust account services and depositor services through its ten subsidiaries. At the close of business in 2003 the Corporation and its subsidiaries had 834 full-time equivalent employees. First Financial Bank is the largest bank in Vigo County. It operates 12 full-service banking branches within the county, one branch in Marshall, Illinois, and one branch in Ridge Farm, Illinois. In addition to its branches, it has a main office in downtown Terre Haute and a 50,000-square-foot commercial building on South Third Street in Terre Haute, which serves as the Corporation's operations center and provides additional office space. First State has five branch locations in Clay County, a county contiguous to Vigo County. Citizens has four branches, all of which are located in Vermillion County, a county contiguous to Vigo County. Farmers has eight branches, of which five are located in Sullivan County, two in Knox County and one in Greene County. Sullivan County is contiguous to Vigo County. Morris Plan has one office and is located in Vigo County. Parke has five branches in Parke County, a county contiguous to Vigo County. Crawford has two branches in Crawford County, Illinois, and one branch in Lawrence County, Illinois. Community has six branches, of which two are located in Richland County, Illinois; one in Lawrence County, Illinois; one in Wayne County, Illinois; one in Jasper County, Illinois; and one in Coles County, Illinois. First Financial Bank and Morris Plan face competition from other financial institutions in Vigo County. These competitors consist of three commercial banks, a mutual savings bank and other financial institutions, including consumer finance companies, insurance companies, brokerage firms and credit unions. The six other bank subsidiaries have similar competition in their primary market areas. The number of competitors of each subsidiary is as follows: - - FIRST STATE -- Three commercial banks, two credit unions and one brokerage firm in Clay County, Indiana. - - CITIZENS -- Three commercial banks 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. - - 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. 2003 ANNUAL REPORT MANAGEMENT'S DISCUSSION AND ANALYSIS - - COMMUNITY -- Four commercial banks, three brokerage firms and three consumer finance companies in Richland County, Illinois; eight commercial banks, one credit union and two consumer finance companies in Lawrence County, Illinois; five commercial banks, one brokerage firm and one consumer finance company in Wayne County, Illinois; three commercial banks, one insurance company and two brokerage firms in Jasper County, Illinois; seven commercial banks, three savings and loans, six credit unions, two insurance companies; five brokerage firms and six consumer finance companies in Coles County, Illinois. The Corporation's business activities are centered in west-central Indiana and east-central Illinois. The Corporation has no foreign activities other than periodically investing available funds in time deposits held in foreign branches of domestic banks. Forrest Sherer Inc. is a premier regional supplier of insurance, surety and other financial products. The Forrest Sherer brand is well recognized in the Midwest, with more than 60 professionals and 80 years of successful service to both small and large businesses and to households in their market area. The agency has representation agreements with more than 40 regional and national insurers to market their products of property and casualty insurance, surety bonds, employee benefit plans, life insurance and annuities. CRITICAL ACCOUNTING POLICIES AND ESTIMATES The Management's Discussion and Analysis of Financial Condition and Results of Operations, as well as disclosures found elsewhere in this report are based upon First Financial Corporation's consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States of America. The preparation of these financial statements requires the Corporation to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues, and expenses. Material estimates that are particularly susceptible to significant change in the near term relate to the determination of the allowance for loan losses, the valuation of the mortgage servicing rights and goodwill. Actual results could differ from those estimates. ALLOWANCE FOR LOSSES. The allowance for loan losses is maintained at a level believed adequate by management to absorb probable losses inherent in the consolidated loan portfolio. Management's evaluation of the adequacy of the allowance is an estimate based on reviews of individual loans, assessments of the impact of current and anticipated economic conditions on the portfolio, and historical loss experience. The allowance represents management's best estimate, but significant downturns in circumstances relating to loan quality and economic conditions could result in a requirement for additional allowance in the near future. Likewise, an upturn in loan quality and improved economic conditions may result in a decline in the required allowance. In either instance unanticipated changes could have a significant impact on operating earnings. The allowance is increased through a provision charged to operating expense. Uncollectible loans are charged-off through the allowance. Recoveries of loans previously charged off are added to the allowance. A loan is considered impaired when it is probable that contractual interest and principal payments will not be collected either for the amounts or by the dates as scheduled in the loan agreement. The Corporation's policy for recognizing income on impaired loans is to accrue interest unless a loan is placed on nonaccrual status. MORTGAGE SERVICING RIGHTS. Servicing rights are recognized as separate assets when loans are sold with servicing retained. Capitalized servicing rights are amortized into noninterest income in proportion to, and over the period of, the estimated future net servicing income of the underlying financial assets. Servicing rights are valued based upon their estimated fair value. The Corporation periodically utilizes the services of a third party to determine the fair value of these assets. Negative adjustments to value (referred to as impairment), if any, are recognized through a valuation allowance by charges against mortgage servicing income. Valuation of mortgage servicing rights is depended on many factors, including anticipated life, prepayment speeds, economic conditions and discount rates. A change in these and other factors could result in higher or lower amortization and impairment. GOODWILL. The carrying value of goodwill requires management to use estimates and assumptions about the fair value of the reporting unit compared to its book value. An impairment analysis is prepared on an annual basis. Fair values of the reporting units are determined by an analysis which considers cash flows streams, profitability and estimated market values of the business unit. The majority of the Corporation's goodwill is recorded at Forest Sherer, Inc. Management believes the accounting estimates related to the allowance for loan losses, the capitalization, amortization and valuations of mortgage servicing rights and the valuation of goodwill are "critical accounting estimates" because: (1) the estimates are highly susceptible to change from period to period because they require management to make assumptions concerning, among other factors, the changes in the types and volumes of the portfolios, rates of future prepayments, valuation assumptions, and anticipated economic conditions, and (2) the impact of recognizing an impairment or loan loss could have a material effect on the Corporation's assets reported on the balance sheet as well as net income. FIRST FINANCIAL CORPORATION RESULTS OF OPERATIONS -- SUMMARY FOR 2003 Net income through the fourth quarter of 2003 was $26.5 million, or $1.95 per share. This represents a 7.5% reduction in net income and a 7.14% decrease in earnings per share. 2002 net income was favorably affected by $3.9 million in life insurance proceeds received in the fourth quarter, which increased 2002 earnings per share by $ .29. Comparing 2003 performance against 2002 net income before the insurance proceeds would have shown a $1.6 million or 6.4% increase while earnings per share would have shown a $ .12 or 6.6.% increase. Net interest income of $74.4 million was down by $3.8 million for 2003, the result of a $29.5 million decrease in average earning assets and an 8 basis point decrease in the net interest margin. 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 decreased to $2.04 billion in 2003 from $2.07 billion in 2002. The tax-equivalent yield on these assets decreased to 6.38% in 2003 from 6.90% in 2002. Total average interest-bearing liabilities of $1.74 billion in 2003 was essentially the same in 2002. The average cost of these interest-bearing liabilities decreased to 2.78% in 2003 from 3.34% in 2002. On a tax equivalent basis, net interest income decreased $2.9 million from $84.9 million in 2002 to $82.0 million in 2003. The net interest margin decreased from 4.10% in 2002 to 4.02% in 2003. This decrease is primarily the result of the decreased yield on earning assets having a larger impact than the decreased cost of interest-bearing liabilities, both of which decreased in excess of 50 basis points. The following table sets forth the components of net interest income due to changes in volume and rate. The table information compares 2003 to 2002 and 2002 to 2001.
2003 Compared to 2002 2002 Compared to 2001 Increase (Decrease) Due to Increase (Decrease) Due to --------------------------------- --------------------------------- Volume/ Volume/ (Dollar amounts in thousands) Volume Rate Rate Total Volume Rate Rate Total ----------------------------- ------ ---- ---- ----- ------ ---- ---- ----- Interest earned on interest-earning assets: Loans (1) (2) $ (1,132) $ (6,632) $ 71 $(7,693) $ 9,653 $(11,340) $(1,005) $ (2,692) Taxable investment securities 362 (3,706) (70) (3,414) 1,193 (6,378) (309) (5,494) Tax-exempt investment securities (2) (252) (1,045) 15 (1,282) 153 (48) - 105 Federal funds sold (295) (134) 107 (322) 277 (84) (87) 106 -------- --------- ------ ------- -------- -------- ------- -------- Total interest income (1,317) (11,517) 123 (12,711) 11,276 (17,850) (1,401) (7,975) -------- --------- ------ ------- -------- -------- ------- -------- Interest paid on interest-bearing liabilities: Transaction accounts 789 (2,786) (331) (2,328) 1,517 (4,296) (647) (3,426) Time deposits (1,217) (4,326) 188 (5,355) 2,852 (11,169) (858) (9,175) Short-term borrowings 10 (262) (4) (256) (1,112) (1,282) 567 (1,827) Other borrowings (1,837) (93) 8 (1,922) (622) (1,015) 26 (1,611) ------- --------- -------- ------- -------- -------- ------- -------- Total interest expense (2,255) (7,467) (139) (9,861) 2,635 (17,762) (912) (16,039) ------- --------- -------- ------- -------- -------- ------- -------- Net interest income $ 938 $ (4.050) $ 262 $(2,850) $ 8,641 $ (88) $ (489) $ 8,064 ======== ========= ===== ======= ======== ======== ======= ========
(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%. 2003 ANNUAL REPORT RESULTS OF OPERATIONS -- SUMMARY FOR 2003 PROVISION FOR LOAN LOSSES The provision for loan losses is established by charging current earnings with an amount which will maintain the allowance for loan losses at a level sufficient to provide for probable incurred losses in the Corporation's loan portfolio. Management considers several factors in determining the provision, including loss experience, changes in the composition of the portfolio, the financial condition of borrowers, economic trends, and general economic conditions. The provision for loan losses totaled $7.4 million and $9.5 million for 2003 and 2002, respectively. During the fourth quarter of 2003 management improved the Corporation's position in three classified credits thereby allowing a reduction in the provision expense during that period to $607 thousand from the $2.3 million expensed during the third quarter. This also contributed to a reduction of non-performing loans from $17.7 million in 2002 to $13.8 million in 2003. Net charge-offs for 2003 decreased to $7.5 million from $8.3 million in 2002. At December 31, 2003, the resulting allowance for loan losses was $21.2 million or 1.49% of total loans, net of unearned income. A year earlier the allowance was $21.2 million or 1.48% of total loans. NON-INTEREST INCOME Non-interest income of $30.8 million increased $300 thousand from the $30.5 million earned in 2002. Service charges and fees on deposit accounts and other service charges and fees increased $1.9 million and $2.7 million, respectively. These increases are the result of a focused effort to increase fee-based income. Trust and financial services commissions increased by $300 thousand. Non-interest income for 2002 included a $3.9 million life insurance benefit payment from bank-owned life insurance policies. NON-INTEREST EXPENSES Non-interest expenses totaled $62.5 million for 2003 compared to $63.3 million for 2002. This represents a decrease of $800 thousand or 1.3% for 2003. Salaries and related benefits, the largest component of this group, increased from $36.5 million to $36.9 million, less than 1%. Occupancy expense increased 3.3% or $100 thousand while equipment expense decreased by $100 thousand. All other non-interest expense decreased by $1.1 million to $18.7 million from $19.8 million in 2002. INCOME TAXES The Corporation's federal income tax provision was $8.8 million in 2003 compared to a provision of $7.2 million in 2002. The overall effective tax rate in 2003 of 25.0% compares to a 2002 effective rate of 20.1%. Over the past three years management has implemented a strategy which focuses on the taxability of income on securities. This strategy has benefitted the Corporation as state income tax expense has declined every year, despite increased income before tax. The life insurance benefit received in 2002 was not subject to income tax, thereby further reducing the effective tax rate for 2002. COMPARISON OF 2002 TO 2001 Net income for 2002 was $28.6 million or $2.10 per share compared to $24.2 million in 2001 or $1.78 per share. This increased income was primarily the result of increased net interest income of $7.6 million. Total average interest-earning assets increased to $2.07 billion in 2002 from $1.92 billion in 2001. The net interest margin increased from 4.00% in 2001 to 4.10% in 2002. This increase is primarily the result of funding costs decreasing faster than the yield on earning assets. The provision for loan losses increased $2.9 million, from $6.6 million in 2001 to $9.5 million in 2002, and net charge-offs increased to $8.2 million in 2002 from $7.4 million in 2001. The majority of the increased provision was the result of an increase in underperforming loans. There was a $988 thousand negative change in net non-interest income and expense from 2001 to 2002. The increase primarily relates to the salary and related benefit costs with the addition of First Community Bank, N.A. and Forrest Sherer Inc. The provision for income taxes fell $667 thousand from 2001 to 2002, reducing the effective tax rate from 24.6% in 2001 to 20.1% in 2002. The year 2002 was the second year of a new tax strategy focusing on the taxability of income and securities described above in the income tax section and was further impacted by the receipt of a non-taxable $3.9 million life insurance benefit. FIRST FINANCIAL CORPORATION FINANCIAL CONDITION -- SUMMARY The Corporation's total assets increased 2.4% or $53.3 million at December 31, 2003, from a year earlier. Available-for-sale securities increased $56.2 million at December 31, 2003, from the previous year. Loans, net of unearned income, decreased by $3.0 million, to $1.4 billion. This decrease was the result of selling approximately $185.0 million of real estate loans in the secondary market. This decreased real estate mortgage loans by $22.7 million. Stronger demand for commercial loans resulted in a $43.3 million increase, while economic and competitive pressures resulted in a decrease of $19.8 million in installment loans outstanding. Total shareholders' equity increased to $255.3 million at December 31, 2003, compared to $242.0 million a year earlier. Higher net income was offset by increased dividends and the continued repurchase of corporate stock. During 2003, 80,120 shares were acquired at a cost of $2.1 million. There were also 40,000 shares from the treasury with a value of $1.2 million that were contributed to the ESOP plan. In addition, during 2003, the Corporation recorded a net unrealized loss on available-for-sale securities of $2.8 million. While this fluctuation in fair value decreased shareholders' equity, no loss 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 at year-end 2003 are set forth in the following analyses.
(Dollar amounts in thousands) 2003 2002 2001 2000 1999 ----------------------------- ---- ---- ---- ---- ---- LOAN CATEGORY Commercial, financial and agricultural $ 374,638 $ 331,316 $ 302,496 $ 282,904 $ 247,949 Real estate - construction 35,361 42,930 34,610 41,325 44,782 Real estate - mortgage 766,911 789,618 757,345 732,387 671,972 Installment 248,290 268,067 249,710 237,527 223,459 Lease financing 4,884 1,281 5,023 4,810 5,723 ------------ ------------ ------------ ------------ ------------ TOTAL $ 1,430,084 $ 1,433,212 $ 1,349,184 $ 1,298,953 $ 1,193,885 ============ ============ ============ ============ ============
After One Within But Within After Five (Dollar amounts in thousands) One Year Five Years Years Total - -------------------------------------- --------- ---------- ---------- ---------- MATURITY DISTRIBUTION Commercial, financial and agricultural $ 228,396 $ 107,434 $ 38,808 $ 374,638 Real estate - construction 13,773 15,053 6,535 35,361 --------- --------- -------- ---------- TOTAL $ 242,169 $ 122,487 $ 45,343 409,999 ========= ========= ======== Real estate - mortgage 766,911 Installment 248,290 Lease financing 4,884 ---------- TOTAL $1,430,084 ========== Loans maturing after one year with: Fixed interest rates $ 50,596 $ 41,823 Variable interest rates 71,891 3,520 --------- -------- TOTAL $ 122,487 $ 45,343 ========= ========
2003 ANNUAL REPORT FINANCIAL CONDITION -- SUMMARY ALLOWANCE FOR LOAN LOSSES The activity in the Corporation's allowance for loan losses is shown in the following analysis:
(Dollar amounts in thousands) 2003 2002 2001 2000 1999 - ----------------------------- ---- ---- ---- ---- ---- Amount of loans outstanding at December 31, $ 1,430,084 $ 1,433,212 $ 1,349,184 $ 1,298,953 $ 1,193,885 ============ ============ ============ ============ ============ Average amount of loans by year $ 1,417,026 $ 1,432,290 $ 1,315,725 $ 1,256,505 $ 1,151,968 ============ ============ ============ ============ ============ Allowance for loan losses at beginning of year $ 21,249 $ 18,313 $ 19,072 $ 17,949 $ 16,429 Addition resulting from acquisition - 1,711 - - - Loans charged off: Commercial, financial and agricultural 2,253 4,627 4,079 1,055 344 Real estate - mortgage 1,101 892 557 406 932 Installment 5,586 4,619 4,395 3,196 3,034 Leasing - - 12 6 - ------------ ------------ ------------ ------------ ------------ Total loans charged off 8,940 10,138 9,043 4,663 4,310 ------------ ------------ ------------ ------------ ------------ Recoveries of loans previously charged off: Commercial, financial and agricultural 432 840 819 578 170 Real estate - mortgage 166 110 60 28 142 Installment 877 935 790 788 788 Leasing - - - - 5 ------------ ------------ ------------ ------------ ------------ Total recoveries 1,475 1,885 1,669 1,394 1,105 ------------ ------------ ------------ ------------ ------------ Net loans charged off 7,465 8,253 7,374 3,269 3,205 Provision charged to expense 7,455 9,478 6,615 4,392 4,725 ------------ ------------ ------------ ------------ ------------ Balance at end of year $ 21,239 $ 21,249 $ 18,313 $ 19,072 $ 17,949 ============ ============ ============ ============ ============ Ratio of net charge-offs during period to average loans outstanding .53% .58% .56% .26% .28% ============ ============ ============ ============ ============
The allowance is maintained at an amount management believes sufficient to absorb probable incurred losses in the loan portfolio. Monitoring loan quality and maintaining an adequate allowance is an ongoing process overseen by senior management and the loan review function. On at least a quarterly basis, a formal analysis of the adequacy of the allowance is prepared and reviewed by management and the Board of Directors. This analysis serves as a point in time assessment of the level of the allowance and serves as a basis for provisions for loan losses. The loan quality monitoring process includes assigning loan grades and the use of a watch list to identify loans of concern. The analysis of the allowance for loan losses includes the allocation of specific amounts of the allowance to individual problem loans, generally based on an analysis of the collateral securing those loans. Portions of the allowance are also allocated to loan portfolios, based upon a variety of factors including historical loss experience, trends in the type and volume of the loan portfolios, trends in delinquent and non-performing loans, and economic trends affecting our market. These components are added together and compared to the balance of our allowance at the evaluation date. The following table presents the allocation of the allowance to the loan portfolios at year-end. FIRST FINANCIAL CORPORATION FINANCIAL CONDITION -- SUMMARY
Years Ended December 31, -------------------------------------------------------------- (Dollar amounts in thousands) 2003 2002 2001 2000 1999 - ----------------------------- ---- ---- ---- ---- ---- Commercial, financial and agricultural $ 13,844 $ 12,993 $ 11,151 $ 10,771 $ 6,990 Real estate -- mortgage 1,254 1,471 1,330 1,060 1,348 Installment 6,141 5,856 4,489 3,509 3,506 Leasing - 15 17 8 3 Unallocated - 914 1,326 3,724 6,102 --------- --------- --------- --------- ---------- TOTAL ALLOWANCE FOR LOAN LOSSES $ 21,239 $ 21,249 $ 18,313 $ 19,072 $ 17,949 ========= ========= ========= ========= ==========
UNDER-PERFORMING LOANS Management monitors the components and status of under-performing loans as a part of the evaluation procedures used in determining the adequacy of the allowance for loan losses. It is the Corporation's policy to discontinue the accrual of interest on loans where, in management's opinion, serious doubt exists as to collectibility. The amounts shown below represent non-accrual loans, loans which have been restructured to provide for a reduction or deferral of interest or principal because of deterioration in the financial condition of the borrower and those loans which are past due more than 90 days where the Corporation continues to accrue interest. The interest income for non-accrual and restructured loans that would have been recorded in 2003, 2002 and 2001, under the original terms of the loans is $1.3 million, $1.4 million and $1.1 million, respectively. The Corporation recorded interest income on such loans in the amounts of $583 thousand, $643 thousand and $535 thousand for 2003, 2002 and 2001, respectively.
(Dollar amounts in thousands) 2003 2002 2001 2000 1999 ---------------------------- ---- ---- ---- ---- ---- Non-accrual loans $ 8,429 $ 11,807 $ 8,854 $ 8,316 $ 2,879 Restructured loans 542 546 590 735 959 --------- --------- --------- --------- --------- 8,971 12,353 9,444 9,051 3,838 Accruing loans past due over 90 days 5,384 5,899 4,925 5,499 5,229 --------- --------- --------- --------- --------- $ 14,355 $ 18,252 $ 14,369 $ 14,550 $ 9,067 ========= ========= ========= ========= =========
The ratio of the allowance for loan losses as a percentage of under-performing loans was 148% at December 31, 2003, compared to 116% in 2002. This results from the $3.9 million decrease in under-performing loans while maintaining the allowance at $21.2 million. The following loan categories comprise significant components of the under-performing loans at December 31, 2003:
(Dollar amounts in thousands) ----------------------------- Non-accrual loans: 1-4 family residential $ 2,155 26% Commercial loans 4,697 56 Installment loans 1,577 18 Other, various - - -------- --- $ 8,429 100% ======== === Past due 90 days or more: 1-4 family residential $ 2,321 44% Commercial loans 1,530 28 Installment loans 1,533 28 Other, various - - -------- --- $ 5,384 100% ======== ===
There are no material concentrations by industry within the under-performing loans. 2003 ANNUAL REPORT FINANCIAL CONDITION -- SUMMARY An element of the Corporation's asset quality management process is the ongoing review and grading of each affiliate's commercial loan portfolio. At December 31, 2003, approximately $70.4 million of commercial loans are graded doubtful or substandard, including the $4.4 million of non-accrual and past-due commercial loans listed above. This compares to $51.4 million in 2002, which included $9.7 million of non-performing loans. The classification of these loans, however, does not imply that management expects losses on each of these loans, but believes that a higher level of scrutiny is prudent under the circumstances. Many of these loans are still accruing and are, generally, performing in accordance with their loan agreements. However, for reasons such as previous payment history, bankruptcy proceedings, industry concerns or information specific to that borrower, it is the opinion of management that these loans require close monitoring. DEPOSITS Total deposits increased to $1.48 billion at December 31, 2003, from $1.43 billion at December 31, 2002. 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 2003, 2002 and 2001.
2003 2002 2001 -------------------- ------------------- ------------------- (Dollar amounts in thousands) Amount Rate Amount Rate Amount Rate - -------------------------------- ------------ ---- ------------ ---- ---------- ----- Non-interest-bearing demand deposits $ 177,712 $ 202,438 $ 148,931 Interest-bearing demand deposits 231,590 .63% 198,503 .97% 170,990 1.28% Savings deposits 357,989 .80% 328,506 1.43% 287,012 2.74% Time deposits: $100,000 or more 197,946 2.87% 193,504 3.07% 198,575 5.32% Other time deposits 517,364 3.27% 554,341 3.97% 495,940 5.36% ------------ ------------ ---------- TOTAL $ 1,482,601 $ 1,477,292 $1,301,448 ============ ============ ==========
The maturities of certificates of deposit of $100 thousand or more outstanding at December 31, 2003, are summarized as follows: 3 months or less $ 41,229 Over 3 through 6 months 25,033 Over 6 through 12 months 12,596 Over 12 months 113,327 -------- TOTAL $192,185 ========
SHORT-TERM BORROWINGS A summary of the carrying value of the Corporation's short-term borrowings at December 31, 2003, 2002 and 2001 is presented below:
(Dollar amounts in thousands) 2003 2002 2001 - ----------------------------- ---- ---- ---- Federal funds purchased $ 61,524 $ 16,311 $ 9,920 Repurchase agreements 5,130 13,237 37,400 Other short-term borrowings 1,975 4,807 7,276 -------- --------- -------- $ 68,629 $ 34,355 $ 54,596 =======- ========= ========
The amounts and interest rates related to federal funds purchased and repurchase agreements are presented below:
(Dollar amounts in thousands) 2003 2002 2001 - ----------------------------- ---- ---- ---- Average amount outstanding $ 32,153 $ 24,857 $ 59,603 Maximum amount outstanding at a month end 91,376 66,485 81,330 Average interest rate during year 1.45% 2.73% 4.46% Interest rate at year-end 1.15% 1.63% 2.32%
FIRST FINANCIAL CORPORATION FINANCIAL CONDITION -- SUMMARY OTHER BORROWINGS Advances from the Federal Home Loan Bank decreased to $358.6 million in 2003 compared to $397.2 million in 2002. Increased deposits funded the reduction in advances and generally had a lower cost. The Asset/Liability Committee reviews these investments and considers the related strategies on a weekly basis. See Interest Rate Sensitivity and Liquidity below for more information. The Corporation borrowed $20 million from a financial institution during 2002 to purchase Community Financial Corp. The outstanding balance on this loan at year end was $18.0 million. CAPITAL RESOURCES 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, 2003. 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 2003 and 2002 was 35.9% and 29.6%, 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 has established risk measures, limits and policy guidelines for managing interest rate risk and liquidity. Responsibility for management of these functions resides with the Asset Liability Committee. The primary goal of the Asset Liability Committee is to maximize net interest income within the interest rate risk limits approved by the Board of Directors. 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 interest income is largely dependent on the effective management of this risk. The Asset Liability position is measured using sophisticated risk management tools, including earnings simulation and market value of equity sensitivity analysis. These tools allow management to quantify and monitor both short-and long-term exposure to interest rate risk. Simulation modeling measures the effects of changes in interest rates, changes in the shape of the yield curve and the effects of embedded options on net interest income. This measure projects earnings in the various environments over the next three years. It is important to note that measures of interest rate risk have limitations and are dependent on various 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 of these assumptions and believes them to be valid and theoretically sound. These assumptions are continuously monitored for behavioral changes. The Corporation from time to time utilizes derivatives to manage interest rate risk. Management continuously evaluates the merits of such interest rate risk products but does not anticipate the use of such products to become a major part of the Corporation's risk management strategy. The table on the following page shows the Corporation's estimated sensitivity profile as of December 31, 2003. The change in interest rates assumes a parallel shift in interest rates of 100 and 200 basis points. Given a 100 basis point increase in rates, net interest income would increase 1.72% over the next 12 months and increase 3.83% over the following 12 months. Given a 100 basis point decrease in rates, net interest income would decrease 3.78% over the next 12 months and decrease 6.45% over the following 12 months. These estimates assume all rate changes occur overnight and management takes no action as a result of this change. 2003 ANNUAL REPORT FINANCIAL CONDITION -- SUMMARY
Percentage Change in Net Interest Income ---------------------------------------- Basis Point Interest Rate Change 12 months 24 months 36 months - -------------------- --------- --------- --------- Down 200 -10.00% -16.65% -22.36% Down 100 - 3.78 -6.45 -9.66 Up 100 1.72 3.83 7.04 Up 200 3.66 7.78 14.49
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. LIQUIDITY RISK: Liquidity is measured by each bank's ability to raise funds to meet the obligations of 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 $10.2 million of investments that mature throughout the coming 12 months. The Corporation also anticipates $48.8 million of principal payments from mortgage-backed securities. Given the current rate environment, the Corporation anticipates $26.3 million in securities to be called within the next 12 months. CONTRACTUAL OBLIGATIONS, COMMITMENTS, CONTINGENT LIABILITIES AND OFF-BALANCE SHEET ARRANGEMENTS The Corporation has various financial obligations, including contractual obligations and commitments, that may require future cash payments. CONTRACTUAL OBLIGATIONS: The following table presents, as of December 31, 2003, significant fixed and determinable contractual obligations to third parties by payment date. Further discussion of the nature of each obligation is included in the reference note to the consolidated financial statements.
Payments Due In ----------------------------------------------------------------------- One to Three to Over Note One Year Three Five Five (Dollar amounts in thousands) Reference or Less Years Years Years Total - ----------------------------- --------- --------- --------- ----- -------- --------- Deposits without a stated maturity $ 786,624 $ - $ - $ - $ 786,624 Consumer certificates of deposit 9 383,822 227,864 80,524 513 692,723 Short-term borrowings 9 68,629 - - - 68,629 Other borrowings 10 49,659 660 52,419 280,495 383,233
COMMITMENTS: The following table details the amount and expected maturities of significant commitments as of December 31, 2003. Further discussion of these commitments is included in Note 12 to the consolidated financial statements.
Total Amount One Year Over One (Dollar amounts in thousands) Committed or Less Year - ----------------------------- ------------ ---------- ---------- Commitments to extend credit: Unused loan commitments $ 235,328 $ 101,428 $ 133,900 Standby letters of credit 5,619 5,604 15
Commitments to extend credit, including loan commitments, standby letters of credit and commercial letters of credit do not necessarily represent future cash requirements, in that these commitments often expire without being drawn upon. OUTLOOK The Corporation's primary market, the Wabash Valley, has experienced an improved economic climate similar to that of the national economy during 2003. Historically, the Wabash Valley has not grown as fast as the state or national economy and conversely, it has not slowed as much as the state or national economy. The local economy continues to be driven by retail, higher education and health-related industries. During 2003 the area unemployment rate declined, and there continues to be a number of new projects being developed. There are, however, no significant growth opportunities currently available in our primary market area. 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. FIRST FINANCIAL CORPORATION CONSOLIDATED BALANCE SHEET - AVERAGE BALANCES AND INTEREST RATES
December 31, ---------------------------------------------------------------------------------------------- 2003 2002 2001 ----------------------------- ------------------------------ ------------------------------ Average Yield/ Average Yield/ Average Yield/ (Dollar amounts in thousands) Balance Interest Rate Balance Interest Rate Balance Interest Rate - ----------------------------- ---------- -------- ------- ---------- -------- ------ ---------- -------- ------ ASSETS Interest-earning assets: Loans (1) (2) $1,417,026 98,565 6.96% $1,432,290 106,258 7.42% $1,315,725 108,950 8.28% Taxable investment securities 416,403 15,714 3.77 408,666 19,128 4.68 389,776 24,622 6.32 Tax-exempt investments (2) 203,021 15,938 7.85 206,034 17,220 8.36 204,205 17,115 8.38 Federal funds sold 5,129 52 .99 24,129 374 1.55 11,877 268 2.26 ---------- -------- ------- ---------- -------- ------ ---------- -------- ------ Total interest-earning assets 2,041,579 130,269 6.38% 2,071,119 142,980 6.90% 1,921,583 150,955 7.86% -------- ======= -------- ====== -------- ====== Non-interest earning assets: Cash and due from banks 80,261 67,319 58,703 Premises and equipment, net 29,634 29,763 26,624 Other assets 63,753 60,356 53,168 Less allowance for loan losses (22,242) (20,487) (18,796) ---------- ---------- ---------- TOTALS $2,192,985 $2,208,070 $2,041,282 ========== ========== ========== LIABILITIES AND SHAREHOLDERS' EQUITY Interest-bearing liabilities: Transaction accounts $ 589,579 4,315 .73% $ 527,009 6,643 1.26% $ 458,002 10,069 2.20% Time deposits 715,310 22,610 3.16 747,845 27,964 3.74 694,515 37,139 5.35 Short-term borrowings 35,262 431 1.22 34,759 687 1.98 62,321 2,514 4.03 Other borrowings 392,540 20,869 5.32 426,961 22,792 5.34 438,123 24,403 5.57 ---------- -------- ------- ---------- -------- ------ ---------- -------- ------ Total interest-bearing liabilities: 1,732,691 48,225 2.78% 1,736,574 58,086 3.34% 1,652 ,961 74,125 4.48% -------- ======= -------- ====== -------- ====== Non interest-bearing liabilities: Demand deposits 177,712 202,438 148,931 Other 30,441 30,643 25,871 ---------- ---------- ---------- 1,940,844 1,969,655 1,827,763 Shareholders' equity 252,141 238,415 213,519 ---------- ---------- ---------- TOTALS $2,192,985 $2,208,070 $2,041,282 ========== ========== ========== Net interest earnings $ 82,044 $ 84,894 $ 76,830 ======== ======== ======== Net yield on interest-earning assets 4.02% 4.10% 4.00% ======= ====== ======
(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%. 2003 ANNUAL REPORT MARKET AND DIVIDEND INFORMATION At year-end 2003 shareholders owned 13,578,770 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 2003 and 2002.
2003 2002 -------------------------------- -------------------------------- Bid Quotation Cash Bid Quotation Cash Dividends Dividends Quarter ended High Low Declared High Low Declared ------------- ---- --- -------- ---- --- --------- March 31 $ 31.50 $ 28.77 $ 22.42 $21.35 June 30 $ 32.25 $ 27.50 $ .34 $ 25.71 $21.68 $ .31 September 30 $ 28.74 $ 23.56 $ 26.50 $22.28 December 31 $ 24.65 $ 23.36 $ .36 $ 26.84 $24.30 $ .31
SELECTED QUARTERLY DATA (UNAUDITED)
2003 -------------------------------------------------------------------------- Net Provision Interest Interest Interest for Loan Net Net Income (Dollar amounts in thousands) Income Expense Income Losses Income Per Share - ---------------------------- -------- --------- --------- --------- -------- ---------- March 31 $ 31,666 $ 12,737 $ 18,929 $ 2,227 $ 7,033 $ .52 June 30 $ 30,776 $ 12,098 $ 18,678 $ 2,303 $ 6,174 $ .46 September 30 $ 30,400 $ 11,869 $ 18,531 $ 2,318 $ 6,443 $ .47 December 31 $ 29,819 $ 11,521 $ 18,298 $ 607 $ 6,843 $ .50
2002 -------------------------------------------------------------------------- Net Provision Interest Interest Interest for Loan Net Net Income (Dollar amounts in thousands) Income Expense Income Losses Income Per Share - ---------------------------- -------- --------- --------- --------- -------- ---------- March 31 $ 34,305 $ 14,839 $ 19,466 $ 1,932 $ 6,728 $ .49 June 30 $ 34,840 $ 14,760 $ 20,080 $ 2,416 $ 6,552 $ .48 September 30 $ 33,835 $ 14,542 $ 19,293 $ 2,273 $ 6,171 $ .45 December 31 $ 33,282 $ 13,945 $ 19,337 $ 2,857 $ 9,189 $ .68
EX-21 4 c83720exv21.txt SUBSIDIARIES EXHIBIT 13--ANNUAL REPORT EXHIBIT 21--SUBSIDIARIES OF THE REGISTRANT First Financial Bank N.A., formerly known as Terre Haute First National Bank, is a wholly-owned subsidiary of the Registrant. It is an national banking association. It is an Indiana corporation. The bank conducts its business under the name of First Financial Bank N.A. First State Bank is a wholly-owned subsidiary of the Registrant. It is an Indiana corporation. The bank conducts its business under the name of First State Bank. First Citizens State Bank of Newport is a wholly-owned subsidiary of the Registrant. It is an Indiana corporation. The bank conducts its business under the name of First Citizens State Bank. First Farmers State Bank is a wholly-owned subsidiary of the Registrant. It is an Indiana corporation. The bank conducts its business under the name of First Farmers State Bank. First Parke State Bank is a wholly-owned subsidiary of the Registrant. It is an Indiana corporation. The bank conducts its business under the name of First Parke State Bank. First Crawford State Bank is a wholly-owned subsidiary of the Registrant. It is an Illinois corporation. The bank conducts its business under the name of First Crawford State Bank. The Morris Plan Company is a wholly-owned subsidiary of the Registrant. It is an Indiana corporation. The company conducts its business under the name of The Morris Plan Company of Terre Haute, Inc. Forrest Sherer, Inc., is a wholly-owned subsidiary of the Registrant. It is an Indiana corporation. It is a full-line insurance agency and conducts its business under the name Forrest Sherer, Inc. First Community Bank is a wholly-owned subsidiary of the Registrant. It is a national banking association. It is an Illinois corporation. The bank conducts its business under the name of First Community Bank N.A. EX-31.1 5 c83720exv31w1.txt CERTIFICATION EXHIBIT 31.1--CERTIFICATION FOR ANNUAL REPORT OF FORM 10-K BY PRINCIPAL EXECUTIVE OFFICER I, Norman L. Lowery, certify that: 1) I have reviewed this annual report on Form 10-K of First Financial Corporation; 2) Based on my knowledge, this annual report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this annual report; 3) Based on my knowledge, the financial statements, and other financial information included in this annual report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this annual report; 4) The registrant's other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have: (a) designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this annual report is being prepared; (b) evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and (c) disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and 5) The registrant's other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of registrant's board of directors (or persons performing the equivalent functions): (a) all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and (b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal controls over financial reporting. Date: March 11, 2004 Norman L. Lowery, Signed - ------------------------ Norman L. Lowery Vice Chairman and CEO EX-31.2 6 c83720exv31w2.txt CERTIFICATION EXHIBIT 31.2--CERTIFICATION FOR ANNUAL REPORT OF FORM 10-K BY PRINCIPAL FINANCIAL OFFICER I, Michael A. Carty, certify that: 1) I have reviewed this annual report on Form 10-K of First Financial Corporation; 2) Based on my knowledge, this annual report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this annual report; 3) Based on my knowledge, the financial statements, and other financial information included in this annual report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this annual report; 4) The registrant's other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have: (a) designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this annual report is being prepared; (b) evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and (c) disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and 5) The registrant's other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of registrant's board of directors (or persons performing the equivalent functions): (a) all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and (b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal controls over financial reporting. Date: March 11, 2004 Michael A. Carty, Signed - ------------------------ Michael A. Carty Secretary, Treasurer and CFO EX-32.1 7 c83720exv32w1.txt 906 CERTIFICATION EXHIBIT 32.1--CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 In connection with the Annual Report of First Financial Corporation (the "Corporation") on Form 10-K for the year ended December 31, 2003 as filed with the Securities and Exchange Commission on the date hereof (the "Report"), I, Norman L. Lowery, Vice Chairman and CEO of the Corporation, certify, pursuant to 18 U.S.C. section 1350, as adopted pursuant to section 960 of the Sarbanes-Oxley Act of 2002, that: (1) the Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and (2) the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Corporation. This certification is furnished solely pursuant to 18 U.S.C. section 1350 and is not being filed for any other purpose. Date: March 11, 2004 Norman L. Lowery, Signed - ------------------------ Norman L. Lowery EX-32.2 8 c83720exv32w2.txt 906 CERTIFICATION EXHIBIT 32.2--CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 In connection with the Annual Report of First Financial Corporation (the "Corporation") on Form 10-K for the year ended December 31, 2003 as filed with the Securities and Exchange Commission on the date hereof (the "Report"), I, Michael A. Carty, Secretary, Treasurer and CFO of the Corporation, certify, pursuant to 18 U.S.C. section 1350, as adopted pursuant to section 960 of the Sarbanes-Oxley Act of 2002, that: (1) the Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and (2) the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Corporation. This certification is furnished solely pursuant to 18 U.S.C. section 1350 and is not being filed for any other purpose. Date: March 11, 2004 Michael A. Carty, Signed - ------------------------ Michael A. Carty -----END PRIVACY-ENHANCED MESSAGE-----