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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