First Financial Corp
Annual Report 2007

Plain-text annual report

^#/T#:' Filings Services APR 0 2 2008 SNL Financial, LC 1-800-969-4121 WORLD FINANCJAL JNTELLIGENCE JULY 20O7 TOP WORLD BANKS •• About tiie Cover In its July issue, The Banker magazine, an international trade publication based in London, raniied First Financial Bank as one ofthe top 1,000 banks in the world and one of the top 200 banks in the United States. The ranking was based on capital levels, return on assets, real profits growth and other performance factors. While we are pleased to be recognized globally, our proudest achievement is our 173-year history of continuous service to local communities. Sliareliolder Information The common stock of First Financial Corporation is traded on the NASDAQ Global under the symbol THFE A copy ofform 10-K, as fded with the Securities and Exchange Commission, is available upon written request to: ^ ^ ^ T H FF ^^ NASDAq Michael A. Carty First Financial Corporation P.O. Box 540 Terre Haute, IN 47808 ©2008 First Financial Corporation Our Mission The mission of First Financial Corporation is to be the FIRST choice for all your financial needs. Our Vision First Financial Corporation will strive to be the premier financial services organization providing the highest quality customer service in our market area. We will work consistently to provide an exceptional customer experience and to make customer satisfaction our number one priority. To that end, we will employ and retain a well- trained, highly motivated work force whose focus is superior customer service. We will seek to understand customers as individuals, know them by name and develop long-term relationships with each one of them. As an independent, locally managed organ ization, we will provide financial products, services, technologies and delivery channels that revolve around the needs of customers in the communities we serve. We will reinvest our customers' assets first and foremost within our market area. We will maintain our long tradition of being an involved community partner, supporting programs and projects that contribute to the growth, vitality and quality of life in the communities we serve. We will encourage all of our employees to give their time, talents and leadership to local civic and charitable efforts and activities. We will continue to earn the trust and respect of our customers, employees and shareholders by operating in a safe and sound manner that promotes long-term profitability, prudent growth and equitable return on investment. 2007 ANNUAL REPORT Financial Highiights (Dollar amounts in except per stiare a thousands, mounts; FOR THE YI EAR Net income Net income per share Book value per share Cash dividends per share AT YEAR END Assets Deposits Loans Securities Shareholders ' equity December 3 1, 2007 2006 % Change $ 25,580 $ 23,539 8.67% : L94 21.49 .87 1.77 20.44 .85 9.60 5.14 2.35 $2,231,562 $2,175,998 2.55% 1,529,721 1,443,067 586,633 281,692 1,502,682 1,392,755 559,053 271,260 1.80 3.61 4.93 3.85 Net I n c o me (millions of dollars) Net Loans (millions of dollars) D e p o s i ts (millions of dollars) 2007 2006 2005 2007 2006 2005 2007 2006 2005 S h a r e h o l d e r s' Equity (millions of dollars) 2007 2006 onni=; $25.6 • $23.5 $23.1 $1,443.0 $1,392.8 • $1,395.7 ^ $1,529.7 I $1,502.7 1 $1,464.9 $281.7 • $271.3 $269.3 FIRST F I N A N C I AL C O R P O R A T I ON Letter to Sliareiioiders To our Shareholders and Friends: In July we were pleased to learn The Banker, a magazine published in London, England, named First Financial Bank one ofthe top 200 banks in the United States and one ofthe top 1,000 banks worldwide. This ranking, which considered over 8,500 U.S. banks and thousands around the globe, was based on capital levels, return on assets, real profits growth and other performance factors. We greatly appreciate this recognition and welcome it as a tribute to our employees and commitment to putting our customers, communities and shareholders FIRST. First For Our Customers One characteristic that distinguishes First Financial Corporation from its competi tion is the experience our customers enjoy when they do business with us. We know if our customers see no difference between our company and the competition, if we add no value to their experience, there is no good reason for them to choose us the next time they need financial services. Simply interacting or meeting customer expectations is not enough, so in 2007 we launched "First Class Service," a corporate-wide initiative designed to engage our customers and make us the "First Choice" whenever they have additional financial needs. This employee-led initiative fijrthers our commitment to provide superior levels of service which cannot be easily duplicated and to deliver only the best, most efficient products and services. In a fast-paced world, convenience is something we value highly. For that reason, our commitment is to be "Always Close to Home." Our 49 banking centers, 100 ATMs, and telephone and internet banking constitute the most extensive delivery system of any financial service provider in our markets. However, what was convenient yesterday may not be convenient tomorrow, so in late 2006, we introduced a new interactive website which allows our customers an easier and more efficient means to manage their accounts, pay bills, order checks, complete applications and check mortgage rates. For the banking convenience ofour business customers, in 2007 we introduced e-Deposit, which allows them to make remote deposits without leaving their offices, saving both time and money. First For Our Community First Financial Corporation has built a reputation of leadership and community service. We take pride in being a good corporate citizen, stimulating growth through business and consumer lending, job creation, monetary donations and the annual contribution by our employees of thousands of hours to civic and charitable causes. Every year First Financial Corporation supports a variety of programs and events that make a difference in our communities. While the list is long, we are particularly proud of three that held special importance in 2007: 9 2 0 07 A N N U AL REPORT • First Financial is the primary sponsor of the Ivy Tech Community College Scholarship Golf Scramble. Since its inception, this event has raised over $150,000 to fund scholarships for hundreds of students who might not otherwise have been able to afford a college education and serves to open the door to better jobs and a higher standard of living for them and their families. • First Financial is a sponsor of Susan G. Komen for the Cure, an event that benefits breast cancer patient services, research, education and awareness. Last year's race raised $115,000, the majority of which stays in our community to aid women fighting breast cancer. • For the past 15 years. First Financial has underwritten the cost of Easter week meals at local soup kitchens and shelters. During that time, hundreds ofour employ ees have served more than 30,000 meals to underprivileged children and adults. First For Our Shareholders First Financial Corporation's disciplined approach to the delivery of financial products and services and its attention to things that matter yielded positive results in 2007. Net income of $25.6 million was an 8.7% increase over 2006. Earnings per share rose to $1.94, an increase of 9.6%. Return on equity at year-end stood at 9.2%, up 7.35% from 2006, while return on assets remained a healthy 1.16%. At year end, the Corporation's assets were $2.2 billion, a 2.6% increase over 2006. In 2007 the Corporation also reduced its efficiency ratio to 58.4% from 61.3% the previous year. This improvement was achieved by increasing non-interest income 9.3%, while holding non-interest expense to a 0.11% increase. In a year in which many companies struggled with net-interest margins, ours remained unchanged at 3.92%. Our style seeks quality and consistency in earnings. That has given us the ability to return capital to our shareholders and reward them with higher dividends for each of the past 19 years. The cash dividend declared by our Board of Directors in 2007 was $0.87 per share, a 2.4% increase over 2006. Since 1983, the year the Corporation was formed, our annual compound rate of return has been 12.64%. An Investment of $1,000 in 1983 would have grown to $14,787 on December 31, 2007. There are many we must thank for the success First Financial enjoyed in 2007. We are grateful to our customers for the trust they place in our company and brand; to our directors for their vision and leadership; and to our dedicated employees for a job well done. We are especially grateful to you, our shareholders, for your continued support and confidence. Li&>L(}u^<^ y ^ T n t^ i^^Jo^^9neur7 ^ y < ^ S t o - e . f k J^ Donald E. Smith President and Chairman Norman L. Lowery ^ CEO and Vice Chairman 2 0 07 A N N U AL REPORT First Financial strives to be a good citizen in the communities we serve. One way we demonstrate our commitment is through the generous support of local United Way campaigns and agencies. In 2007 our corporate and employee pledges and contributions totaled a record $75,592.39, which benefited United Way organizations in many of the counties served by First affiliates. "Hoosier hospitality" was extended to visitors from near and far through the use of the First motorcoach. Many of our communities have Rotary Clubs and many of our employees are members of Rotary International. When Japanese Rotarians traveling on an international exchange program visited with several clubs in Indiana, First was pleased to provide transportation for the group. In June, players from 23 schools in Indiana and Illinois participated in the Wabash Valley Football Coaches Association All-Star Game. The motorcoach was used to trans port players from both the North and South teams to local hospitals where they visited with children in the pediatric units. (above)lhe newest member ofthe First family of banks held a grand-opening celebration in February. Cutting the ribbon atthe Greencastle, Ind., banking center are Steve Arnold, architect; Pat O'Leary, director, First Financial Corporation; Norman L Lowety, president, First Financial Bank; Darrell and Jill Felling, the first customers ofthe bank; Vicki Lawson, banking center manager; Donald E. Smith, chairman. First Financial Corporation; Mark Boswell, commercial lending officer; and Rick Harmff, CDI. (top of page) First Financial Corporation makes its motorcoach available to local organizations in need of transportation for special events. These players in the Wabash Valley Coaches Association All-Star game prepare to board the First motorcoach to visit hospitalized children. 9 FiRST F I N A N C I AL C O R P O R A T I ON (top right) Each year employees of First Financial Bank, The Morris Plan and Forrest Sherer Insurance volunteer for the annual First Gold Club AutumnFest picnic. Ready to sen/e lunch to the 900+ Gold Club members in attendance are Angela Propst, Jane Wheasler, Pat Ralston, Richard White, Amy Dunivan and Michelle Cunningham. (right) Chief Jay Utz, Terre Haute Fire Department; Rick Burger; Duke Energy; and Donald E. Smith, First Financial Corporation, announce the availability of free smoke detectors at First banking centers in Vigo County. (below)The annual Wabash Valley Mayors' Breakfast hosted by First Financial Bank has been a tradi tion in the area for 18 years. In May First Financial hosts a breakfast for area mayors, public officials, community leaders and their guests. Held in Terre Haute, the annual event brings together local government, community and economic development leaders for informal conversation and fellowship. The safety of members of our communities, whether customers or not, has always been of concern to the Corporation. In 2007 we continued to partner with WTHI-TV to make weather radios available in First Financial Bank branches for a nominal fee. And knowing that many of us need a little help programming anything electronic, members ofthe WTHI-TV Storm Team 10 were available to help with the process. In June volunteers from First Financial Bank, Forrest Sherer Insurance and The Morris Plan served as escorts for athletes participating in the Indiana Special Olympics held at Indiana State University. First Financial Corporation has sponsored the Parade of Athletes during the opening cere monies of the Indiana Special Olympics Summer Games for the past 19 years. Another popular activity for First volunteers is the annual First Gold Club AutumnFest Picnic in September, which brings together First Gold Club members from Indiana and Illinois. Barbequed chicken, kettle-cooked ham and beans and all the trimmings were provided by First Financial Corporation and served to more than 900 club members by volunteers from First Financial afflliates. The event provides an opportunity for mem bers (First Financial Bank customers age 50 or better) to visit 2 0 07 A N N U AL REPORT with friends and enjoy an afternoon devoted to music, lively games of bingo and freshly popped popcorn. Identity theft and the disposal of sensitive personal papers are a problem for everyone. Many of us simply do not know where or how to go about disposing of these materials. In October First Financial Bank took steps to help citizens in the Terre Haute area with the problem of document disposal. With assistance from Data Management Shredding, individuals brought boxes and bags of personal papers to the parking lot at the First Meadows banking center where the materials were shredded free of charge. October is also Fire Prevention Month and with the safety and security of our customers and neighbors in mind. First Financial Bank, in cooperation with Duke Energy and the Terre Haute Fire Department, made smoke detectors available to residents of Terre Haute and West Terre Haute at no cost. Service to our customers.. .service to our communities... service to the public — these are the things that have made First Financial Corporation a premier financial institution in Indiana and Illinois. As long as we continue to identify and serve the needs of our customers and communities. First Financial Corporation and our affiliates will maintain our position as a leader in the state, the region, the nation and the world. 9 (above) Brenda Bonine, First Financial Bank United Way campaign coordinator, and Norman L. Lowery, president, First Financial Bank, present a check to Jim Bertoli, executive director ofthe United Way ofthe Wabash Valley. The check represented corporate and employee pledges and contributions for 2007. (top of page) Employees from First Financial Bank, Forrest Sherer Insurance and The Morris Plan of Terre Haute give their time each year to escort Special Olympians during the opening ceremonies of the annual summer games on the Indiana State University campus. Financial Information 9 Five-Year Comparison of Selected Financial Data 10 Consolidated Balance Sheets 11 Consolidated Statements of Income 12 Consolidated Statements of Clianges in Shareholders' Equity 13 Consolidated Statements of Cash Flows 14 Notes to Consolidated Financial Statements 32 Report of Independent Registered Public Accounting /Firm on Financial Statenjents | 33 *Rgport pf Independent Registered Public Accounting / Firm pn intiernal ControlOver Finaiicial Reporting / 34 Management's Report on Internal Cptritrol / Over Finan|;ial Reporting ^ ^ ^ .. \ **^,M Managemeilt£jDissai8#t)n and Analysis \ / 36 Results of Qperations-^ Summary fox 2006 38 Financial Cf ndition — %immary \ ^^J** \ 45 iConsolidate^ Balance She^t — Average Balances I and Interest bates . ***^ \ \ \ ^T^'^f^^lmT t hd Information 47 f Directors FIVE YEAR COMPARISON OF SELECTED FINANCIAL DATA 2 0 07 ANNUAL R E P O RT (Dollar amounts in tiiousands, except per share amounts) BALANCE SHEET DATA: Total assets Securities Loans, net of unearned fees* Deposits Borrowings Shareholders' equity INCOME STATEIVIENT DATA: Interest income Interest expense Net interest income Provision for loan losses Other income Other expenses Net income PER SHARE DATA: Net income Cash dividends PERFORMANCE RATIOS: Net income to average assets Net income to average shareholders' equity Average total capital to average assets Average shareholders' equiry to average assets Dividend payout 2007 2006 2005 2004 2003 $2,231,562 586,633 1,443,067 1,529,721 368,616 281,692 $2,175,998 559,053 1,392,755 1,502,682 358,008 271,260 $2,136,918 536,291 1,395,741 1,464,918 370,090 269,323 $2,183,992 507,990 1,463,871 1,443,121 438,013 268,335 $2,223,057 576,950 1,429,525 1,479,347 451,862 255,279 137,734 62,961 74,773 6,580 31,497 64,726 25,580 1.94 0.87 130,832 57,129 73,703 6,983 28,826 64,656 23,539 1.77 0.85 121,647 47,469 74,178 11,698 32,025 63,538 23,054 116,888 44,686 72,202 8,292 35,754 63,656 28,009 122,661 48,225 74,436 7,455 30,819 62,461 26,493 1.72 .82 2.07 .79 1.95 .70 1.16% 1.10% 1.07% 1.28% 1.21% 9.20 13.35 12.64 44.76 8.57 13.56 12.79 44.18 8.52 13.35 12.51 47.57 10.45 13.24 12.23 38.13 10.57 12.45 11.43 35.88 *2007 indudes $14,068 of credit card loans that are held-for-sale. CONSOLIDATED BALANCE SHEETS FIRST F I N A N C I AL C O R P O R A T I ON (Dollar amounts in thousands, except per sl flare data) December 3 1, 2 0 07 2 0 06 in 2007 and $16,169 in 2006 ASSETS Cash and due from banks Federal funds sold Securities available-for-sale Loans, net of allowance of $15,351 Credit card loans held-for-sale Accrued interest receivable Premises and equipment, net Bank-owned life insurance Goodwill Other intangible assets Other real estate owned Other assets TOTAL ASSETS LIABILITIES AND SHAREHOLDERS' EQUITY Deposits: Non-interest-bearing Interest-bearing: Certificates ofdeposit of $100 or more Other interest-bearing deposits Short-term borrowings Other borrowings Other liabilities TOTAL LIABILITIES Shareholders' equity Common stock, $.125 stated value per share. Authorized shares — 40,000,000 Issued shares — 14,450,966 Outstanding shares — 13,136,359 in 2007 and 13,270,321 in 2006 Additional paid-in capital Retained earnings Accumulated other comprehensive income (loss) Less: Treasury shares at cost — 1,314,607 in 2007 and 1,180,645 in 2006 TOTAL SHAREHOLDERS' EQUITY $ 70,082 4,201 586,633 1,413,648 14,068 13,698 32,632 59,950 7,102 1,937 1,472 26,139 $2,231,562 $ 77,682 21,437 559,053 1,376,586 — 13,972 33,267 57,905 7,102 2,363 3,194 23,437 $2,175,998 $ 225,549 $ 227,808 193,901 1,110,271 1,529,721 27,331 341,285 51.533 1,949,870 1,806 68,212 250,011 (5,181) (33,156) 281,692 189,323 1,085,551 1,502,682 16,203 341,805 44,048 1,904,738 1,806 68,003 235,967 (5,494) (29,022) 271,260 TOTAL LABILITIES AND SHAREHOLDERS' EQUITY $2,231,562 $2,175,998 See accompanying notes. CONSOLIDATED STATEMENTS OF INCOME 2 0 07 A N N U AL REPORT (Dollar amounts in thousands, except per share data) INTEREST AND DIVIDEND INCOME: Loans, including related fees Securities: Taxable Tax-exempt Other TOTAL INTEREST AND DIVIDEND INCOME INTEREST EXPENSE: Deposits Short-term borrowings Other borrowings TOTAL INTEREST EXPENSE N ET INTEREST INCOME Provision for loan losses N ET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES NON-INTEREST INCOME: Trust and financial services Service charges and fees on deposit accounts Other service charges and fees Securities gains (losses) Insurance commissions Gain on sale of mortgage loans Other TOTAL NON-INTEREST INCOME NON-INTEREST EXPENSES: Salaries and employee benefits Occupancy expense Equipment expense Other TOTAL NON-INTEREST EXPENSE INCOME BEFORE INCOME TAXES Provision for income taxes N ET INCOME EARNINGS PER SHARE: BASIC AND DILUTED Years Ended December 3 1, 2007 2006 2005 $ 104,950 $ 99,850 $ 96,388 23,336 6,635 2,813 137,734 21,877 6,243 2,862 130,832 16,802 6,306 2,151 121,647 41,956 1,611 19,394 62,961 74,773 6,580 37,285 746 19,098 57,129 73,703 6,983 27,184 783 19,502 47,469 74,178 11,698 68,193 66,720 62,480 3,697 11,877 5,783 211 6,541 816 2,572 31,497 39,432 4,034 4,322 16,938 6 4 J 26 3,766 11,639 5,279 6 6,323 191 1,622 28,826 39,739 3,994 4,305 16,618 64,656 34,964 30,890 3,626 11,732 6,440 571 5,995 1,289 2,372 32,025 38,617 3,796 3,861 17,264 63,538 30,967 9,384 7,351 7,913 25,580 $ 23,539 $ 23,054 $ 1.94 $ 1.77 $ 1.72 Weighted average number of shares outstanding (in thousands) 13,178 13,295 13,433 See accompanying notes. 0 CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY FIRST F I N A N C I AL C O R P O R A T I ON (Dollar amounts in thousands, except per share data) Cominon Stocic Additional Paid-in Capital Retained Earnings Accumulated Other Comprehensive Treasury Income (Loss) Stocic Totai Balance, January 1, 2005 $ 1,806 $ 67,519 $211,623 $ 8,357 $(20,970) $268,335 Comprehensive income: Net income Other comprehensive income, net of tax: Change in net unrealized gains/losses on securities available-for-sale, net Total comprehensive income Contribution of 36,000 shares to ESOP Treasury stock purchases (79,000 shares) Cash dividends, $ .79 per share 23,054 (6,454) _ 23,054 (6,454) 16,600 151 (10,967) 993 (5,789) - 1,144 (5,789) (10,967) Balance, December 31, 2005 1,806 67,670 223,710 1,903 (25,766) 269,323 Comprehensive income: Net income Other comprehensive loss, net of tax: Change in net unrealized gains/losses on securities available-for-sale, net Total comprehensive income Adjustment to initially apply SFAS No. 158, net oftax (Note 1) Contribution of 34,000 shares to ESOP Treasury stock purchases (137,249 shares) Cash dividends, $ .85 per share 23,539 333 (11,282) 1,161 (8,558) 23,539 1,161 24,700 831 (4,087) (8,558) 1,164 (4,087) (11,282) Balance, December 31, 2006 1,806 68,003 235,967 (5,494) (29,022) 271,260 Comprehensive income: Net income Other comprehensive loss, net of tax: Change in net unrealized gains/losses on securities available-for-sale, net Change in unrealized gains/losses on retirement plans Total comprehensive income Adjustment to initially apply FIN No. 48, net oftax (Note 1) Contribution of 41,000 shares to ESOP Treasury stock purchases (174,962 shares) Cash dividends, $ .87 per share 25,580 25,580 1,110 (797) — 1,110 - (797) 25,893 (86) - 209 (11,450) 1,033 (5,167) (86) 1,242 (5,167) (11,450) Balance, December 31, 2007 $ 1,806 $ 68,212 $250,011 $ (5,181) $ (33,156) $281,692 See accompanying notes. 9 CONSOLIDATED STATEMENTS OF CASH FLOWS 2007 ANNUAL REPORT (Dollar amounts in thousands, except per share data) CASH FLOWS FROM OPERATING ACTIVITIES: Net income Adjustments to reconcile net income to net cash provided by operating activities: Net (accretion) amortization on securities Provision for loan losses Securities (gains) losses Depreciation and amortization Provision for deferred income taxes Net change in accrued interest receivable Contribution ofshares to ESOP Gains on sales of other real estate Other, net N ET CASH FROM OPERATING ACTIVITIES CASH FLOWS FROM INVESTING ACTIVITIES: Sales ofsecurities available-for-sale Calls, maturities and principal reductions on securities available-for-sale Purchases ofsecurities available-for-sale Loans made to customers, net of repayments Net change in federal funds sold Purchase of bank-owned life insurance Purchase of customer list Sale of other real estate Additions to premises and equipment N ET CASH FROM INVESTING ACTIVITIES CASH FLOWS FROM FINANCING ACTIVITIES: Net change in deposits Net change in other short-term borrowings Dividends paid Purchases of treasury stock Proceeds from other borrowings Repayments on other borrowings NET CASH FROM FINANCING ACTIVITIES NET CHANGE IN CASH AND CASH EQUIVALENTS CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR CASH AND CASH EQUIVALENTS, END OF YEAR SUPPLEMENTAL DISCLOSURES OF CASH FLOW AND NONCASH INFORMATION: Cash paid during the year for: Interest Income taxes Years Ended December 3 1, 2007 2006 2005 $ 25,580 $ 23,539 $ 23,054 (2,619) 6,580 (211) 3,443 27 274 1,242 (116) 1,302 35,502 3,170 94,587 (120,657) (60,485) 17,236 — — 4,322 (2,382) (64,209) 27,039 11,128 (11,373) (5,167) 81,750 (82,270) 21,107 (7,600) (2,540) 6,983 (6) 3,515 (3,579) (1,435) 1,164 - 9,688 37,329 5,080 157,031 (180,393) (6,510) (18,455) - - - (5,015) (48,262) 37,764 (10,021) (11,181) (4,087) - (2,061) 10,414 (1,462) 11,698 (571) 3,363 1,716 (521) 1,144 - 592 39,013 11,376 373,741 (422,141) 49,806 2,418 (5,000) (338) - (2,908) 6,954 21,797 (49,303) (10,779) (5,789) — (18,620) (62,694) (519) (16,727) 77,682 78,201 94,928 $ 70,082 $ 77,682 $ 78,201 $ 62,080 $ 56,150 $ 8,494 $ 11,202 $ 46,919 $ 5,413 Transfers from loans to loans held-for-sale $ 14,608 See accompanying notes. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS FIRST F I N A N C I AL C O R P O R A T I ON 1. BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES: BUSINESS Organization: The consolidated fmancial 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, The Morris Plan Company of Terre Haute (Morris Plan), 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 Reinsurance Company was dissolved during 2007 with no material impact to the financial statements ofthe Corporation. 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 assets as part ofa strategy to better manage various income streams and provide opportunities for capital creation as needed. Specialists A and Specialists B subse quently entered into a limited partnership agreement, Global Portfolio Limited Partners. Portfolio Management Specialists B also owns First Financial Real Estate, LLC. At December 31, 2007, $531.0 million ofsecurities and loans were owned by these sub sidiaries. Specialists A, Specialists B, Global Portfolio Limited Partners and First Financial Real Estate LLC are included in the consolidated financial statements. The Corporation, which is headquartered in Terre Haute, Indiana, offers a wide variety of fmancial services including commer cial, mortgage and consumer lending, lease fmancing, trust account services and depositor services through its four subsidiaries. The Corporation's primary source of revenue is derived from loans to customers, primarily middle-income individuals, and investment activities. The Corporation operates 48 branches in west-central Indiana and east-central Illinois. First Financial Bank is the largest bank in Vigo County. It operates 12 full-service banking branches within the county; five in Clay County, Indiana; one in Greene County, Indiana; three in Knox County, Indiana; five in Parke County, Indiana; one in Putnam County, Indiana; five in Sullivan County, Indiana; four in Vermillion County, Indiana; one in Clark County, Illinois; one in Coles County, Illinois; three in Crawford County, Illinois; one in Jasper County, Illinois; two in Lawrence County, Illinois; rwo in Richland County, Illinois; one in Vermilion County, Illinois; and one in Wayne County, Illinois. It also has a main office in downtown Terre Haute and an operations center/office building in southern Terre Haute. 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 subsidiary is regulated by the Office of the Comptroller of the Currency. The state bank subsidiary is jointly regulated by the state banking organization and the Federal Deposit Insurance Corporation. SIGNIFICANT ACCOUNTING POLICIES Use of Estimates: To prepare fmancial statements in conformity with U.S. generally accepted accounting principles, manage ment 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, carry ing value of intangible assets, loan servicing rights and the fair values offinancial 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. Interest income includes amortization of purchase premium or discount. Premiums and discounts are amortized on the level yield method without anticipating prepayments. Mortgage-backed securities are amortized over the expected life. Realized gains and losses on sales are based on the amortized cost of the security sold. Declines in the fair value of securities below their cost that are other than temporary are reflected as realized losses. In estimating other-than-temporary losses, management con siders: 1) the length of time and extent that fair value has been less than cost; 2) the fmancial condition and near term prospects of the issuer; and 3) the Corporation's ability and intent to hold the security for a period sufficient to allow for any anticipated recovery in fair value. 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 accrued on the unpaid principal balance and includes amortization of net deferred loan fees and costs over the loan term without anticipating prepayments. Interest income is not reported when full loan repayment is in doubt, typical ly when the loan is impaired or payments are significantly past due. 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 reason ably assured. In all cases, loans are placed on non-accrual or charged-off if collection of principal or interest is considered doubtful. Allowance for Loan Losses: The allowance for loan losses is a valuation allowance for probable incurred credit losses. Loan losses are charged against the allowance when management believes the uncollectibility of a loan balance is confirmed. Subsequent NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 2 0 07 A N N U AL REPORT recoveries, if any, are credited to the allowance. Management estimates the allowance balance required using past loan loss experi ence, 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 The allowance consists of specific and general components. The specific component relates to loans that are individually classified as impaired or loans otherwise classified as substandard or doubtful. The general component covers non-classified loans and is based on historical loss experience adjusted for current factors. 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. Large groups of smaller balance homogeneous loans, such as consumer and residential real estate loans, are collectively evaluated for impairment and, accordingly, they are not separately identified for impairment disclosures. Foreclosed Assets: Assets acquired through or instead of loan foreclosures are initially recorded at fair value less estimated sell ing costs 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: Land is carried at cost. Premises and equipment are stated at cost less accumulated depreciation. Depreciation is computed over the useful lives ofthe assets, which range from 3 to 33 years for furniture and equipment and 5 to 39 years for buildings and leasehold improvements. Federal Home Loan Bank (FHLB) Stock: The Corporation is a member ofthe FHLB system. Members are required to own a cer tain amount of stock based on the level of borrowings and other factors, and may invest in additional amounts. FHLB stock is car ried at cost and periodically evaluated for impairment. Because this stock is viewed as a long-term investment, impairment is based on ultimate recovery ofpar value. Both cash and stock dividends are reported as income. FHLB stock is included with securities. Servicing Rights: Servicing rights are recognized separately when they are acquired through sales of loans. For sales of mortgage loans prior to January 1, 2007, a portion ofthe cost ofthe loan was allocated to the servicing right based on relative fair values. The Corporation adopted SFAS No. 156 on January 1, 2007, and for sales of mortgage loans beginning in 2007, servicing rights are ini tially recorded at fair value with the income statement effect recorded in gains on sales of loans. Fair value is based on market prices for comparable mortgage servicing contracts, when available, or alternatively, is based on third-parry valuations that incorporate assumptions that market participants would use in estimating future net servicing income, such as the cost to service, the discount rate, ancillary income, prepayment speeds and default rates and losses. All classes of servicing assets are subsequently measured using the amortization method, which requires servicing rights to be amortized into non-interest income in proportion to, and over the period of, the estimated future net servicing income of the underlying loans. Servicing assets are evaluated for impairment based upon the fair value of the rights as compared to carrying amount. Impairment is determined by stratifying rights into groupings based on predominant risk characreristics, such as interest rate, loan type and investor type. Impairment is recognized through a valuation allowance for an individual grouping, to the extent that fair value is less than the carrying amount. Ifthe Corporation later determines that all or a portton ofthe impairment no longer exists for a particu lar grouping, a reduction of the allowance may be recorded as an increase to income. Changes in valuation allowances are reported with Other Service Fees on the income statement. The fair values of servicing rights are subject to significant fluctuations as a result ofchanges in estimated and actual prepaymenr speeds and default rares and losses. Servicing fee income, which is included in Orher Service Fees on the income statement, is for fees earned for servicing loans. The fees are based on a contractual percentage of the outstanding principal or a fixed amount per loan and are recorded as income when earned. The amortization of mortgage servicing rights is netted against loan servicing fee income. Servicing fees totaled $947 thou sand, $1.01 miUion and $1.00 million for the years ended December 31, 2007, 2006 and 2005. Late fees and ancillary fees related to loan servicing are not material. Bank-Owned Life Insurance: The Corporation has purchased life insurance policies on certain key executives. Bank-owned Hfe insurance is recorded at its cash surrender value, or the amount that can be realized. Income on rhe investments in life insurance is included in other interesr income. Goodwill and Other Intangible Assets: Goodwill resuks from business acquisitions and represents the excess of the purchase price over the fair value of acquired tangible assets and liabilities and identiflable intangible assets. Goodwill is assessed at least annually for impairment and any such impairmenr will be recognized in the pertod identified. 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 ar fair value and then are amortized over their estimated useful lives, which are 12 and 10 years, respectively. Long-Term Assets: Premises and equipment and other long-term assers 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. Benefit Plans: Pension expense is the net of service and interest cost, return on plan assets and amorrizarion of gains and losses not immediately recognized. The amount contributed is determined by a formula as decided by the Board of Directors. Deferred compensation and supplemental retirement plan expense allocates the benefits over years of service. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS FIRST F I N A N C I AL C O R P O R A T I ON Employee Stock Ownership Plan: Shares of treasury stock are issued to the ESOP and compensation expense is recognized based upon the total marker price of shares when contributed. Deferred Compensation Plan: A deferred compensation plan covers all directors. Under the plan, the Corporation pays each director, or their beneficiary, rhe amount of fees deferred plus interest over 10 years, beginning when the director achieves age 65. A liability is accrued for the obligation under these plans. The expense incurred for the deferred compensarion for each of the last three years was $177 thousand, $201 thousand and $164 thousand, resulting in a deferred compensation liabiUty of $2.3 miUion and $2.2 miUion as of year-end 2007 and 2006. Long-Term Incentive Plan: A long-term incentive plan provides for the payment of incentive rewards as a 15-year annuity to all directors and certain key officers. The plan expires December 31, 2009, and compensation expense is recognized over the service period. Payments under the plan generally do not begin until the earlier of January 1, 2015, or the January 1 immedi- arely following the year in which the participant reaches age 65. Compensation expense for each ofthe last three years was $2.0 miUion, $1.7 million and $1.6 miUion, resulting in a liability of $11.3 miUion and $9.4 miUion as of year-end 2007 and 2006. 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 rhe expected future tax amounts for the temporary differences berween carrying amounts and tax bases of assets and liabilities, computed using enacted tax rates. A valuation allowance, if needed, reduces deferred rax assets to the amount expected to be realized. The Corporation adopted FASB Interpretation 48, "Accounting for Uncertainty in Income Taxes" (FIN 48), as of January 1, 2007. A tax position is recognized as a benefit only ifit is "more likely than not" that the tax position would be sustained in a tax examination, with a tax examination being presumed to occur. The amount recognized is rhe largesr amounr of tax benefit that is grearer rhan 50% likely of being realized on examination. For tax positions not meeting the "more likely than not" test, no tax benefit is recorded. The adoption of FIN 48 on January 1, 2007 reduced retained earnings and increased liabilities by $86 thousand. The Corporarion recognizes interest and/or penahies related to income tax matters in income tax expense. Loan Commitments and Related Financial Instruments: Financial instruments include credit instruments, such as commit ments to make loans and standby letters of credir, issued to meet customer fmancing needs. The face amount for these items represents the exposure to loss, before considering customer collateral or ability to repay. Such financial instrumenrs are record ed when rhey are funded. 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 ofthe financial statements. Comprehensive Income: Comprehensive income consists of net income and other comprehensive income. Other comprehen sive income includes unrealized gains and losses on securities available for sale, which are also recognized as separate compo nents of equity. Loss Contingencies: Loss contingencies, including claims and legal actions arising in the ordinary course of business, are recorded as liabiliries when the likelihood of loss is probable and an amount of range of loss can be reasonably estimated. Management does not believe there are currendy such matters rhat will have a material effecr 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 rhe holding company to shareholders. Fair Value of Financial Instruments: Fair values of financial instruments are estimated using relevanr market informarion and orher assumprions, as more fully disclosed in a separate note. Fair value estimates involve uncertainties and matters of signifi cant judgment regarding interest rates, credit risk, prepayments and other factors, especially in the absence ofbroad 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, rhe operaring results of significant segments are similar and operations are managed and financial performance is eval- uared on a corporate-wide basis. Accordingly, all of the Corporation's financial service operations are considered by manage ment to be aggregated in one reportable operating segment, which is banking. Adoption of New Accounting Standards: In February 2006, rhe Financial Accounting Standards Board (FASB) issued Statement ofFinancial Accounting Standards No. 155, "Accounting for Cerrain Hybrid Financial Instruments" (SFAS No. 155), which permirs fair value remeasurement for hybrid financial instruments that contain an embedded derivative that other wise would require bifurcarion. Additionally, SFAS No. 155 clarifies rhe accounring guidance for beneficial interests in securiti- zarions. Under SFAS No. 155, all beneficial interests in a securitization wUl require an assessmenr in accordance with SFAS No. 133 to determine if an embedded derivarive exists within the instrument. In January 2007, the FASB issued "Derivatives Implementation Group Issue B40, Application of Paragraph 13(b) to Securitized Interests in Prepayable Financial Assets" (DIG Issue B40). DIG Issue B40 provides an exemption from the embedded derivative test of paragraph 13(b) of SFAS No. 133 for instruments that would otherwise require bifurcarion if the test is met solely because of a prepayment feature Included within the securitized interest and prepayment is not controlled by the securiry holder. SFAS No. 155 and DIG Issue B40 are effective for fiscal years beginning after September 15, 2006. The adoption of SFAS No. 155 and DIG Issue B40 did not have a materi al impacr on the Corporarion's consolidated financial position or results ofoperations. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 2 0 07 A N N U AL REPORT In September 20O6, the FASB Emerging Issues Task Force finalized Issue No. 06-5, "Accounring for Purchases of Life Insurance-Deterinining the Amount That Could Be Realized in Accordance with FASB Technical Bulletin No. 85-4 (Accounting for Purchases of Life Insurance) {Issue}." This Issue requires that a policyholder consider conrractual terms ofa life insurance poli cy in dererminingi the amount that could be realized under the insurance contract. It also requires that if the contracr provides for a grearer surrender value if all individual policies in a group are surrendered ar the same time, that the surrender value be deter mined based on the assumption that policies wiU be surrendered on an individual basis. Lastly, the Issue requires disclosure when there are contractual resrrictions on the Corporarion's abilir)' to surrender a policy. The adoption of EITF 06-5 on January 1, 2007 had no impact on jthe Corporation's financial conditions or results of operation. Effect of Newly Issued But Not Yet Effective Accounting Standards: In September 2006, the FASB issued Statement No. 157, "Fair Value Measurements." This Statement defines fair value, establishes a framework for measuring fair value and expands dis closures abour fair value measurements. This Srarement esrablishes a fair value hierarchy about the assumptions used to measure fair value and clarifies assumptions about risk and the effect of a resrriction on the sale or use of an asset. The standard is effective for fiscal years beginning after November 15, 2007. The impact of adoption is not expected to be material. In February 2007, the FASB issued Statement No. 159, "The Fair Value Option for Financial Assets and Financial LiabUities." The standard provides companies with an option to report selected financial assets and liabilities at fair value and establishes pre sentation and disclosure requirements designed to facUitate comparisons berween companies that choose different measurement attribures for similar rypes of assers and liabilities. The new standard is effective for the Corporation on January 1, 2008. The Corporarion did not elect the fair value option for any financial assets or fmancial liabUities as of January 1, 2008. In September 2006, rhe FASB Emerging Issues Task Force finalized Issue No. 06-4, "Accounting for Deferred Compensarion and Postretirement Benefit Aspects of Endorsement Split-Dollar Life Insurance Arrangements." This issue requires that a liability be recorded during rhe service period when a splir-dollar life insurance agreement continues after participants' employment or retire ment. The required accrued liabiliry will be based on either the post-employment benefit cost for the continuing life insurance or based on rhe furure death benefit depending on the contracrual terms of the underlying agreement. This issue is effective for fiscal years beginning after December 15, 2007. There was no impact to the adoption ofthis issue as the Corporation has no split-dollar life insurance arrangements. Reclassifications: Some items in prior year financial statements were reclassifled to conform ro the currenr presentation. 2. FAIR VALUES OF FINANCIAL INSTRUMENTS: Carrying amount is the estimated fair value for cash and due from banks, federal funds sold, shorr-term borrowings, Federal Home Loan Bank stock, accrued interest receivable and payable, demand deposits, short-term debr 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 informa tion is available, on the rate and term of the security and informarion about the issuer. For frxed-rate loans or deposits, variable rare loans or deposits with infrequent repricing or repricing limirs, and for longer-term borrowings, fair value is based on dis counted cash flows using currenr market rares applied to the estimated life and credit risk. Fair values for impaired loans are esri mated using discounted cash flow analysis or underlying collateral values. Fair values of loans held for sale are based on market bids on the loans or similar loans. Fair value of debt is based on current rates for similar financing. The fair value of off-balance sheet items is not considered material. The carrying amount and estimated fair value of financial instruments are presented in the table below and were determined based on the above assumptions: (Dollar amounts in thousands) i Cash and due from banks Federal funds sold Securiries available-for-sale Loans, net Accrued interestl receivable Deposits Shorr-term borrowings Federal Home Loan Bank advances Orher borrowings Accrued interest payable ' December 3 1, 2007 2006 Carrying Value $ 70,082 4,201 586,633 1,427,716 13,698 (1,529,721) (27,331) (334,685) (6,600) (5,549) Fair Value $ 70,082 4,201 586,633 1,427,272 13,698 (1,536,205) (27,331) (339,300) (6,600) (5,549) Carrying Value $ 77,682 21,437 559,053 1,376,586 1.3,972 (1,502,682) (16,203) (335,205) (6,600) (4,668) Fair Value $ 77,682 21,437 559,053 1,366,848 13,972 (1,506,761) (16,203) (336,231) (6,600) (4,668) 9 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS FIRST F I N A N C I AL C O R P O R A T I ON 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 $9.3 million and $7.4 million at December 31, 2007 and 2006, respectively. 4. SECURITIES: The fair value of securities available-for-sale and related gross unrealized gains and losses recognized in accumulated other comprehensive income were as follows: (Dollar amounts in thousands) U.S. Government sponsored entities and entity mortgage-backed securities Collateralized mortgage obligations State and municipal Corporate obligations Equities T O T AL (Dollar amounts in thousands) U.S. Government sponsored enrities and entity mortgage-backed securities Collateralized mortgage obligations State and municipal Corporate obligations Equities T O T AL Amortized Cost December 3 1, 2007 Unrealized Gains Losses Fair Value $288,742 76,730 142,862 66,623 4,721 $579,678 2,181 587 3,824 52 3,063 $ 9,707 $(1,219) (143) (171) (1,219) $289,704 77,174 146,515 65,456 7,784 $(2,752) $586,633 Amortized Cost December 3 1, 2006 Unrealized Gains Losses Fair Value $283,968 60,350 136,124 68,952 4,556 $553,950 914 148 4,163 520 4,139 $ 9,884 $(4,126) (438) (217) $280,756 60,060 140,070 69,472 8,695 $(4,781) $559,053 As of December 31, 2007, 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 $71.6 million and $51.4 million at December 31, 2007 and 2006, respectively, were pledged as collateral for short-term borrowings and for other purposes. Below is a summary of the gross gains and losses realized by the Corporation on investment sales during the years ended December 31, 2007, 2006 and 2005, respectively. (Dollar ainounts in thousands) Proceeds Gross gains Gross losses 2007 $3,170 192 10 2006 2005 $11,376 537 Additional gains of $29 thousand in 2007 and $6 thousand in 2006 resulted from redemption premiums on called securities. The Corporation evaluates securities for other-than-temporary impairment on a quarterly basis. Factors considered include length of time impaired, reason for impairment, outlook and the Corporation's ability to hold the investment to allow for recovery of fair value. There were no securities considered to be other-than-temporarily impaired at December 31, 2007 or December 31, 2006. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 2 0 07 A N N U AL REPORT Contractual maturities of debt securities at year-end 2007 were as follows. Securities not due at a single maturity or with no maturity date, primarily mortgage-backed and equity securities, are shown separately. (Dollar amounts in thousands) Due in one year or less Due after one but within five years Due after five but within ten years Due after ten years 1 Mortgage-backed securities and equities TOTAL Available Amortized Cost -for-Saie Fair Value $ 14,128 42,137 47,328 189,970 286,563 293,115 $579,678 $ 14,184 43,347 49,317 182,651 289,499 297,134 $586,633 The following tables show 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, 2007 and 2006. j December 3 1, 2007 (Dollar amounts in' thousands) U.S. Government entity mortgage-backed securities Collateralized mortgage obligations State and municipal obligations Corporate obligations Total temporarily impaired securities Less Than 12 Months More Than 12 Months Total Fair Value Unrealized Losses Fair Value Unrealized Losses Fair Value Unrealized Losses $ 226 21,680 10,411 29,795 $ 62,112 $ (1) (104) (61) (1,219) $(1,385) $110,861 5,377 9,307 $(1,218) (39) (110) 5125,545 $(1,367) December 3 1, 2006 $111,087 27,057 19,718 29,795 $(1,219) (143) (171) (1,219) $187,657 $(2,752) (Dollar amounts in thousands) U.S. Government entity mortgage-backed securities Collateralized rriortgage obligations State and municipal obligations Corporate obligations Less Than 12 Months More Than 12 Months Totai Fair Value Unrealized Losses Fair Value Unrealized Losses Fair Value Unrealized Losses $ 47,001 14,138 5,950 (183) (13) (62) 5162,684 29,740 13,422 $(3,943) (425) (155) $209,685 43,878 19,372 $(4,126) (438) (217) Total temporarily impaired securities $ 67,089 $ (258) $205,846 $(4,523) $272,935 $(4,781) 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 has the intent and ability to hold for the foresee able future and believes the value will recover as the securities approach maturity or market rates change. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS FIRST F I N A N C I AL C O R P O R A T I ON 5. LOANS: Loans are summarized as follows: (Dollar amounts in thousands) Commercial, financial and agricultural Real estate - construction Real estate - residential Real estate - commercial Consumer Lease financing Total gross loans Less: unearned income Allowance for loan losses TOTAL December 31 » 2007 $ 461,086 29,637 437,051 236,304 262,858 2,275 1,429,211 (212) (15,351) $1,413,648 2006 $ 407,995 33,336 447,865 244,124 257,065 2,064 1,392,989 (234) (16,169) $1,376,586 The Corporation's credit card portfolio was reclassified to held-for-sale at December 31, 2007, which reduced the allowance for loan losses allocation for this type of loan by $242 thousand. In the normal course of business, the Corporation's subsidiary banks make loans to directors and executive officers and to their associates. In 2007 the aggregate dollar amount of these loans to directors and executive officers who held office at the end ofthe year amounted to $24.3 million at the beginning ofthe year. During 2007, advances of $30.4 million and repayments of $18.0 million were made with respect to related party loans for an aggregate dollar amount outstanding of $36.7 million at December 31, 2007. Loans serviced for others, which are not reported as assets, total $364.0 million and $382.2 million at year-end 2007 and 2006. Custodial escrow balances maintained in connection with serviced loans were $933 thousand and $1.38 million at year-end 2007 and 2006. Activity for capitalized mortgage servicing rights (included in other assets) was as follows: (Dollar amounts in thousands) Servicing rights: Beginning ofyear Additions Amortized to expense End ofyear December 3 1, 2007 2006 2005 $ 2,319 218 (628) $ 1,909 $ 2,931 114 (726) $ 2,319 $ 2,960 735 (764) $ 2.931 Third party valuations are conducted periodically for mortgage servicing rights. Based on these valuations, fair values were approximately $3.3 million and $3.4 million at year end 2007 and 2006. There was no valuation allowance in 2007, 2006 or 2005. 6. ALLOWANCE FOR LOAN LOSSES: Changes in the allowance for loan losses are summarized as follows: (Dollar amounts in thousands) Balance at beginning ofyear Provision for loan losses Recoveries of loans previously charged off Loans charged off BALANCE AT E ND OF YEAR December 3 1, 2007 $ 16,169 6,580 2,778 (10,176) $ 15,.351 2006 $16,042 6,983 3,653 (10,509) S 16T69 2005 $19,918 11,698 1,918 (17,492) $16,042 { 2 0 07 A N N U AL REPORT NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Impaired loans were as follows: (Dollar amounts in thousands) Year-end loans with no allocated allowance for loan losses Year-end loans with allocated allowance for loan losses TOTAL ] Amount of the allowance for loan losses allocated Nonperforming loans: Loans past due over 90 days still on accrual Non-accrual loans 2007 2,203 $ 2,203 $ 729 4,462 7,971 December 3 1, 2006 $ 503 4,865 $ 5,368 $ 2,480 4,691 9,893 Nonperforming loans include both smaller balance homogeneous loans that are collectively evaluated for impair ment ;md individually classified impaired loans. (Dollar amounts ini thousands) Average of impaired loans during the year Interest income recognized during impairment Cash-basis interest income recognized PREMISES AND EQUIPMENT: Premises and equipment are summarized as follows: (Dollar amounts in thousands) i Land Building and leasehold improvements Furniture and ecjuipment Less accumulated depreciation TOTAL 2007 $ 3,505 11 1 2006 $ 3,336 13 2005 $11,992 126 11 2007 $ 5,653 38,948 30,916 75,517 (42,885) $ 32,632 December 3 1, 2006 $ 5,653 38,047 31,717 75,417 (42,150) $ 33,267 Aggregate depreciation expense was $3.02 million, $3.02 million and $2.79 million for 2007, 2006 and 2005, respectively. | 8. GOODVI/ILL AND INTANGIBLE ASSETS: The Corporation completed its annual impairment testing of goodwill during the second quarter of 2007 and 2006. Management does not believe any amount of goodwill is impaired. Intangible assets subject to amortization at December 31, 2007 and 2006 are as follows: (Dollar amounts in thousands) Customer list intangible Core deposit intangible Non-compete agreements 2007 2006 Gross Amount $3,446 2,193 500 $6,139 Accumulated Amortization $2,303 1,399 500 $4,202 Gross Amount $3,446 2,193 500 $6,139 Accumulated Amortization $1,997 1,279 500 $3,776 Aggregate amortization expense was $426 thousand, $497 thousand and $571 thousand for 2007, 2006 and 2005, respectively. Estimated amorjtization expense for the next five years is as follows: 2008 2009 2010 2011 2012 In thousands $425 425 425 245 154 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS FIRST F I N A N C I AL C O R P O R A T I ON 9. DEPOSITS: Scheduled maturities of time deposits for the next five years are as follows: 2008 2009 2010 2011 2012 $513,361 87,915 27,931 9,466 9,713 1 0. SHORT-TERM BORROWINGS: A summary of the carrying value of the Corporation's short-term borrowings at December 31, 2007 and 2006 is presented below: (Dollar amounts in thousands) Federal funds purchased Repurchase agreements Other short-term borrowings (Dollar amounts in thousands) Average amount outstanding Maximum amount outstanding at a month end Average interest rate during year Interest rate at year-end 2007 $ 3,032 22,656 1,643 $27,331 2007 $32,042 59,364 5.03% 4.57% 2006 $10,179 5,407 617 $16,203 2006 $ 15,691 38,940 4.77% 4.74% Federal funds purchased are generally due in one day and bear interest at market rates. Other borrowings, primari ly note payable-U.S. government, are due on demand, secured by a pledge ofsecurities and bear interest at mar ket rates. 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 pos session of and control over these securities. 1 1. OTHER BORROWINGS: Other borrowings at December 31, 2007 and 2006 are summarized as follows: (Dollar amounts in thousands) FHLB advances City of Terre Haute, Indiana economic development revenue bonds TOTAL 2007 $334,685 6,600 $341,285 2006 $335,205 6,600 $341,805 The aggregate minimum annual retirements of other borrowings are as follows: 2008 2009 2010 2011 2012 Thereafter $ 90,232 47,416 202,344 634 90 569 $341,285 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 2 0 07 A N N U AL REPORT The Corporation's subsidiary banks are members of the Federal Home Loan Bank (FHLB) and accordingly are permitted to obtain advances.JThe advances from the FHLB, aggregating $334.7 million at December 31, 2007, and $335.2 miUion at December 31, 2(j)06, accrue interest, payable monthly, at annual rates, primarily fixed, varying from 3.6% to 6.6% in 2007 and 4.9% to 6.6% in 2006. 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 $197.5 million at December 31, 2006, and $203.6 mU lion at December 31, 2007, and a blanket pledge on real estate loan collateral. Based on this collateral and the Corporation's holdings of FHLB stock, the Corporation is eligible to borrow up ro $428.8 miUion at year end 2007. 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. The economic development revenue bonds (bonds) require periodic interest payments each year untU maturity or redemp tion. The interest rate, which was 3.46% at December 31, 2007, and 3.97% at December 31, 2006, is derermined by a for mula which considers rates for comparable bonds and is adjusted periodically. The bonds are coUateralized by a first mort gage on the Corporation's headquarters building. The bonds mature December 1, 2015, but bondholders may periodically require earlier redemption. The debt agreement for the bonds requires the Corporarion 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, 2007 and 2006, the Corporation was in compliance with all ofits debt covenants. 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 expired November 1, 2007, and was automatically extended for one year. Assuming redemption wiU be funded by the letter of credit, or by other similar borrowings, there are no anticipated princi pal maturities ofthe bonds within the next five years. 12. INCOME TAXES: Income tax expense is summarized as follows: (Dollar amounts in thousands) 2007 2006 2005 Federal: Currently Deferred payable State: Currently Deferred payable TOTAL $8,520 242 8,762 $10,409 (3,335) 7,074 $ 6,202 1,334 7,536 837 (215) 622 $ 9,384 521 (244) 277 $ 7,351 (5) 382 377 $ 7,913 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) Federal income taxes computed at the statutory rate Add (deduct) tax effect of: Tax exempt income State tax, het of federal benefir vyfordable housing credits Other, net TOTAL 2007 $12,238 2006 $10,812 2005 $10,839 (3,263) 404 (113) 118 (3,056) 180 (329) (256) (2,902) 245 (327) 58 $ 9,384 $ 7,351 $ 7,913 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS FIRST F I N A N C I AL C O R P O R A T I ON The tax effects of temporary differences that give rise to significanr portions of the deferred tax assets and liabili ties at December 31, 2007 and 2006, are as follows: (Dollar amounts in thousands) Deferred tax assets: Net unrealized losses on retirement plans Loan losses provision Deferred compensarion Compensated absences Post-retirement benefits Other GROSS DEFERRED ASSETS Deferred tax liabilities: Net unrealized gains on securities available-for-sale Depreciation Federal Home Loan Bank stock dividends Mortgage servicing rights Pensions Other GROSS DEFERRED LLIBILITIES N ET DEFERRED TAX ASSETS (LIABILITIES) 2007 2006 5,913 6,146 5,476 520 1,172 1,036 20,263 $ 5,705 6,448 4,675 513 1,068 1,025 19,434 (2,782) (1,379) (751) (763) (2,369) (2,138) (10,182) (2,042) (1,435) (751) (924) (2,361) (1,281) (8,794) $ 10,081 $ 10,640 Unrecognized Tax Benefits — A reconciliation of the beginning and ending amount of unrecognized tax benefits is as follows: Balance at January 1, 2007 Additions based on tax positions related to the current year Additions for tax positions of prior years Reductions for tax positions of prior years Reductions due to the statute of limitations Settlements Balance at December 31, 2007 $ 601 290 — — (88) — $ 803 Ofthis total, $803 represents the amount of unrecognized tax benefits that, if recognized, would favorably affect the effective income tax rate in future periods. The Corporation does not expect the total amount of unrecog nized tax benefits to significantly increase or decrease in the next 12 months. The total amount of interest and penalties recorded in the income statement for the year ended December 31, 2007 was $30, and the amount accrued for interest and penalties at December 31, 2007 was $112. The Corporarion and its subsidiaries are subject to U.S. federal income tax as well as income tax of the states of Indiana and Illinois. The Corporation is no longer subject to examination by taxing authorities for years before 2004. We are currently under audit by the Internal Revenue Service for the 2004 and 2005 tax years. The antici pated effect on unrecognized tax benefits resulting from this audit cannot be determined at this time. 13. FINANCIAL INSTRUMENTS WITH OFF-BAUNCE-SHEET RISK: The Corporation is a party to financial instruments with off-balance-sheet risk in the normal course of business to meet the financing needs of its customers. These financial instruments include conditional commitments and com mercial letters of credit. The financial instruments involve to varying degrees, elemenrs 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 limit ed 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. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 2 0 07 A N N U AL REPORT Commitment and contingent liabilities are summarized as follows at December 31: (Dollar amounts in thousands) Home equity Credit card lines Commercial operating lines Other commitments Comnoercial letters of credit 2007 $ 38,612 48,523 134,068 54,453 $275,656 2006 $ 38,205 46,238 159,630 51,018 $295,091 17,336 17,289 The majority of commercial operating lines and home equity lines are variable rate, while the majority ofother com mitments to fund loans are fixed rate. Since many commitments to make loans expire without being used, these amourits do not necessarily represent future cash commitments. CoUateral obtained upon exercise of the commitment is determined using management's credit evaluation of the borrower, and may include accounts receivable, inventory, property, land and other items. The approximate duration ofthese commitments is generally one year or less. 14. RETIREMENT PLANS: Substantially all employees of the Corporation are covered by a retirement program that consists of a defined benefit plan and an employee stock ownership plan (ESOP). 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 employeejs 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 deter mined by the Corporation's Board of Directors. The Corporation made contributions to the defined benefit plan of $1.02 million, $1.96 million and $1.41 million in 2007, 2006 and 2005. The Corporation contributed $1.24 milhon, $1.16 milfion and $1.14 million to the ESOP in 2007, 2006 and 2005. The Corporation uses a measurement date ofDecember 31, 2007. Net periodic benefit cost and other amounts recognized in other comprehensive income included the following components: (Dollar amounts iri thousands) Service cost — benefits earned Interest cost on projected benefit obligation Expected return on plan assets Net amortization and deferral Net periodic pension cost Net loss (gain) during the period Amortization of prior service cost Amorrization of unrecognized gain (loss) Total recognized in other comprehensive income 2007 $ 3,073 2,773 (3,644) 444 $ 2,646 $ 3,422 18 (462) $ 2,978 Total recognized net periodic pension cost and other comprehensive income $ 5,624 2006 $ 2,919 2,328 (2,793) 744 $ 3,198 2005 $ 2,725 2,451 (3,285) 229 $ 2,120 $ $ $ - — $ $ $ - — The estimated net loss and prior service costs for the defined benefit pension plan that will be amortized from accumulated other comprehensive income into net periodic benefit cost over the next fiscal year are $729 thou sand and $(18) thousand. The information on the following page sets forth the change in projected benefit obligation, reconciliation of plan assets, and the funded status ofthe Corporation's retirement program. Actuarial present value of benefits is based on service to date and present pay levels. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS FIRST F I N A N C I AL C O R P O R A T I ON (Dollar amounts in thousands) Change in benefit obligation: Benefit obligation at January 1 Service cost Interest cost Actuarial (gain) loss Benefits paid Benefit obligation at December 31 Reconciliation of fair value of plan assets: Fair value of plan assets atJanuary 1 Actual return on plan assets Employer contributions Benefits paid Fair value of plan assets at December 31 2007 2006 $49,920 3,073 2,773 (4,938) (1,384) 49,444 45,056 (5,136) 2,267 (1,384) 40,803 $42,541 2,919 2,328 3,602 (1,470) 49,920 34,488 8,911 3,127 (1,470) 45,056 Funded status at December 31 (plan assets less benefit obligations) $ (8,641) $ (4,864) Amounts recognized in accumulated other comprehensive income at December 31, 2007 and 2006 consist of: (Dollar amounts in thousands) Net loss (gain) Prior service cost (credit) 2007 $14,314 (121) $14,193 2006 $10,935 (140) $10,795 The accumulated benefit obligation for the defined benefit pension plan was $40,298 and $42,152 at year-end 2007 and 2006. Principal assumptions used: 2006 2007 Discountrate 5.91% 5.50% Rate of increase in compensation levels Expected long-term rate of return on plan assets The expected long-term rare 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. 3.75 8.00 3.75 8.00 Plan Assets — The Corporation's pension plan weighted-average asset allocation for the years 2007 and 2006 by asset category are as follows: Asset Category Equity securities Debt securiries Other TOTAL Pension Plan ESOP Pension Plan Percentage of Plan ESOP Percentage of Plan 2008 100-100% Target Allocation Target Allocation Assets at December 31, Assets at December 3 1, 2007 60% 39 _J 100% 2008 50-60% 30-40 1-5 2006 64% 35 1_ 100% 2006 94% 0 6_ 100% 2007 100% 0 _0 100% 0-0 0-0 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 8 8 %. This target includes the Corporation's ESOP, which is 100% invested in corporate stock. Other investment allocations include fixed income securities and cash. Equity securities include First Financial Corporation common stock in the amount of $24.9 million (60 percent of total plan assets) and $30.1 million (67 percent oftotal plan assets) at December 31, 2007 and 2006, respectively. Contributions — T he Corporation expects to contribute $1.7 miUion to its pension plan and $1.3 miUion to its ESOP in 2008. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 2 0 07 A N N U AL REPORT Estimated Future Payments — The following benefit payments, which reflect expected future service, are expected: 2008 2009 2010 2011 2012 2013-2017 Pension Benefits (DoUar amounts in thousands) $ 623 706 849 964 1,192 9,297 Supplemental Executive Retirement Pian — The Corporation has established a Supplemental Executive Retirement Plan (SERP) for certain executive officers. The provisions of the SERP allow the Plan's participants who are also participants in the Corporation's defined benefit pension plan to receive supplemental retirement benefits to help recompense for benefits lost due to imposition of IRS limitations on benefits under the Corporation's tax qualified defined benefit pension plan. Expenses related to the plan were $183 thousand in 2007 and $199 thousand in 2006. The SERP has expected benefit payments $138 thousand in five years and $661 thousand after five years, which reflects expected future service. The plan is unfunded and has a measure ment date of December 31. The amounts recognized in other comprehensive income in the current year are as follows: (Dollar amounts in thousands) Net loss (gain) during the period Amortization of prior service cost Amortization of unrecognized gain (loss) Total recognized in other comprehensive income 2007 2006 2005 $ $ (179) {74) 17 (236) $ _ $_ $ The Corporation has $945 thousand and $1.0 million recognized in the balance sheet as a liability at December 31, 2007 and 2006. Amounts recognized in accumulated other comprehensive income consist of $114 thousand net gain and $296 thousand in prior service cost at December 31, 2007 and $165 thousand net gain and $370 thousand in prior service cosr at December 31, 2006. The estimated loss and prior service costs for the SERP that will be amortized from accumulated other comprehensive income into net periodic benefit cosr over the next fis cal year are $(5) thousand and $74 thousand. The Corporation also provides medical benefits to its employees subsequent to their retirement. The Corporation uses a measurement date of December 31, 2007. During 2007 the Corporation changed the post-retirement medical plan from being self-insured to fully insured. Accrued post-retirement benefits as ofDecember 31, 2007 and 2006 are as follows: (DoUar amounts in thousands) Change in benefit obligation: Benefit obligation at January 1 Service cost Interest cost Plan participants' contributions Actuarial (gain) loss Benefits paid Benefit obligation at December 31 Funded status at December 31 December 3 1, 2007 2006 $ 5,592 118 310 15 (1,786) (191) $ 4,058 $(4,058) $ 5,500 116 302 144 5 (475) $ 5,592 $ (5,592) Amounts recognized in accumulated other comprehensive income consist ofa net loss of $531 thousand and $361 thousand in transition obligation at December 31, 2007 and $2.5 million net loss and $422 thousand in transition obligation at December 31, 2006. The post-retirement benefits paid in 2007 and 2006 of $191 thousand and $475 thousand, respectively, were fully funded by company and participant contributions. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS FIRST F I N A N C I AL C O R P O R A T I ON The estimated net loss and transition obligation for the post-retirement benefit plan that will be amortized from accumulated other comprehensive income into net periodic benefit cost over the next fiscal year is $ 11 thousand and $60 thousand. Weighted-average assumptions as of December 31: December 31, Discount rate Initial weighted health care cost trend rate Ultimate health care cost trend rate Year in which the rate is assumed to stabilize and remain unchanged Post-retirement health benefit expense included the following components: (Dollar amounts in thousands) Service cost Interest cost Amortization of transition obligation Recognized actuarial loss Net periodic benefit cost Net loss (gain) during the period Amortization of prior service cost Amortization of unrecognized gain (loss) Total recognized in other comprehensive income Total recognized net periodic benefit cost and other comprehensive income 2007 6.00% 9.00 5.00 2016 2006 5.75% 9.50 5.00 2016 Years Ended December 3 1, 2007 2006 2005 $ $ 118 310 60 172 660 $ (1,506) (60) (172) $(1,738) $ (1,078) $ $ $ !_ i_ 116 302 60 240 718 — — — - - $ $ $ L 1_ 141 319 60 250 770 _ - — - - 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: (Dollar amounts in thousands) Effect on total of service and interest cost components Effect on post-retirement benefit obligation 1% Point Increase $ 9 163 1% Point Decrease $ (8) (138) Contributions — The Corporation expects to contribute $185 thousand to its other post-retirement benefit plan in 2008. Estimated Future Payments — The following benefit payments, which reflect expected future service, are expected: Post-Retirement Medical Benefits (Dollar amounts in thousands) 2008 2009 2010 2011 2012 2013-2017 $ 165 173 182 191 201 1,123 2 0 07 A N N U AL REPORT NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 15. OTHER COMPREHENSIVE INCOME (LOSS): Other comprehensive income (loss) components and related taxes were as follows: (Dolkr amounts in thousands) Unrealized holding gains and (losses) on securities available-for-sale Reclassification adjustments for (gains) and losses later recognized in income Net unrealized gains and losses Tax effect Other comprehensive income (loss) Unrecognized gains and (losses) on benefit plans Amortization of prior service cost included in net periodic pension cost Amortization of unrecognized gains (losses) included in net periodic pension cost Benefit plans, net Tax effect Other comprehensive income (loss) December 3 1, 2007 $ 2,063 2006 $ 1,938 2005 $(10,186) (211) 1,852 (742) $ 1,110 (6) 1,932 (771) $ 1,161 (571) (10,757) 4,303 $ (6,454) $ (1,737) 116 $ - $ 617 (1,004) 207 (797) $ _ $_ - $ The following is a summary ofthe accumulated other comprehensive income balances, net oftax: (Dollar amounts in thousands) Unrealized gains (losses) on securities available-for-sale Unrealized loss on benefit plans TOTAL 16. REGULATORY MATTERS: Balance at 12/31/06 Current Period Change Balance at 12/31/07 $ 3,064 (8,558) $ (5,494) $ 1,110 (797) 313 $ $ 4,174 (9,355) $ (5,181) 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 possi bly 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 irs subsidiary banks and compliance with these capital requirements can affect the ability of the Corporation and its banking affili ates to pay dividends. At December 31, 2007, approximately $24.2 million of undistributed earnings ofthe sub sidiary 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 and Banks 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 and Banks' capital amounts and classification are also subjecr to qualitative judgments by the regulators about compo nents, risk weightings and other factors. Quantitative measures established by regulation to ensure capital adequacy require the Corporation and Banks to main tain minimum amounts and ratios ofTotal and Tier I Capital to risk-weighted assets, and of Tier I Capital to average assets. Management believes, as of December 31, 2007 and 2006, that the Corporation meets all capital adequacy requirements to which it is subject. As of December 31, 2007, the most recent notification from the respective regulatory agencies categorized the sub sidiary banks as well capitalized under the regulatory framework for prompt corrective action. To be categorized as well capitalized, the banks 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 banks' category. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS FIRST F I N A N C I AL C O R P O R A T I ON The following table presents the actual and required capital amounts and related ratios for the Corporation and First Financial Bank, N.A., at year end 2007 and 2006. (Dollar amounts in thousands) Total risk-based capital Corporation — 2007 Corporation - 2006 First Financial Bank - 2007 First Financial Bank - 2006 Tier I risk-based capital Corporation - 2007 Corporation — 2006 First Financial Bank - 2007 First Financial Bank - 2006 Tier I leverage capital Corporation - 2007 Corporation - 2006 First Financial Bank - 2007 First Financial Bank - 2006 Actual For Cap Adequacy P litai urposes To Be Well Capitalized Under Prompt Corrective Action Provisions Amount Ratio Amount Ratio Amount Ratio $292,995 283,226 281,819 272,455 18.18% 17.78% 18.13% 17.74% $128,965 127,423 124,355 122,834 8.00% 8.00% 8.00% 8.00% N/A N/A 155,443 153,542 N/A N/A 10.00% 10.00% $277,644 267,057 269,412 259,431 17.22% 16.77% 17.33% 16.90% $64,483 63,711 62,177 61,417 4.00% 4.00% 4.00% 4.00% N/A N/A 93,266 92,125 $277,644 267,057 269,412 259,431 12.44% 12.43% 12.60% 12.48% $89,273 85,919 85,499 83,146 4.00% 4.00% 4.00% 4.00% N/A N/A 106,874 103,932 N/A N/A 6.00% 6.00% N/A N/A 5.00% 5.00% 17. PARENT COMPANY CONDENSED FINANCIAL STATEMENTS: The parent company's condensed balance sheets as ofDecember 31, 2007 and 2006, and the related condensed state ments of income and cash flows for each of the three years in the period ended December 31, 2007, are as follows: CONDENSED BALANCE SHEETS (Dollar amounts in thousands) ASSETS Cash deposits in affiliated banks Investments in subsidiaries Land and headquarters building, net Other TOTAL ASSETS LIABILITIES AND SHAREHOLDERS' EQUITY Liabilities Borrowings (including $3.4 and $4.0 million from subsidiary) Dividends payable Other liabilities TOTAL LIABILITIES Shareholders' equity TOTAL LM.BILITIES AND SHAREHOLDERS' EQUITY December 3 1, 2007 2006 $ 7,040 281,510 5,807 9,035 $303,392 $ 10,036 5,785 5,879 21,700 281,692 $303,392 $ 7,730 270,693 6,043 9,120 $293,586 $ 10,636 5,708 5,982 22,326 271,260 $293,586 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 2007 ANNUAL REPORT CONDENSED STATEMENTS OF INCOME (Dollar amounts in thousands) Dividends from subsidiaries Other income Interest on borrowings Other operating expenses Income before income raxes and equity in undistributed earnings of subsidiaries Income tax benefit Income before equity in undistributed earnings of subsidiaries Equity in undistributed (dividends in excess of) earnings of subsidiaries Net income CONDENSED STATEMENTS OF CASH FLOWS (Dollar amounts in thousands) CASH FLOWS FROM OPERATING ACTIVITIES: Net income Adjustments to reconcile net income to net cash provided by operating activities: Provision for depreciation and amortization (Equity in undistributed earnings) dividends in excess of subsidiaries Contribution ofshares to ESOP Increase (decrease) in other liabilities (Increase) decrease in other assets N ET CASH FROM OPERATING ACTLVTTIES CASH FLOWS FROM INVESTING ACTIVITIES: Purchase offurniture and fixtures N ET CASH FROM INVESTING ACTFVITIES CASH FLOWS FROM FINANCING ACTIVITIES: Principal payments on long-term borrowings Purchase of treasury stock Dividends paid N ET CASH FROM FINANCING ACTIVITIES N ET (DECREASE) INCREASE IN CASH CASH, BEGINNING OF YEAR CASH, E ND OF YEAR Supplemental disclosures ofcash flow information: Cash paid during the year for: Interest Income taxes Years Ended December 3 1, 2007 $16,500 1,026 (655) (3,343) 2006 $14,192 984 (615) (3,074) 2005 $33,828 1,013 (943) (3,017) 13,528 1,230 11,487 1,121 30,881 1,177 14,758 12,608 32,058 10,822 $25,580 10,931 $23,539 (9,004) $23,054 Years Ended December 3 1, 2007 2006 2005 $25,580 $23,539 $23,054 260 260 258 (10,822) 1,242 239 (41) 16,458 (10,931) 1,164 872 (227) 9,004 1,144 479 (392) 14,677 33,547 (8) (8) (43) (43) (325) (325) (600) (5,167) (11,373) (17,140) (690) 7,730 $ 7,040 _ (4,087) (11,181) (15,268) (634) 8,364 $ 7,730 (18,000) (5,789) (10,779) (34,568) (1,346) 9,710 $ 8,364 $ 657 $ 8,494 $ 612 $ 938 $11,202 $ 5,413 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS FIRST F I N A N C I AL C O R P O R A T I ON 1 8. SELECTED QUARTERLY DATA (UNAUDITED) (Dollar amounts in thousands) March 31 June 30 September 30 December 31 (Dollar amounts in thousands) March 31 June 30 September 30 December 31 Interest Income $33,622 $34,204 $34,915 $34,993 Interest Expense $15,165 $15,639 $16,166 $15,991 Interest Income interest Expense $31,423 $32,777 $33,012 $33,620 $13,027 $14,266 $14,768 $15,068 2007 Net Interest Income $18,457 $18,565 $18,749 $19,002 Provision for Loan Losses $1,690 $1,240 $1,575 $2,075 2006 Net Interest Income $18,396 $18,511 $18,244 $18,552 Provision for Loan Losses $2,203 $ 645 $2,495 $1,640 Net Income $6,423 $6,413 $6,362 $6,382 Net Income Per Share $ .48 $ .49 $ .48 $ .49 Net Net Income Income Per Share $5,509 $6,425 $5,455 $6,150 $ .41 $ .48 $ .41 $ .41 REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM ON FINANCIAL STATEMENTS To the Shareholders and Board of Directors of First Financial Corporation: We have audited the accompanying consolidated balance sheets ofFirst Financial Corporation as ofDecember 31, 2007 and 2006, and the related consolidated statements of income, changes in shareholders' equity, and cash flows for each ofthe three years in the period ended December 31, 2007. These financial statements are the responsibUity ofthe Corporation's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). 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 support ing 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 ofFirst Financial Corporation as ofDecember 31, 2007 and 2006, and the results ofits operations and its cash flows for each of the three years in the period ended December 31, 2007, in conformity with U.S. generally accepted accounting principles. We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), First Financial Corporation's internal control over financial reporting as ofDecember 31, 2007, based on criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission, and our report, dated February 28, 2008, expressed an unqualified opinion thereon. Ci,,^,.^^ C ^^ e*U. ^ / ^ i^ ^^<^ Indianapolis, Indiana February 28, 2008 2 0 07 A N N U AL REPORT REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM ON INTERNAL CONTROL OVER FINANCIAL REPORTING To the Shareholders and Board ofDirectors ofFirst Financial Corporation: We have audited First Financial Corporation's (Corporation) internal control over financial reporting as of December 3 1, 2007, based on criteria established in "Internal Control-Integrated Framework" issued by rhe Committee of Sponsoring Organizations o f t he Treadway Commission (COSO). First Financial Corporation's management is responsible for main taining effective internal control over financial reporring and for its assessment of the effectiveness of internal control over financial reporring, included in the accompanying "Management's Report on Internal Control Over Financial Reporting." Our responsibility is to express an opinion on the Corporation's internal control over financial reporting based on our audit. We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal conrrol over financial reporting was maintained in all material respecrs. Our audit included obtaining an under standing of internal control over financial reporring, assessing the risk that a material weakness exists, and testing and evalu ating the design and operating effectiveness of internal control based on the assessed risk, and perforrning such other proce dures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion. A company's internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliabUity of financial reporting and the preparation of financial statements for external purposes in accordance with U.S. generally accepted accounting principles. A company's internal conrrol over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with U. S. generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizarions of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unautho rized acquisition, use, or disposition of the company's assets that could have a material effect on the financial statements. Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections ofany evaluation of effectiveness to future periods are subjecr to the risk that controls may become inade quate because ofchanges in conditions, or that the degree of compliance wirh the policies or procedures may deteriorate. In our opinion. First Financial Corporation maintained, in all material respects, effective internal control over financial reporting as ofDecember 3 1, 2007, based on criteria established in "Internal Control—Integrated Framework" issued by the Committee of Sponsoring Organizations ofthe Treadway Commission (COSO). We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated balance sheets as ofDecember 3 1, 2007 and 2006, and the related consolidated statements of income, changes in shareholders' equiry, and cash flows for each ofthe three years in the period ended December 3 1, 2007 of First Financial Corporation and our report dated February 28, 2008 expressed an unqualified opinion. Cf^*-*^ <^^^*^ e*U. ^t»^y^^ i-^c-^ Indianapolis, Indiana February 28, 2008 FIRST F I N A N C I AL C O R P O R A T I ON MANAGEMENT'S REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING The management of First Financial Corporation (the "Corporation") has prepared and is responsible for the preparation and accuracy ofthe consolidated financial statements and relared financial informarion included in the Annual Report. The management of the Corporation is responsible for esrablishing and maintaining adequate internal control over finan cial reporting as defined in Rules 13a-15(f) and 15d-15(f) under the Securities Exchange Act of 1934. The Corporarion's internal control over financial reporting is designed ro provide reasonable assurance regarding rhe reliability of financial reporring and the preparation of financial statements for exrernal purposes in accordance with generally accepted account ing principles. The Corporation's internal conrrol over financial reporting includes rhose policies and procedures that: (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflecr the transactions and dispositions of the assets of the Corporation; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures ofthe Corporation are being made only in accordance with authorizations of management and direcrors ofthe Corporation; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition ofthe Corporation's assets that could have a material effect on the financial statements. Because of its inherent limitations, internal control over financial reporting may not prevenr or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because ofchanges in conditions, or that the degree of compliance with the policies or procedures may deteriorare. Management assessed the Corporation's system of internal control over financial reporting as ofDecember 3 1, 2007, in relation to criteria for effective internal control over financial reporting as described in "Internal Control-Integrated Framework," issued by the Committee of Sponsoring Organizations of the Treadway Commission. Based on this assess ment, management concluded that, as ofDecember 3 1, 2007, its system of internal control over financial reporting is effec tive and meets the criteria ofthe "Internal Control-Integrated Framework." Crowe Chizek and Company LLC, independent registered public accounting firm, has issued a report dated February 28, 2008 on the Corporation's inrernal conrrol over financial reporting. MANAGEMENT'S DISCUSSION AND ANALYSIS Managemenfs discussion and analysis reviews the financial condition ofFirst Financial Corporation at December 31, 2007 and 2006, and the results ofits operations for rhe three years ended December 3 1, 2007. 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 ofthe Private Securities Litigation Reform Act of 1995. Such forward-looking statements can include statements about estimated cost savings, plans and objectives for fiiture opera tions 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 "anricipate." 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. T he 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 sratements. 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, credir 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 men tioned by Firsr Financial Corporation in its other filings from time to time when considering any forward-looking statement. MANAGEMENT'S DISCUSSION AND ANALYSIS 2 0 07 A N N U AL REPORT First Financial Corporation (the Corporation) is a financial services company. The Corporation, which is headquartered in Terre Haute, Ind., offers a wide variery of financial services including commercial, mortgage and consumer lending, lease financing, trust account services and depositor services through its three subsidiaries. Ar the close of business in 2007 the Corporation and its subsidiaries had 790 fuU-rime equivalent employees. First Financial Bank is the largest bank in Vigo County, Ind. It operates 12 full-service banking branches within the county; five in Clay County, Ind.; one in Greene County, Ind.; three in Knox County, Ind.; five in Parke County, Ind.; one in Putnam County, Ind., five in Sullivan County, Ind.; four in VermUlion County, Ind.; one in Clark Counry, 111.; one in Coles County, IU.; three in Crawford County, IU.; one in Jasper Counry, IU.; two in Lawrence County, IU.; two in Richland County, III.; one in Vermilion Counry, III.; and one in Wayne Counry, III. 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 Srreet in Terre Haute, which serves as the Corporation's operations center and provides additional office space. Morris Plan has one office and is located in Vigo County. First Financial Bank and Morris Plan face competition from other financial institutions. These competitors consist of com mercial banks, a mutual savings bank and other financial institutions, including consumer finance companies, insurance companies, brokerage firms and credit unions. The Corporation's business activities are centered in west-central Indiana and east-central Illinois. The Corporation has no for eign activities other than periodically invesring available fiinds in time deposits held in foreign branches of domestic banks. Forrest Sherer Inc. is a premier regional supplier of insurance, surery and other financial products. The Forrest Sherer brand is well recognized in the Midwest, with more than 60 professionals and over 86 years of successful service to both businesses and households in their market area. The agency has representation agreements with more than 40 regional and national insurers to market their products of properry 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 else where in this report are based upon First Financial Corporation's consolidated fmancial 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, rev enues, and expenses. Material estimates that are particularly susceptible to significant change in the near term relate to the deter mination ofthe allowance for loan losses and goodwill. Actual results could differ from rhose estimates. Allowance for loan losses. The aUowance for loan losses represents management's estimate of losses inherent in the existing loan portfolio. The allowance for loan losses is increased by the provision for loan losses charged to expense and reduced by loans charged off, net of recoveries. The allowance for loan losses is determined based on management's assessment of several factors: reviews and evaluations of specific loans, changes in the nature and volume of the loan portfolio, current economic conditions and the related impact on segments ofthe loan portfolio, historical loan loss experience and the level of classified and nonperforming loans. Loans are considered impaired if, based on current information and events, it is probable that the Corporation will be unable to coUect the scheduled payments of principal or interest according to the contractual rerms of the loan agreement. When a loan is deemed impaired, impairment is measured by using the fair value of underlying collateral, the present value of the future cash flows discounted at the effective interest rate stipulated in the loan agreement, or the estimated market value of the loan. In measuring the fair value of the collateral, management uses assumptions (e.g., discount rate) and methodologies (e.g., comparison to the recent selling price of similar assers) consisrenr with those that would be utilized by unrelared third parties. Changes in the financial condition of individual borrowers, economic conditions, historical loss experience, or the condition of the various markets in which coUateral may be sold may affect the required level of the allowance for loan losses and the associated provision for loan losses. Should cash flow assumptions or market conditions change, a different amount may be recorded for the allowance for loan losses and the associated provision for loan losses. Goodwill. The carrying value of goodwiU requires management to use estimates and assumptions about the fair value of the reporting unir compared to its book value. An impairment analysis is prepared on an annual basis. Fair values of rhe report ing units are determined by an analysis which considers cash flows streams, profitability and estimated market values of the reporting unit. The majoriry ofthe Corporation's goodwill is recorded at Forest Sherer, Inc. Management believes the accounting estimates related to the allowance for loan losses and the valuation of goodwiU are "crirical 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, val uation assumptions, and economic conditions, and (2) the impact of recognizing an impairment or loan loss could have a mate rial effect on the Corporation's assers reported on the balance sheet as well as net income. RESULTS OF OPERATIONS — SUMMARY FOR 2007 FIRST F I N A N C I AL C O R P O R A T I ON Net income for 2007 was $25.6 miflion, or $1.94 per share. This represents an 8.7% increase in net income and a 9.6% increase in earnings per share, compared to 2006. Return on assets at December 31, 2007 increased 5.5% to 1.16% compared to 1.10% at December 31, 2006. 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 ftinding. Net interest income was increased in 2007 to $74.8 miUion compared to $73.7 million in 2006. Total average inter est-earning assets grew to $2.06 billion in 2007 ftom $2.01 billion in 2006. The tax-equivalent yield on these assets increased to 6.98% in 2007 from 6.77% in 2006. Total average interest-bearing liabilities increased to $1.65 billion in 2007 from $1.64 biUion in 2006. The average cost ofthese interest-bearing liabilities increased to 3.81% in 2007 from 3.48% in 2006. The net interest margin decreased slightly from 3.93% in 2006 to 3.92% in 2007. This decrease is primarily the result ofthe increased costs of funding provided by interest-bearing liabilities. Earning asset yields increased 21 basis points while the rate on interest-bearing liabilities increased by 33 basis points. The following table sets forth the components of net interest income due to changes in volume and rate. The table information compares 2007 to 2006 and 2006 to 2005. 2007 Compared to 2006 Increase (Decrease) Due to Volume/ Rate 2006 Compared to 2005 Increase (Decrease) Due tc t Volume/ Rate Total Volume Rate Total Volume Rate $ 1,808 $ 3,459 $ 62 $ 5,329 $(3,842) $ 7,662 $ (304) $ 3,516 698 940 30 1,668 1,875 2,878 321 5,074 870 (70) 3,306 (290) 54 4,163 (20) (5) 67 560 (21) 7,536 302 88 (1,577) 238 175 10,953 6 31 54 546 294 9,430 (Dollar amounts in thousands) Interesr earned on mteresr-earmng assets: Loans (') (2) Taxable investment securiries Tax-exempr investment securiries (2) Federal funds sold Total interesr income Interest paid on interest-bearing liabUities: Transaction accounts Time deposits Shorr-term borrowings Other borrowings Toral inrerest expense Net interest income (55) (82) 775 42 680 $ 2,626 1,853 2,980 44 254 5,131 $ (968) $ (9) (9) 46 1 29 38 1,789 2,889 865 297 5,840 $ 1,696 (765) 801 (304) (750) (1,018) (559) $ 5,138 5,276 437 360 11,211 $ (258) (559) 210 (170) (14) (533) 587 $ 3,814 6,287 (37) (404) 9,660 $ (230) (9 For purposes ofthese computations, nonaccruing loans are included in the daily average loan amounrs outstanding. (2) Interest income includes the effect oftax equivalent adjustments using a federal tax rate of 35%. RESULTS OF OPERATIONS — SUMMARY FOR 2007 2007 ANNUAL REPORT PROVISION FOR LOAN LOSSES The provision for loan losses charged to expense is based upon credit loss experience and the results of a detailed analysis estimating an appropriate and adequate aUowance for loan losses. The analysis includes the evaluation of impaired loans as prescribed under Statement ofFinancial Accounting Standards (SFAS) Nos. 114 and 118, pooled loans as prescribed under SFAS No. 5, and economic and other risk factors as outlined in various Joint Interagency Statements issued by the bank regulatory agencies. For rhe year ended December 31, 2007, the provision for loan losses was $6.6 miUion, a decrease of $403 thousand, or 5.8%, compared to 2006. The decrease was the result of several components related to the analysis of the Corporation's Allowance for Loan and Lease Losses, including improving nonperforming and impaired loan trends. Net charge-offs for 2007 were $7.4 miUion as compared to $6.8 million for 2006 and $15.6 million for 2005. Delinquent loans as a percentage oftotal outstanding loans declined to 2 . 1% at December 31, 2007 compared to 2.3% at December 31, 2006. Non-accrual loans decreased 19.2% to $8.0 million at December 31, 2007 from $9.9 million at December 31, 2006. At December 31, 2007, the resulting allowance for loan losses was $15.4 mil lion or 1.07% oftotal loans, net of unearned income. A year earlier the allowance was $16.2 million or 1.16% of total loans. NON-INTEREST INCOME Non-interest income of $31.5 million increased $2.7 million from the $28.8 million earned in 2006. This increase was in all areas with the exception of brokerage fees. Gain on investment securities and mortgage sales accounted for 31 % of the increase. NON-INTEREST EXPENSES Non-interest expenses remained stable at $64.7 million for 2007 and 2006. Salaries and employee benefits decreased $307 thousand while other expenses increased $320 thousand. Occupancy and equipment expenses were relatively unchanged. Benefits ofthe consolidation of bank subsidiaries near the end of 2005 are still being realized. INCOME TAXES The Corporation's federal income tax provision was $9.4 million in 2007 compared to a provision of $7.4 mUlion in 2006. The overall effective tax rate in 2007 of 26.8% compares to a 2006 effective rate of 23.8%. The Corporation had reduced amounts of tax-exempt income relative to the total income in 2007 compared to 2006. COMPARISON OF 2006 TO 2005 Net income for 2006 was $23.5 million or $1.77 per share compared to $23.1 million in 2005 or $1.72 per share. This stable income was the result of a reduced provision for loan losses effectively offsetting the decrease in net interest and non-interest income combined with a slight increase in non-interest expense in 2006. Total aver age interest-earning assets were unchanged in 2006 compared to 2005. The tax equivalent net interest margin increased slightly to 3.93% in 2006 from 3.92% in 2005. This increase was primarily the result of increased fund ing provided by non-interest bearing liabilities. The provision for loan losses decreased $4.7 million from $11.7 million in 2005 to $7.0 million in 2006, and net charge-offs decreased $8.8 million from $15.6 million in 2005 to $6.8 million in 2006. Net non-interest income and expense declined $4.3 million from 2005 to 2006. Non-interest expenses increased $1.1 million while non-interest income decreased $3.2 million. The decrease in non-interest income resulted pri marily from reduced gains on sales of investment securities and loans in 2006. The provision for income taxes fell $562 thousand ftom 2005 to 2006, decreasing the effective tax rate from 25.6% in 2005 to 23.8% in 2006. FINANCIAL CONDITION — SUMMARY FIRST F I N A N C I AL C O R P O R A T I ON The Corporation's total assets increased 2.6% or $55.6 million at December 3 1, 2007, from a year earlier. Available-for-sale securities increased $27.6 million at December 31, 2007, from the previous year. Loans, net of unearned income, increased by $36.2 million, to $1.43 billion. Deposits increased $27.0 million while borrow ings increased by $10.6 million. Total shareholders' equity increased $10.4 miUion to $281.7 million at December 31, 2007. Net income was par tially offset by higher dividends and the continued repurchase of corporate stock. The Corporation had increased purchases of treasury stock in 2007, acquiring 174,962 shares at a cost of $5.2 million compared to 137,249 shares during 2006 at a cost of $4.1 million. There were also 41,000 shares from the treasury with a value of $ 1.24 million that were contributed to the ESOP plan. Restructuring of the investment portfolio with maturities and purchases increased other comprehensive income as the Corporation recorded a net unrealized gain on avail able-for-sale securities of $1.1 million. Other comprehensive income was then reduced because ofthe increase in the unrealized loss on post-retirement benefits in accordance with SFAS No. 158. FoUowing is an analysis ofthe components ofthe Corporation's balance sheet. SECURITIES The Corporation's investment strategy seeks to maximize income from the investment portfolio while using it as a risk management tool and ensuring safety of principal and capital. During 2007 the portfolio's balance increased by 4.93%. During 2007 the Federal Reserve decreased the fed funds rate by 1.00% to 4.25%. The average life ofthe portfolio declined from 4.38 years in 2006 to 4.08 years in 2007. The portfolio structure will continue to provide cash flows to be reinvested during 2008. Year-end securities maturity schedules were comprised of the following: (Dollar amounts in thousands) Balance Rate Balance Rate Balance Rate Balance Rate 1 Year and Less 1 to 5 Years 5 to 10 Years Over 10 Years 2007 Totai U.S. government sponsored entity mortgage-backed securiries a nd agencies $ 2 12 Collateralized mortgage obligadons(' States and political subdivisions Corporare obligations ) T o t al Equities T O T AL 5.08% - 5.49 6.40 5.93 — $ 1,366 4.60% 4 11.50 43,192 7.37 — — 44,562 7.29 _ _ $44,562 $ 65,393 27 49,290 — 114,710 _ $114,710 4.44% 6.94 7.54 5.77 " $222,733 77,143 47,100 58,408 405,384 7,784 $413,168 5.26% 5.27 6.19 5.07 5.34 " $289,704 77,174 146,515 65,456 578,849 7,784 $586,633 6,933 7,048 14,193 _ $14,193 (0 Distriburion of maturities is based on the estimated average life ofthe asset. 2 0 07 A N N U AL REPORT FINANCL\L CONDITION SUMMARY LOAN PORTFOLIO Loans outstanding by major category as ofDecember 31 for each ofthe last five years and the maturities at year- end 2007 are set forth in the following analyses. (Dollar amounts in thousands) Loan Category Commercial, financial and agricultural Real estate - construction Real estate - mortgage Consumer Lease financing TOTAL 2007 2006 2005 2004 2003 $ 461,086 29,637 673,355 262,858 2,275 $1,429,211 $ 407,995 33,336 691,989 257,065 2,604 $1,392,989 $ 382,214 31,918 707,008 272,062 2,845 $1,396,047 $ 401,724 32,810 753,826 272,261 3,658 $1,464,279 $ 374,638 35,361 766,911 248,290 4,884 $1,430,084 Credit card loans held-for-sale $ 14,068 - - - - (Dollar amounts in thousands) Maturity Distribution Commercial, financial and agricultural Real estate - construction TOTAL Real estate - mortgage Consumer Lease financing TOTAL Credit card loans held-for-sale Loans maturing after one year with: Fixed interest rates Variable interest rates T O T AL Within One Year After One But Within Five Years After Five Years Total $ 223,954 $ 193,781 7,441 12,869 $ 236,823 $ 201,222 $ 43,351 $ 461,086 29,637 490,723 9,327 52,678 673,355 262,858 2,275 $1,429,211 $ 14,068 $ 73,688 $ 127,534 42,213 10,465 $ 201,222 $ 52,678 FINANCIAL CONDITION — SUMMARY FIRST F I N A N C I AL C O R P O R A T I ON ALLOWANCE FOR LOAN LOSSES The activity in the Corporation's allowance for loan losses is shown in the following analysis: (Dollar amounts in thousands) Amount ofloans outstanding at December 31, 2007 2006 2005 2004 2003 $1,429,211 $1,392,989 $1,396,047 $1,464,279 $1,430,084 Average amount ofloans by year $1,409,051 $1,384,138 $1,441,247 $1,452,572 $1,417,026 Allowance for loan losses at beginning ofyear Loans charged off: Commercial, financial and agricultural Real estate - mortgage Consumer Leasing Total loans charged off Recoveries ofloans previously charged off: Commercial, financial and agricultural Real estate - mortgage Consumer Leasing Total recoveries Net loans charged off Provision charged to expense $ 16,169 $ 16,042 $ 19,918 $ 21,239 $ 21,249 3,433 1,026 5,712 5 10,176 389 139 2,250 2,778 7,398 6,580 2,066 1,617 6,826 6,093 2,590 8,809 10,509 17,492 1,262 187 2,204 3,653 6,856 6,983 284 343 1,291 1,918 15,574 11,698 4,080 623 6,680 1 11,384 452 37 1,281 1 1,771 9,613 8,292 2,253 1,101 5,586 8,940 432 166 877 1,475 7,465 7,455 Balance at end ofyear $ 15,351 $ 16,169 $_ 16,042 $ 19,918 $ 21,239 Ratio of net charge-offs during period to average loans outstanding .53% .50% 1.08% .66% .53% 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 ofthe allowance for loan losses includes the allocation of specific amounts ofthe allowance to individ ual 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. FINANCL\L CONDITION — SUMMARY 2 0 07 A N N U AL REPORT (DoUar amounts in thousands) Commercial, financial and agricultural Real estate - mortgage Consumer Years Ended December 31, 2007 $10,090 1,245 4,016 2006 $ 9,043 1,364 5,762 2005 $ 8,148 867 7,027 2004 $11,840 850 7,228 2003 $13,844 1,254 6,141 TOTAL ALLOWANCE FOR LOAN LOSSES $15,351 $16,169 $16,042 $19,918 $21,239 NONPERFORMING LOANS Management monitors the components and status of nonperforming 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. (Dollar amounts in thousands) Non-accrual loans Restructured loans Accruing loans past due over 90 days 2007 7,971 50 4,462 $12,483 2006 $ 9,893 52 4,691 $14,636 2005 $ 8,464 57 6,354 $14,875 2004 $19,862 430 7,813 $28,105 2003 $ 8,429 542 5,384 $14,355 The ratio ofthe allowance for loan losses as a percentage of nonperforming loans was 123% at December 31, 2007, compared to 110% in 2006. The foUowing loan categories comprise significant components of the nonperforming loans at December 31, 2007 and 2006: (Dollar amounts in thousands) Non-accrual loans: 1-4 family residential Commercial loans Consumer loans Past due 90 days or more: 1-4 family residential Commercial loans Consumer loans 2007 2006 $ 2,574 3,938 1,459 $ 7,971 $ 1,230 2,795 437 $ 4.462 32% 50 18 100% 28% 62 10 100% $ 1,598 6,551 1,744 $ 9,893 $ 1,607 2,542 542 $ 4,691 16% 66 18 100% 34% 54 12 100% FIRST F I N A N C I AL C O R P O R A T I ON FINANCIAL CONDITION — SUMMARY DEPOSITS The information below presents the average amount of deposits and rates paid on those deposits for 2007, 2006 and 2005. (Dollar amounts in thousands) Amount Rate Amount Rate Amount Rate 2007 2006 2005 Non-interest-bearing demand deposits Interest-bearing demand deposits Savings deposits Time deposits: $100,000 or more Other time deposits TOTAL $ 226,822 198,368 410,919 189,501 477,114 $1,502,724 0.94% 2.62% 4.66% 4.30% $ 206,839 201,928 410,458 188,572 480,116 $1,487,913 1.14% 1.87% 4.27% 4.01% $ 153,027 294,344 392,791 185,436 457,685 $1,483,283 0.77% 1.21% 3.11% 3.11% The maturities of certificates ofdeposit of $100 thousand or more outstanding at December 31, 2007, are summa rized as follows: 3 months or less Over 3 through 6 months Over 6 through 12 months Over 12 months TOTAL $ 11,402 35,587 44,677 102,235 $193,901 2007 ANNUAL REPORT FINANCML CONDITION — SUMMARY OTHER BORROWINGS Advances from the Federal Home Loan Bank decreased slightly to $334.7 million in 2007 compared to $335.2 mil lion in 2006. The Asset/Liability Committee reviews these investments and funding sources and considers the related strategies on a weekly basis. See Interest Rate Sensitivity and Liquidity below for more information. CAPITAL RESOURCES Bank regulatory agencies have established capital adequacy standards which are used extensively in their monitor ing 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, 2007. 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 posi tion which they believe is sufficient to absorb unforeseen financial shocks without unnecessarily restricting divi dends to its shareholders. The Corporation's dividend payout ratio for 2007 and 2006 was 44.8% and 44.2%, respectively. The Corporation expects to continue its policy of paying regular cash dividends, subject to future earnings and regulatory restrictions and capital requirements. INTEREST RATE SENSITIVITY AND LIQUIDITY First Financial Corporation 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 pri mary 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 assump tions 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 eval uates 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 ofDecember 31, 2007. 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 decrease 0.54% over the next 12 months and Increase 0.93% over the following 12 months. Given a 100 basis point decrease in rates, net interest income would increase 0.27% over the next 12 months and decrease 1.31% over the following 12 months. These estimates assume all rate changes occur overnight and management takes no action as a result ofthis change. FINANCIAL CONDITION — SUMMARY FIRST FINANCIAL CORPORATION Basis Point Interest Rate Change Down 200 Down 100 Up 100 Up 200 Percentage Change in Net Interest Income 36 months 24 months -7.16% -3.63% -2.92 -1.31 2.48 0.93 2.51 -1.59 12 months 0.46% 0.27 -0.54 -4.32 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 the 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 suflficient liquid assets in the form of investment securities and core deposits. The Corporation has $13.8 million of investments that mature throughout the coming 12 months. The Corporation also anticipates $66.9 million of principal pay ments from mortgage-backed securities. Given the current rate environment, the Corporation anticipates $28.2 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 ofDecember 31, 2007, significant fixed and determinable contractual obligations to third parties by payment date. Further discussion of the nature of each obligation is included in the referenced note to the consolidated financial statements. (Dollar amounts in thousands) Deposits without a stated maturity Consumer certificates of deposit Short-term borrowings Other borrowings Payments Due In Note Reference 10 11 One Year or Less $881,114 513,361 27,331 90,232 One to Three Years Three to Five Years Over Five Years Total $ - $ 115,846 19,179 249,760 724 - $881,114 221 648.607 27,331 341,285 569 Commitments: The following table details the amount and expected maturities of significant commitments as of December 31, 2007. Further discussion ofthese commitments is included in Note 13 to the consolidated finan cial statements. (Dollar amounts in thousands) Commitments to extend credit: Unused loan commitments Commercial letters of credit Total Amount Committed One Year or Less Over One Year $275,656 $178,285 13,685 17,336 $97,371 3,651 Commitments to extend credit, including loan commitments, standby and commercial letters of credit do not neces sarily represent future cash requirements, in that these commitments often expire without being drawn upon. OUTLOOK The Corporation's primary market is west-central Indiana and east-central Illinois. Typically, this market does not expand or contract at rates that are experienced by both the state and national economies. This area continues to be driven primarily by the retail, higher education and health care industries. During 2007 most of the Corporation's markets experienced stable labor market conditions. There are limited significant grovrth opportu nities currently available. CONSOLIDATED BALANCE SHEET - AVERAGE BALANCES AND INTEREST RATES 2 0 07 A N N U AL REPORT 2007 December 31, 2006 2005 Average Balance Interest Yield/ Rate Average Balance Interest Vield/ Rate Average Balance Interest rield/ Rate (Dollar amounts in thousands) ASSETS Interest-earning assets: Loans (9 (2) Taxable investment securities Tax-exempt investments (2) Federal funds sold Total interest-earning assers $1,409,051 444,220 188,012 14,756 2,056,039 105,804 7.51% 23,545 13,354 768 143,471 5.30 7.10 5.20 6.98% $1,384,138 430,492 176,044 16,203 2,006,877 100,475 21,877 12,794 788 135,934 7.26% $1,441,247 5.08 387,269 171,802 7.27 13,772 4.87 2,014,090 6.77% 96,957 16,802 12,248 496 126,503 6.73% 4.34 7.13 3.60 6.28% Non-interesr earning assets: Cash and due from banks Premises and equipmenr, ner Other assets Less allowance for loan losses TOTALS 61,655 32,762 64,801 (15,665) $2,199,592 66,302 31,309 59,363 (16,533) $2,147,318 74,005 30,720 62,779 (18,298) $2,163,296 LIABILITIES AND SHAREHOLDERS' EQUITY Interest-bearing liabilities: Transaction accounts Time deposits Shorr-term borrowings Orher borrowings Toral interesr-bearing liabilities: Non interest-bearing liabUities: Demand deposits Other $ 609,287 666,615 32,140 343,767 12,634 29,322 1,611 19,394 2.07% 4.40 5.01 5.64 $ 612,387 668,687 15,759 343,014 10,845 26,440 746 19,098 1.77% $ 687,135 643,121 3.95 25,766 4.73 356,728 5.57 7,031 20,153 783 19,502 1.02% 3.13 3.04 5.47 1,651,809 62,961 3.81% 1,639,847 57,129 3.48% 1,712,750 47,46^ 2.77% 226,822 42,974 1,921,605 Shareholders' equity TOTALS 277,987 $2,199,592 206,839 25,958 1,872,644 274,674 $2,147,318 153,027 26,942 1,892,719 270,577 $2,163,296 Net interest earnings $ 80,510 $ 78,805 $ 79,034 Net yield on interesr-earning assers 3.92% 3.93% 3.92% (') For purposes ofthese computations, nonaccruing loans are included in the daily average loan amounts outstanding. (2) Interest income includes the effect oftax equivalent adjustments using a federal tax rate of 35%. FIRST F I N A N C I AL C O R P O R A T I ON MARKET AND DIVIDEND INFORMATION At year-end 2007 shareholders owned 13,136,359 shares ofthe Corporation's common stock. The stock is traded on the NASDAQ Global under the symbol THFE 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 2007 and 2006. 2007 Trade Price Cash Dividends Low Declared High $35.74 $32.45 $32.78 $32.29 $28.20 $27.26 $23.48 $26.93 $ .43 $ .44 2006 Trade Price High Low Cash Dividends Declared $29.80 $31.91 $33.45 $35.92 $27.00 $27.42 $28.21 $31.50 $.42 $ .43 TOTAL RETURN PERFORMANCE Quarter ended March 31 June 30 September 30 December 31 250 225 50 25 A First Financial Corporation • Russell 2000 9 SNL $1B-$5B Bank Index 12/31/02 12/31/03 12/31/04 12/31/05 12/31/06 12/31/07 2 0 07 A N N U AL REPORT Directors First Financial Corporation and First Financial Bank Seated: Ronald K. Rich, Patrick O'Leary, D o n a ld E. Smith a nd Virginia Smith. Standing: Gregory L. Gibson, N o r m an L. Lowery, B. Guille C ox Jr., T o ny George, T h o m as T. Dinkel a nd W. Curtis Brighton. First Financial Corporation & First Financiai Bank W. Curtis Brighton Executive Vice President & General Counsel Hulman & Company B. Guille Cox, Jr. Attorney-at-Law Thomas T. Dinkel President Sycamore Engineering, Inc. Anton H u l m an George President Indianapolis Motor Speedway Corporation Gregory L. Gibson President ReTec Corporation N o r m an L. Lowery President & C EO First Financial Bank C EO First Financial Corporation Patrick O'Leary President Contract Services, LLC Ronald K. Rich Financial Representative Northwestern Mutual Financial Network Donald E. Smith President & Chairman First Financial Corporation Virginia L. Smith President R.J. OU Co., Inc. Tlie Morris Pian Conipany of Terre Haute David L. Bailey Vice President, Retired Emmis Communications Jeffrey G. Belskus Executive Vice President & Chief Financial Officer Hulman & Company Executive Vice President & ChiefFinancial OfFicer Indianapolis Motor Speedway Thomas S. Clary Senior Vice President & Chief Credit Officer First Financial Bank Mark J. Fuson President & General Manager Fuson Pontiac Buick Cadillac & G MC N o r m an D. Lowery Private Banking Manager First Financial Bank James F. Nasser President Jeffrey B. Smith Vice President Princeton Mining Co. Forrest Slierer Inc. John W. Dinkel Chairman ofthe Board Forrest Sherer, Inc. J. Barton Douglas Vice President, Surety Forrest Sherer, Inc. N o r m an L. Lowery President & C EO First Financial Bank John S. Lukens President & C EO Forrest Sherer, Inc. Dennis S. Michael Retired Forrest Sherer, Inc. Jerry R. MueUer Retired Forrest Sherer, Inc. Robert F. Prox III Seniot Vice President, Commercial Insurance Forrest Sherer, Inc. FIRST F I N A N C I AL C O R P O R A T I ON Community Directors N o r m an D. Lowery Private Banking Manager First Financial Bank Steven A. McGahey President & Owner Tempco Products Co., Inc. V. Bruce Walkup Community President First Financial Bank, Sullivan First Financiai Banlc Comniunity Region N o r m an D. Lowery Private Banking Manager First Financial Bank Scott McCuUough Vice President First Financial Bank Avery J. McKinney President & Owner A.M. Transport Services, Inc. V. Bruce Walkup Community President First Financial Bank, Sullivan Jeffrey L. Wilson Community President First Financiai BanIt Marsiiaii Region Fred S. Barth Owner, Retired Fred Barth Ford-Mercury Byron R. Calvert Community President William F. Meehling Attorney-at-Law N o r m an P. Yeley Farmer First Financial Banic Citizens Region Henry J. Antonini Attorney-at-Law Michael A. Carry Senior Vice President & Chief Financial Officer First Financial Bank Robert DeVerter Owner DeVerter Brothers Funeral Home Scott McCulIough Vice President First Financial Bank Danny F. Wesch Farmer Terri Williamson Branson-Wilson Insurance Services First Financiai Banlc Sullivan Region Thomas S. Clary Senior Vice President & Chief Credit Officer First Financial Bank Robert F. Dukes Educator, Retired Henry Smith General Manager 500 Express Robert E. Springer Attorney-at-Law V. Bruce Walkup Community President First Financial Banic Parice Region James R. Bosley Community President Michael A. Carty SeniorVice President & Chief Financial Officer First Financial Bank Thomas S. Clary Senior Vice President & Chief Credit Officer First Financial Bank Charles A. Cooper President, Retired First Parke State Bank First Financiai Banic Ciay Region David L. Barr President, Retired Underwood Truck Lines, Inc. Rodger McHargue Vice President First Financial Bank Sam J. Emmert President Timberland H o me Center, Inc. Max Gibson President Majax Corporation James E. Pell President Pell Homes, Inc. John P. Stelle Honorable Judge, Retired Clay County Superior Court First Financiai Banlc Crawford Region Jerry L. Bailey Community President W. J. Chamblin Chairman & Owner Bradford Supply Company Banlcing Center Locations I N D I A NA First Financial Bank N.A. Vigo County Terre H a u te Main Office* One First Financial Plaza Sixth & Wabash 812-238-6000 Honey Creek Mall* U.S. 41 South 812-238-6000 Indiana State University* Hulman Memorial Union 812-238-6000 Industrial Park* 1749 East Industrial Drive 812-238-6000 Maple Avenue* 4065 Maple Avenue 812-238-6000 Meadows* 350 South 25th Street 812-238-6000 Plaza North* Ft. Harrison & Lafayette 812-238-6000 Seelyville* 9520 East U.S. 40 812-238-6000 Southland* 3005 South Seventh Street 812-238-6000 SpringhiU* 4500 U.S. 41 South 812-238-6000 West Terre Haute* 309 National Avenue 812-238-6000 Westminster Village 1120 East Davis Drive 812-238-6000 The Morris Plan Company of Terre Haute 817 Wabash Avenue 812-238-6063 First Financial Bank N.A. Clay County Brazil* 7995 North State Road 59 812-443-4481 Brazil Downtown* 18 North Walnut 812-448-3357 Brazil Eastside* 2180 East National Avenue 812-448-8110 Ciay City* 502-504 Main Street 812-939-2145 Poland* 8490 East State Road 42 812-986-2115 First Financial Bank N.A. Greene County Worthington* 9 North Commercial Street 812-875-3021 First Financial Bank N.A. Knox County Monroe City* 201 West First Street 812-743-5151 Sandborn 102 North Anderson Street 812-694-8462 Vincennes* 2707 North Sixth Street 812-882-4800 First Financial Bank N.A. Parke County Rockville* 1311 North Lincoln Road 765-569-3171 Rockville Downtown* 120 East Ohio Street 765-569-3442 Marshall 10 South Main Street 765-597-2261 Montezuma* 232 East Crawford Street 765-245-2706 Rosedale 62 East Central Street 765-548-2266 First Financial Bank N.A. Putnam County Greencastie* 101 South Warren Drive 765-653-4444 First Fmancial Bank N.A. Sullivan County Sullivan* 15 South Main Street 812-268-3331 Carlisle* 8571 Old US 41 South 812-398-4100 Dugger 8100 East Main Street 812-648-2251 Farmersburg* 819 West Main Street 812-696-2106 Hymera 102 South Main Street 812-383-4933 First Financial Bank N.A. Vermillion County Newport* 100 West Market Street 765-492-3321 Cayuga 211 Curtis Street 765-492-3391 Clinton* 221 South Main Street 765-832-3504 Clinton Crown Hill* 1775 East State Road 163 765-832-5546 I L L I N O IS First Financial Bank N.A. Clark County Marshall* 215 North Michigan 217-826-6311 First Financial Bank N.A. Coles County Charleston* 820 West Lincoln Avenue 217-345-4824 First Financial Bank N.A. Crawford County Robinson* 108 West Main Street 618-544-8666 Robinson M o t or Bank* (Drive-Through Only) 602 West Walnut Streer 618-544-3355 Oblong* 301 Easr Main Street 618-592-4252 First Financial Bank N.A. Jasper County Newton* 601 West Jourdan Street 618-783-2022 First Financial Bank N.A. Lawrence County Lawrenceville* 1601 State Street 618-943-3323 Sumner 211 South Christy 618-936-2321 First Financial Bank N.A. Richland County Olney* 240 East Chestnut Street 618-395-8676 Olney* 1110 South West Street 618-395-2112 First Financial Bank N.A. Vermilion County Ridge Farm* 11 South State Street 217-247-2126 First Financial Bank N.A. Wayne County Fairfield* 303 West Delaware 618-842-2145 *FirstPlus 24-hour ATM available at these locations 

Continue reading text version or see original annual report in PDF format above