UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE

SECURITIES EXCHANGE ACT OF 1934

For The Quarterly Period Ended March 31, 2016

Commission File Number 0-16759

FIRST FINANCIAL CORPORATION

(Exact name of registrant as specified in its charter) 

INDIANA	35-1546989
(State or other jurisdiction	(I.R.S. Employer
incorporation or organization)	Identification No.)
One First Financial Plaza, Terre Haute, IN	47807
(Address of principal executive office)	(Zip Code)
(812)238-6000
(Registrant's telephone number, including area code)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

Yes x  No  ¨.

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). 

Yes x   No  ¨.

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer  ¨	Accelerated filer x
Non-accelerated filer ¨ (Do not check if a smaller reporting company)	Smaller reporting company ¨

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

Yes ¨ No x.

As of May 1, 2016, the registrant had outstanding 12,242,271 shares of common stock, without par value.

FIRST FINANCIAL CORPORATION

FORM 10-Q

INDEX 

	Page No.
PART I.  Financial Information
Item 1. Financial Statements:
Consolidated Balance Sheets	3
Consolidated Statements of Income and Comprehensive Income	4
Consolidated Statements of Shareholders’ Equity	5
Consolidated Statements of Cash Flows	6
Notes to Consolidated Financial Statements	7
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations	29
Item 3.  Quantitative and Qualitative Disclosures about Market Risk	31
Item 4.  Controls and Procedures	34
PART II. Other Information:
Item 1. Legal Proceedings	35
Item 1A. Risk Factors	35
Item 2.  Unregistered Sales of Equity Securities and Use of Proceeds	35
Item 3.  Defaults upon Senior Securities	35
Item 4.  Mine Safety Disclosures	35
Item 5.  Other Information	35
Item 6.  Exhibits	36
Signatures	37

2

Part I – Financial Information

Item 1. Financial Statements

FIRST FINANCIAL CORPORATION

CONSOLIDATED BALANCE SHEETS

(Dollar amounts in thousands, except per share data)

	March 31, 2016			December 31, 2015
	(unaudited)
ASSETS
Cash and due from banks	$	66,125		$	88,695
Federal funds sold	6,444			9,815
Securities available-for-sale	884,176			891,082
Loans:
Commercial	1,047,599			1,043,980
Residential	436,873			444,447
Consumer	276,471			272,896
	1,760,943			1,761,323
(Less) plus:
Net deferred loan costs	2,716			2,485
Allowance for loan losses	(19,926		)	(19,946		)
	1,743,733			1,743,862
Restricted stock	10,838			10,838
Accrued interest receivable	11,907			11,733
Premises and equipment, net	50,394			50,531
Bank-owned life insurance	82,673			82,323
Goodwill	34,355			39,489
Other intangible assets	2,557			3,178
Other real estate owned	2,850			3,466
Other assets	43,188			44,573
TOTAL ASSETS	$	2,939,240		$	2,979,585
LIABILITIES AND SHAREHOLDERS’ EQUITY
Deposits:
Non-interest-bearing	$	512,961		$	563,302
Interest-bearing:
Certificates of deposit exceeding the FDIC insurance limits	46,817			46,753
Other interest-bearing deposits	1,840,877			1,832,314
	2,400,655			2,442,369
Short-term borrowings	31,116			33,831
FHLB advances	12,252			12,677
Other liabilities	83,305			80,392
TOTAL LIABILITIES	2,527,328			2,569,269
Shareholders’ equity
Common stock, $.125 stated value per share;
Authorized shares-40,000,000
Issued shares-14,578,758 in 2016 and 14,557,815 in 2015
Outstanding shares-12,265,355 in 2016 and 12,740,018 in 2015	1,818			1,817
Additional paid-in capital	73,566			73,396
Retained earnings	409,308			395,633
Accumulated other comprehensive loss	(5,059		)	(9,401		)
Less: Treasury shares at cost-2,313,403 in 2016 and 1,817,797 in 2015	(67,721		)	(51,129		)
TOTAL SHAREHOLDERS’ EQUITY	411,912			410,316
TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY	$	2,939,240		$	2,979,585

See accompanying notes. 

3

FIRST FINANCIAL CORPORATION

CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME

(Dollar amounts in thousands, except per share data) 

	Three Months Ended   March 31,
	2016			2015
	(unaudited)			(unaudited)
INTEREST INCOME:
Loans, including related fees	$	21,184		$	20,807
Securities:
Taxable	3,831			4,061
Tax-exempt	1,822			1,779
Other	364			431
TOTAL INTEREST INCOME	27,201			27,078
INTEREST EXPENSE:
Deposits	987			1,020
Short-term borrowings	23			13
Other borrowings	34			50
TOTAL INTEREST EXPENSE	1,044			1,083
NET INTEREST INCOME	26,157			25,995
Provision for loan losses	835			1,450
NET INTEREST INCOME AFTER PROVISION
FOR LOAN LOSSES	25,322			24,545
NON-INTEREST INCOME:
Trust and financial services	1,334			1,492
Service charges and fees on deposit accounts	2,504			2,326
Other service charges and fees	3,000			2,838
Securities gains/(losses), net	3			4
Insurance commissions	2,272			1,553
Gain on sale of certain assets and liabilities of insurance brokerage operation	13,021			—
Gain on sales of mortgage loans	404			359
Other	(172		)	1,489
TOTAL NON-INTEREST INCOME	22,366			10,061
NON-INTEREST EXPENSE:
Salaries and employee benefits	13,595			15,058
Occupancy expense	1,731			1,864
Equipment expense	1,837			1,772
FDIC Expense	451			430
Other	5,733			4,869
TOTAL NON-INTEREST EXPENSE	23,347			23,993
INCOME BEFORE INCOME TAXES	24,341			10,613
Provision for income taxes	10,666			2,852
NET INCOME	13,675			7,761
OTHER COMPREHENSIVE INCOME
Change in unrealized gains/losses on securities, net of reclassifications and taxes	4,039			4,762
Change in funded status of post retirement benefits, net of taxes	304			2,464
COMPREHENSIVE INCOME	$	18,018		$	14,987
PER SHARE DATA
Basic and Diluted Earnings per Share	$	1.08		$	0.60
Weighted average number of shares outstanding (in thousands)	12,646			12,948

See accompanying notes.

4

FIRST FINANCIAL CORPORATION

CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY

Three Months Ended

March 31, 2016, and 2015

(Dollar amounts in thousands, except per share data)

(Unaudited)

	Common Stock		Additional Capital		Retained Earnings		Accumulated Other Comprehensive Income/(Loss)			Treasury Stock			Total
Balance, January 1, 2015	$	1,815	$	72,405	$	377,970	$	(14,529	)	$	(43,447	)	$	394,214
Net income	—		—		7,761		—			—			7,761
Other comprehensive income	—		—		—		7,226			—			7,226
Omnibus Equity Incentive Plan	—		171		—		—			—			171
Treasury shares purchased (9,689 shares)	—		—		$	—	$	—		(345		)	(345		)
Balance, March 31, 2015	$	1,815	$	72,576	$	385,731	$	(7,303	)	$	(43,792	)	$	409,027
Balance, January 1, 2016	$	1,817	$	73,396	$	395,633	$	(9,401	)	$	(51,129	)	$	410,316
Net income	—		—		13,675		—			—			13,675
Other comprehensive income	—		—		—		4,342			—			4,342
Omnibus Equity Incentive Plan	1		170		—		—			—			171
Treasury shares purchased (495,606 shares)	—		—		—		—			(16,592		)	(16,592		)
Balance, March 31, 2016	$	1,818	$	73,566	$	409,308	$	(5,059	)	$	(67,721	)	$	411,912

See accompanying notes.

5

FIRST FINANCIAL CORPORATION

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Dollar amounts in thousands, except per share data)  

	Three Months Ended   March 31,
	2016			2015
	(Unaudited)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income	$	13,675		$	7,761
Adjustments to reconcile net income to net cash provided by operating activities:
Net amortization (accretion) of premiums and discounts on investments	820			745
Provision for loan losses	835			1,450
Securities (gains) losses	(3		)	(4		)
(Gain) loss on sale of other real estate	80			(32		)
Gain on sale of certain assets and liabilities of insurance brokerage operation	(13,021		)	—
Restricted stock compensation	171			171
Depreciation and amortization	1,283			1,435
Other, net	9,251			1,848
NET CASH FROM OPERATING ACTIVITIES	13,091			13,374
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from sales of securities available-for-sale	1,445			400
Calls, maturities and principal reductions on securities available-for-sale	31,369			35,064
Purchases of securities available-for-sale	(20,213		)	(37,723		)
Loans made to customers, net of repayment	(468		)	23,503
Proceeds from sale of certain assets and liabilities of insurance brokerage operation	17,094			—
Proceeds from sales of other real estate owned	336			573
Net change in federal funds sold	3,371			(4,688		)
Additions to premises and equipment	(966		)	(387		)
NET CASH FROM INVESTING ACTIVITIES	31,968			16,742
CASH FLOWS FROM FINANCING ACTIVITIES:
Net change in deposits	(41,730		)	6,732
Net change in short-term borrowings	(2,715		)	(19,553		)
Maturities of other borrowings	(3,200		)	—
Proceeds from other borrowings	2,850			—
Purchase of treasury stock	(16,592		)	(345		)
Dividends paid	(6,242		)	(6,560		)
NET CASH FROM FINANCING ACTIVITIES	(67,629		)	(19,726		)
NET CHANGE IN CASH AND CASH EQUIVALENTS	(22,570		)	10,390
CASH AND DUE FROM BANKS, BEGINNING OF PERIOD	88,695			78,102
CASH AND DUE FROM BANKS, END OF PERIOD	$	66,125		$	88,492

See accompanying notes.

6

FIRST FINANCIAL CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

The accompanying March 31, 2016 and 2015 consolidated financial statements are unaudited. The December 31, 2015 consolidated financial statements are as reported in the First Financial Corporation (the “Corporation”) 2015 annual report. The information presented does not include all information and footnotes required by U.S. generally accepted accounting principles for complete financial statements. The following notes should be read together with notes to the consolidated financial statements included in the 10-K filed with the Securities and Exchange Commission for the fiscal year ended December 31, 2015. 

1. Significant Accounting Policies

The significant accounting policies followed by the Corporation and its subsidiaries for interim financial reporting are consistent with the accounting policies followed for annual financial reporting. All adjustments which are, in the opinion of management, necessary for a fair statement of the results for the periods reported have been included in the accompanying consolidated financial statements and are of a normal recurring nature. The Corporation reports financial information for only one segment, banking. Some items in the prior year financials were reclassified to conform to the current presentation.

The Omnibus Equity Incentive Plan is a long-term incentive plan that was designed to align the interests of participants with the interests of shareholders. Under the plan, awards may be made based on certain performance measures. The grants are made in restricted stock units that are subject to a vesting schedule. These shares vest over 3 years in increments of 33%, 33%, and 34% respectively. In 2016 and 2015, 20,943 and 19,683 shares were awarded, respectively. These shares had a grant date value of $677 thousand and $667 thousand for 2016 and 2015, vest over three years and their grant is not subject to future performance measures. Outstanding shares are increased at the award date for the total shares awarded. 

2. Allowance for Loan Losses

The following table presents the activity of the allowance for loan losses by portfolio segment for the three months

ended March 31. 

Allowance for Loan Losses:	March 31, 2016
(Dollar amounts in thousands)	Commercial			Residential			Consumer			Unallocated		Total
Beginning balance	$	11,482		$	1,834		$	4,945		$	1,685	$	19,946
Provision for loan losses	(275		)	125			787			198		835
Loans charged -off	(267		)	(239		)	(1,134		)	—		(1,640		)
Recoveries	228			49			508			—		785
Ending Balance	$	11,168		$	1,769		$	5,106		$	1,883	$	19,926

Allowance for Loan Losses:	March 31, 2015
(Dollar amounts in thousands)	Commercial			Residential			Consumer			Unallocated		Total
Beginning balance	$	10,915		$	1,374		$	4,370		$	2,180	$	18,839
Provision for loan losses	7			376			830			237		1,450
Loans charged -off	(336		)	(225		)	(1,262		)	—		(1,823		)
Recoveries	232			97			556			—		885
Ending Balance	$	10,818		$	1,622		$	4,494		$	2,417	$	19,351

7

The following table presents the allocation of the allowance for loan losses and the recorded investment in loans by portfolio segment and based on the impairment method at March 31, 2016 and December 31, 2015. 

Allowance for Loan Losses	March 31, 2016
(Dollar amounts in thousands)	Commercial		Residential		Consumer		Unallocated		Total
Individually evaluated for impairment	$	881	$	192	$	—	$	—	$	1,073
Collectively evaluated for impairment	10,136		1,577		5,106		1,883		18,702
Acquired with deteriorated credit quality	151		—		—		—		151
Ending Balance	$	11,168	$	1,769	$	5,106	$	1,883	$	19,926

Loans:	March 31, 2016
(Dollar amounts in thousands)	Commercial		Residential		Consumer		Total
Individually evaluated for impairment	$	7,431	$	712	$	—	$	8,143
Collectively evaluated for impairment	1,041,900		435,874		277,716		1,755,490
Acquired with deteriorated credit quality	4,007		1,515		—		5,522
Ending Balance	$	1,053,338	$	438,101	$	277,716	$	1,769,155

Allowance for Loan Losses:	December 31, 2015
(Dollar amounts in thousands)	Commercial		Residential		Consumer		Unallocated		Total
Individually evaluated for impairment	953		206		—		—		1,159
Collectively evaluated for impairment	10,342		1,628		4,945		1,685		18,600
Acquired with deteriorated credit quality	187		—		—		—		187
Ending Balance	$	11,482	$	1,834	$	4,945	$	1,685	$	19,946

Loans	December 31, 2015
(Dollar amounts in thousands)	Commercial		Residential		Consumer		Total
Individually evaluated for impairment	8,823		902		—		9,725
Collectively evaluated for impairment	1,037,086		443,224		274,134		1,754,444
Acquired with deteriorated credit quality	4,092		1,529		—		5,621
Ending Balance	$	1,050,001	$	445,655	$	274,134	$	1,769,790

8

The following tables present loans individually evaluated for impairment by class of loans. 

					March 31, 2016
	Unpaid Principal		Recorded		Allowance for Loan Losses		Average Recorded		Interest Income		Cash Basis Interest
(Dollar amounts in thousands)	Balance		Investment		Allocated		Investment		Recognized		Recognized
With no related allowance recorded:
Commercial
Commercial & Industrial	$	1,357	$	1,063	$	—	$	1,143	$	—	$	—
Farmland	—		—		—		—		—		—
Non Farm, Non Residential	3,155		3,155		—		3,178		—		—
Agriculture	—		—		—		—		—		—
All Other Commercial	1,437		1,437		—		1,599		—		—
Residential
First Liens	28		28		—		29		—		—
Home Equity	—		—		—		—		—		—
Junior Liens	—		—		—		—		—		—
Multifamily	—		—		—		—		—		—
All Other Residential	—		—		—		—		—		—
Consumer
Motor Vehicle	—		—		—		—		—		—
All Other Consumer	—		—		—		—		—		—
With an allowance recorded:
Commercial
Commercial & Industrial	600		600		204		799		—		—
Farmland	—		—		—		—		—		—
Non Farm, Non Residential	1,176		1,176		677		1,296		—		—
Agriculture	—		—		—		—		—		—
All Other Commercial	—		—		—		113		—		—
Residential
First Liens	684		684		192		779		—		—
Home Equity	—		—		—		—		—		—
Junior Liens	—		—		—		—		—		—
Multifamily	—		—		—		—		—		—
All Other Residential	—		—		—		—		—		—
Consumer
Motor Vehicle	—		—		—		—		—		—
All Other Consumer	—		—		—		—		—		—
TOTAL	$	8,437	$	8,143	$	1,073	$	8,936	$	—	$	—

9

					December 31, 2015
	Unpaid Principal		Recorded		Allowance for Loan Losses		Average Recorded		Interest Income		Cash Basis Interest Income
(Dollar amounts in thousands)	Balance		Investment		Allocated		Investment		Recognized		Recognized
With no related allowance recorded:
Commercial
Commercial & Industrial	$	1,516	$	1,223	$	—	$	1,796	$	—	$	—
Farmland	—		—		—		—		—		—
Non Farm, Non Residential	3,202		3,202		—		2,080		—		—
Agriculture	—		—		—		—		—		—
All Other Commercial	1,760		1,760		—		1,175		—		—
Residential
First Liens	29		29		—		18		—		—
Home Equity	—		—		—		—		—		—
Junior Liens	—		—		—		—		—		—
Multifamily	—		—		—		—		—		—
All Other Residential	—		—		—		—		—		—
Consumer
Motor Vehicle	—		—		—		—		—		—
All Other Consumer	—		—		—		—		—		—
With an allowance recorded:
Commercial
Commercial & Industrial	998		998		212		3,463		—		—
Farmland	—		—		—		—		—		—
Non Farm, Non Residential	1,415		1,415		741		3,682		—		—
Agriculture	—		—		—		—		—		—
All Other Commercial	225		225		—		483		—		—
Residential
First Liens	873		873		206		460		—		—
Home Equity	—		—		—		—		—		—
Junior Liens	—		—		—		—		—		—
Multifamily	—		—		—		—		—		—
All Other Residential	—		—		—		—		—		—
Consumer
Motor Vehicle	—		—		—		—		—		—
All Other Consumer	—		—		—		—		—		—
TOTAL	$	10,018	$	9,725	$	1,159	$	13,157	$	—	$	—

10

	Three Months Ended   March 31, 2015
	Average Recorded		Interest Income		Cash Basis Interest Income
(Dollar amounts in thousands)	Investment		Recognized		Recognized
With no related allowance recorded:
Commercial
Commercial & Industrial	$	589	$	—	$	—
Farmland	—		—		—
Non Farm, Non Residential	—		—		—
Agriculture	—		—		—
All Other Commercial	274		—		—
Residential
First Liens	—		—		—
Home Equity	—		—		—
Junior Liens	—		—		—
Multifamily	—		—		—
All Other Residential	—		—		—
Consumer
Motor Vehicle	—		—		—
All Other Consumer	—		—		—
With an allowance recorded:
Commercial
Commercial & Industrial	6,446		—		—
Farmland	—		—		—
Non Farm, Non Residential	6,568		—		—
Agriculture	—		—		—
All Other Commercial	704		—		—
Residential
First Liens	149		—		—
Home Equity	—		—		—
Junior Liens	—		—		—
Multifamily	—		—		—
All Other Residential	—		—		—
Consumer
Motor Vehicle	—		—		—
All Other Consumer	—		—		—
TOTAL	$	14,730	$	—	$	—

11

The tables below presents the recorded investment in non-performing loans.

	March 31, 2016
	Loans Past Due Over 90 Day Still		Troubled Debt
(Dollar amounts in thousands)	Accruing		Accruing		Nonaccrual		Nonaccrual
Commercial
Commercial & Industrial	$	—	$	5	$	413	$	2,525
Farmland	—		—		—		108
Non Farm, Non Residential	—		4		3,114		2,174
Agriculture	—		—		—		403
All Other Commercial	—		—		—		1,380
Residential
First Liens	681		4,178		1,128		5,067
Home Equity	10		—		—		308
Junior Liens	42		—		—		210
Multifamily	—		—		—		—
All Other Residential	—		—		—		106
Consumer
Motor Vehicle	174		121		2		185
All Other Consumer	5		125		442		782
TOTAL	$	912	$	4,433	$	5,099	$	13,248

	December 31, 2015
	Loans Past Due Over 90 Day Still		Troubled Debt
(Dollar amounts in thousands)	Accruing		Accruing		Nonaccrual		Nonaccrual
Commercial
Commercial & Industrial	$	—	$	5	$	422	$	3,187
Farmland	—		—		—		219
Non Farm, Non Residential	—		6		3,152		2,545
Agriculture	—		—		—		378
All Other Commercial	—		—		—		1,817
Residential
First Liens	809		4,577		1,034		4,839
Home Equity	10		—		—		320
Junior Liens	45		—		—		211
Multifamily	—		—		—		—
All Other Residential	—		—		—		111
Consumer
Motor Vehicle	148		—		2		213
All Other Consumer	4		—		400		794
TOTAL	$	1,016	$	4,588	$	5,010	$	14,634

There were no loans covered by loss share agreements with the FDIC included in loans past due over 90 days still on accrual at March 31, 2016 and there were $37 thousand at December 31, 2015. There were $255 thousand of covered loans included in non-accrual loans at March 31, 2016 and there were $242 thousand at December 31, 2015. There were no covered loans at March 31, 2016 or December 31, 2015 that were deemed impaired.

12

Non-performing loans include both smaller balance homogeneous loans that are collectively evaluated for impairment and individually classified impaired loans.

The following tables presents the aging of the recorded investment in loans by past due category and class of loans.  

	March 31, 2016
	30-59 Days		60-89 Days		Greater than 90 days		Total
(Dollar amounts in thousands)	Past Due		Past Due		Past Due		Past Due		Current		Total
Commercial
Commercial & Industrial	$	412	$	483	$	1,290	$	2,185	$	478,929	$	481,114
Farmland	15		—		—		15		110,157		110,172
Non Farm, Non Residential	193		6		288		487		209,322		209,809
Agriculture	194		207		310		711		125,988		126,699
All Other Commercial	219		19		24		262		125,282		125,544
Residential
First Liens	3,346		168		1,768		5,282		283,242		288,524
Home Equity	27		—		109		136		35,779		35,915
Junior Liens	167		4		189		360		33,310		33,670
Multifamily	93		—		—		93		71,140		71,233
All Other Residential	19		—		—		19		8,740		8,759
Consumer
Motor Vehicle	2,305		294		190		2,789		252,686		255,475
All Other Consumer	64		54		6		124		22,117		22,241
TOTAL	$	7,054	$	1,235	$	4,174	$	12,463	$	1,756,692	$	1,769,155

	December 31, 2015
	30-59 Days		60-89 Days		Greater than 90 days		Total
(Dollar amounts in thousands)	Past Due		Past Due		Past Due		Past Due		Current		Total
Commercial
Commercial & Industrial	$	326	$	274	$	1,405	$	2,005	$	476,984	$	478,989
Farmland	135		—		—		135		106,725		106,860
Non Farm, Non Residential	1,824		90		310		2,224		206,844		209,068
Agriculture	65		38		324		427		143,116		143,543
All Other Commercial	25		32		—		57