Form 10-K
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
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ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 |
For the fiscal year ended December 31, 2010
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TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from to
Commission file number 0-16759
FIRST FINANCIAL CORPORATION
(Exact name of registrant as specified in its charter)
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INDIANA
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35-1546989 |
(State of Incorporation)
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(I.R.S. Employer Identification Number) |
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One First Financial Plaza |
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Terre Haute, Indiana
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47807 |
(Address of Registrants Principal Executive Offices) |
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(Zip Code) |
(812) 238-6000
(Registrants Telephone Number, Including Area Code)
Securities registered pursuant to Section 12(b) of the Act:
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Title of each class
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Name of Exchange on Which Registered |
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Common Stock, no par value
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The NASDAQ Stock Market LLC |
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(NASDAQ Global Select Market) |
Securities registered pursuant to Section 12(g) of the Act:
None
Indicate by check mark if the registrant is a well-known-seasoned issuer, as defined in Rule 405 of
the Securities Act. Yes o No þ
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or
Section 15(d) of the Act. Yes o No þ
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 shorter 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 þ No o
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 (§ 232.405 of this chapter) during the preceding 12 months
(or for such shorter period that the registrant was required to submit and post such files).
Yes o No o
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is
not contained herein, and will not be contained, to the best of registrants knowledge, in
definitive proxy or information statements incorporated by reference in Part III of this Form 10-K
or any amendment to this Form 10-K. o
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 definition of accelerated filer,
large accelerated filer, and smaller reporting company in Rule 12b-2 of the Exchange Act of
1934.
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Large accelerated filer o
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Accelerated filer þ
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Non-accelerated filer o
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Smaller reporting company o |
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the
Act). Yes o No þ
As of June 30, 2010 the aggregate market value of the voting stock held by non-affiliates of the
registrant based on the average bid and ask prices of such stock was $336,487,226. (For purposes of
this calculation, the Corporation excluded the stock owned by certain beneficial owners and
management and the Corporations Employee Stock Ownership Plan.)
Shares of Common Stock outstanding as of March 12, 201113,151,630 shares.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the 2010 Annual Report to Shareholders are incorporated by reference into Parts I and
II. Portions of the Definitive Proxy Statement for the First Financial Corporation Annual Meeting
of Shareholders to be held April 20, 2011 are incorporated by reference into Part III.
Form 10-K Cross-Reference Index
2
PART I
ITEM 1. BUSINESS
First Financial Corporation (the Corporation) is a financial holding company. The Corporation was
originally organized as an Indiana corporation in 1984 to operate as a bank holding company. For
more information on the Corporations business, please refer to the following sections of the 2010
Annual Report to Shareholders, which are incorporated by reference into this Form 10-K:
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The first 4 paragraphs of Managements Discussion and Analysis on page 45. |
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The first 5 paragraphs of Note 1 to the Consolidated Financial Statements on page 14. |
Regulation and supervision
The Corporation and the Bank operate in highly regulated environments and are subject to
supervision and regulation by several governmental regulatory agencies, including the Board of
Governors of the Federal Reserve System (the Federal Reserve), the Office of the Comptroller of
the Currency (the OCC), and the Federal Deposit Insurance Corporation (the FDIC). The laws and
regulations established by these agencies are generally intended to protect depositors, not
shareholders. Changes in applicable laws, regulations, governmental policies, income tax laws and
accounting principles may have a material effect on the Corporations business and prospects. The
following summary is qualified by reference to the statutory and regulatory provisions discussed.
Recent Developments
The Dodd-Frank Act. On July 21, 2010, financial regulatory reform legislation entitled the
Dodd-Frank Wall Street Reform and Consumer Protection Act (the Dodd-Frank Act) was signed into
law. The Dodd-Frank Act will likely result in dramatic changes across the financial regulatory
system, some of which became effective immediately and some of which will not become effective
until various future dates. Implementation of the Dodd-Frank Act will require many new rules to be
issued by various federal regulatory agencies over the next several years. There will be a
significant amount of uncertainty regarding the overall impact of this new law on the financial
services industry until final rulemaking is complete. The ultimate impact of this law could have a
material adverse impact on the financial services industry as a whole and on our business, results
of operations, and financial condition. Provisions in the legislation that affect deposit insurance
assessments, payment of interest on demand deposits, and interchange fees could increase the costs
associated with deposits and place limitations on certain revenues those deposits may generate. The
Dodd-Frank Act also includes provisions that, among other things, will:
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Centralize responsibility for consumer financial protection by creating a new agency,
the Bureau of Consumer Financial Protection, responsible for implementing, examining, and
enforcing compliance with federal consumer financial laws. |
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Create the Financial Stability Oversight Council that will recommend to the Federal
Reserve increasingly strict rules for capital, leverage, liquidity, risk management, and
other requirements as companies grow in size and complexity. |
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Require the OCC to seek to make its capital requirements for national banks, such as the
Bank, countercyclical so that capital requirements increase in times of economic expansion
and decrease in times of economic contraction. |
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Restrict the preemption of state law by federal law and disallow subsidiaries and
affiliates of national banks, such as the Bank, from availing themselves of such
preemption. |
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Provide mortgage reform provisions regarding a customers ability to repay, restricting
variable-rate lending by requiring that the ability to repay variable-rate loans be
determined by using the maximum rate that will apply during the first five years of a
variable-rate loan term, and making more loans subject to provisions for
higher cost loans and new disclosures. In addition, certain compensation for mortgage brokers
based on certain loan terms will be restricted. |
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Require financial institutions to make a reasonable and good faith determination that
borrowers have the ability to repay loans for which they apply. If a financial institution
fails to make such a determination, a borrower can assert this failure as a defense to
foreclosure. |
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Require financial institutions to retain a specified percentage (5% or more) of certain
non-traditional mortgage loans and other assets in the event that they seek to securitize
such assets. |
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Change the assessment base for federal deposit insurance from the amount of insured
deposits to consolidated assets less tangible capital, eliminate the ceiling on the size of
the Deposit Insurance Fund (DIF), and increase the floor on the size of the DIF, which
generally will require an increase in the level of assessments for institutions with assets
in excess of $10 billion. |
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Make permanent the $250,000 limit for federal deposit insurance and provide unlimited
federal deposit insurance until January 1, 2013 for noninterest-bearing demand transaction
accounts at all insured depository institutions. |
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Implement corporate governance revisions, including with regard to executive
compensation, say on pay votes, proxy access by shareholders, and clawback policies which
apply to all public companies, not just financial institutions. |
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Repeal the federal prohibitions on the payment of interest on demand deposits, thereby
permitting depository institutions to pay interest on business transactions and other
accounts. |
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Amend the Electronic Fund Transfer Act (EFTA) to, among other things, give the Federal
Reserve the authority to establish rules regarding interchange fees charged for electronic
debit transactions by payment card issuers having assets over $10 billion and to enforce a
new statutory requirement that such fees be reasonable and proportional to the actual cost
of a transaction to the issuer. |
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Limit the hedging activities and private equity investments that may be made by various
financial institutions. |
As noted above, the Dodd-Frank Act requires that the federal regulatory agencies draft many new
regulations which will implement the foregoing provisions as well as other provisions contained in
the Dodd-Frank Act, the ultimate impact of which will not be known for some time.
S.A.F.E. Act Requirements. On July 28, 2010, the OCC jointly issued final rules with the
Federal Reserve, the Office of Thrift Supervision, FDIC, Farm Credit Administration, and National
Credit Union Administration which require residential mortgage loan originators who are employees
of institutions regulated by the foregoing agencies, including national banks, to meet the
registration requirements of the Secure and Fair Enforcement for Mortgage Licensing Act of 2008 (
the S.A.F.E. Act ). The S.A.F.E. Act requires residential mortgage loan originators who are
employees of regulated financial institutions to be registered with the Nationwide Mortgage
Licensing System and Registry, a database created by the Conference of State Bank Supervisors and
the American Association of Residential Mortgage Regulators to support the licensing of mortgage
loan originators by the states. Employees of regulated financial institutions are generally
prohibited from originating residential mortgage loans unless they are registered. According to the
final rule, due to various system modifications and enhancements required to make the existing
system capable to accept Federal Registrants, the system was not able to accept Federal Registrants
until January 31, 2011. The Bank must register its employees before July 31, 2011 to be in
compliance with the final rule.
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THE CORPORATION
The Bank Holding Company Act. As a financial holding company, the Corporation is subject
to regulation under the Bank Holding Company Act of 1956, as amended (the BHC Act), is subject to
periodic examination by the Federal Reserve and is required to file periodic reports of its
operations and any additional information that the Federal Reserve may require.
Investments, Control, and Activities. With some limited exceptions, the BHC Act requires
every bank holding company to obtain the prior approval of the Federal Reserve before acquiring
another bank holding company or acquiring more than five percent of the voting shares of a bank
(unless it already owns or controls the majority of such shares).
The BHC Act restricts the Corporations non-banking activities to those which are determined by the
Federal Reserve Board to be financial in nature, incidental to such financial activity, or
complementary to a financial activity. The BHC Act does not place territorial restrictions on the
activities of non-bank subsidiaries of financial holding companies. The Corporations banking
subsidiaries are subject to limitations with respect to transactions with affiliates.
The Corporation is qualified as a financial holding company and as such is authorized to engage in,
or acquire companies engaged in, a broader range of activities than are permitted for a bank
holding company that is not qualified as a financial holding company. These activities include
those that are determined to be financial in nature, including insurance underwriting, securities
underwriting and dealing, and making merchant banking investments in commercial and financial
companies. If any of our banking subsidiaries ceases to be well capitalized or well managed
under applicable regulatory standards, the Federal Reserve may, among other things, place
limitations on our ability to conduct these broader financial activities or, if the deficiencies
persist, require us to divest the banking subsidiary. In addition, if any of our banking
subsidiaries receives a rating of less than satisfactory under the Community Reinvestment Act of
1977 (CRA), we would be prohibited from engaging in any additional activities other than those
permissible for bank holding companies that are not financial holding companies. Our banking
subsidiaries currently meet these capital, management and CRA requirements.
Capital Adequacy Guidelines for Bank Holding Companies. The Federal Reserve, as the
regulatory authority for bank holding companies, has adopted capital adequacy guidelines for bank
holding companies. Bank holding companies with assets in excess of $500 million must comply with
the Federal Reserves risk-based capital guidelines which require a minimum ratio of total capital
to risk-weighted assets (including certain off-balance sheet activities such as standby letters of
credit) of 8%. At least half of the total required capital must be Tier 1 capital, consisting
principally of common stockholders equity, non-cumulative perpetual preferred stock, a limited
amount of cumulative perpetual preferred stock and minority interest in the equity accounts of
consolidated subsidiaries, less certain goodwill items. The remainder (Tier 2 capital) may
consist of a limited amount of subordinated debt and intermediate-term preferred stock, certain
hybrid capital instruments and other debt securities, cumulative perpetual preferred stock, and a
limited amount of the general loan loss allowance. In addition to the risk-based capital
guidelines, the Federal Reserve has adopted a Tier 1 (leverage) capital ratio under which the bank
holding company must maintain a minimum level of Tier 1 capital to average total consolidated
assets of 3% in the case of bank holding companies which have the highest regulatory examination
ratings and are not contemplating significant growth or expansion. All other bank holding
companies are expected to maintain a ratio of at least 1% to 2% above the stated minimum.
Certain regulatory capital ratios for the Corporation as of December 31, 2010, are shown below:
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Tier 1 Capital to Risk-Weighted Assets |
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17.82 |
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Total Risk Based Capital to Risk-Weighted Asset |
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16.66 |
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Tier 1 Leverage Ratio |
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12.68 |
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Dividends. The Federal Reserves policy is that a bank holding company experiencing
earnings weakness should not pay cash dividends exceeding its net income or which could only be
funded in ways that weaken the bank holding companys financial health, such as by borrowing.
Additionally, the Federal Reserve possesses enforcement powers
over bank holding companies and their non-bank subsidiaries to prevent or remedy actions that
represent unsafe or unsound practices or violations of applicable statutes and regulations. Among
these powers is the ability to proscribe the payment of dividends by banks and bank holding
companies.
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Source of Strength. In accordance with Federal Reserve policy, the Corporation is expected
to act as a source of financial strength to the Bank and to commit resources to support the Bank in
circumstances in which the Corporation might not otherwise do so.
THE BANK
General Regulatory Supervision. The Bank is a national bank organized under the laws of
the United States of America and is subject to the supervision of the OCC, whose examiners conduct
periodic examinations of national banks. The Bank must undergo regular on-site examinations by the
OCC and must submit quarterly and annual reports to the OCC concerning its activities and financial
condition.
The deposits of the Bank are insured by the DIF administered by the FDIC and are subject to the
FDICs rules and regulations respecting the insurance of deposits. See Deposit Insurance.
Lending Limits. Under federal law, the total loans and extensions of credit by a national
bank to a borrower outstanding at one time and not fully secured may not exceed 15 percent of the
banks capital and unimpaired surplus. In addition, the total amount of outstanding loans and
extensions of credit to any borrower outstanding at one time and fully secured by readily
marketable collateral may not exceed 10 percent of the unimpaired capital and unimpaired surplus of
the bank (this limitation is separate from and in addition to the above limitation). If a loan is
secured by United States obligations, such as treasury bills, it is not subject to the banks legal
lending limit.
Deposit Insurance. Due to the recent difficult economic conditions in the United States,
deposit insurance per account owner was increased from $100,000 to $250,000 through December 31,
2013. The Dodd-Frank Act has now made this change in deposit insurance permanent and, as a result,
each account owners deposits will be insured up to $250,000 by the FDIC.
In addition, the FDIC adopted an optional Temporary Liquidity Guarantee Program (TLGP) in October
of 2008 by which, for a fee, non-interest bearing transaction accounts received unlimited FDIC
insurance coverage through December 31, 2010 and certain senior unsecured debt issued by
institutions and their holding companies would be guaranteed by the FDIC through December 31, 2012.
Under the Transaction Account Guarantee Program (TAGP), the FDIC provided unlimited deposit
insurance coverage initially through December 31, 2009 for non-interest bearing transaction
accounts (typically business checking accounts) and certain funds swept into non-interest bearing
savings accounts. Institutions that participated in the TAGP paid a 10 basis points fee
(annualized) on the balance of each covered account in excess of $250,000, while the additional
deposit insurance was in place. The FDIC authorized an extension of the TAGP through December 31,
2010 for institutions participating in the original TAGP, unless an institution opted out of the
extension period. During the extension period, fees increased to 15 to 25 basis points depending
on an institutions risk category for deposit insurance purposes. Importantly, the Dodd-Frank Act
now provides for unlimited deposit insurance coverage on non-interest bearing transaction accounts,
including Interest On Lawyer Trust Accounts but excluding interest-bearing NOW accounts, without an
additional fee at insured institutions such as the Bank through December 31, 2012.
The TLGP also included the Debt Guarantee Program (DGP), under which the FDIC guarantees certain
senior unsecured debt issued by FDIC-insured institutions and their holding companies. Under the
DGP, upon a default by an issuer of FDIC-guaranteed debt, the FDIC will continue to make scheduled
principal and interest payments on the debt. The unsecured debt must have been issued on or after
October 14, 2008 and not later than October 31, 2009, and the guarantee is effective through the
earlier of the maturity date (or mandatory conversion date) or December 31, 2012, although the debt
may have a maturity date beyond December 31, 2012. Depending on the maturity of the debt, the
nonrefundable DGP guarantee fee ranges from 50 to 100 basis points (annualized) for covered debt
outstanding until the earlier of maturity or December 31, 2012. The FDIC also established an
emergency debt guarantee facility
through April 30, 2010 through which institutions that are unable to issue non-guaranteed debt to
replace maturing senior unsecured debt because of market disruptions or other circumstances beyond
their control may apply on a case-by-case basis to issue FDIC-guaranteed senior unsecured debt. The
FDIC guarantee of any debt issued under this emergency facility would be subject to an annualized
assessment rate equal to a minimum of 300 basis points. The Dodd-Frank Act also authorizes the FDIC
to guarantee debt of solvent institutions and their holding companies in a manner similar to the
DGP; however, the FDIC and the Federal Reserve must make a determination that there is a liquidity
event that threatens the financial stability of the United States and the United States Department
of the Treasury (Treasury Department) must approve the terms of the guarantee program.
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The Banks deposits are insured up to the applicable limits under the DIF. The FDIC maintains the
DIF by assessing depository institutions an insurance premium. Pursuant to the Dodd-Frank Act, the
FDIC is required to set a DIF reserve ratio of 1.35% of estimated insured deposits and is required
to achieve this ratio by September 30, 2020. Also, the Dodd-Frank Act has eliminated the 1.50%
ceiling on the reserve ratio and provides that the FDIC is no longer required to refund amounts in
the DIF that exceed 1.50% of insured deposits.
Under the FDICs risk-based assessment system, insured institutions are required to pay deposit
insurance premiums based on the risk that each institution poses to the DIF. An institutions risk
to the DIF is measured by its regulatory capital levels, supervisory evaluations, and certain other
factors. An institutions assessment rate depends upon the risk category to which it is assigned.
As noted above, pursuant to the Dodd-Frank Act, the FDIC will calculate an institutions assessment
level based on its total average consolidated assets during the assessment period less average
tangible equity (i.e., Tier 1 capital) as opposed to an institutions deposit level which was the
previous basis for calculating insurance assessments. Pursuant to the Dodd-Frank Act, institutions
will be placed into one of four risk categories for purposes of determining the institutions
actual assessment rate. The FDIC will determine the risk category based on the institutions
capital position (well capitalized, adequately capitalized, or undercapitalized) and supervisory
condition (based on exam reports and related information provided by the institutions primary
federal regulator).
Prior to the passage of the Dodd-Frank Act, assessments for FDIC deposit insurance ranged from 7 to
77 basis points per $100 of assessable deposits. On May 22, 2009, the FDIC imposed a special
assessment of five basis points on each institutions assets minus Tier 1 capital as of June 30,
2009, which was payable to the FDIC on September 30, 2009. The Bank expensed a total of $2.8
million in deposit insurance assessments in 2010. No institution may pay a dividend if it is in
default on its federal deposit insurance assessment. Also during 2009, the FDIC adopted a rule
requiring each insured institution to prepay on December 30, 2009 the estimated amount of its
quarterly assessments for the fourth quarter of 2009 and all quarters through the end of 2012 (in
addition to the regular quarterly assessment for the third quarter which was due on December 30,
2009). The prepaid amount is recorded as an asset with a zero risk weight and the institution will
continue to record quarterly expenses for FDIC deposit insurance. Collection of the prepayment
amount does not preclude the FDIC from changing assessment rates or revising the risk-based
assessment system in the future. If events cause actual assessments during the prepayment period to
vary from the prepaid amount, institutions will pay excess assessments or receive a rebate of
prepaid amounts not fully utilized after the collection of assessments due in June 2013. The amount
of the Banks prepayment was $9.2 million.
In connection with the Dodd-Frank Acts requirement that insurance assessments be based on assets,
the FDIC has recently issued the final rule that provides that assessments be based on an
institutions average consolidated assets (less average tangible equity) as opposed to its deposit
level. The FDIC has stated that the new assessment schedule, which will be effective as of April 1,
2011, should result in the collection of assessment revenue that is approximately revenue neutral
compared to the current method of calculating assessments. Pursuant to this new rule, the
assessment base will be larger than the current assessment base, but the new rates are lower than
current rates, ranging from approximately 2.5 basis points to 45 basis points (depending on
applicable adjustments for unsecured debt and brokered deposits) until such time as the FDICs
reserve ratio equals 1.15%. Once the FDICs reserve ratio equals or exceeds 1.15%, the applicable
assessment rates may range from 1.5 basis points to 40 basis points.
In addition to the FDIC insurance premiums, the Bank is required to make quarterly payments on
bonds issued by the Financing Corporation (FICO), an agency of the Federal government established
to recapitalize a predecessor deposit insurance fund.
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On January 12, 2010, the FDIC announced that it would seek public comment on whether financial
institutions with compensation plans that encourage risky behavior should be charged higher deposit
assessment rates than such financial institutions would otherwise be charged.
Transactions with Affiliates and Insiders. Pursuant to Sections 23A and 23B of the Federal
Reserve Act and Regulation W, the Bank is subject to limitations on the amount of loans or
extensions of credit to, or investments in, or certain other transactions with, affiliates
(including the Corporation) and insiders and on the amount of advances to third parties
collateralized by the securities or obligations of affiliates. Furthermore, within the foregoing
limitations as to amount, each covered transaction must meet specified collateral requirements.
Compliance is also required with certain provisions designed to avoid the taking of low quality
assets. The Bank is also prohibited from engaging in certain transactions with certain affiliates
and insiders unless the transactions are on terms substantially the same, or at least as favorable
to such institution or its subsidiaries, as those prevailing at the time for comparable
transactions with nonaffiliated companies.
Extensions of credit by the Bank to its executive officers, directors, certain principal
shareholders, and their related interests must:
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be made on substantially the same terms, including interest rates and collateral, as
those prevailing at the time for comparable transactions with third parties; and |
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not involve more than the normal risk of repayment or present other unfavorable
features. |
The Dodd-Frank Act also included specific changes to the law related to the definition of a
covered transaction in Sections 23A and 23B and limitations on asset purchases from insiders.
With respect to the definition of a covered transaction, the Dodd-Frank Act now defines that term
to include the acceptance of debt obligations issued by an affiliate as collateral for an
institutions loan or extension of credit to another person or company. In addition, a derivative
transaction with an affiliate is now deemed to be a covered transaction to the extent that such
a transaction causes an institution or its subsidiary to have a credit exposure to the affiliate. A
separate provision of the Dodd-Frank Act states that an insured depository institution may not
purchase an asset from, or sell an asset to a bank insider (or their related interests) unless
(1) the transaction is conducted on market terms between the parties and (2) if the proposed
transaction represents more than 10 percent of the capital stock and surplus of the insured
institution, it has been approved in advance by a majority of the institutions non-interested
directors.
Dividends. Under federal law, the Bank may pay dividends from its undivided profits in an
amount declared by its Board of Directors, subject to prior approval of the OCC if the proposed
dividend, when added to all prior dividends declared during the current calendar year, would be
greater than the current years net income and retained earnings for the previous two calendar
years.
Federal law generally prohibits the Bank from paying a dividend to the Corporation if the Bank
would thereafter be undercapitalized. The FDIC may prevent the Bank from paying dividends if the
Bank is in default of payment of any assessment due to the FDIC. In addition, payment of dividends
by a bank may be prevented by the applicable federal regulatory authority if such payment is
determined, by reason of the financial condition of such bank, to be an unsafe and unsound banking
practice. In addition, the Bank is subject to certain restrictions imposed by the Federal Reserve
on extensions of credit to the Corporation, on investments in the stock or other securities of the
Corporation, and in taking such stock or securities as collateral for loans.
Community Reinvestment Act. The CRA requires that the OCC evaluate the records of the Bank
in meeting the credit needs of its local community, including low and moderate income
neighborhoods. These factors are also considered in evaluating mergers, acquisitions, and
applications to open a branch or facility. Failure to adequately meet these criteria could result
in the imposition of additional requirements and limitations on the Bank.
Capital Regulations. The OCC has adopted risk-based capital ratio guidelines to which the
Bank is subject. The guidelines establish a systematic analytical framework that makes regulatory
capital requirements more sensitive to differences in risk profiles among banking organizations.
Risk-based capital ratios are determined by allocating assets
and specified off-balance sheet commitments to four risk weighted categories, with higher levels of
capital being required for the categories perceived as representing greater risk.
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These guidelines divide a banks capital into two tiers. The first tier (Tier 1) includes common
equity, certain non-cumulative perpetual preferred stock (excluding auction rate issues) and
minority interests in equity accounts of consolidated subsidiaries, less goodwill and certain other
intangible assets (except mortgage servicing rights and purchased credit card relationships,
subject to certain limitations). Supplementary (Tier 2) capital includes, among other items,
cumulative perpetual and long-term limited-life preferred stock, mandatory convertible securities,
certain hybrid capital instruments, term subordinated debt and the allowance for loan and lease
losses, subject to certain limitations, less required deductions. Banks are required to maintain a
total risk-based capital ratio of 8%, of which 4% must be Tier 1 capital. The OCC may, however,
set higher capital requirements when a banks particular circumstances warrant. Banks experiencing
or anticipating significant growth are expected to maintain capital ratios, including tangible
capital positions, well above the minimum levels.
In addition, the OCC established guidelines prescribing a minimum Tier 1 leverage ratio (Tier 1
capital to adjusted total assets as specified in the guidelines). These guidelines provide for a
minimum Tier 1 leverage ratio of 3% for banks that meet certain specified criteria, including that
they have the highest regulatory rating and are not experiencing or anticipating significant
growth. All other banks are required to maintain a Tier 1 leverage ratio of 3% plus an additional
cushion of at least 1% to 2% basis points.
Certain actual regulatory capital ratios under the OCCs risk-based capital guidelines for the Bank
at December 31, 2010, are shown below:
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Tier 1 Capital to Risk-Weighted Assets |
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17.82 |
% |
Total Risk-Based Capital to Risk-Weighted Assets |
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16.66 |
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Tier 1 Leverage Ratio |
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12.68 |
% |
The federal bank regulators, including the OCC, also have issued a joint policy statement to
provide guidance on sound practices for managing interest rate risk. The statement sets forth the
factors the federal regulatory examiners will use to determine the adequacy of a banks capital for
interest rate risk. These qualitative factors include the adequacy and effectiveness of the banks
internal interest rate risk management process and the level of interest rate exposure. Other
qualitative factors that will be considered include the size of the bank, the nature and complexity
of its activities, the adequacy of its capital and earnings in relation to the banks overall risk
profile, and its earning exposure to interest rate movements. The interagency supervisory policy
statement describes the responsibilities of a banks board of directors in implementing a risk
management process and the requirements of the banks senior management in ensuring the effective
management of interest rate risk. Further, the statement specifies the elements that a risk
management process must contain.
The OCC has also issued final regulations further revising its risk-based capital standards to
include a supervisory framework for measuring market risk. The effect of these regulations is that
any bank holding company or bank which has significant exposure to market risk must measure such
risk using its own internal model, subject to the requirements contained in the regulations, and
must maintain adequate capital to support that exposure. These regulations apply to any bank
holding company or bank whose trading activity equals 10% or more of its total assets, or whose
trading activity equals $1 billion or more. Examiners may require a bank holding company or bank
that does not meet the applicability criteria to comply with the capital requirements if necessary
for safety and soundness purposes. These regulations contain supplemental rules to determine
qualifying and excess capital, calculate risk-weighted assets, calculate market risk-equivalent
assets and calculate risk-based capital ratios adjusted for market risk.
The Bank is also subject to the prompt corrective action regulations, promulgated under the
Federal Deposit Insurance Corporation Improvement Act of 1991, which implement a capital-based
regulatory scheme designed to promote early intervention for troubled banks. This framework
contains five categories of compliance with regulatory capital requirements, including well
capitalized, adequately capitalized, undercapitalized, significantly undercapitalized, and
critically undercapitalized. As of December 31, 2010, the Bank was qualified as well
capitalized. It should be noted that a banks capital category is determined solely for the
purpose of applying the
prompt corrective action regulations and that the capital category may not constitute an accurate
representation of the banks overall financial condition or prospects. The degree of regulatory
scrutiny of a financial institution increases, and the permissible activities of the institution
decrease, as it moves downward through the capital categories. Bank holding companies controlling
financial institutions can be required to boost the institutions capital and to partially
guarantee the institutions performance.
9
USA Patriot Act. The Uniting and Strengthening America by Providing Appropriate Tools
Required to Intercept and Obstruct Terrorism Act of 2001 (the USA Patriot Act) is intended to
strengthen the ability of U.S. Law Enforcement to combat terrorism on a variety of fronts. The
potential impact of the USA Patriot Act on financial institutions is significant and wide-ranging.
The USA Patriot Act contains sweeping anti-money laundering and financial transparency laws and
requires financial institutions to implement additional policies and procedures with respect to, or
additional measures designed to address, any or all of the following matters, among others: money
laundering and currency crimes, customer identification verification, cooperation among financial
institutions, suspicious activities and currency transaction reporting.
Sarbanes-Oxley Act of 2002. The Sarbanes-Oxley Act of 2002 (the Sarbanes-Oxley Act)
represents a comprehensive revision of laws affecting corporate governance, accounting obligations
and corporate reporting. Among other requirements, the Sarbanes-Oxley Act established: (i) new
requirements for audit committees of public companies, including independence and expertise
standards; (ii) additional responsibilities regarding financial statements for the chief executive
officers and chief financial officers of reporting companies; (iii) new standards for auditors and
regulation of audits; (iv) increased disclosure and reporting obligations for reporting companies
regarding various matters relating to corporate governance, and (v) new and increased civil and
criminal penalties for violation of the securities laws.
Troubled Asset Relief Program Initiatives to Address Financial and Economic Crises. The
Emergency Economic Stabilization Act of 2008 (EESA) was signed into law on October 3, 2008. EESA
gave the Treasury Department broad authority to address the then-current deterioration of the
United States economy, to implement certain actions to help restore confidence, stability, and
liquidity to United States financial markets, and to encourage financial institutions to increase
their lending to clients and to each other. EESA authorized the Treasury Department to purchase
from financial institutions and their holding companies up to $700 billion in mortgage loans,
mortgage-related securities, and certain other financial instruments, including debt and equity
securities issued by financial institutions and their holding companies in a Troubled Asset Relief
Program (TARP). The Treasury Department allocated $250 billion to the voluntary Capital Purchase
Program (CPP) under TARP. TARP also included direct purchases or guarantees of troubled assets of
certain financial institutions by the U.S. Government.
Under the CPP, the Treasury Department was authorized to purchase debt or equity securities from
participating financial institutions. In connection therewith, each participating financial
institution issued to the Treasury Department a warrant to purchase a certain number of shares of
stock of the institution. During such time as the Treasury Department holds securities issued under
the CPP, the participating financial institutions are required to comply with the Treasury
Departments standards for executive compensation and corporate governance and will have limited
ability to increase the amounts of dividends paid on, or to repurchase, their common stock. The
Corporation determined not to participate in the CPP.
On February 17, 2009, the American Recovery and Reinvestment Act of 2009 (ARRA), more commonly
known as the federal economic stimulus or economic recovery package, went into effect. ARRA
includes a wide variety of programs intended to stimulate the United States economy and provide for
extensive infrastructure, energy, health, and education needs. ARRA also imposes new executive
compensation limits and corporate governance requirements on participants in the CPP in addition to
those previously announced by the Treasury Department. Because the Corporation elected not to
participate in the CPP, these limits and requirements do not apply to the Corporation.
10
Other Regulations
Federal law extensively regulates other various aspects of the banking business such as reserve
requirements. Current federal law also requires banks, among other things to make deposited funds
available within specified time periods.
In addition, with certain exceptions, a bank and a subsidiary may not extend credit, lease or sell
property or furnish any services or fix or vary the consideration for the foregoing on the
condition that (i) the customer must obtain or provide some additional credit, property or services
from, or to, any of them, or (ii) the customer may not obtain some other credit, property or
service from a competitor, except to the extent reasonable conditions are imposed to assure the
soundness of credit extended.
Interest and other charges collected or contracted by the Bank are subject to state usury laws and
federal laws concerning interest rates. The Banks loan operations are also subject to federal and
state laws applicable to credit transactions, such as the:
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Truth-In-Lending Act and state consumer protection laws governing disclosures of
credit terms and prohibiting certain practices with regard to consumer borrowers; |
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Home Mortgage Disclosure Act of 1975, requiring financial institutions to provide
information to enable the public and public officials to determine whether a financial
institution is fulfilling its obligation to help meet the housing needs of the community
it serves; |
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Equal Credit Opportunity Act and other fair lending laws, prohibiting discrimination
on the basis of race, creed or other prohibited factors in extending credit; |
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Fair Credit Reporting Act of 1978 and Fair and Accurate Credit Transactions Act of
2003, governing the use and provision of information to credit reporting agencies; |
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Fair Debt Collection Practices Act, governing the manner in which consumer debts may
be collected by collection agencies; and rules and regulations of the various federal
agencies charged with the responsibility of implementing such federal laws. |
The deposit operations of the Bank also are subject to the:
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Customer Information Security Guidelines. The federal bank regulatory agencies have
adopted final guidelines (the Guidelines) for safeguarding confidential customer
information. The Guidelines require each financial institution, under the supervision
and ongoing oversight of its Board of Directors, to create a comprehensive written
information security program designed to ensure the security and confidentiality of
customer information, protect against any anticipated threats or hazards to the security
or integrity of such information; protect against unauthorized access to or use of such
information that could result in substantial harm or inconvenience to any customer; and
implement response programs for security breaches. |
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Electronic Funds Transfer Act and Regulation E. The Electronic Funds Transfer Act,
which is implemented by Regulation E, governs automatic deposits to and withdrawals from
deposit accounts and customers rights and liabilities arising from the use of automated
teller machines and other electronic banking service. |
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Gramm-Leach-Bliley Act, Fair and Accurate Credit Transactions Act. The
Gramm-Leach-Bliley Act, the Fair and Accurate Credit Transactions Act, and the
implementing regulations govern consumer financial privacy, provide disclosure
requirements and restrict the sharing of certain consumer financial information with
other parties. |
The federal banking agencies have established guidelines which prescribe standards for depository
institutions relating to internal controls, information systems, internal audit systems, loan
documentation, credit underwriting, interest rate exposure, asset growth, asset quality, earnings,
compensation fees and benefits, and management compensation. The agencies may require an
institution which fails to meet the standards set forth in the guidelines to submit a compliance
plan. Failure to submit an acceptable plan or adhere to an accepted plan may be grounds for
further enforcement action.
As noted above, the new Bureau of Consumer Financial Protection will have authority for amending
existing consumer compliance regulations and implementing new such regulations. In addition, the
Bureau will have the power to examine the compliance of financial institutions with an excess of
$10 billion in assets with these consumer protection
rules. The Banks compliance with consumer protection rules will be examined by the OCC since the
Bank does not meet this $10 billion asset level threshold.
11
Enforcement Powers. Federal regulatory agencies may assess civil and criminal penalties
against depository institutions and certain institution-affiliated parties, including management,
employees, and agents of a financial institution, as well as independent contractors and
consultants such as attorneys and accountants and others who participate in the conduct of the
financial institutions affairs.
In addition, regulators may commence enforcement actions against institutions and
institution-affiliated parties. Possible enforcement actions include the termination of deposit
insurance. Furthermore, regulators may issue cease-and-desist orders to, among other things,
require affirmative action to correct any harm resulting from a violation or practice, including
restitution, reimbursement, indemnifications or guarantees against loss. A financial institution
may also be ordered to restrict its growth, dispose of certain assets, rescind agreements or
contracts, or take other actions as determined by the regulator to be appropriate.
Effect of Governmental Monetary Policies. The Corporations earnings are affected by
domestic economic conditions and the monetary and fiscal policies of the United States government
and its agencies. The Federal Reserve Banks monetary policies have had, and are likely to
continue to have, an important impact on the operating results of commercial banks through its
power to implement national monetary policy in order, among other things, to curb inflation or
combat a recession. The monetary policies of the Federal Reserve have major effects upon the
levels of bank loans, investments and deposits through its open market operations in United States
government securities and through its regulation of the discount rate on borrowings of member banks
and the reserve requirements against member bank deposits. It is not possible to predict the
nature or impact of future changes in monetary and fiscal policies.
Available Information
The Corporation files annual reports on Form 10-K, quarterly reports on Form 10-Q, proxy statements
and other information with the Securities and Exchange Commission. Such reports, proxy statements
and other information can be read and copied at the public reference facilities maintained by the
Securities and Exchange Commission at the Public Reference Room, 100 F Street, NE, Washington, D.C.
20549. Information regarding the operation of the Public Reference Room may be obtained by calling
the Securities and Exchange Commission at 1-800-SEC-0330. The Securities and Exchange Commission
maintains a web site (http://www.sec.gov) that contains reports, proxy statements, and other
information. The Corporations filings are also accessible at no cost on the Corporations website
at www.first-online.com.
ITEM 1A. RISK FACTORS
Difficult Conditions In The Capital Markets And The Economy Generally May Materially Adversely
Affect Our Business And Results Of Operations.
Our results of operations are materially affected by conditions in the capital markets and the
economy generally. The capital and credit markets have been experiencing extreme volatility and
disruption for more than two years at unprecedented levels. In many cases, these markets have
produced downward pressure on stock prices of, and credit availability to, certain companies
without regard to those companies underlying financial strength.
Recently, concerns over inflation, energy costs, geopolitical issues, the availability and
cost of credit, the U.S. mortgage market and a declining U.S. real estate market have contributed
to increased volatility and diminished expectations for the economy and the capital and credit
markets going forward. These factors, combined with volatile oil prices, declining business and
consumer confidence and increased unemployment, have precipitated an economic slowdown and national
recession. In addition, the fixed-income markets are experiencing a period of extreme volatility
which has negatively impacted market liquidity conditions. Initially, the concerns on the part of
market participants were focused on the subprime segment of the mortgage-backed securities market.
However, these concerns have since expanded to include a broad range of mortgage-and asset-backed
and other fixed income securities, including those
rated investment grade, the U.S. and international credit and interbank money markets
generally, and a wide range of financial institutions and markets, asset classes and sectors.
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Factors such as consumer spending, business investment, government spending, the volatility
and strength of the capital markets, and inflation all affect the business and economic environment
and, ultimately, the amount and profitability of our business. In an economic downturn
characterized by higher unemployment, lower family income, lower corporate earnings, lower business
investment and lower consumer spending, the demand for our financial products could be adversely
affected. Adverse changes in the economy could affect earnings negatively and could have a material
adverse effect on our business, results of operations and financial condition.
The Soundness Of Other Financial Institutions Could Adversely Affect Us.
The ability of the Corporation to engage in routine funding transactions could be adversely
affected by the actions and commercial soundness of other financial institutions. Financial
services institutions are interrelated as a result of trading, clearing, counterparty, or other
relationships. As a result, defaults by, or even rumors or questions about, one or more financial
services institutions, or the financial services industry generally, have led the market-wide
liquidity problems and could lead to losses or defaults by the Corporation or by other
institutions. Many of these transactions expose the Corporation to credit risk in the event of
default of the Corporations counterparty or client. In addition, the Corporations credit risk
may be adversely impacted when the collateral held by the Corporation cannot be realized upon or
its liquidated price is not sufficient to recover the full amount of the financial instrument
exposure. There is no assurance that any such losses would not materially and adversely affect the
Corporations results of operations.
There Can Be No Assurance That Legislation Enacted To Help Stabilize The U.S. Financial System Will
Be Effective In Doing So.
EESA was signed into law in 2008 in response to the financial crises affecting the banking
system and financial markets and going concern threats to investment banks and other financial
institutions. Pursuant to EESA, the Treasury Department was granted the authority to, among other
things, purchase up to $700 billion of mortgages, mortgage-backed securities and certain other
financial instruments from financial institutions for the purpose of stabilizing and providing
liquidity to the U.S. financial markets. The Treasury Department announced the Capital Purchase
Program under the EESA pursuant to which it has purchased and will continue to purchase senior
preferred stock in participating financial institutions. The Corporation elected not to
participate in the Capital Purchase Program.
On February 17, 2009, ARRA was signed into law. The purpose of ARRA is to make supplemental
appropriations for job preservation and creation, infrastructure investment, energy efficiency and
science, assistance to the unemployed, and state and local fiscal stabilization.
On July 21, 2010, the Dodd-Frank Act was signed into law. The purpose of the Dodd-Frank Act
is to promote the financial stability of the United States by improving accountability and
transparency in the financial system, to protect consumers from abusive financial services
practices, and for other purposes. The provisions of the Dodd-Frank Act that are most likely to
affect the Corporation are described elsewhere in this report.
There can be no assurance as to the actual impact that these legislative initiatives will have
on the financial markets or on the Corporation. The failure of these programs to help stabilize
the financial markets and a continuation or worsening of current financial market conditions could
materially and adversely affect the Corporations business, financial condition, results of
operations, access to credit or the trading price of the Corporations common stock.
We May Be Required To Pay Significantly Higher FDIC Premiums Or Special Assessments That Could
Adversely Affect Our Earnings.
Market developments have significantly depleted the insurance fund of the FDIC and reduced the
ratio of reserves to insured deposits. As a result, depository institutions participating in the
insurance fund, including the Bank,
may be required to pay significantly higher premiums or additional special assessments that
could adversely affect our earnings. It is possible that the FDIC may impose additional special
assessments in the future as part of its restoration plan.
13
Future Growth Or Operating Results May Require The Corporation To Raise Additional Capital But That
Capital May Not Be Available Or It May Be Dilutive.
The Corporation is required by federal and state regulatory authorities to maintain adequate
levels of capital to support its operations. To the extent the Corporations future operating
results erode capital or the Corporation elects to expand through loan growth or acquisition it may
be required to raise capital. The Corporations ability to raise capital will depend on conditions
in the capital markets, which are outside of its control, and on the Corporations financial
performance. Accordingly, the Corporation cannot be assured of its ability to raise capital when
needed or on favorable terms. If the Corporation cannot raise additional capital when needed, it
will be subject to increased regulatory supervision and the imposition of restrictions on its
growth and business. These could negatively impact the Corporations ability to operate or further
expand its operations through acquisitions or the establishment of additional branches and may
result in increases in operating expenses and reductions in revenues that could have a material
adverse effect on its financial condition and results of operations.
We May Not Be Able To Pay Dividends In The Future In Accordance With Past Practice.
The Corporation has traditionally paid a semi-annual dividend to common stockholders. The
payment of dividends is subject to legal and regulatory restrictions. Any payment of dividends in
the future will depend, in large part, on the Corporations earnings, capital requirements,
financial condition and other factors considered relevant by the Corporations Board of Directors.
The Price Of The Corporations Common Stock May Be Volatile, Which May Result In Losses For
Investors.
General market price declines or market volatility in the future could adversely affect the
price of the Corporations common stock. In addition, the following factors may cause the market
price for shares of the Corporations common stock to fluctuate:
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announcements of developments related to the Corporations business; |
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fluctuations in the Corporations results of operations; |
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sales or purchases of substantial amounts of the Corporations securities in the
marketplace; |
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general conditions in the Corporations banking niche or the worldwide economy; |
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a shortfall or excess in revenues or earnings compared to securities analysts
expectations; |
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changes in analysts recommendations or projections; and |
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the Corporations announcement of new acquisitions or other projects. |
The Corporation Is Subject To Interest Rate Risk.
Interest and fees on loans and securities, net of interest paid on deposits and borrowings,
are a large part of the Corporations net income. Interest rates are key drivers of the
Corporations net interest margin and subject to many factors beyond the control of management. As
interest rates change, net interest income is affected. Rapid increases in interest rates in the
future could result in interest expense increasing faster than interest income because of
mismatches in financial instrument maturities. Further, substantially higher interest rates
generally reduce loan demand and may result in slower loan growth. Decreases or increases in
interest rates could have a negative effect on the spreads between the interest rates earned on
assets and the rates of interest paid on liabilities, and therefore decrease net interest income.
14
The Corporation Is Subject To Lending Risk.
There are inherent risks associated with the Corporations lending activities. These risks
include, among other things, the impact of changes in interest rates and changes in the economic
conditions in the markets where the Corporation operates as well as those across Indiana, Illinois
and the United States. Increases in interest rates and/or weakening economic conditions could
adversely impact the ability of borrowers to repay outstanding loans or the value of the collateral
securing these loans. The Corporation is also subject to various laws and regulations that affect
its lending activities. Failure to comply with the applicable laws and regulations could subject
the Corporation to regulatory enforcement action that could result in the assessment of significant
civil money penalties against the Corporation.
The Corporations Allowance for Possible Loan Losses May Be Insufficient.
The Corporation maintains an allowance for possible loan losses, which is a reserve
established through a provision for possible loan losses charged to expense, that represents
managements best estimate of probable losses that have been incurred within the existing portfolio
of loans. The level of the allowance reflects managements continuing evaluation of industry
concentrations; specific credit risks; loan loss experience; current loan portfolio quality;
present economic, political and regulatory conditions and unidentified losses inherent in the
current loan portfolio. The determination of the appropriate level of the allowance for possible
loan losses inherently involves a high degree of subjectivity and requires the Corporation to make
significant estimates of current credit risks and future trends, all of which may undergo material
changes. Changes in economic conditions affecting borrowers, new information regarding existing
loans, identification of additional problem loans and other factors, both within and outside of the
Corporations control, may require an increase in the allowance for possible loan losses. In
addition, bank regulatory agencies periodically review the Corporations allowance for loan losses
and may require an increase in the provision for possible loan losses or the recognition of further
loan charge-offs, based on judgments different than those of management. In addition, if
charge-offs in future periods exceed the allowance for possible loan losses; the Corporation will
need additional provisions to increase the allowance for possible loan losses. Any increase in the
allowance for possible loan losses will result in a decrease in net income and, possibly, capital,
and may have a material adverse effect on the Corporations financial condition and results of
operations.
If The Corporations Forecloses On Collateral Property, It May Be Subject To The Increased Costs
Associated With Ownership Of Real Property, Resulting In Reduced Revenues And Earnings.
The Corporation may have to foreclose on collateral property to protect its investment and may
thereafter own and operate such property, in which case it will be exposed to the risks inherent in
the ownership of real estate. The amount that the Corporation as a mortgagee, may realize after a
default is dependent upon factors outside of its control, including, but not limited to: (i)
general or local economic conditions; (ii) neighborhood values; (iii) interest rates; (iv) real
estate tax rates; (v) operating expenses of the mortgaged properties; (vi) environmental
remediation liabilities; (vii) ability to obtain and maintain adequate occupancy of the properties;
(viii) zoning laws; (ix) governmental rules, regulations and fiscal policies; and (x) acts of God.
Certain expenditures associated with the ownership of real estate, principally real estate taxes,
insurance, and maintenance costs, may adversely affect the income from the real estate. Therefore,
the cost of operating real property may exceed the income earned from such property, and the
Corporation may have to advance funds in order to protect its investment, or it may be required to
dispose of the real property at a loss. These expenditures and costs could adversely affect the
Corporations ability to generate revenues, resulting in reduced levels of profitability.
The Corporation Operates In a Highly Competitive Industry and Market Area.
The Corporation faces substantial competition in all areas of its operations from a variety of
different competitors. Such competitors include banks and many other types of financial
institutions, including, without limitation, savings and loans, credit unions, finance companies,
brokerage firms, insurance companies, factoring companies and other financial intermediaries. The
financial services industry could become even more competitive as a result of legislative,
regulatory and technological changes and continued consolidation. Banks, securities firms and
insurance companies can merge under the umbrella of a financial holding company, which can offer
virtually any type
of financial service, including banking, securities underwriting, insurance (both agency and
underwriting) and merchant banking. Also, technology has lowered barriers to entry and made it
possible for non-banks to offer products and services traditionally provided by banks, such as
automatic transfer and automatic payment systems. Many of the Corporations competitors have fewer
regulatory constraints and may have lower cost structures.
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The Corporations ability to compete successfully depends on a number of factors, including,
among other things:
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The ability to develop, maintain and build upon long-term customer relationships based
on top quality service, and safe, sound assets. |
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The ability to expand the Corporations market position. |
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The scope, relevance and pricing of products and services offered to meet customer
needs and demands. |
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The rate at which the Corporation introduces new products and services relative to its
competitors. |
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Customer satisfaction with the Corporations level of service. |
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Industry and general economic trends. |
Failure to perform in any of these areas could significantly weaken the Corporations
competitive position, which could adversely affect the Corporations growth and profitability,
which, in turn, could have a material adverse effect on the corporations financial condition and
results of operations.
We Operate In A Highly Regulated Industry And May Be Affected Adversely By Increased Regulatory
Supervision And Scrutiny And Changes In Laws, Rules, And Regulations Affecting Financial
Institutions.
The Bank, like other national banks, is currently subject to extensive regulation,
supervision, and examination by the OCC and by the FDIC, the insurer of its deposits. The
Corporation, like other financial holding companies, is currently subject to regulation and
supervision by the Federal Reserve. This regulation and supervision governs the activities in
which we may engage and are intended primarily for the protection of the deposit insurance fund
administered by the FDIC and our clients and depositors rather than our shareholders. Regulatory
authorities have extensive discretion in their supervisory and enforcement activities, including
the imposition of restrictions on our operations, the classification of our assets, determination
of the level of our allowance for loan losses, and maintenance of adequate capital levels. These
bank regulators possess broad authority to prevent or remedy unsafe or unsound practices or
violations of law and, given the recent financial crisis in the United States, the trend has been
toward increased and more active oversight by regulators. Recently, pursuant to an agreement among
various federal financial institution regulators, the FDICs authority to investigate banks was
significantly expanded. Under the terms of this new agreement, the FDIC will have unlimited
authority to make a special examination of any insured depository institution as necessary to
determine the condition of such depository institution for insurance purposes. Accordingly, we
expect an active supervisory and regulatory environment to continue.
In addition, as a result of ongoing challenges facing the United States economy, new laws and
regulations regarding lending and funding practices and liquidity standards have been and may
continue to be promulgated, and bank regulatory agencies are expected to be active in responding to
concerns and trends identified in examinations, including the issuance of formal or informal
enforcement actions or orders. Accordingly, the regulations applicable to the banking industry
continue to change and we cannot predict the effects of these changes on our business and
profitability.
On July 21, 2010, the Dodd-Frank Act, a sweeping financial reform bill, was signed into law
and will result in a number of new regulations that could significantly impact regulatory
compliance costs and the operations of community banks. The Dodd-Frank Act includes, among other
things, provisions establishing a Bureau of Consumer Financial Protection, which will have broad
authority to develop and implement rules regarding most consumer financial products; provisions
affecting corporate governance and executive compensation at all publicly-traded companies;
provisions that would broaden the base for FDIC insurance assessments and permanently increase FDIC
deposit insurance to $250,000; and new restrictions on how mortgage brokers and loan originators
may be compensated. These provisions, or any other aspects of current proposed regulatory or
legislative changes to laws applicable to the financial industry, if enacted or adopted, may impact
the profitability of our business activities or
change certain of our business practices, including our ability to offer new products, obtain
financing, attract deposits, make loans, and achieve satisfactory interest spreads, and could
expose us to additional costs, including increased compliance costs. These changes also may require
us to invest significant management attention and resources to make any necessary changes to our
operations in order to comply, and could therefore also materially adversely affect our business,
financial condition, and results of operations.
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In addition, like all U.S. companies who prepare their financial statements in accordance with
U.S. Generally Accepted Accounting Principles (U.S. GAAP ), we are subject to changes in
accounting rules and interpretations. We cannot predict what effect any presently contemplated or
future changes in financial market regulation or accounting rules and interpretations will have on
us. Any such changes may negatively affect our financial performance, our ability to expand our
products and services, and our ability to increase the value of our business and, as a result,
could be materially adverse to our shareholders. In addition, like other federally insured
depository institutions, the Corporation and Bank prepare and publicly report additional financial
information under Regulatory Accounting Principles and are similarly subject to changes in these
rules and interpretations.
The Corporations Controls and Procedures May Fail or Be Circumvented.
Management regularly reviews and updates the Corporations internal controls, disclosure
controls and procedures, and corporate governance policies and procedures. Any system of controls,
however well designed and operated, is based in part on certain assumptions and can provide only
reasonable, not absolute, assurances that the objectives of the system are met. Any failure or
circumvention of the Corporations controls and procedures or failure to comply with regulations
related to controls and procedures could have a material adverse effect on the Corporations
business, results of operations and financial condition.
The Corporation Is Dependent On Certain Key Management and Staff.
The Corporation relies on key personnel to manage and operate its business. The loss of key
staff may adversely affect our ability to maintain and manage these portfolios effectively, which
could negatively affect our revenues. In addition, loss of key personnel could result in increased
recruiting and hiring expenses, which could cause a decrease in the Corporations net income.
The Corporations Information Systems May Experience an Interruption or Breach in Security.
The Corporation relies heavily on communications and information systems to conduct its
business. Any failure, interruption or breach in security of these systems could result in failures
or disruptions in the Corporations customer relationship management, general ledger, deposit, loan
and other systems. While the Corporation has policies and procedures designed to prevent or limit
the effect of the failure, interruption or security breach of its information systems, there can be
no assurance that any such failures, interruptions or security breaches will not occur or, it they
do occur, that they will be adequately addressed. The occurrence of any failures, interruptions or
security breaches of the Corporations information systems could damage the Corporations
reputation, result in a loss of customer business, subject the Corporation to additional regulatory
scrutiny, or expose the Corporation to civil litigation and possible financial liability, any of
which could have a material adverse effect on the Corporations financial condition and results of
operations.
The Corporation Continually Encounters Technological Change.
The financial services industry is continually undergoing rapid technological change with
frequent introductions of new technology-driven products and services. The effective use of
technology increases efficiency and enables financial institutions to better serve customers and to
reduce costs. The Corporations future success depends, in part, upon its ability to address the
needs of its customers by using technology to provide products and services that will satisfy
customer demands, as well as to create additional efficiencies in the Corporations operations.
Failure to successfully keep pace with the technological change affecting the financial services
industry could have a material adverse impact on the Corporations business and, in turn, the
Corporations financial condition and results of operations.
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ITEM 1B. UNRESOLVED STAFF COMMENTS
None.
ITEM 2. PROPERTIES
First Financial Corporation is located in a four-story office building in downtown Terre
Haute, Indiana that was first occupied in June 1988. It is leased to First Financial Bank N.A., a
wholly-owned subsidiary (the Bank). The Bank also owns three other facilities in downtown Terre
Haute. One is leased, one is available for lease and the third is a 50,000-square-foot building
housing operations and administrative staff and equipment. In addition, the Bank holds in fee six
other branch buildings. One of the branch buildings is a single-story 36,000-square-foot building
which is located in a Terre Haute suburban area. Six other branch bank buildings are leased by the
Bank. The expiration dates on five of the leases are May 31, 2011, February 14, 2011, August 31,
2011, December 31, 2012 and May 31, 2014. The sixth lease is on a month-to-month basis.
Facilities of the Corporations banking centers in Clay County include three offices in
Brazil, Indiana and offices in Clay City and Poland, Indiana. All five buildings are held in fee.
Facilities of the Corporations banking centers in Vermillion County include two offices in
Clinton, Indiana and offices in Cayuga and Newport, Indiana. All four buildings are held in fee.
Facilities of the Corporations banking centers in Sullivan County include offices in
Sullivan, Carlisle, Dugger, Farmersburg and Hymera, Indiana. All five buildings are held in fee.
Facilities of the Corporations banking center in Greene County include an office in
Worthington, Indiana. This building is held in fee.
Facilities of the Corporations banking centers in Knox County include offices in Monroe City,
Sandborn and Vincennes, Indiana. All three buildings are held in fee.
Facilities of the Corporations banking centers in Parke County include two offices in
Rockville, Indiana and offices in Marshall, Montezuma and Rosedale, Indiana. All five buildings are
held in fee.
Facilities of the Corporations banking center in Putnam County include an office in
Greencastle, Indiana. This building is held in fee.
Facilities of the Corporations banking centers in Crawford County include its main office and
a drive-up facility in Robinson, Illinois and a branch facility in Oblong, Illinois. All three of
the buildings are held in fee.
Facilities of the Corporations banking centers in Lawrence County include offices in Sumner
and Lawrenceville, Illinois. Both of the buildings are held in fee.
Facilities of the Corporations banking center in Wayne County include an office in Fairfield,
Illinois. This building is held in fee.
Facilities of the Corporations banking center in Jasper County include an office in Newton,
Illinois. This building is held in fee.
Facilities of the Corporations banking center in Coles County include an office in
Charleston, Illinois. This building is held in fee.
Facilities of the Corporations banking center in Clark County include an office in Marshall,
Illinois. This building is held in fee.
Facilities of the Corporations banking center in Vermilion County include four offices in
Danville, Illinois, an office in Westville, Illinois, and an office in Ridge Farm, Illinois. One of
the buildings in Danville is leased and the lease expires on December 31, 2011 and the other five
buildings are held in fee.
Facilities of the Corporations banking centers in Richland County include two offices in
Olney, Illinois. One building is held in fee and the other building is leased. The expiration date
on the lease is March 1, 2015.
The facility of the Corporations subsidiary, The Morris Plan Company, includes an office
facility in Terre Haute, Indiana. The building is leased by The Morris Plan Company. The expiration
date on the lease is October 31, 2020.
Facilities of the Corporations subsidiary, Forrest Sherer, Inc., include its main office and
one satellite office in Terre Haute, Indiana. The buildings are held in fee by Forrest Sherer, Inc.
18
ITEM 3. LEGAL PROCEEDINGS
There are no material pending legal proceedings which involve the Corporation or its
subsidiaries, other than ordinary routine litigation incidental to its business.
ITEM 4. (REMOVED AND RESERVED)
PART II
ITEM 5. MARKET FOR REGISTRANTS COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF
EQUITY SECURITIES.
See Market and Dividend Information on page 55 of the 2010 Annual Report. That portion of
the Annual Report is incorporated by reference into this Form 10-K.
The Corporation periodically acquires shares of its common stock directly from shareholders in
individually negotiated transactions. The Corporation has not adopted a formal policy or adopted a
formal program for repurchases of shares of its common stock. Following is certain information
regarding shares of common stock purchased by the Corporation during the quarter covered by this
report.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(c) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Number Of |
|
|
(d) |
|
|
|
(a) |
|
|
(b) |
|
|
Shares Purchased As Part |
|
|
Maximum Number Of |
|
|
|
Total Number Of |
|
|
Average Price |
|
|
Of Publicly Announced |
|
|
Shares That May Yet Be |
|
|
|
Shares Purchased |
|
|
Paid Per Share |
|
|
Plans Or Programs * |
|
|
Purchased * |
|
October 1 31, 2010 |
|
|
|
|
|
|
|
|
|
|
N/A |
|
|
|
N/A |
|
November 1 30, 2010 |
|
|
|
|
|
|
|
|
|
|
N/A |
|
|
|
N/A |
|
December 1 31, 2010 |
|
|
|
|
|
|
|
|
|
|
N/A |
|
|
|
N/A |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
|
|
|
|
|
|
|
|
|
N/A |
|
|
|
N/A |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
* |
|
The Corporation has not adopted a formal policy or program regarding repurchases of its shares of
stock. |
The Corporation contributed 45,000 shares of treasury stock to the ESOP in November of 2010.
ITEM 6. SELECTED FINANCIAL DATA
See Five Year Comparison of Selected Financial Data on page 9 of the 2010 Annual Report to
Shareholders. That portion of the Annual Report is incorporated by reference into this Form 10-K.
ITEM 7. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATION
See Managements Discussion and Analysis on pages 44 through 55 of the 2010 Annual Report to
Shareholders. That portion of the Annual Report is incorporated by reference into this Form 10-K.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
See Interest Rate Sensitivity and Liquidity section of Managements Discussion and
Analysis on pages 52and 53 of the 2010 Annual Report to Shareholders. That portion of the Annual
Report is incorporated by reference into this Form 10-K.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
See Consolidated Balance Sheets on page 10, Consolidated Statements of Income on page 11,
Consolidated Statements of Changes in Shareholders Equity on page 12, Consolidated Statements of
Cash Flows on page 13, and Notes to Consolidated Financial Statements on pages 14-42 of the 2010
Annual Report to Shareholders. Report of Independent Registered Public Accounting Firm can be
found on page 43 of the 2010 Annual Report to Shareholders. Those portions of the Annual Report are
incorporated by reference into this Form 10-K. Statistical disclosure by the Corporation includes
the following information in the 2010 Annual Report to Shareholders, which is incorporated by
reference into this Form 10-K:
|
1. |
|
Volume/Rate Analysis, on page 46 |
|
|
2. |
|
Securities, on page 48. |
|
|
3. |
|
Loan Portfolio, on page 49. |
|
|
4. |
|
Allowance for Loan Losses, on pages 50. |
|
|
5. |
|
Nonperforming Loans, on pages 51. |
|
|
6. |
|
Deposits, on page 52. |
|
|
7. |
|
Consolidated Balance Sheet-Average Balances and Interest Rates, on page 54. |
19
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
None
ITEM 9A. CONTROLS AND PROCEDURES
Evaluation of Disclosure Controls and Procedures
As of the end of the period covered by this report, we carried out an evaluation (the
Evaluation), under the supervision and with the participation of our President and Chief
Executive Officer (CEO), who serves as our principal executive officer, and Chief Financial
Officer (CFO), who serves as our principal financial officer, of the effectiveness of our
disclosure controls and procedures (Disclosure Controls). Based on the Evaluation, our CEO and
CFO concluded that our Disclosure Controls are effective and designed to ensure that the
information required to be included in our periodic SEC reports is recorded, processed, summarized
and reported within the time periods specified in the SECs rules and forms.
Changes in Internal Controls Over Financial Reporting
There was no change in the Corporations internal control over financial reporting that
occurred during the Corporations fourth fiscal quarter of 2010 that has materially affected, or is
reasonably likely to materially affect, the Corporations internal control over financial
reporting.
Managements Report on Internal Control Over Financial Reporting and Attestation Report of the
Registered Public Accounting Firm
See Managements Report on Internal Control Over Financial Reporting on page 44 of the 2010
Annual Report to Shareholders and Report of Independent Registered Public Accounting Firm on page
43 of the 2010 Annual Report to Shareholders. That portion of the annual report is incorporated by
reference in response to this Item 9A of the Form 10-K.
ITEM 9B. OTHER INFORMATION
The Corporation established the compensation to be paid to Directors for the year 2011 on
December 21, 2010. These amounts are set forth on Exhibit 10.3 to this Form 10-K.
The Corporation established the compensation to be paid to Named Executive Officers for the
year 2011 on December 21, 2010. These amounts are set forth on Exhibit 10.4 to this Form 10-K.
Effective December 1, 2010, the Corporation and the Bank (collectively, the Employers),
entered into a new employment agreement (the Agreement) with Norman L. Lowery, Chief Executive
Officer of the Corporation and President and Chief Executive Officer of the Bank. The Agreement
supersedes the employment agreement dated March 26, 2010 between the Employers and Mr. Lowery.
Under the terms of the Agreement, the Employers have agreed to employ Mr. Lowery for an
initial term of thirty-six (36) months in his current position as Chief Executive Officer of the
Corporation and President and Chief Executive Officer of the Bank. The term of the Agreement shall
automatically extend for an additional one-year term each year unless the disinterested members of
the respective boards of directors of the Employers determine not to extend the Agreement.
Under the Agreement, Mr. Lowery is entitled to an annual base salary of $500,074.10, which may
be increased from time to time as determined by the boards of directors of the Employers, and is
entitled to participate in other bonus and fringe benefit plans available to other executive
officers or employees of the Employers generally.
20
If the Employers terminate Mr. Lowerys employment for just cause, death or disability (as
such terms are defined in the Agreement), then Mr. Lowery is entitled to receive the base salary,
bonuses, vested rights, and other benefits due him through the date of his termination. Any
benefits payable under insurance, health, retirement, bonus, incentive, performance or other plans
as a result of his participation in such plans through such date of termination will be paid when
and as due under those plans.
If the Employers terminate Mr. Lowerys employment without just cause or if he terminates his
employment for good reason, and such termination does not occur within 12 months after a change
in control (as such terms are defined in the Agreement), then Mr. Lowery is entitled to receive an
amount equal to the sum of his base salary and bonuses through the end of the then-current term of
the Agreement. He would also receive cash reimbursements in an amount equal to his cost of
obtaining all benefits which he would have been eligible to participate in or receive through the
term of the Agreement.
If Mr. Lowerys employment is terminated for other than just cause or is constructively
discharged and this occurs within 12 months following a change in control, then Mr. Lowery is
entitled to receive an amount equal to the greater of the compensation and benefits described in
the previous paragraph if the termination did not occur within 12 months following a change in
control; or, the product of 2.99 times the sum of (i) his base salary in effect as of the date of
the change in control; (ii) an amount equal to the bonuses received by or payable to him in or for
the calendar year prior to the year in which the change in control occurs; and (iii) cash
reimbursements in an amount equal to his cost of obtaining for a period of three years, beginning
on the date of termination, all benefits which he was eligible to participate in or receive. Mr.
Lowery would also be entitled to the payment provided for in this paragraph if a change in control
occurs that was not approved by a majority of the board of directors of the Corporation.
If Mr. Lowery qualifies as a key employee (as defined in the Agreement) at the time of his
separation from service, then the Corporation may not make certain payments earlier than six months
following the date of his separation from service (or, if earlier, the date of his death). In this
event, payments to which Mr. Lowery would otherwise be entitled during the first six months
following the date of his separation from service will be accumulated and paid to Mr. Lowery on the
first day of the seventh month following his separation from service. Mr. Lowery is currently
considered a key employee for this purpose.
If, as a result of a change in control, Mr. Lowery becomes entitled to any payments which are
determined to be payments subject to Internal Revenue Code Section 280G, then his benefit will be
equal to the greater of (i) his benefit under the Agreement reduced to the maximum amount payable
such that when it is aggregated with payments and benefits under all other plans and arrangements
it will not result in an excess parachute payment under Internal Revenue Code Section 280G, or
(ii) his benefit under the Agreement after taking into account the amount of the excise tax imposed
under Internal Revenue Code Section 280G due to the benefit payment.
The Agreement also includes standard confidentiality and non-solicit provisions and a
non-compete provision pursuant to which Mr. Lowery is prohibited, during his employment and for a
period of one year following his termination, from directly or indirectly competing against the
Employers within a 30-mile radius of Terre Haute, Indiana.
The foregoing description is a summary only and is qualified in its entirety by the full text
of the Agreement, which is filed as an exhibit to this Form 10-K and is incorporated herein by
reference.
In the fourth quarter, the Corporation adopted the First Financial Corporation 2010 Long-Term
Incentive Compensation Plan (the LTIP) and the First Financial Corporation 2010 Short-Term
Incentive Compensation Plan (the STIP) which provide for payment of cash awards to certain key
employees, including our named executive officers, provided certain performance goals are met for a
performance period under each plan. The performance goals for each plan are based upon weighted
factors which are determined by the Compensation Committee based upon its assessment of what is
important to the Corporations and the Banks overall performance and within the scope of control
of the participant. Payouts for earned awards equal 80% of the respective target award for
performance at
threshold, 100% of the respective target award for performance at target, and 150% or 125%
(depending on the participants position) of the respective target award for maximum performance.
Under the LTIP, once an award has been earned, it will vest ratably over a three-year period and
will be paid as it becomes vested. Under the STIP, once an award has been earned, it will be paid
within 75 days of the date it is earned provided the participant is employed on that date. The
foregoing description is a summary only and is qualified in its entirety by the full text of the
plans, which are filed as a exhibits to this Form 10-K and are incorporated herein by reference.
21
The Corporation approved the 2011 Short Term Incentive Compensation Plan on November 16, 2010.
The Plan provides an opportunity for key employees to earn a cash bonus in 2011 based on the
achievement of corporate, business unit, and/or individual performance objectives at threshold,
target or maximum levels, as established by the Compensation Committee. The foregoing description
is a summary only and is qualified in its entirety by the full text of the Plan, which is filed as
an exhibit to this Form 10-K and is incorporated herein by reference.
PART III
ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
In accordance with the provisions of General Instruction G to Form 10-K, the information
required for disclosure under Item 10 is not set forth herein because the Corporation intends to
file with the Securities and Exchange Commission a definitive Proxy Statement pursuant to
Regulation 14A not later than 120 days following the end of its 2010 fiscal year, which Proxy
Statement will contain such information. The information required by Item 10 is incorporated herein
by reference to such Proxy Statement.
ITEM 11. EXECUTIVE COMPENSATION
In accordance with the provisions of General Instruction G to Form 10-K, the information
required for disclosure under Item 11 is not set forth herein because the Corporation intends to
file with the Securities and Exchange Commission a definitive Proxy Statement pursuant to
Regulation 14A not later than 120 days following the end of its 2010 fiscal year, which Proxy
Statement will contain such information. The information required by Item 11 is incorporated herein
by reference to such Proxy Statement.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED SHAREHOLDER
MATTERS
In accordance with the provisions of General Instruction G to Form 10-K, the information
required for disclosure under Item 12 is not set forth herein because the Corporation intends to
file with the Securities and Exchange Commission a definitive Proxy Statement pursuant to
Regulation 14A not later than 120 days following the end of its 2010 fiscal year, which Proxy
Statement will contain such information. The information required by Item 12 is incorporated herein
by reference to such Proxy Statement.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS AND DIRECTOR INDEPENDENCE
In accordance with the provisions of General Instruction G to Form 10-K, the information
required for disclosure under Item 13 is not set forth herein because the Corporation intends to
file with the Securities and Exchange Commission a definitive Proxy Statement pursuant to
Regulation 14A not later than 120 days following the end of its 2010 fiscal year, which Proxy
Statement will contain such information. The information required by Item 13 is incorporated herein
by reference to such Proxy Statement.
ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES
In accordance with the provisions of General Instruction G to Form 10-K, the information
required for disclosure under Item 14 is not set forth herein because the Corporation intends to
file with the Securities and Exchange Commission a definitive Proxy Statement pursuant to
Regulation 14A not later than 120 days following the end of its 2010 fiscal year, which Proxy
Statement will contain such information. The information required by Item 14 is incorporated herein
by reference to such Proxy Statement.
22
PART IV
ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES
(a) |
(1) |
|
The following consolidated financial statements of the Registrant and its
subsidiaries are included in the 2010 Annual Report to Shareholders of First Financial
Corporation attached: |
Consolidated Balance SheetsDecember 31, 2010 and 2009
Consolidated Statements of IncomeYears ended December 31, 2010, 2009, and 2008
Consolidated Statements of Changes in Shareholders EquityYears ended December 31,
2010, 2009, and 2008
Consolidated Statements of Cash FlowsYears ended December 31, 2010, 2009, and 2008
Notes to Consolidated Financial Statements
|
(2) |
|
Schedules to the Consolidated Financial Statements required by Article 9 of
Regulation S-X are not required, inapplicable, or the required information has been
disclosed elsewhere. |
|
|
(3) |
|
Listing of Exhibits: |
|
|
|
|
|
Exhibit Number |
|
Description |
|
3.1 |
|
|
Amended and Restated Articles of Incorporation of First Financial
Corporation, incorporated by reference to Exhibit 3(i) of the
Corporations Form 10-Q filed for the quarter ended September 30,
2002 |
|
3.2 |
|
|
Code of By-Laws of First Financial Corporation, incorporated by reference to Exhibit
3(ii) of the Corporations Form 8-K filed July 27, 2009 |
|
10.1 |
* |
|
Employment Agreement for Norman L. Lowery, dated and effective December 1, 2010. |
|
10.2 |
* |
|
2001 Long-Term Incentive Plan of First Financial Corporation, incorporated by
reference to Exhibit 10.3 of the Corporations Form 10-Q filed for the quarter ended
September 30, 2002 |
|
10.3 |
* |
|
2011 Schedule of Director Compensation |
|
10.4 |
* |
|
2011 Schedule of Named Executive Officer Compensation |
|
10.5 |
* |
|
2005 Long-Term Incentive Plan of First Financial Corporation, incorporated by
reference to Exhibit 10.7 of the Corporations Form 8-K filed September 4, 2007. |
|
10.6 |
* |
|
2005 Executives Deferred Compensation Plan, incorporated by reference to Exhibit
10.5 of the Corporations Form 8-K filed September 4, 2007. |
|
10.7 |
* |
|
2005 Executives Supplemental Retirement Plan, incorporated by reference to Exhibit
10.6 of the Corporations Form 8-K filed September 4, 2007. |
|
10.8 |
* |
|
First Financial Corporation 2010 Short-Term Incentive Compensation Plan. |
|
10.9 |
* |
|
First Financial Corporation 2010 Long-Term Incentive Compensation Plan. |
|
10.10 |
* |
|
First Financial Corporation 2011 Short Term Incentive Compensation Plan |
|
13 |
|
|
Annual Report |
|
21 |
|
|
Subsidiaries |
|
31.1 |
|
|
Certification pursuant to Rule 13a-14(a) for Annual Report of Form 10-K by Principal
Executive Officer |
|
31.2 |
|
|
Certification pursuant to Rule 13a-14(a) for Annual Report of Form 10-K by Principal
Financial Officer |
|
32.1 |
|
|
Certification pursuant to 18 U.S.C. Section 1350 of Principal Executive Officer |
|
32.2 |
|
|
Certification pursuant to 18 U.S.C. Section 1350 of Principal Financial Officer |
|
|
|
* |
|
Indicates management contract or compensatory plan or arrangement required to be filed as
an exhibit to this report. |
|
(b) |
|
Exhibits-Exhibits to (a) (3) listed above are attached to this report. |
|
(c) |
|
Financial Statements Schedules-No schedules are required to be submitted. See response to
ITEM 15(a) (2). |
23
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto
duly authorized.
|
|
|
|
|
|
First Financial Corporation
|
|
|
/s/ Rodger A. McHargue
|
|
|
Rodger A. McHargue, Chief Financial Officer |
|
|
(Principal Financial Officer and Principal Accounting Officer) |
|
Date: March 15, 2011
24
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed
below by the following persons on behalf of the registrant and in the capacities and on the dates
indicated.
|
|
|
NAME |
|
DATE |
|
|
|
/s/ Donald E. Smith
Donald E. Smith, President and Director
|
|
March 15, 2011 |
|
|
|
/s/ Rodger a. McHargue
Rodger A. McHargue, Chief Financial Officer
|
|
March 15, 2011 |
(Principal Financial Officer and Principal Accounting Officer) |
|
|
|
|
|
/s/ W. Curtis Brighton
W. Curtis Brighton, Director
|
|
March 15, 2011 |
|
|
|
/s/ B. Guille Cox, Jr. |
|
March 15, 2011 |
B. Guille Cox, Jr., Director |
|
|
|
|
|
/s/ Thomas T. Dinkel
Thomas T. Dinkel, Director
|
|
March 15, 2011 |
|
|
|
/s/ Anton H. George
Anton H. George, Director
|
|
March 15, 2011 |
|
|
|
/s/ Gregory L. Gibson
Gregory L. Gibson, Director
|
|
March 15, 2011 |
|
|
|
/s/ Norman L. Lowery
Norman L. Lowery, Vice Chairman, CEO & Director
|
|
March 15, 2011 |
(Principal Executive Officer) |
|
|
|
|
|
/s/ Ronald K. Rich
Ronald K. Rich, Director
|
|
March 15, 2011 |
|
|
|
/s/ Virginia L. Smith
Virginia L. Smith, Director
|
|
March 15, 2011 |
|
|
|
/s/ William J. Voges
William J. Voges, Director
|
|
March 15, 2011 |
|
|
|
/s/ William R. Krieble
William R. Krieble, Director
|
|
March 15, 2011 |
25
EXHIBIT INDEX
|
|
|
|
|
Exhibit |
|
|
Number |
|
Description |
|
|
|
|
10.1 |
|
|
Employment Agreement for Norman L. Lowery, dated and effective December 1, 2010 |
|
|
|
|
|
|
10.3 |
|
|
2011 Schedule of Director Compensation |
|
|
|
|
|
|
10.4 |
|
|
2011 Schedule of Named Executive Officers Compensation |
|
|
|
|
|
|
10.8 |
|
|
First Financial Corporation 2010 Short-Term Incentive Compensation Plan. |
|
|
|
|
|
|
10.9 |
|
|
First Financial Corporation 2010 Long-Term Incentive Compensation Plan. |
|
|
|
|
|
|
10.10 |
|
|
First Financial Corporation 2011 Short Term Incentive Compensation Plan |
|
|
|
|
|
|
13 |
|
|
Annual Report |
|
|
|
|
|
|
21 |
|
|
Subsidiaries |
|
|
|
|
|
|
31.1 |
|
|
Certification Pursuant to Rule 13a-14(a) for Annual Report of Form 10-K by Principal Executive Officer |
|
|
|
|
|
|
31.2 |
|
|
Certification Pursuant to Rule 13a-14(a) for Annual Report of Form 10-K by Principal Financial Officer |
|
|
|
|
|
|
32.1 |
|
|
Certification Pursuant to Rule 18 U.S.C. Section 1350 of Principal Executive Officer |
|
|
|
|
|
|
32.2 |
|
|
Certification Pursuant to Rule 18 U.S.C. Section 1350 of Principal Financial Officer |
26