##### 



Exhibit 13
 2007 ANNUAL REPORT
 Five Year Comparison of Selected Financial Data
 (Dollar amounts in thousands,except per share amounts)
    
    2007
    
    
    2006
    
    
    2005
    
    
    2004
    
    
    2003BALANCE SHEET DATA:Total assets
    
    $
    2,231,562
    
    
    $
    2,175,998
    
    
    $
    2,136,918
    
    
    $
    2,183,992
    
    
    $
    2,223,057Securities
    
    
    586,633
    
    
    
    559,053
    
    
    
    536,291
    
    
    
    507,990
    
    
    
    576,950Loans, net of unearned fees*
    
    
    1,443,067
    
    
    
    1,392,755
    
    
    
    1,395,741
    
    
    
    1,463,871
    
    
    
    1,429,525Deposits
    
    
    1,529,721
    
    
    
    1,502,682
    
    
    
    1,464,918
    
    
    
    1,443,121
    
    
    
    1,479,347Borrowings
    
    
    368,616
    
    
    
    358,008
    
    
    
    370,090
    
    
    
    438,013
    
    
    
    451,862Shareholders equity
    
    
    281,692
    
    
    
    271,260
    
    
    
    269,323
    
    
    
    268,335
    
    
    
    255,279INCOME STATEMENT DATA:Interest income
    
    
    137,734
    
    
    
    130,832
    
    
    
    121,647
    
    
    
    116,888
    
    
    
    122,661Interest expense
    
    
    62,961
    
    
    
    57,129
    
    
    
    47,469
    
    
    
    44,686
    
    
    
    48,225Net interest income
    
    
    74,773
    
    
    
    73,703
    
    
    
    74,178
    
    
    
    72,202
    
    
    
    74,436Provision for loan losses
    
    
    6,580
    
    
    
    6,983
    
    
    
    11,698
    
    
    
    8,292
    
    
    
    7,455Other income
    
    
    31,497
    
    
    
    28,826
    
    
    
    32,025
    
    
    
    35,754
    
    
    
    30,819Other expenses
    
    
    64,726
    
    
    
    64,656
    
    
    
    63,538
    
    
    
    63,656
    
    
    
    62,461Net income
    
    
    25,580
    
    
    
    23,539
    
    
    
    23,054
    
    
    
    28,009
    
    
    
    26,493PER SHARE DATA:Net income
    
    
    1.94
    
    
    
    1.77
    
    
    
    1.72
    
    
    
    2.07
    
    
    
    1.95Cash dividends
    
    
    0.87
    
    
    
    0.85
    
    
    
    .82
    
    
    
    .79
    
    
    
    .70PERFORMANCE RATIOS:Net income to average assets
    
    
    1.16
    %
    
    
    1.10
    %
    
    
    1.07
    %
    
    
    1.28
    %
    
    
    1.21
    %Net income to average
shareholders equity
    
    
    9.20
    
    
    
    8.57
    
    
    
    8.52
    
    
    
    10.45
    
    
    
    10.57Average total capital
to average assets
    
    
    13.35
    
    
    
    13.56
    
    
    
    13.35
    
    
    
    13.24
    
    
    
    12.45Average shareholders equity
to average assets
    
    
    12.64
    
    
    
    12.79
    
    
    
    12.51
    
    
    
    12.23
    
    
    
    11.43Dividend payout
    
    
    44.76
    
    
    
    44.18
    
    
    
    47.57
    
    
    
    38.13
    
    
    
    35.88
 *
    
    2007 includes $14,068 of credit card loans that are held-for-sale.  9




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##### 



FIRST FINANCIAL CORPORATION
 Consolidated Balance Sheets
 December 31,(Dollar amounts in thousands, except per share data)
    
    2007
    
    
    2006ASSETSCash and due from banks
    
    $
    70,082
    
    
    $
    77,682Federal funds sold
    
    
    4,201
    
    
    
    21,437Securities available-for-sale
    
    
    586,633
    
    
    
    559,053Loans, net of allowance of $15,351 in 2007 and $16,169 in 2006
    
    
    1,413,648
    
    
    
    1,376,586Credit card loans held-for-sale
    
    
    14,068
    
    
    
    Accrued interest receivable
    
    
    13,698
    
    
    
    13,972Premises and equipment, net
    
    
    32,632
    
    
    
    33,267Bank-owned life insurance
    
    
    59,950
    
    
    
    57,905Goodwill
    
    
    7,102
    
    
    
    7,102Other intangible assets
    
    
    1,937
    
    
    
    2,363Other real estate owned
    
    
    1,472
    
    
    
    3,194Other assets
    
    
    26,139
    
    
    
    23,437Total Assets
    
    $
    2,231,562
    
    
    $
    2,175,998LIABILITIES AND SHAREHOLDERS EQUITYDeposits:Non-interest-bearing
    
    $
    225,549
    
    
    $
    227,808Interest-bearing:Certificates of deposit of $100 or more
    
    
    193,901
    
    
    
    189,323Other interest-bearing deposits
    
    
    1,110,271
    
    
    
    1,085,5511,529,721
    
    
    
    1,502,682Short-term borrowings
    
    
    27,331
    
    
    
    16,203Other borrowings
    
    
    341,285
    
    
    
    341,805Other liabilities
    
    
    51,533
    
    
    
    44,048Total Liabilities
    
    
    1,949,870
    
    
    
    1,904,738Shareholders equityCommon stock, $.125 stated value per share,Authorized shares  40,000,000Issued shares  14,450,966Outstanding shares  13,136,359 in 2007 and 13,270,321 in 2006
    
    
    1,806
    
    
    
    1,806Additional paid-in capital
    
    
    68,212
    
    
    
    68,003Retained earnings
    
    
    250,011
    
    
    
    235,967Accumulated other comprehensive income (loss)
    
    
    (5,181
    )
    
    
    (5,494
    )Less: Treasury shares at cost  1,314,607 in 2007 and 1,180,645
in 2006
    
    
    (33,156
    )
    
    
    (29,022
    )Total Shareholders Equity
    
    
    281,692
    
    
    
    271,260Total Liabilities And Shareholders Equity
    
    $
    2,231,562
    
    
    $
    2,175,998
   10




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##### 



2007 ANNUAL REPORT
 Consolidated Statements of Income
 Years Ended December 31,(Dollar amounts in thousands, except per share data)
    
    2007
    
    
    2006
    
    
    2005INTEREST AND DIVIDEND INCOME:Loans, including related fees
    
    $
    104,950
    
    
    $
    99,850
    
    
    $
    96,388Securities:Taxable
    
    
    23,336
    
    
    
    21,877
    
    
    
    16,802Tax-exempt
    
    
    6,635
    
    
    
    6,243
    
    
    
    6,306Other
    
    
    2,813
    
    
    
    2,862
    
    
    
    2,151Total Interest and Dividend Income
    
    
    137,734
    
    
    
    130,832
    
    
    
    121,647INTEREST EXPENSE:Deposits
    
    
    41,956
    
    
    
    37,285
    
    
    
    27,184Short-term borrowings
    
    
    1,611
    
    
    
    746
    
    
    
    783Other borrowings
    
    
    19,394
    
    
    
    19,098
    
    
    
    19,502Total Interest Expense
    
    
    62,961
    
    
    
    57,129
    
    
    
    47,469Net Interest Income
    
    
    74,773
    
    
    
    73,703
    
    
    
    74,178Provision for loan losses
    
    
    6,580
    
    
    
    6,983
    
    
    
    11,698Net Interest Income After Provision For Loan Losses
    
    
    68,193
    
    
    
    66,720
    
    
    
    62,480NON-INTEREST INCOME:Trust and financial services
    
    
    3,697
    
    
    
    3,766
    
    
    
    3,626Service charges and fees on deposit accounts
    
    
    11,877
    
    
    
    11,639
    
    
    
    11,732Other service charges and fees
    
    
    5,783
    
    
    
    5,279
    
    
    
    6,440Securities gains (losses)
    
    
    211
    
    
    
    6
    
    
    
    571Insurance commissions
    
    
    6,541
    
    
    
    6,323
    
    
    
    5,995Gain on sale of mortgage loans
    
    
    816
    
    
    
    191
    
    
    
    1,289Other
    
    
    2,572
    
    
    
    1,622
    
    
    
    2,372Total Non-Interest Income
    
    
    31,497
    
    
    
    28,826
    
    
    
    32,025NON-INTEREST EXPENSES:Salaries and employee benefits
    
    
    39,432
    
    
    
    39,739
    
    
    
    38,617Occupancy expense
    
    
    4,034
    
    
    
    3,994
    
    
    
    3,796Equipment expense
    
    
    4,322
    
    
    
    4,305
    
    
    
    3,861Other
    
    
    16,938
    
    
    
    16,618
    
    
    
    17,264Total Non-Interest Expense
    
    
    64,726
    
    
    
    64,656
    
    
    
    63,538Income Before Income Taxes
    
    
    34,964
    
    
    
    30,890
    
    
    
    30,967Provision for income taxes
    
    
    9,384
    
    
    
    7,351
    
    
    
    7,913Net Income
    
    $
    25,580
    
    
    $
    23,539
    
    
    $
    23,054EARNINGS PER SHARE:Basic and Diluted
    
    $
    1.94
    
    
    $
    1.77
    
    
    $
    1.72Weighted average number of shares outstanding (in
thousands)
    
    
    13,178
    
    
    
    13,295
    
    
    
    13,433
   11




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##### 



FIRST FINANCIAL CORPORATION
 Consolidated Statements of Changes in Shareholders Equity
 AccumulatedOtherCommon
    
    
    Additional
    
    
    Retained
    
    
    Comprehensive
    
    
    Treasury(Dollar amounts in thousands, except per share data)
    
    Stock
    
    
    Paid-In Capital
    
    
    Earnings
    
    
    Income (Loss)
    
    
    Stock
    
    
    TotalBalance, January 1, 2005
    
    $
    1,806
    
    
    $
    67,519
    
    
    $
    211,623
    
    
    $
    8,357
    
    
    $
    (20,970
    )
    
    $
    268,335Comprehensive income:Net income
    
    
    
    
    
    
    
    
    
    
    23,054
    
    
    
    
    
    
    
    
    
    
    
    23,054Other comprehensive income, net of tax:Change in net unrealized gains/losses
on securities available-for-sale, net
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (6,454
    )
    
    
    
    
    
    
    (6,454
    )Total comprehensive income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    16,600Contribution of 36,000 shares to ESOP
    
    
    
    
    
    
    151
    
    
    
    
    
    
    
    
    
    
    
    993
    
    
    
    1,144Treasury stock purchases (79,000 shares)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (5,789
    )
    
    
    (5,789
    )Cash dividends, $ .79 per share
    
    
    
    
    
    
    
    
    
    
    (10,967
    )
    
    
    
    
    
    
    
    
    
    
    (10,967
    )Balance, December 31, 2005
    
    
    1,806
    
    
    
    67,670
    
    
    
    223,710
    
    
    
    1,903
    
    
    
    (25,766
    )
    
    
    269,323Comprehensive income:Net income
    
    
    
    
    
    
    
    
    
    
    23,539
    
    
    
    
    
    
    
    
    
    
    
    23,539Other comprehensive loss, net of tax:Change in net unrealized gains/losses
on securities available-for-sale, net
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,161
    
    
    
    
    
    
    
    1,161Total comprehensive income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    24,700Adjustment to initially apply
SFAS No. 158, net of tax (Note 1)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (8,558
    )
    
    
    
    
    
    
    (8,558
    )Contribution of 34,000 shares to ESOP
    
    
    
    
    
    
    333
    
    
    
    
    
    
    
    
    
    
    
    831
    
    
    
    1,164Treasury stock purchases (137,249 shares)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (4,087
    )
    
    
    (4,087
    )Cash dividends, $ .85 per share
    
    
    
    
    
    
    
    
    
    
    (11,282
    )
    
    
    
    
    
    
    
    
    
    
    (11,282
    )Balance, December 31, 2006
    
    
    1,806
    
    
    
    68,003
    
    
    
    235,967
    
    
    
    (5,494
    )
    
    
    (29,022
    )
    
    
    271,260Comprehensive income:Net income
    
    
    
    
    
    
    
    
    
    
    25,580
    
    
    
    
    
    
    
    
    
    
    
    25,580Other comprehensive loss, net of tax:Change in net unrealized gains/losses
on securities available-for-sale, net
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,110
    
    
    
    
    
    
    
    1,110Change in unrealized gains/losses on
retirement plans
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (797
    )
    
    
    
    
    
    
    (797
    )Total comprehensive income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    25,893Adjustment to initially apply
FIN No. 48, net of tax (Note 1)
    
    
    
    
    
    
    
    
    
    
    (86
    )
    
    
    
    
    
    
    
    
    
    
    (86
    )Contribution of 41,000 shares to ESOP
    
    
    
    
    
    
    209
    
    
    
    
    
    
    
    
    
    
    
    1,033
    
    
    
    1,242Treasury stock purchases (174,962 shares)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (5,167
    )
    
    
    (5,167
    )Cash dividends, $ .87 per share
    
    
    
    
    
    
    
    
    
    
    (11,450
    )
    
    
    
    
    
    
    
    
    
    
    (11,450
    )Balance, December 31, 2007
    
    $
    1,806
    
    
    $
    68,212
    
    
    $
    250,011
    
    
    $
    (5,181
    )
    
    $
    (33,156
    )
    
    $
    281,692
   12




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##### 



2007 ANNUAL REPORT
 Consolidated Statements of Cash Flows
 Years Ended December 31,(Dollar amounts in thousands, except per share data)
    
    2007
    
    
    2006
    
    
    2005CASH FLOWS FROM OPERATING ACTIVITIES:Net income
    
    $
    25,580
    
    
    $
    23,539
    
    
    $
    23,054Adjustments to reconcile net income to net cash
provided by 
operating activities:Net (accretion) amortization on securities
    
    
    (2,619
    )
    
    
    (2,540
    )
    
    
    (1,462
    )Provision for loan losses
    
    
    6,580
    
    
    
    6,983
    
    
    
    11,698Securities (gains) losses
    
    
    (211
    )
    
    
    (6
    )
    
    
    (571
    )Depreciation and amortization
    
    
    3,443
    
    
    
    3,515
    
    
    
    3,363Provision for deferred income taxes
    
    
    27
    
    
    
    (3,579
    )
    
    
    1,716Net change in accrued interest receivable
    
    
    274
    
    
    
    (1,435
    )
    
    
    (521
    )Contribution of shares to ESOP
    
    
    1,242
    
    
    
    1,164
    
    
    
    1,144Gains on sales of other real estate
    
    
    (116
    )
    
    
    
    
    
    
    Other, net
    
    
    1,302
    
    
    
    9,688
    
    
    
    592Net Cash from Operating Activities
    
    
    35,502
    
    
    
    37,329
    
    
    
    39,013CASH FLOWS FROM INVESTING ACTIVITIES:Sales of securities available-for-sale
    
    
    3,170
    
    
    
    5,080
    
    
    
    11,376Calls, maturities and principal reductions on securities available-
for-sale
    
    
    94,587
    
    
    
    157,031
    
    
    
    373,741Purchases of securities available-for-sale
    
    
    (120,657
    )
    
    
    (180,393
    )
    
    
    (422,141
    )Loans made to customers, net of repayments
    
    
    (60,485
    )
    
    
    (6,510
    )
    
    
    49,806Net change in federal funds sold
    
    
    17,236
    
    
    
    (18,455
    )
    
    
    2,418Purchase of bank-owned life insurance
    
    
    
    
    
    
    
    
    
    
    (5,000
    )Purchase of customer list
    
    
    
    
    
    
    
    
    
    
    (338
    )Sale of other real estate
    
    
    4,322
    
    
    
    
    
    
    
    Additions to premises and equipment
    
    
    (2,382
    )
    
    
    (5,015
    )
    
    
    (2,908
    )Net Cash from Investing Activities
    
    
    (64,209
    )
    
    
    (48,262
    )
    
    
    6,954CASH FLOWS FROM FINANCING ACTIVITIES:Net change in deposits
    
    
    27,039
    
    
    
    37,764
    
    
    
    21,797Net change in other short-term borrowings
    
    
    11,128
    
    
    
    (10,021
    )
    
    
    (49,303
    )Dividends paid
    
    
    (11,373
    )
    
    
    (11,181
    )
    
    
    (10,779
    )Purchases of treasury stock
    
    
    (5,167
    )
    
    
    (4,087
    )
    
    
    (5,789
    )Proceeds from other borrowings
    
    
    81,750
    
    
    
    
    
    
    
    Repayments on other borrowings
    
    
    (82,270
    )
    
    
    (2,061
    )
    
    
    (18,620
    )Net Cash from Financing Activities
    
    
    21,107
    
    
    
    10,414
    
    
    
    (62,694
    )Net Change in Cash and Cash Equivalents
    
    
    (7,600
    )
    
    
    (519
    )
    
    
    (16,727
    )Cash and Cash Equivalents, Beginning of Year
    
    
    77,682
    
    
    
    78,201
    
    
    
    94,928Cash and Cash Equivalents, End of Year
    
    $
    70,082
    
    
    $
    77,682
    
    
    $
    78,201SUPPLEMENTAL DISCLOSURES OF CASH FLOW AND NONCASH INFORMATION:Cash paid during the year for:Interest
    
    $
    62,080
    
    
    $
    56,150
    
    
    $
    46,919Income taxes
    
    $
    8,494
    
    
    $
    11,202
    
    
    $
    5,413Transfers from loans to loans held-for-sale
    
    $
    14,608
    
    
    
    
    
    
    
    
   13




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##### 



FIRST FINANCIAL CORPORATION
 Notes to Consolidated Financial Statements
 1.
    
    BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES:BUSINESSOrganization:The consolidated financial statements of First Financial Corporation and its
subsidiaries (the Corporation) include the parent company and its wholly-owned subsidiaries,
First Financial Bank, N.A. of Vigo County, Indiana, The Morris Plan Company of Terre Haute
(Morris Plan), First Financial Reinsurance Company, a corporation incorporated in the country of
Turks and Caicos Islands (FFRC), and Forrest Sherer Inc., a full-line insurance agency
headquartered in Terre Haute, Indiana. Inter-company transactions and balances have been
eliminated. First Financial Reinsurance Company was dissolved during 2007 with no material
impact to the financial statements of the Corporation.First Financial Bank also has two investment subsidiaries, Portfolio Management Specialists A
(Specialists A) and Portfolio Management Specialists B (Specialists B), which were established
to hold and manage certain assets as part of a strategy to better manage various income streams
and provide opportunities for capital creation as needed. Specialists A and Specialists B
subsequently entered into a limited partnership agreement, Global Portfolio Limited Partners.
Portfolio Management Specialists B also owns First Financial Real Estate, LLC. At December 31,
2007, $531.0 million of securities and loans were owned by these subsidiaries. Specialists A,
Specialists B, Global Portfolio Limited Partners and First Financial Real Estate LLC are
included in the consolidated financial statements.The Corporation, which is headquartered in Terre Haute, Indiana, offers a wide variety of
financial services including commercial, mortgage and consumer lending, lease financing, trust
account services and depositor services through its four subsidiaries. The Corporations primary
source of revenue is derived from loans to customers, primarily middle-income individuals, and
investment activities.The Corporation operates 48 branches in west-central Indiana and east-central Illinois. First
Financial Bank is the largest bank in Vigo County. It operates 12 full-service banking branches
within the county; five in Clay County, Indiana; one in Greene County, Indiana; three in Knox
County, Indiana; five in Parke County, Indiana; one in Putnam County, Indiana; five in Sullivan
County, Indiana; four in Vermillion County, Indiana; one in Clark County, Illinois; one in Coles
County, Illinois; three in Crawford County, Illinois; one in Jasper County, Illinois; two in
Lawrence County, Illinois; two in Richland County, Illinois; one in Vermilion County, Illinois;
and one in Wayne County, Illinois. It also has a main office in downtown Terre Haute and an
operations center/office building in southern Terre Haute.Regulatory Agencies:First Financial Corporation is a multi-bank holding company and as such is
regulated by various banking agencies. The holding company is regulated by the Seventh District
of the Federal Reserve System. The national bank subsidiary is regulated by the Office of the
Comptroller of the Currency. The state bank subsidiary is jointly regulated by the state banking
organization and the Federal Deposit Insurance Corporation.Significant Accounting PoliciesUse of Estimates:To prepare financial statements in conformity with U.S. generally accepted
accounting principles, management makes estimates and assumptions based on available
information. These estimates and assumptions affect the amounts reported in the financial
statements and disclosures provided, and actual results could differ. The allowance for loan
losses, carrying value of intangible assets, loan servicing rights and the fair values of
financial instruments are particularly subject to change.Cash Flows:Cash and cash equivalents
include cash and demand deposits with other financial institutions. Net cash flows are reported
for customer loan and deposit transactions and short-term borrowings.Securities:The Corporation classifies all securities as available for sale. Securities are
classified as available for sale when they might be sold before maturity. Securities available
for sale are carried at fair value with unrealized holdings gains and losses, net of taxes,
reported in other comprehensive income within shareholders equity.Interest income includes amortization of purchase premium or discount. Premiums and discounts
are amortized on the level yield method without anticipating prepayments. Mortgage-backed
securities are amortized over the expected life. Realized gains and losses on sales are based on
the amortized cost of the security sold. Declines in the fair value of securities below their
cost that are other than temporary are reflected as realized losses. In estimating
other-than-temporary losses, management considers: 1) the length of time and extent that fair
value has been less than cost; 2) the financial condition and near term prospects of the issuer;
and 3) the Corporations ability and intent to hold the security for a period sufficient to
allow for any anticipated recovery in fair value.Loans:Loans that management has the intent and ability to hold for the foreseeable future until
maturity or pay-off are reported at the principal balance outstanding, net of unearned interest,
deferred loan fees and costs, and allowance for loan losses. Loans held for sale are reported at
the lower of cost or market, on an aggregate basis.Interest income is accrued on the unpaid principal balance and includes amortization of net
deferred loan fees and costs over the loan term without anticipating prepayments. Interest
income is not reported when full loan repayment is in doubt, typically when the loan is
impaired or payments are significantly past due.All interest accrued but not received for loans placed on nonaccrual is reversed against
interest income. Interest received on such loans is accounted for on the cash-basis or
cost-recovery method, until qualifying for return to accrual. Loans are returned to accrual
status when all the principal and interest amounts contractually due are brought current and
future payments are reasonably assured. In all cases, loans are placed on non-accrual or
charged-off if collection of principal or interest is considered doubtful.
 14




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2007 ANNUAL REPORT
 Notes to Consolidated Financial Statements
 Allowance for Loan Losses:The allowance for loan losses is a valuation allowance for
probable incurred credit losses. Loan losses are charged against the allowance when management
believes the uncollectibility of a loan balance is confirmed. Subsequent recoveries, if any, are credited to the allowance. Management estimates the allowance balance
required using past loan loss experience, the nature and volume of the portfolio, information
about specific borrower situations and estimated collateral values, economic conditions and other
factors. Allocations of the allowance may be made for specific loans, but the entire allowance is
available for any loan that, in managements judgment, should be charged off. The allowance
consists of specific and general components. The specific component relates to loans that are
individually classified as impaired or loans otherwise classified as substandard or doubtful. The
general component covers non-classified loans and is based on historical loss experience adjusted
for current factors.A loan is impaired when full payment under the loan terms is not expected. Impairment is evaluated
in total for smaller-balance loans of similar nature such as residential mortgages, consumer and
credit card loans, and on an individual basis for other loans. If a loan is impaired, a portion of
the allowance is allocated so that the loan is reported, net, at the present value of estimated
future cash flows, using the loans existing rate, or at the fair value of collateral if repayment
is expected solely from the collateral. Large groups of smaller balance homogeneous loans, such as
consumer and residential real estate loans, are collectively evaluated for impairment and,
accordingly, they are not separately identified for impairment disclosures.Foreclosed Assets:Assets acquired through or instead of loan foreclosures are initially recorded
at fair value less estimated selling costs when acquired, establishing a new cost basis. If fair
value declines, a valuation allowance is recorded through expense. Costs after acquisition are
expensed.Premises and Equipment:Land is carried at cost. Premises and equipment are stated at cost less
accumulated depreciation. Depreciation is computed over the useful lives of the assets, which range
from 3 to 33 years for furniture and equipment and 5 to 39 years for buildings and leasehold
improvements.Federal Home Loan Bank (FHLB) Stock:The Corporation is a member of the FHLB system. Members are
required to own a certain amount of stock based on the level of borrowings and other factors, and
may invest in additional amounts. FHLB stock is carried at cost and periodically evaluated for
impairment. Because this stock is viewed as a long-term investment, impairment is based on ultimate
recovery of par value. Both cash and stock dividends are reported as income. FHLB stock is included
with securities.Servicing Rights:Servicing rights are recognized separately when they are acquired through sales
of loans. For sales of mortgage loans prior to January 1, 2007, a portion of the cost of the loan
was allocated to the servicing right based on relative fair values. The Corporation adopted SFAS
No. 156 on January 1, 2007, and for sales of mortgage loans beginning in 2007, servicing rights are
initially recorded at fair value with the income statement effect recorded in gains on sales of
loans. Fair value is based on market prices for comparable mortgage servicing contracts, when
available, or alternatively, is based on third-party valuations that incorporate assumptions that
market participants would use in estimating future net servicing income, such as the cost to
service, the discount rate, ancillary income, prepayment speeds and default rates and losses. All
classes of servicing assets are subsequently measured using the amortization method, which requires
servicing rights to be amortized into non-interest income in proportion to, and over the period of,
the estimated future net servicing income of the underlying loans.Servicing assets are evaluated for impairment based upon the fair value of the rights as compared
to carrying amount. Impairment is determined by stratifying rights into groupings based on
predominant risk characteristics, such as interest rate, loan type and investor type. Impairment is
recognized through a valuation allowance for an individual grouping, to the extent that fair value
is less than the carrying amount. If the Corporation later determines that all or a portion of the
impairment no longer exists for a particular grouping, a reduction of the allowance may be
recorded as an increase to income. Changes in valuation allowances are reported with Other Service
Fees on the income statement. The fair values of servicing rights are subject to significant
fluctuations as a result of changes in estimated and actual prepayment speeds and default rates and
losses.Servicing fee income, which is included in Other Service Fees on the income statement, is for fees
earned for servicing loans. The fees are based on a contractual percentage of the outstanding
principal or a fixed amount per loan and are recorded as income when earned. The amortization of
mortgage servicing rights is netted against loan servicing fee income. Servicing fees totaled $947
thousand, $1.01 million and $1.00 million for the years ended December 31, 2007, 2006 and 2005.
Late fees and ancillary fees related to loan servicing are not material .Bank-Owned Life Insurance:The Corporation has purchased life insurance policies on certain key
executives. Bank-owned life insurance is recorded at its cash surrender value, or the amount that
can be realized. Income on the investments in life insurance is included in other interest income.Goodwill and Other Intangible Assets:Goodwill results from business acquisitions and represents
the excess of the purchase price over the fair value of acquired tangible assets and liabilities
and identifiable intangible assets. Goodwill is assessed at least annually for impairment and any
such impairment will be recognized in the period identified.Other intangible assets consist of core deposit and acquired customer relationship intangible
assets arising from the whole bank, insurance agency and branch acquisitions. They are initially
measured at fair value and then are amortized over their estimated useful lives, which are 12 and
10 years, respectively.Long-Term Assets:Premises and equipment and other long-term assets are reviewed for impairment
when events indicate their carrying amount may not be recoverable from future undiscounted cash
flows. If impaired, the assets are recorded at fair value.Benefit Plans:Pension expense is the net of service and interest cost, return on plan assets and
amortization of gains and losses not immediately recognized. The amount contributed is determined
by a formula as decided by the Board of Directors. Deferred compensation and supplemental
retirement plan expense allocates the benefits over years of service.
 15




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FIRST FINANCIAL CORPORATION
 Notes to Consolidated Financial Statements
 Employee Stock Ownership Plan:Shares of treasury stock are issued to the ESOP and compensation
expense is recognized based upon the total market price of shares when contributed.Deferred Compensation Plan:A deferred compensation plan covers all directors. Under the plan, the
Corporation pays each director, or their beneficiary, the amount of fees deferred plus interest
over 10 years, beginning when the director achieves age 65. A liability is accrued for the
obligation under these plans. The expense incurred for the deferred compensation for each of the
last three years was $177 thousand, $201 thousand and $164 thousand, resulting in a deferred
compensation liability of $2.3 million and $2.2 million as of year-end 2007 and 2006.Long-Term Incentive Plan:A long-term incentive plan provides for the payment of incentive
rewards as a 15-year annuity to all directors and certain key officers. The plan expires December
31, 2009, and compensation expense is recognized over the service period. Payments under the plan
generally do not begin until the earlier of January 1, 2015, or the January 1 immediately
following the year in which the participant reaches age 65. Compensation expense for each of the
last three years was $2.0 million, $1.7 million and $1.6 million, resulting in a liability of $11.3
million and $9.4 million as of year-end 2007 and 2006.Income Taxes:Income tax expense is the total of the current year income tax due or refundable
and the change in deferred tax assets and liabilities. Deferred tax assets and liabilities are the
expected future tax amounts for the temporary differences between carrying amounts and tax bases of
assets and liabilities, computed using enacted tax rates. A valuation allowance, if needed, reduces
deferred tax assets to the amount expected to be realized.The Corporation adopted FASB Interpretation 48, Accounting for Uncertainty in Income Taxes (FIN
48), as of January 1, 2007. A tax position is recognized as a benefit only if it is more likely
than not that the tax position would be sustained in a tax examination, with a tax examination
being presumed to occur. The amount recognized is the largest amount of tax benefit that is greater
than 50% likely of being realized on examination. For tax positions not meeting the more likely
than not test, no tax benefit is recorded. The adoption of FIN 48 on January 1, 2007 reduced
retained earnings and increased liabilities by $86 thousand.The Corporation recognizes interest and/or penalties related to income tax matters in income tax
expense.Loan Commitments and Related Financial Instruments:Financial instruments include credit
instruments, such as commitments to make loans and standby letters of credit, issued to meet
customer financing needs. The face amount for these items represents the exposure to loss, before
considering customer collateral or ability to repay. Such financial instruments are recorded when
they are funded.Earnings Per Share:Earnings per common share is net income divided by the weighted average number
of common shares outstanding during the period. The Corporation does not have any potentially
dilutive securities. Earnings and dividends per share are restated for stock splits and dividends
through the date of issue of the financial statements.Comprehensive Income:Comprehensive income consists of net income and other comprehensive income.
Other comprehensive income includes unrealized gains and losses on securities available for sale,
which are also recognized as separate components of equity.Loss Contingencies:Loss contingencies, including claims and legal actions arising in the ordinary
course of business, are recorded as liabilities when the likelihood of loss is probable and an
amount of range of loss can be reasonably estimated. Management does not believe there are
currently such matters that will have a material effect on the financial statements.Dividend Restriction:Banking regulations require maintaining certain capital levels and may limit
the dividends paid by the bank to the holding company or by the holding company to shareholders.Fair Value of Financial Instruments:Fair values of financial instruments are estimated using
relevant market information and other assumptions, as more fully disclosed in a separate note. Fair
value estimates involve uncertainties and matters of significant judgment regarding interest
rates, credit risk, prepayments and other factors, especially in the absence of broad markets for
particular items. Changes in assumptions or market conditions could significantly affect the
estimates.Operating Segment:While the Corporations chief decision-makers monitor the revenue streams
of the various products and services, the operating results of significant segments are similar and
operations are managed and financial performance is evaluated on a corporate-wide basis.
Accordingly, all of the Corporations financial service operations are considered by management to
be aggregated in one reportable operating segment, which is banking.Adoption of New Accounting Standards:In February 2006, the Financial Accounting Standards
Board (FASB) issued Statement of Financial Accounting Standards No. 155, Accounting for Certain
Hybrid Financial Instruments (SFAS No. 155), which permits fair value remeasurement for hybrid
financial instruments that contain an embedded derivative that otherwise would require
bifurcation. Additionally, SFAS No. 155 clarifies the accounting guidance for beneficial interests in securitizations. Under SFAS No. 155, all beneficial interests in a securitization will require
an assessment in accordance with SFAS No. 133 to determine if an embedded derivative exists within
the instrument. In January 2007, the FASB issued Derivatives Implementation Group Issue B40,
Application of Paragraph 13(b) to Securitized Interests in Prepayable Financial Assets (DIG Issue
B40). DIG Issue B40 provides an exemption from the embedded derivative test of paragraph 13(b) of
SFAS No. 133 for instruments that would otherwise require bifurcation if the test is met solely
because of a prepayment feature included within the securitized interest and prepayment is not
controlled by the security holder. SFAS No. 155 and DIG Issue B40 are effective for fiscal years
beginning after September 15, 2006. The adoption of SFAS No. 155 and DIG Issue B40 did not have a
material impact on the Corporations consolidated financial position or results of operations.
 16




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##### 



2007 ANNUAL REPORT
 Notes to Consolidated Financial Statements
 In September 2006, the FASB Emerging Issues Task Force finalized Issue No. 06-5, Accounting for
Purchases of Life InsuranceDetermining the Amount That Could Be Realized in Accordance with
FASB Technical Bulletin No. 85-4 (Accounting for Purchases of Life Insurance) {Issue}. This
Issue requires that a policyholder consider contractual terms of a life insurance policy in
determining the amount that could be realized under the insurance contract. It also requires
that if the contract provides for a greater surrender value if all individual policies in a
group are surrendered at the same time, that the surrender value be determined based on the
assumption that policies will be surrendered on an individual basis. Lastly, the Issue requires
disclosure when there are contractual restrictions on the Corporations ability to surrender a
policy. The adoption of EITF 06-5 on January 1, 2007 had no impact on the Corporations
financial conditions or results of operation.Effect of Newly Issued But Not Yet Effective Accounting Standards:In September 2006, the FASB
issued Statement No. 157, Fair Value Measurements. This Statement defines fair value,
establishes a framework for measuring fair value and expands disclosures about fair value
measurements. This Statement establishes a fair value hierarchy about the assumptions used to
measure fair value and clarifies assumptions about risk and the effect of a restriction on the
sale or use of an asset. The standard is effective for fiscal years beginning after November 15,
2007. The impact of adoption is not expected to be material.In February 2007, the FASB issued Statement No. 159, The Fair Value Option for Financial Assets
and Financial Liabilities. The standard provides companies with an option to report selected
financial assets and liabilities at fair value and establishes presentation and disclosure
requirements designed to facilitate comparisons between companies that choose different
measurement attributes for similar types of assets and liabilities. The new standard is
effective for the Corporation on January 1, 2008. The Corporation did not elect the fair value
option for any financial assets or financial liabilities as of January 1, 2008.In September 2006, the FASB Emerging Issues Task Force finalized Issue No. 06-4, Accounting for
Deferred Compensation and Postretirement Benefit Aspects of Endorsement Split-Dollar Life
Insurance Arrangements. This issue requires that a liability be recorded during the service
period when a split-dollar life insurance agreement continues after participants employment or
retirement. The required accrued liability will be based on either the post-employment benefit
cost for the continuing life insurance or based on the future death benefit depending on the
contractual terms of the underlying agreement. This issue is effective for fiscal years
beginning after December 15, 2007. There was no impact to the adoption of this issue as the
Corporation has no split-dollar life insurance arrangements.Reclassifications:Some items in prior year financial statements were reclassified to conform to
the current presentation.2.
    
    FAIR VALUES OF FINANCIAL INSTRUMENTS:Carrying amount is the estimated fair value for cash and due from banks, federal funds sold,
short-term borrowings, Federal Home Loan Bank stock, accrued interest receivable and payable,
demand deposits, short-term debt and variable-rate loans or deposits that reprice frequently and
fully. Security fair values are based on market prices or dealer quotes, and if no such
information is available, on the rate and term of the security and information about the
issuer. For fixed-rate loans or deposits, variable rate loans or deposits with infrequent
repricing or repricing limits, and for longer-term borrowings, fair value is based on
discounted cash flows using current market rates applied to the estimated life and credit risk.
Fair values for impaired loans are estimated using discounted cash flow analysis or underlying
collateral values. Fair values of loans held for sale are based on market bids on the loans or
similar loans. Fair value of debt is based on current rates for similar financing. The fair
value of off-balance sheet items is not considered material.The carrying amount and estimated fair value of financial instruments are presented in the table
below and were determined based on the above assumptions:
 December 31,2007
    
    
    2006Carrying
    
    
    Fair
    
    
    Carrying
    
    
    Fair(Dollar amounts in thousands)
    
    Value
    
    
    Value
    
    
    Value
    
    
    ValueCash and due from banks
    
    $
    70,082
    
    
    $
    70,082
    
    
    $
    77,682
    
    
    $
    77,682Federal funds sold
    
    
    4,201
    
    
    
    4,201
    
    
    
    21,437
    
    
    
    21,437Securities available-for-sale
    
    
    586,633
    
    
    
    586,633
    
    
    
    559,053
    
    
    
    559,053Loans, net
    
    
    1,427,716
    
    
    
    1,427,272
    
    
    
    1,376,586
    
    
    
    1,366,848Accrued interest receivable
    
    
    13,698
    
    
    
    13,698
    
    
    
    13,972
    
    
    
    13,972Deposits
    
    
    (1,529,721
    )
    
    
    (1,536,205
    )
    
    
    (1,502,682
    )
    
    
    (1,506,761
    )Short-term borrowings
    
    
    (27,331
    )
    
    
    (27,331
    )
    
    
    (16,203
    )
    
    
    (16,203
    )Federal Home Loan Bank
advances
    
    
    (334,685
    )
    
    
    (339,300
    )
    
    
    (335,205
    )
    
    
    (336,231
    )Other borrowings
    
    
    (6,600
    )
    
    
    (6,600
    )
    
    
    (6,600
    )
    
    
    (6,600
    )Accrued interest payable
    
    
    (5,549
    )
    
    
    (5,549
    )
    
    
    (4,668
    )
    
    
    (4,668
    )
  17




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FIRST FINANCIAL CORPORATION
 Notes to Consolidated Financial Statements
 3.
    
    RESTRICTIONS ON CASH AND DUE FROM BANKS:Certain affiliate banks are required to maintain average reserve balances with the Federal
Reserve Bank that do not earn interest. The amount of those reserve balances was approximately
$9.3 million and $7.4 million at December 31, 2007 and 2006, respectively.4.
    
    SECURITIES:The fair value of securities available-for-sale and related gross unrealized gains and losses
recognized in accumulated other comprehensive income were as follows:
 December 31, 2007Amortized
    
    
    Unrealized
    
    
    Fair(Dollar amounts in thousands)
    
    Cost
    
    
    Gains
    
    
    Losses
    
    
    ValueU.S. Government sponsored entities
and
entity mortgage-backed securities
    
    $
    288,742
    
    
    $
    2,181
    
    
    $
    (1,219
    )
    
    $
    289,704Collateralized mortgage obligations
    
    
    76,730
    
    
    
    587
    
    
    
    (143
    )
    
    
    77,174State and municipal
    
    
    142,862
    
    
    
    3,824
    
    
    
    (171
    )
    
    
    146,515Corporate obligations
    
    
    66,623
    
    
    
    52
    
    
    
    (1,219
    )
    
    
    65,456Equities
    
    
    4,721
    
    
    
    3,063
    
    
    
    
    
    
    
    7,784Total
    
    $
    579,678
    
    
    $
    9,707
    
    
    $
    (2,752
    )
    
    $
    586,633
 December 31, 2006Amortized
    
    
    Unrealized
    
    
    Fair(Dollar amounts in thousands)
    
    Cost
    
    
    Gains
    
    
    Losses
    
    
    ValueU.S. Government sponsored entities
and
entity mortgage-backed securities
    
    $
    283,968
    
    
    $
    914
    
    
    $
    (4,126
    )
    
    $
    280,756Collateralized mortgage obligations
    
    
    60,350
    
    
    
    148
    
    
    
    (438
    )
    
    
    60,060State and municipal
    
    
    136,124
    
    
    
    4,163
    
    
    
    (217
    )
    
    
    140,070Corporate obligations
    
    
    68,952
    
    
    
    520
    
    
    
    
    
    
    
    69,472Equities
    
    
    4,556
    
    
    
    4,139
    
    
    
    
    
    
    
    8,695Total
    
    $
    553,950
    
    
    $
    9,884
    
    
    $
    (4,781
    )
    
    $
    559,053
 As of December 31, 2007, the Corporation does not have any securities from any issuer, other than
the U.S. Government, with an aggregate book or fair value that exceeds ten percent of shareholders
equity.Securities with a carrying value of approximately $71.6 million and $51.4 million at December 31,
2007 and 2006, respectively, were pledged as collateral for short-term borrowings and for other
purposes.Below is a summary of the gross gains and losses realized by the Corporation on investment sales
during the years ended December 31, 2007, 2006 and 2005, respectively.
 (Dollar amounts in thousands)
    
    2007
    
    
    2006
    
    
    2005Proceeds
    
    $
    3,170
    
    
    
    
    
    
    $
    11,376Gross gains
    
    
    192
    
    
    
    
    
    
    
    537Gross losses
    
    
    10
    
    
    
    
    
    
    
    
 Additional gains of $29 thousand in 2007 and $6 thousand in 2006 resulted from redemption premiums
on called securities.The Corporation evaluates securities for other-than-temporary impairment on a quarterly basis.
Factors considered include length of time impaired, reason for impairment, outlook and the
Corporations ability to hold the investment to allow for recovery of fair value. There were no
securities considered to be other-than-temporarily impaired at December 31, 2007 or December 31,
2006.
  18




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2007 ANNUAL REPORT
 Notes to Consolidated Financial Statements
 Contractual maturities of debt securities at year-end 2007 were as follows. Securities not due
at a single maturity or with no maturity date, primarily mortgage-backed and equity securities,
are shown separately.
 Available-for-SaleAmortized
    
    
    Fair(Dollar amounts in thousands)
    
    Cost
    
    
    ValueDue in one year or less
    
    $
    14,128
    
    
    $
    14,184Due after one but within five years
    
    
    42,137
    
    
    
    43,347Due after five but within ten years
    
    
    47,328
    
    
    
    49,317Due after ten years
    
    
    189,970
    
    
    
    182,651286,563
    
    
    
    289,499Mortgage-backed securities and equities
    
    
    293,115
    
    
    
    297,134Total
    
    $
    579,678
    
    
    $
    586,633
 The following tables show the securities gross unrealized losses and fair value, aggregated by
investment category and length of time that individual securities have been in continuous
unrealized loss position, at December 31, 2007 and 2006.
 December 31, 2007Less Than 12 Months
    
    
    More Than 12 Months
    
    
    TotalUnrealized
    
    
    
    
    
    
    Unrealized
    
    
    
    
    
    
    Unrealized(Dollar amounts in thousands)
    
    Fair Value
    
    
    Losses
    
    
    Fair Value
    
    
    Losses
    
    
    Fair Value
    
    
    LossesU.S. Government entity
mortgage-backed securities
    
    $
    226
    
    
    $
    (1
    )
    
    $
    110,861
    
    
    $
    (1,218
    )
    
    $
    111,087
    
    
    $
    (1,219
    )Collateralized mortgage obligations
    
    
    21,680
    
    
    
    (104
    )
    
    
    5,377
    
    
    
    (39
    )
    
    
    27,057
    
    
    
    (143
    )State and municipal obligations
    
    
    10,411
    
    
    
    (61
    )
    
    
    9,307
    
    
    
    (110
    )
    
    
    19,718
    
    
    
    (171
    )Corporate obligations
    
    
    29,795
    
    
    
    (1,219
    )
    
    
    
    
    
    
    
    
    
    
    29,795
    
    
    
    (1,219
    )Total temporarily impaired securities
    
    $
    62,112
    
    
    $
    (1,385
    )
    
    $
    125,545
    
    
    $
    (1,367
    )
    
    $
    187,657
    
    
    $
    (2,752
    )
 December 31, 2006Less Than 12 Months
    
    
    More Than 12 Months
    
    
    TotalUnrealized
    
    
    
    
    
    
    Unrealized
    
    
    
    
    
    
    Unrealized(Dollar amounts in thousands)
    
    Fair Value
    
    
    Losses
    
    
    Fair Value
    
    
    Losses
    
    
    Fair Value
    
    
    LossesU.S. Government entity
mortgage-backed securities
    
    $
    47,001
    
    
    $
    (183
    )
    
    $
    162,684
    
    
    $
    (3,943
    )
    
    $
    209,685
    
    
    $
    (4,126
    )Collateralized mortgage obligations
    
    
    14,138
    
    
    
    (13
    )
    
    
    29,740
    
    
    
    (425
    )
    
    
    43,878
    
    
    
    (438
    )State and municipal obligations
    
    
    5,950
    
    
    
    (62
    )
    
    
    13,422
    
    
    
    (155
    )
    
    
    19,372
    
    
    
    (217
    )Corporate obligations
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Total temporarily impaired securities
    
    $
    67,089
    
    
    $
    (258
    )
    
    $
    205,846
    
    
    $
    (4,523
    )
    
    $
    272,935
    
    
    $
    (4,781
    )
 These losses represent negative adjustments to market value relative to the rate of interest paid
on the securities and not losses related to the creditworthiness of the issuer. Management has the
intent and ability to hold for the foreseeable future and believes the value will recover as the
securities approach maturity or market rates change.
  19




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##### 



FIRST FINANCIAL CORPORATION
 Notes to Consolidated Financial Statements
 5.
    
    LOANS:Loans are summarized as follows:
 December 31,(Dollar amounts in thousands)
    
    2007
    
    
    2006Commercial, financial and agricultural
    
    $
    461,086
    
    
    $
    407,995Real estate  construction
    
    
    29,637
    
    
    
    33,336Real estate  residential
    
    
    437,051
    
    
    
    447,865Real estate  commercial
    
    
    236,304
    
    
    
    244,124Consumer
    
    
    262,858
    
    
    
    257,065Lease financing
    
    
    2,275
    
    
    
    2,064Total gross loans
    
    
    1,429,211
    
    
    
    1,392,989Less: unearned income
    
    
    (212
    )
    
    
    (234
    )Allowance for loan losses
    
    
    (15,351
    )
    
    
    (16,169
    )Total
    
    $
    1,413,648
    
    
    $
    1,376,586
 The Corporations credit card portfolio was reclassified to held-for-sale at December 31, 2007,
which reduced the allowance for loan losses allocation for this type of loan by $242 thousand.In the normal course of business, the Corporations subsidiary banks make loans to directors and
executive officers and to their associates. In 2007 the aggregate dollar amount of these loans to
directors and executive officers who held office at the end of the year amounted to $24.3 million
at the beginning of the year. During 2007, advances of $30.4 million and repayments of $18.0
million were made with respect to related party loans for an aggregate dollar amount outstanding of
$36.7 million at December 31, 2007.Loans serviced for others, which are not reported as assets,
total $364.0 million and $382.2 million at year-end 2007 and 2006. Custodial escrow balances
maintained in connection with serviced loans were $933 thousand and $1.38 million at year-end 2007
and 2006.Activity for capitalized mortgage servicing rights (included in other assets) was as follows:
 December 31,(Dollar amounts in thousands)
    
    2007
    
    
    2006
    
    
    2005Servicing rights:Beginning of year
    
    $
    2,319
    
    
    $
    2,931
    
    
    $
    2,960Additions
    
    
    218
    
    
    
    114
    
    
    
    735Amortized to expense
    
    
    (628
    )
    
    
    (726
    )
    
    
    (764
    )End of year
    
    $
    1,909
    
    
    $
    2,319
    
    
    $
    2,931
 Third party valuations are conducted periodically for mortgage servicing rights. Based on these
valuations, fair values were approximately $3.3 million and $3.4 million at year end 2007 and
2006. There was no valuation allowance in 2007, 2006 or 2005.
 6.
    
    ALLOWANCE FOR LOAN LOSSES:Changes in the allowance for loan losses are summarized as follows:
 December 31,(Dollar amounts in thousands)
    
    2007
    
    
    2006
    
    
    2005Balance at beginning of year
    
    $
    16,169
    
    
    $
    16,042
    
    
    $
    19,918Provision for loan losses
    
    
    6,580
    
    
    
    6,983
    
    
    
    11,698Recoveries of loans previously charged off
    
    
    2,778
    
    
    
    3,653
    
    
    
    1,918Loans charged off
    
    
    (10,176
    )
    
    
    (10,509
    )
    
    
    (17,492
    )Balance at End of Year
    
    $
    15,351
    
    
    $
    16,169
    
    
    $
    16,042
  20




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##### 



2007 ANNUAL REPORT
 Notes to Consolidated Financial Statements
 Impaired loans were as follows:
 December 31,(Dollar amounts in thousands)
    
    2007
    
    
    2006Year-end loans with no allocated allowance for loan losses
    
    $
    
    
    
    $
    503Year-end loans with allocated allowance for loan losses
    
    
    2,203
    
    
    
    4,865Total
    
    $
    2,203
    
    
    $
    5,368Amount of the allowance for loan losses allocated
    
    $
    729
    
    
    $
    2,480Nonperforming loans:Loans past due over 90 days still on accrual
    
    
    4,462
    
    
    
    4,691Non-accrual loans
    
    
    7,971
    
    
    
    9,893
 Nonperforming loans include both smaller balance homogeneous loans that are collectively evaluated
for impairment and individually classified impaired loans.
 (Dollar amounts in thousands)
    
    2007
    
    
    2006
    
    
    2005Average of impaired loans during the year
    
    $
    3,505
    
    
    $
    3,336
    
    
    $
    11,992Interest income recognized during impairment
    
    
    11
    
    
    
    13
    
    
    
    126Cash-basis interest income recognized
    
    
    1
    
    
    
    
    
    
    
    11
 7.
    
    PREMISES AND EQUIPMENT:Premises and equipment are summarized as follows:
 December 31,(Dollar amounts in thousands)
    
    2007
    
    
    2006Land
    
    $
    5,653
    
    
    $
    5,653Building and leasehold improvements
    
    
    38,948
    
    
    
    38,047Furniture and equipment
    
    
    30,916
    
    
    
    31,71775,517
    
    
    
    75,417Less accumulated depreciation
    
    
    (42,885
    )
    
    
    (42,150
    )Total
    
    $
    32,632
    
    
    $
    33,267
 Aggregate depreciation expense was $3.02 million, $3.02 million and $2.79 million for 2007, 2006
and 2005, respectively.8.
    
    GOODWILL AND INTANGIBLE ASSETS:The Corporation completed its annual impairment testing of goodwill during the second quarter of
2007 and 2006. Management does not believe any amount of goodwill is impaired.Intangible assets subject to amortization at December 31, 2007 and 2006 are as follows:
 2007
    
    
    2006Gross
    
    
    Accumulated
    
    
    Gross
    
    
    Accumulated(Dollar amounts in thousands)
    
    Amount
    
    
    Amortization
    
    
    Amount
    
    
    AmortizationCustomer list intangible
    
    $
    3,446
    
    
    $
    2,303
    
    
    $
    3,446
    
    
    $
    1,997Core deposit intangible
    
    
    2,193
    
    
    
    1,399
    
    
    
    2,193
    
    
    
    1,279Non-compete agreements
    
    
    500
    
    
    
    500
    
    
    
    500
    
    
    
    500$
    6,139
    
    
    $
    4,202
    
    
    $
    6,139
    
    
    $
    3,776
 Aggregate amortization expense was $426 thousand, $497 thousand and $571 thousand for 2007, 2006
and 2005, respectively.Estimated amortization expense for the next five years is as follows:
 In thousands2008
    
    $
    4252009
    
    
    4252010
    
    
    4252011
    
    
    2452012
    
    
    154
  21




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##### 



FIRST FINANCIAL CORPORATION
 Notes to Consolidated Financial Statements
 9.
    
    DEPOSITS:Scheduled maturities of time deposits for the next five years are as follows:
 2008
    
    $
    513,3612009
    
    
    87,9152010
    
    
    27,9312011
    
    
    9,4662012
    
    
    9,713
 10.
    
    SHORT-TERM BORROWINGS:A summary of the carrying value of the Corporations short-term borrowings at December 31, 2007
and 2006 is presented below:
 (Dollar amounts in thousands)
    
    2007
    
    
    2006Federal funds purchased
    
    $
    3,032
    
    
    $
    10,179Repurchase agreements
    
    
    22,656
    
    
    
    5,407Other short-term borrowings
    
    
    1,643
    
    
    
    617$
    27,331
    
    
    $
    16,203
 (Dollar amounts in thousands)
    
    2007
    
    
    2006Average amount outstanding
    
    $
    32,042
    
    
    $
    15,691Maximum amount outstanding at a month end
    
    
    59,364
    
    
    
    38,940Average interest rate during year
    
    
    5.03
    %
    
    
    4.77
    %Interest rate at year-end
    
    
    4.57
    %
    
    
    4.74
    %
 Federal funds purchased are generally due in one day and bear interest at market rates. Other
borrowings, primarily note payableU.S. government, are due on demand, secured by a pledge of
securities and bear interest at market rates.Substantially all repurchase agreement liabilities represent amounts advanced by various
customers. Securities are pledged to cover these liabilities, which are not covered by federal
deposit insurance. The Corporation maintains possession of and control over these securities.11.
    
    OTHER BORROWINGS:Other borrowings at December 31, 2007 and 2006 are summarized as follows:
 (Dollar amounts in thousands)
    
    2007
    
    
    2006FHLB advances
    
    $
    334,685
    
    
    $
    335,205City of Terre Haute, Indiana economic development revenue bonds
    
    
    6,600
    
    
    
    6,600Total
    
    $
    341,285
    
    
    $
    341,805
 The aggregate minimum annual retirements of other borrowings are as follows:
 2008
    
    $
    90,2322009
    
    
    47,4162010
    
    
    202,3442011
    
    
    6342012
    
    
    90Thereafter
    
    
    569$
    341,285
  22




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##### 



2007 ANNUAL REPORT
 Notes to Consolidated Financial Statements
 The Corporations subsidiary banks are members of the Federal Home Loan Bank (FHLB) and accordingly
are permitted to obtain advances. The advances from the FHLB, aggregating $334.7 million at
December 31, 2007, and $335.2 million at December 31, 2006, accrue interest, payable monthly, at
annual rates, primarily fixed, varying from 3.6% to 6.6% in 2007 and 4.9% to 6.6% in 2006. The
advances are due at various dates through August 2017. FHLB advances are, generally, due in full at
maturity. They are secured by eligible securities totaling $197.5 million at December 31, 2006, and
$203.6 million at December 31, 2007, and a blanket pledge on real estate loan collateral. Based on
this collateral and the Corporations holdings of FHLB stock, the Corporation is eligible to borrow
up to $428.8 million at year end 2007. Certain advances may be prepaid, without penalty, prior to
maturity. The FHLB can adjust the interest rate from fixed to variable on certain advances, but
those advances may then be prepaid, without penalty.The economic development revenue bonds (bonds) require periodic interest payments each year until
maturity or redemption. The interest rate, which was 3.46% at December 31, 2007, and 3.97% at
December 31, 2006, is determined by a formula which considers rates for comparable bonds and is
adjusted periodically. The bonds are collateralized by a first mortgage on the Corporations
headquarters building. The bonds mature December 1, 2015, but bondholders may periodically require
earlier redemption.The debt agreement for the bonds requires the Corporation to meet certain financial covenants.
These covenants require the Corporation to maintain a Tier I capital ratio of at least 6.2% and net
income to average assets of 0.6%. At December 31, 2007 and 2006, the Corporation was in compliance
with all of its debt covenants.The Corporation maintains a letter of credit with another financial institution, which could be
used to repay the bonds, should they be called. The letter of credit expired November 1, 2007, and
was automatically extended for one year. Assuming redemption will be funded by the letter of
credit, or by other similar borrowings, there are no anticipated principal maturities of the bonds
within the next five years.12.
    
    INCOME TAXES:Income tax expense is summarized as follows:
 (Dollar amounts in thousands)
    
    2007
    
    
    2006
    
    
    2005Federal:Currently payable
    
    $
    8,520
    
    
    $
    10,409
    
    
    $
    6,202Deferred
    
    
    242
    
    
    
    (3,335
    )
    
    
    1,3348,762
    
    
    
    7,074
    
    
    
    7,536State:Currently payable
    
    
    837
    
    
    
    521
    
    
    
    (5
    )Deferred
    
    
    (215
    )
    
    
    (244
    )
    
    
    382622
    
    
    
    277
    
    
    
    377Total
    
    $
    9,384
    
    
    $
    7,351
    
    
    $
    7,913
 The reconciliation of income tax expense with the amount computed by applying the statutory federal
income tax rate of 35% to income before income taxes is summarized as follows:
 (Dollar amounts in thousands)
    
    2007
    
    
    2006
    
    
    2005Federal income taxes computed at the statutory rate
    
    $
    12,238
    
    
    $
    10,812
    
    
    $
    10,839Add (deduct) tax effect of:Tax exempt income
    
    
    (3,263
    )
    
    
    (3,056
    )
    
    
    (2,902
    )State tax, net of federal benefit
    
    
    404
    
    
    
    180
    
    
    
    245Affordable housing credits
    
    
    (113
    )
    
    
    (329
    )
    
    
    (327
    )Other, net
    
    
    118
    
    
    
    (256
    )
    
    
    58Total
    
    $
    9,384
    
    
    $
    7,351
    
    
    $
    7,913
  23




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##### 



FIRST FINANCIAL CORPORATION
 Notes to Consolidated Financial Statements
 The tax effects of temporary differences that give rise to significant portions of the deferred tax
assets and liabilities at December 31, 2007 and 2006, are as follows:
 (Dollar amounts in thousands)
    
    2007
    
    
    2006Deferred tax assets:Net unrealized losses on retirement plans
    
    $
    5,913
    
    
    $
    5,705Loan losses provision
    
    
    6,146
    
    
    
    6,448Deferred compensation
    
    
    5,476
    
    
    
    4,675Compensated absences
    
    
    520
    
    
    
    513Post-retirement benefits
    
    
    1,172
    
    
    
    1,068Other
    
    
    1,036
    
    
    
    1,025Gross Deferred Assets
    
    
    20,263
    
    
    
    19,434Deferred tax liabilities:Net unrealized gains on securities available-for-sale
    
    
    (2,782
    )
    
    
    (2,042
    )Depreciation
    
    
    (1,379
    )
    
    
    (1,435
    )Federal Home Loan Bank stock dividends
    
    
    (751
    )
    
    
    (751
    )Mortgage servicing rights
    
    
    (763
    )
    
    
    (924
    )Pensions
    
    
    (2,369
    )
    
    
    (2,361
    )Other
    
    
    (2,138
    )
    
    
    (1,281
    )Gross Deferred Liabilities
    
    
    (10,182
    )
    
    
    (8,794
    )Net Deferred Tax Assets (Liabilities)
    
    $
    10,081
    
    
    $
    10,640
 Unrecognized Tax Benefits A reconciliation of the beginning and ending amount of unrecognized tax
benefits is as follows:
 Balance at January 1, 2007
    
    $
    601Additions based on tax positions related to the current year
    
    
    290Additions for tax positions of prior years
    
    
    Reductions for tax positions of prior years
    
    
    Reductions due to the statute of limitations
    
    
    (88
    )Settlements
    
    
    Balance at December 31, 2007
    
    $
    803
 Of this total, $803 represents the amount of unrecognized tax benefits that, if recognized,
would favorably affect the effective income tax rate in future periods. The Corporation does not
expect the total amount of unrecognized tax benefits to significantly increase or decrease in
the next 12 months.The total amount of interest and penalties recorded in the income statement for the year ended
December 31, 2007 was $30, and the amount accrued for interest and penalties at December 31,
2007 was $112.The Corporation and its subsidiaries are subject to U.S. federal income tax as well as income
tax of the states of Indiana and Illinois. The Corporation is no longer subject to examination
by taxing authorities for years before 2004. We are currently under audit by the Internal
Revenue Service for the 2004 and 2005 tax years. The anticipated effect on unrecognized tax
benefits resulting from this audit cannot be determined at this time.13.
    
    FINANCIAL INSTRUMENTS WITH OFF-BALANCE-SHEET RISK:The Corporation is a party to financial instruments with off-balance-sheet risk in the normal
course of business to meet the financing needs of its customers. These financial instruments
include conditional commitments and commercial letters of credit. The financial instruments
involve to varying degrees, elements of credit and interest rate risk in excess of amounts
recognized in the financial statements. The Corporations maximum exposure to credit loss in the
event of nonperformance by the other party to the financial instrument for commitments to make
loans is limited generally by the contractual amount of those instruments. The Corporation
follows the same credit policy to make such commitments as is followed for those loans recorded
in the consolidated financial statements.
  24




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##### 



2007 ANNUAL REPORT
 Notes to Consolidated Financial Statements
 Commitment and contingent liabilities are summarized as follows at December 31:
 (Dollar amounts in thousands)
    
    2007
    
    
    2006Home equity
    
    $
    38,612
    
    
    $
    38,205Credit card lines
    
    
    48,523
    
    
    
    46,238Commercial operating lines
    
    
    134,068
    
    
    
    159,630Other commitments
    
    
    54,453
    
    
    
    51,018$
    275,656
    
    
    $
    295,091Commercial letters of credit
    
    
    17,336
    
    
    
    17,289
 The majority of commercial operating lines and home equity lines are variable rate, while the
majority of other commitments to fund loans are fixed rate. Since many commitments to make loans
expire without being used, these amounts do not necessarily represent future cash commitments.
Collateral obtained upon exercise of the commitment is determined using managements credit
evaluation of the borrower, and may include accounts receivable, inventory, property, land and
other items. The approximate duration of these commitments is generally one year or less.14.
    
    RETIREMENT PLANS:Substantially all employees of the Corporation are covered by a retirement program that consists
of a defined benefit plan and an employee stock ownership plan (ESOP). Plan assets consist
primarily of the Corporations stock and obligations of U.S. Government agencies. Benefits under
the defined benefit plan are actuarially determined based on an employees service and
compensation, as defined, and funded as necessary.Assets in the ESOP are considered in calculating the funding to the defined benefit plan
required to provide such benefits. Any shortfall of benefits under the ESOP are to be provided
by the defined benefit plan. The ESOP may provide benefits beyond those determined under the
defined benefit plan. Contributions to the ESOP are determined by the Corporations Board of
Directors. The Corporation made contributions to the defined benefit plan of $1.02 million,
$1.96 million and $1.41 million in 2007, 2006 and 2005. The Corporation contributed $1.24
million, $1.16 million and $1.14 million to the ESOP in 2007, 2006 and 2005.The Corporation uses a measurement date of December 31, 2007.Net periodic benefit cost and other amounts recognized in other comprehensive income included
the following components:
 (Dollar amounts in thousands)
    
    2007
    
    
    2006
    
    
    2005Service cost  benefits earned
    
    $
    3,073
    
    
    $
    2,919
    
    
    $
    2,725Interest cost on projected benefit obligation
    
    
    2,773
    
    
    
    2,328
    
    
    
    2,451Expected return on plan assets
    
    
    (3,644
    )
    
    
    (2,793
    )
    
    
    (3,285
    )Net amortization and deferral
    
    
    444
    
    
    
    744
    
    
    
    229Net periodic pension cost
    
    $
    2,646
    
    
    $
    3,198
    
    
    $
    2,120Net loss (gain) during the period
    
    $
    3,422
    
    
    $
    
    
    
    $
    Amortization of prior service cost
    
    
    18
    
    
    
    
    
    
    
    Amortization of unrecognized gain (loss)
    
    
    (462
    )
    
    
    
    
    
    
    Total recognized in other comprehensive income
    
    $
    2,978
    
    
    $
    
    
    
    $
    Total recognized net periodic pension cost and other comprehensive income
    
    $
    5,624
    
    
    $
    
    
    
    $
    
 The estimated net loss and prior service costs for the defined benefit pension plan that will be
amortized from accumulated other comprehensive income into net periodic benefit cost over the next
fiscal year are $729 thousand and $(18) thousand.The information on the following page sets forth the change in projected benefit obligation,
reconciliation of plan assets, and the funded status of the Corporations retirement program.
Actuarial present value of benefits is based on service to date and present pay levels.
  25




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##### 



FIRST FINANCIAL CORPORATION
 Notes to Consolidated Financial Statements
 (Dollar amounts in thousands)
    
    2007
    
    
    2006Change in benefit obligation:Benefit obligation at January 1
    
    $
    49,920
    
    
    $
    42,541Service cost
    
    
    3,073
    
    
    
    2,919Interest cost
    
    
    2,773
    
    
    
    2,328Actuarial (gain) loss
    
    
    (4,938
    )
    
    
    3,602Benefits paid
    
    
    (1,384
    )
    
    
    (1,470
    )Benefit obligation at December 31
    
    
    49,444
    
    
    
    49,920Reconciliation of fair value of plan assets:Fair value of plan assets at January 1
    
    
    45,056
    
    
    
    34,488Actual return on plan assets
    
    
    (5,136
    )
    
    
    8,911Employer contributions
    
    
    2,267
    
    
    
    3,127Benefits paid
    
    
    (1,384
    )
    
    
    (1,470
    )Fair value of plan assets at December 31
    
    
    40,803
    
    
    
    45,056Funded status at December 31 (plan assets less benefit obligations)
    
    $
    (8,641
    )
    
    $
    (4,864
    )
 Amounts recognized in accumulated other comprehensive income at December 31, 2007 and 2006 consist
of:
 (Dollar amounts in thousands)
    
    2007
    
    
    2006Net loss (gain)
    
    $
    14,314
    
    
    $
    10,935Prior service cost (credit)
    
    
    (121
    )
    
    
    (140
    )$
    14,193
    
    
    $
    10,795
 The accumulated benefit obligation for the defined benefit pension plan was $40,298 and $42,152 at
year-end 2007 and 2006.
 2007
    
    
    2006Principal assumptions used:Discount rate
    
    
    5.91
    %
    
    
    5.50
    %Rate of increase in compensation levels
    
    
    3.75
    
    
    
    3.75Expected long-term rate of return on plan assets
    
    
    8.00
    
    
    
    8.00
 The expected long-term rate of return was estimated using market benchmarks for equities and bonds
applied to the plans target asset allocation. Management estimated the rate by which plan assets
would perform based on historical experience as adjusted for changes in asset allocations and
expectations for future return on equities as compared to past periods.Plan Assets The Corporations pension plan weighted-average asset allocation for the years 2007
and 2006 by asset category are as follows:
 Pension Plan
    
    
    ESOPPension Plan
    
    
    ESOP
    
    
    Percentage of Plan
    
    
    Percentage of PlanTarget Allocation
    
    
    Target Allocation
    
    
    Assets at December 31,
    
    
    Assets at December 31,Asset Category
    
    2008
    
    
    2008
    
    
    2007
    
    
    2006
    
    
    2007
    
    
    2006Equity securities
    
    
    50-60
    %
    
    
    100-100
    %
    
    
    60
    %
    
    
    64
    %
    
    
    100
    %
    
    
    94
    %Debt securities
    
    
    30-40
    
    
    
    0-0
    
    
    
    39
    
    
    
    35
    
    
    
    0
    
    
    
    0Other
    
    
    1-5
    
    
    
    0-0
    
    
    
    1
    
    
    
    1
    
    
    
    0
    
    
    
    6TOTAL
    
    
    
    
    
    
    
    
    
    
    100
    %
    
    
    100
    %
    
    
    100
    %
    
    
    100
    %
 The investment objective for the retirement program is to maximize total return without exposure to
undue risk. Asset allocation favors equities, with a target allocation of approximately 88%. This
target includes the Corporations ESOP, which is 100% invested in corporate stock. Other investment
allocations include fixed income securities and cash.Equity securities include First Financial Corporation common stock in the amount of $24.9 million
(60 percent of total plan assets) and $30.1 million (67 percent of total plan assets) at December
31, 2007 and 2006, respectively.Contributions The Corporation expects to contribute $1.7 million to its pension plan and $1.3
million to its ESOP in 2008.
  26




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##### 



2007 ANNUAL REPORT
 Notes to Consolidated Financial Statements
 Estimated Future Payments The following benefit payments, which reflect expected future service,
are expected:
 Pension Benefits(Dollar amounts in thousands)2008
    
    $
    6232009
    
    
    7062010
    
    
    8492011
    
    
    9642012
    
    
    1,19220132017
    
    
    9,297
 Supplemental Executive Retirement Plan The Corporation has established a Supplemental Executive
Retirement Plan (SERP) for certain executive officers. The provisions of the SERP allow the Plans
participants who are also participants in the Corporations defined benefit pension plan to receive
supplemental retirement benefits to help recompense for benefits lost due to imposition of IRS
limitations on benefits under the Corporations tax qualified defined benefit pension plan.
Expenses related to the plan were $183 thousand in 2007 and $199 thousand in 2006. The SERP has
expected benefit payments $138 thousand in five years and $661 thousand after five years, which
reflects expected future service. The plan is unfunded and has a measurement date of December 31.
The amounts recognized in other comprehensive income in the current year are as follows:
 (Dollar amounts in thousands)
    
    2007
    
    
    2006
    
    
    2005Net loss (gain) during the period
    
    $
    (179
    )
    
    $
    
    
    
    $
    Amortization of prior service cost
    
    
    (74
    )
    
    
    
    
    
    
    Amortization of unrecognized gain (loss)
    
    
    17
    
    
    
    
    
    
    
    Total recognized in other comprehensive income
    
    $
    (236
    )
    
    $
    
    
    
    $
    
 The Corporation has $945 thousand and $1.0 million recognized in the balance sheet as a liability
at December 31, 2007 and 2006. Amounts recognized in accumulated other comprehensive income consist
of $114 thousand net gain and $296 thousand in prior service cost at December 31, 2007 and $165
thousand net gain and $370 thousand in prior service cost at December 31, 2006. The estimated loss
and prior service costs for the SERP that will be amortized from accumulated other comprehensive
income into net periodic benefit cost over the next fiscal year are $(5) thousand and $74 thousand.The Corporation also provides medical benefits to its employees subsequent to their retirement. The
Corporation uses a measurement date of December 31, 2007. During 2007 the Corporation changed the
post-retirement medical plan from being self-insured to fully insured. Accrued post-retirement
benefits as of December 31, 2007 and 2006 are as follows:
 December 31,(Dollar amounts in thousands)
    
    2007
    
    
    2006Change in benefit obligation:Benefit obligation at January 1
    
    $
    5,592
    
    
    $
    5,500Service cost
    
    
    118
    
    
    
    116Interest cost
    
    
    310
    
    
    
    302Plan participants contributions
    
    
    15
    
    
    
    144Actuarial (gain) loss
    
    
    (1,786
    )
    
    
    5Benefits paid
    
    
    (191
    )
    
    
    (475
    )Benefit obligation at December 31
    
    $
    4,058
    
    
    $
    5,592Funded status at December 31
    
    $
    (4,058
    )
    
    $
    (5,592
    )
 Amounts recognized in accumulated other comprehensive income consist of a net loss of $531 thousand
and $361 thousand in transition obligation at December 31, 2007 and $2.5 million net loss and $422
thousand in transition obligation at December 31, 2006. The post-retirement benefits paid in 2007
and 2006 of $191 thousand and $475 thousand, respectively, were fully funded by company and
participant contributions.
  27




---



##### 



FIRST FINANCIAL CORPORATION
 Notes to Consolidated Financial Statements
 The estimated net loss and transition obligation for the post-retirement benefit plan that will be
amortized from accumulated other comprehensive income into net periodic benefit cost over the next
fiscal year is $11 thousand and $60 thousand.Weighted-average assumptions as of December 31:
 December 31,2007
    
    
    2006Discount rate
    
    
    6.00
    %
    
    
    5.75
    %Initial weighted health care cost trend rate
    
    
    9.00
    
    
    
    9.50Ultimate health care cost trend rate
    
    
    5.00
    
    
    
    5.00Year in which the rate is assumed to stabilize and remain unchanged
    
    
    2016
    
    
    
    2016
 Post-retirement health benefit expense included the following components:
 Years Ended December 31,(Dollar amounts in thousands)
    
    2007
    
    
    2006
    
    
    2005Service cost
    
    $
    118
    
    
    $
    116
    
    
    $
    141Interest cost
    
    
    310
    
    
    
    302
    
    
    
    319Amortization of transition obligation
    
    
    60
    
    
    
    60
    
    
    
    60Recognized actuarial loss
    
    
    172
    
    
    
    240
    
    
    
    250Net periodic benefit cost
    
    $
    660
    
    
    $
    718
    
    
    $
    770Net loss (gain) during the period
    
    $
    (1,506
    )
    
    $
    
    
    
    $
    Amortization of prior service cost
    
    
    (60
    )
    
    
    
    
    
    
    Amortization of unrecognized gain (loss)
    
    
    (172
    )
    
    
    
    
    
    
    Total recognized in other comprehensive income
    
    $
    (1,738
    )
    
    $
    
    
    
    $
    Total recognized net periodic benefit cost and other comprehensive income
    
    $
    (1,078
    )
    
    $
    
    
    
    $
    
 Assumed health care cost trend rates have a significant effect on the amounts reported for the
health care plans. A
one-percentage-point change in the assumed health care cost trend rates would
have the following effects:
 1% Point
    
    
    1% Point(Dollar amounts in thousands)
    
    Increase
    
    
    DecreaseEffect on total of service and interest cost components
    
    $
    9
    
    
    $
    (8
    )Effect on post-retirement benefit obligation
    
    
    163
    
    
    
    (138
    )
 Contributions The Corporation expects to contribute $185 thousand to its other post-retirement
benefit plan in 2008.Estimated Future Payments The following benefit payments, which reflect expected future service,
are expected:
 Post-Retirement Medical Benefits(Dollar amounts in thousands)2008
    
    $
    1652009
    
    
    1732010
    
    
    1822011
    
    
    1912012
    
    
    20120132017
    
    
    1,123
  28




---



##### 



2007 ANNUAL REPORT
 Notes to Consolidated Financial Statements
 15.
    
    OTHER COMPREHENSIVE INCOME (LOSS):Other comprehensive income (loss) components and related taxes were as follows:
 December 31,(Dollar amounts in thousands)
    
    2007
    
    
    2006
    
    
    2005Unrealized holding gains and (losses) on securities available-for-sale
    
    $
    2,063
    
    
    $
    1,938
    
    
    $
    (10,186
    )Reclassification adjustments for (gains) and losses later
recognized in income
    
    
    (211
    )
    
    
    (6
    )
    
    
    (571
    )Net unrealized gains and losses
    
    
    1,852
    
    
    
    1,932
    
    
    
    (10,757
    )Tax effect
    
    
    (742
    )
    
    
    (771
    )
    
    
    4,303Other comprehensive income (loss)
    
    $
    1,110
    
    
    $
    1,161
    
    
    $
    (6,454
    )Unrecognized gains and (losses) on benefit plans
    
    $
    (1,737
    )
    
    $
    
    
    
    $
    Amortization of prior service cost included in net periodic pension cost
    
    
    116
    
    
    
    
    
    
    
    Amortization of unrecognized gains (losses) included in net
periodic 
pension cost
    
    
    617
    
    
    
    
    
    
    
    Benefit plans, net
    
    
    (1,004
    )
    
    
    
    
    
    
    Tax effect
    
    
    207
    
    
    
    
    
    
    
    Other comprehensive income (loss)
    
    $
    (797
    )
    
    $
    
    
    
    $
    
 The following is a summary of the accumulated other comprehensive income balances, net of tax:
 Balance
    
    
    Current
    
    
    Balanceat
    
    
    Period
    
    
    at(Dollar amounts in thousands)
    
    12/31/06
    
    
    Change
    
    
    12/31/07Unrealized gains (losses) on securities available-for-sale
    
    $
    3,064
    
    
    $
    1,110
    
    
    $
    4,174Unrealized loss on benefit plans
    
    
    (8,558
    )
    
    
    (797
    )
    
    
    (9,355
    )Total
    
    $
    (5,494
    )
    
    $
    313
    
    
    $
    (5,181
    )
 16.
    
    REGULATORY MATTERS:The Corporation and its bank affiliates are subject to various regulatory capital requirements
administered by the federal banking agencies. Failure to meet minimum capital requirements can
initiate certain mandatoryand possibly additional discretionaryactions by regulators that, if
undertaken, could have a direct material effect on the Corporations financial statements.Further, the Corporations primary source of funds to pay dividends to shareholders is dividends
from its subsidiary banks and compliance with these capital requirements can affect the ability
of the Corporation and its banking affiliates to pay dividends. At December 31, 2007,
approximately $24.2 million of undistributed earnings of the subsidiary banks, included in
consolidated retained earnings, were available for distribution to the Corporation without
regulatory approval.Under capital adequacy guidelines and the regulatory framework for prompt corrective action, the
Corporation and Banks must meet specific capital guidelines that involve quantitative measures
of the Corporations assets, liabilities, and certain off-balance-sheet items as calculated
under regulatory accounting practices. The Corporations and Banks capital amounts and
classification are also subject to qualitative judgments by the regulators about components,
risk weightings and other factors.Quantitative measures established by regulation to ensure capital adequacy require the
Corporation and Banks to maintain minimum amounts and ratios of Total and Tier I Capital to
risk-weighted assets, and of Tier I Capital to average assets. Management believes, as of
December 31, 2007 and 2006, that the Corporation meets all capital adequacy requirements to
which it is subject.As of December 31, 2007, the most recent notification from the respective regulatory agencies
categorized the subsidiary banks as well capitalized under the regulatory framework for prompt
corrective action. To be categorized as well capitalized, the banks must maintain minimum total
risk-based, Tier I risk-based and Tier I leverage ratios as set forth in the table. There are no
conditions or events since that notification that management believes have changed the banks
category.
  29




---



##### 



FIRST FINANCIAL CORPORATION
 Notes to Consolidated Financial Statements
 The following table presents the actual and required capital amounts and related ratios for the
Corporation and First Financial Bank, N.A., at year end 2007 and 2006.
 To Be Well CapitalizedFor Capital
    
    
    Under Prompt CorrectiveActual
    
    Adequacy Purposes
    
    
    Action Provisions(Dollar amounts in thousands)
    
    Amount
    
    
    Ratio
    
    
    Amount
    
    
    Ratio
    
    
    Amount
    
    
    RatioTotal risk-based capitalCorporation  2007
    
    $
    292,995
    
    
    
    18.18
    %
    
    $
    128,965
    
    
    
    8.00
    %
    
    
    N/A
    
    
    
    N/ACorporation  2006
    
    
    283,226
    
    
    
    17.78
    %
    
    
    127,423
    
    
    
    8.00
    %
    
    
    N/A
    
    
    
    N/AFirst Financial Bank  2007
    
    
    281,819
    
    
    
    18.13
    %
    
    
    124,355
    
    
    
    8.00
    %
    
    
    155,443
    
    
    
    10.00
    %First Financial Bank  2006
    
    
    272,455
    
    
    
    17.74
    %
    
    
    122,834
    
    
    
    8.00
    %
    
    
    153,542
    
    
    
    10.00
    %Tier I risk-based capitalCorporation  2007
    
    $
    277,644
    
    
    
    17.22
    %
    
    $
    64,483
    
    
    
    4.00
    %
    
    
    N/A
    
    
    
    N/ACorporation  2006
    
    
    267,057
    
    
    
    16.77
    %
    
    
    63,711
    
    
    
    4.00
    %
    
    
    N/A
    
    
    
    N/AFirst Financial Bank  2007
    
    
    269,412
    
    
    
    17.33
    %
    
    
    62,177
    
    
    
    4.00
    %
    
    
    93,266
    
    
    
    6.00
    %First Financial Bank  2006
    
    
    259,431
    
    
    
    16.90
    %
    
    
    61,417
    
    
    
    4.00
    %
    
    
    92,125
    
    
    
    6.00
    %Tier I leverage capitalCorporation  2007
    
    $
    277,644
    
    
    
    12.44
    %
    
    $
    89,273
    
    
    
    4.00
    %
    
    
    N/A
    
    
    
    N/ACorporation  2006
    
    
    267,057
    
    
    
    12.43
    %
    
    
    85,919
    
    
    
    4.00
    %
    
    
    N/A
    
    
    
    N/AFirst Financial Bank  2007
    
    
    269,412
    
    
    
    12.60
    %
    
    
    85,499
    
    
    
    4.00
    %
    
    
    106,874
    
    
    
    5.00
    %First Financial Bank  2006
    
    
    259,431
    
    
    
    12.48
    %
    
    
    83,146
    
    
    
    4.00
    %
    
    
    103,932
    
    
    
    5.00
    %
 17.
    
    PARENT COMPANY CONDENSED FINANCIAL STATEMENTS:The parent companys condensed balance sheets as of December 31, 2007 and 2006, and the related
condensed statements of income and cash flows for each of the three years in the period ended
December 31, 2007, are as follows:
 CONDENSED BALANCE SHEETS
 December 31,(Dollar amounts in thousands)
    
    2007
    
    
    2006ASSETSCash deposits in affiliated banks
    
    $
    7,040
    
    
    $
    7,730Investments in subsidiaries
    
    
    281,510
    
    
    
    270,693Land and headquarters building, net
    
    
    5,807
    
    
    
    6,043Other
    
    
    9,035
    
    
    
    9,120Total Assets
    
    $
    303,392
    
    
    $
    293,586LIABILITIES AND SHAREHOLDERS EQUITYLiabilitiesBorrowings (including $3.4 and $4.0 million from subsidiary)
    
    $
    10,036
    
    
    $
    10,636Dividends payable
    
    
    5,785
    
    
    
    5,708Other liabilities
    
    
    5,879
    
    
    
    5,982Total Liabilities
    
    
    21,700
    
    
    
    22,326Shareholders equity
    
    
    281,692
    
    
    
    271,260Total Liabilities and Shareholders Equity
    
    $
    303,392
    
    
    $
    293,586
  30




---



##### 



2007 ANNUAL REPORT
 Notes to Consolidated Financial Statements
 CONDENSED STATEMENTS OF INCOME
 Years Ended December 31,(Dollar amounts in thousands)
    
    2007
    
    
    2006
    
    
    2005Dividends from subsidiaries
    
    $
    16,500
    
    
    $
    14,192
    
    
    $
    33,828Other income
    
    
    1,026
    
    
    
    984
    
    
    
    1,013Interest on borrowings
    
    
    (655
    )
    
    
    (615
    )
    
    
    (943
    )Other operating expenses
    
    
    (3,343
    )
    
    
    (3,074
    )
    
    
    (3,017
    )Income before income taxes and equity
in undistributed earnings of subsidiaries
    
    
    13,528
    
    
    
    11,487
    
    
    
    30,881Income tax benefit
    
    
    1,230
    
    
    
    1,121
    
    
    
    1,177Income before equity in undistributed
earnings of subsidiaries
    
    
    14,758
    
    
    
    12,608
    
    
    
    32,058Equity in undistributed (dividends in excess of) earnings of subsidiaries
    
    
    10,822
    
    
    
    10,931
    
    
    
    (9,004
    )Net income
    
    $
    25,580
    
    
    $
    23,539
    
    
    $
    23,054
 CONDENSED STATEMENTS OF CASH FLOWS
 Years Ended December 31,(Dollar amounts in thousands)
    
    2007
    
    
    2006
    
    
    2005CASH FLOWS FROM OPERATING ACTIVITIES:Net income
    
    $
    25,580
    
    
    $
    23,539
    
    
    $
    23,054Adjustments to reconcile net income to net cash
provided by operating activities:Provision for depreciation and amortization
    
    
    260
    
    
    
    260
    
    
    
    258(Equity in undistributed earnings)
dividends in excess of subsidiaries
    
    
    (10,822
    )
    
    
    (10,931
    )
    
    
    9,004Contribution of shares to ESOP
    
    
    1,242
    
    
    
    1,164
    
    
    
    1,144Increase (decrease) in other liabilities
    
    
    239
    
    
    
    872
    
    
    
    479(Increase) decrease in other assets
    
    
    (41
    )
    
    
    (227
    )
    
    
    (392
    )Net Cash from Operating Activities
    
    
    16,458
    
    
    
    14,677
    
    
    
    33,547CASH FLOWS FROM INVESTING ACTIVITIES:Purchase of furniture and fixtures
    
    
    (8
    )
    
    
    (43
    )
    
    
    (325
    )Net Cash from Investing Activities
    
    
    (8
    )
    
    
    (43
    )
    
    
    (325
    )CASH FLOWS FROM FINANCING ACTIVITIES:Principal payments on long-term borrowings
    
    
    (600
    )
    
    
    
    
    
    
    (18,000
    )Purchase of treasury stock
    
    
    (5,167
    )
    
    
    (4,087
    )
    
    
    (5,789
    )Dividends paid
    
    
    (11,373
    )
    
    
    (11,181
    )
    
    
    (10,779
    )Net Cash from Financing Activities
    
    
    (17,140
    )
    
    
    (15,268
    )
    
    
    (34,568
    )Net (Decrease) Increase in Cash
    
    
    (690
    )
    
    
    (634
    )
    
    
    (1,346
    )Cash, Beginning of Year
    
    
    7,730
    
    
    
    8,364
    
    
    
    9,710Cash, End of Year
    
    $
    7,040
    
    
    $
    7,730
    
    
    $
    8,364Supplemental disclosures of cash flow information:Cash paid during the year for:Interest
    
    $
    657
    
    
    $
    612
    
    
    $
    938Income taxes
    
    $
    8,494
    
    
    $
    11,202
    
    
    $
    5,413
  31




---



##### 



FIRST FINANCIAL CORPORATION
 Notes to Consolidated Financial Statements
 18.
    
    SELECTED QUARTERLY DATA (UNAUDITED)
 2007Net
    
    
    ProvisionInterest
    
    
    Interest
    
    
    Interest
    
    
    for Loan
    
    
    Net
    
    
    Net Income(Dollar amounts in thousands)
    
    Income
    
    
    Expense
    
    
    Income
    
    
    Losses
    
    
    Income
    
    
    Per ShareMarch 31
    
    $
    33,622
    
    
    $
    15,165
    
    
    $
    18,457
    
    
    $
    1,690
    
    
    $
    6,423
    
    
    $
    .48June 30
    
    $
    34,204
    
    
    $
    15,639
    
    
    $
    18,565
    
    
    $
    1,240
    
    
    $
    6,413
    
    
    $
    .49September 30
    
    $
    34,915
    
    
    $
    16,166
    
    
    $
    18,749
    
    
    $
    1,575
    
    
    $
    6,362
    
    
    $
    .48December 31
    
    $
    34,993
    
    
    $
    15,991
    
    
    $
    19,002
    
    
    $
    2,075
    
    
    $
    6,382
    
    
    $
    .49
 2006Net
    
    
    ProvisionInterest
    
    
    Interest
    
    
    Interest
    
    
    for Loan
    
    
    Net
    
    
    Net Income(Dollar amounts in thousands)
    
    Income
    
    
    Expense
    
    
    Income
    
    
    Losses
    
    
    Income
    
    
    Per ShareMarch 31
    
    $
    31,423
    
    
    $
    13,027
    
    
    $
    18,396
    
    
    $
    2,203
    
    
    $
    5,509
    
    
    $
    .41June 30
    
    $
    32,777
    
    
    $
    14,266
    
    
    $
    18,511
    
    
    $
    645
    
    
    $
    6,425
    
    
    $
    .48September 30
    
    $
    33,012
    
    
    $
    14,768
    
    
    $
    18,244
    
    
    $
    2,495
    
    
    $
    5,455
    
    
    $
    .41December 31
    
    $
    33,620
    
    
    $
    15,068
    
    
    $
    18,552
    
    
    $
    1,640
    
    
    $
    6,150
    
    
    $
    .47
 
 Report of Independent Registered Public Accounting Firm on Financial Statements
      
  32




---



##### 



2007 ANNUAL REPORT
 Report of Independent Registered Public Accounting Firm on Internal Control Over Financial
Reporting
        
  33




---



##### 



FIRST FINANCIAL CORPORATION
 Managements Report on Internal Control Over Financial Reporting
      Managements Discussion and Analysis
     34




---



##### 



2007 ANNUAL REPORT
 Managements Discussion and Analysis
      Critical Accounting Policies and Estimates
  Allowance for loan losses.The allowance for loan losses represents managements estimate of
losses inherent in the existing loan portfolio. The allowance for loan losses is increased by the
provision for loan losses charged to expense and reduced by loans charged off, net of recoveries.
The allowance for loan losses is determined based on managements assessment of several factors:
reviews and evaluations of specific loans, changes in the nature and volume of the loan
portfolio, current economic conditions and the related impact on segments of the loan portfolio,
historical loan loss experience and the level of classified and nonperforming loans.Loans are considered impaired if, based on current information and events, it is probable that
the Corporation will be unable to collect the scheduled payments of principal or interest
according to the contractual terms of the loan agreement. When a loan is deemed impaired,
impairment is measured by using the fair value of underlying collateral, the present value of the
future cash flows discounted at the effective interest rate stipulated in the loan agreement, or
the estimated market value of the loan. In measuring the fair value of the collateral, management
uses assumptions (e.g., discount rate) and methodologies (e.g., comparison to the recent selling
price of similar assets) consistent with those that would be utilized by unrelated third parties.Changes in the financial condition of individual borrowers, economic conditions, historical loss
experience, or the condition of the various markets in which collateral may be sold may affect
the required level of the allowance for loan losses and the associated provision for loan losses.
Should cash flow assumptions or market conditions change, a different amount may be recorded for
the allowance for loan losses and the associated provision for loan losses.Goodwill.The carrying value of goodwill requires management to use estimates and assumptions
about the fair value of the reporting unit compared to its book value. An impairment analysis is
prepared on an annual basis. Fair values of the reporting units are determined by an analysis
which considers cash flows streams, profitability and estimated market values of the reporting
unit. The majority of the Corporations goodwill is recorded at Forest Sherer, Inc.
   35




---



##### 



FIRST FINANCIAL CORPORATION
 Results of Operations  Summary for 2007
  NET INTEREST INCOME
     2007 Compared to 2006
    
    
    2006 Compared to 2005Increase (Decrease) Due to
    
    
    Increase (Decrease) Due toVolume/
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Volume/(Dollar amounts in thousands)
    
    Volume
    
    
    Rate
    
    
    Rate
    
    
    Total
    
    
    Volume
    
    
    Rate
    
    
    Rate
    
    
    TotalInterest earned on
interest-earning assets:Loans (1)(2)
    
    $
    1,808
    
    
    $
    3,459
    
    
    $
    62
    
    
    $
    5,329
    
    
    $
    (3,842
    )
    
    $
    7,662
    
    
    $
    (304
    )
    
    $
    3,516Taxable investment
securities
    
    
    698
    
    
    
    940
    
    
    
    30
    
    
    
    1,668
    
    
    
    1,875
    
    
    
    2,878
    
    
    
    321
    
    
    
    5,074Tax-exempt investment
securities (2)
    
    
    870
    
    
    
    (290
    )
    
    
    (20
    )
    
    
    560
    
    
    
    302
    
    
    
    238
    
    
    
    6
    
    
    
    546Federal funds sold
    
    
    (70
    )
    
    
    54
    
    
    
    (5
    )
    
    
    (21
    )
    
    
    88
    
    
    
    175
    
    
    
    31
    
    
    
    294Total interest income
    
    
    3,306
    
    
    
    4,163
    
    
    
    67
    
    
    
    7,536
    
    
    
    (1,577
    )
    
    
    10,953
    
    
    
    54
    
    
    
    9,430Interest paid on
interest-bearing liabilities:Transaction accounts
    
    
    (55
    )
    
    
    1,853
    
    
    
    (9
    )
    
    
    1,789
    
    
    
    (765
    )
    
    
    5,138
    
    
    
    (559
    )
    
    
    3,814Time deposits
    
    
    (82
    )
    
    
    2,980
    
    
    
    (9
    )
    
    
    2,889
    
    
    
    801
    
    
    
    5,276
    
    
    
    210
    
    
    
    6,287Short-term borrowings
    
    
    775
    
    
    
    44
    
    
    
    46
    
    
    
    865
    
    
    
    (304
    )
    
    
    437
    
    
    
    (170
    )
    
    
    (37
    )Other borrowings
    
    
    42
    
    
    
    254
    
    
    
    1
    
    
    
    297
    
    
    
    (750
    )
    
    
    360
    
    
    
    (14
    )
    
    
    (404
    )Total interest expense
    
    
    680
    
    
    
    5,131
    
    
    
    29
    
    
    
    5,840
    
    
    
    (1,018
    )
    
    
    11,211
    
    
    
    (533
    )
    
    
    9,660Net interest income
    
    $
    2,626
    
    
    $
    (968
    )
    
    $
    38
    
    
    $
    1,696
    
    
    $
    (559
    )
    
    $
    (258
    )
    
    $
    587
    
    
    $
    (230
    )
 (1)
    
    For purposes of these computations, nonaccruing loans are included in the daily
average loan amounts outstanding.(2)
    
    Interest income includes the effect of tax equivalent adjustments using a federal
tax rate of 35%.  36




---



##### 



2007 ANNUAL REPORT
 Results of Operations  Summary for 2007
 PROVISION FOR LOAN LOSSES
   NON-INTEREST INCOME
  NON-INTEREST EXPENSES
  INCOME TAXES
  COMPARISON OF 2006 TO 2005
 non-interest
     37




---



##### 



FIRST FINANCIAL CORPORATION
 Financial Condition  Summary
    SECURITIES
   1 Year and Less
    
    
    1 to 5 Years
    
    
    5 to 10 Years
    
    
    Over 10 Years
    
    
    2007(Dollar amounts in thousands)
    
    Balance
    
    
    Rate
    
    
    Balance
    
    
    Rate
    
    
    Balance
    
    
    Rate
    
    
    Balance
    
    
    Rate
    
    
    TotalU.S. government sponsored
entity mortgage-backed
securities and agencies
    
    $
    212
    
    
    
    5.08
    %
    
    $
    1,366
    
    
    
    4.60
    %
    
    $
    65,393
    
    
    
    4.44
    %
    
    $
    222,733
    
    
    
    5.26
    %
    
    $
    289,704Collateralized mortgage obligations (1)
    
    
    
    
    
    
    
    
    
    
    4
    
    
    
    11.50
    
    
    
    27
    
    
    
    6.94
    
    
    
    77,143
    
    
    
    5.27
    
    
    
    77,174States and political subdivisions
    
    
    6,933
    
    
    
    5.49
    
    
    
    43,192
    
    
    
    7.37
    
    
    
    49,290
    
    
    
    7.54
    
    
    
    47,100
    
    
    
    6.19
    
    
    
    146,515Corporate obligations
    
    
    7,048
    
    
    
    6.40
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    58,408
    
    
    
    5.07
    
    
    
    65,456Total
    
    
    14,193
    
    
    
    5.93
    
    
    
    44,562
    
    
    
    7.29
    
    
    
    114,710
    
    
    
    5.77
    
    
    
    405,384
    
    
    
    5.34
    
    
    
    578,849Equities
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    7,784
    
    
    
    
    
    
    
    7,784TOTAL
    
    $
    14,193
    
    
    
    
    
    
    $
    44,562
    
    
    
    
    
    
    $
    114,710
    
    
    
    
    
    
    $
    413,168
    
    
    
    
    
    
    $
    586,633
 (1)
    
    Distribution of maturities is based on the estimated average life of the asset.  38




---



##### 



2007 ANNUAL REPORT
 Financial Condition  Summary
 LOAN PORTFOLIO
  (Dollar amounts in thousands)
    
    2007
    
    
    2006
    
    
    2005
    
    
    2004
    
    
    2003Loan CategoryCommercial, financial and agricultural
    
    $
    461,086
    
    
    $
    407,995
    
    
    $
    382,214
    
    
    $
    401,724
    
    
    $
    374,638Real estate  construction
    
    
    29,637
    
    
    
    33,336
    
    
    
    31,918
    
    
    
    32,810
    
    
    
    35,361Real estate  mortgage
    
    
    673,355
    
    
    
    691,989
    
    
    
    707,008
    
    
    
    753,826
    
    
    
    766,911Consumer
    
    
    262,858
    
    
    
    257,065
    
    
    
    272,062
    
    
    
    272,261
    
    
    
    248,290Lease financing
    
    
    2,275
    
    
    
    2,604
    
    
    
    2,845
    
    
    
    3,658
    
    
    
    4,884Total
    
    $
    1,429,211
    
    
    $
    1,392,989
    
    
    $
    1,396,047
    
    
    $
    1,464,279
    
    
    $
    1,430,084Credit card loans held-for-sale
    
    $
    14,068
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
 After OneWithin
    
    
    But Within
    
    
    After Five(Dollar amounts in thousands)
    
    One Year
    
    
    Five Years
    
    
    Years
    
    
    TotalMaturity DistributionCommercial, financial and agricultural
    
    $
    223,954
    
    
    $
    193,781
    
    
    $
    43,351
    
    
    $
    461,086Real estate  construction
    
    
    12,869
    
    
    
    7,441
    
    
    
    9,327
    
    
    
    29,637Total
    
    $
    236,823
    
    
    $
    201,222
    
    
    $
    52,678
    
    
    
    490,723Real estate  mortgage
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    673,355Consumer
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    262,858Lease financing
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2,275Total
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    1,429,211Credit card loans held-for-sale
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    14,068Loans maturing after one year with:Fixed interest rates
    
    
    
    
    
    $
    73,688
    
    
    $
    42,213Variable interest rates
    
    
    
    
    
    
    127,534
    
    
    
    10,465Total
    
    
    
    
    
    $
    201,222
    
    
    $
    52,678
  39




---



##### 



FIRST FINANCIAL CORPORATION
 Financial Condition  Summary
 ALLOWANCE FOR LOAN LOSSES
  (Dollar amounts in thousands)
    
    2007
    
    
    2006
    
    
    2005
    
    
    2004
    
    
    2003Amount of loans outstanding
at December 31,
    
    $
    1,429,211
    
    
    $
    1,392,989
    
    
    $
    1,396,047
    
    
    $
    1,464,279
    
    
    $
    1,430,084Average amount of loans by year
    
    $
    1,409,051
    
    
    $
    1,384,138
    
    
    $
    1,441,247
    
    
    $
    1,452,572
    
    
    $
    1,417,026Allowance for loan losses
at beginning of year
    
    $
    16,169
    
    
    $
    16,042
    
    
    $
    19,918
    
    
    $
    21,239
    
    
    $
    21,249Loans charged off:Commercial, financial and agricultural
    
    
    3,433
    
    
    
    2,066
    
    
    
    6,093
    
    
    
    4,080
    
    
    
    2,253Real estate  mortgage
    
    
    1,026
    
    
    
    1,617
    
    
    
    2,590
    
    
    
    623
    
    
    
    1,101Consumer
    
    
    5,712
    
    
    
    6,826
    
    
    
    8,809
    
    
    
    6,680
    
    
    
    5,586Leasing
    
    
    5
    
    
    
    
    
    
    
    
    
    
    
    1
    
    
    
    Total loans charged off
    
    
    10,176
    
    
    
    10,509
    
    
    
    17,492
    
    
    
    11,384
    
    
    
    8,940Recoveries of loans previously charged off:Commercial, financial and agricultural
    
    
    389
    
    
    
    1,262
    
    
    
    284
    
    
    
    452
    
    
    
    432Real estate  mortgage
    
    
    139
    
    
    
    187
    
    
    
    343
    
    
    
    37
    
    
    
    166Consumer
    
    
    2,250
    
    
    
    2,204
    
    
    
    1,291
    
    
    
    1,281
    
    
    
    877Leasing
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1
    
    
    
    Total recoveries
    
    
    2,778
    
    
    
    3,653
    
    
    
    1,918
    
    
    
    1,771
    
    
    
    1,475Net loans charged off
    
    
    7,398
    
    
    
    6,856
    
    
    
    15,574
    
    
    
    9,613
    
    
    
    7,465Provision charged to expense
    
    
    6,580
    
    
    
    6,983
    
    
    
    11,698
    
    
    
    8,292
    
    
    
    7,455Balance at end of year
    
    $
    15,351
    
    
    $
    16,169
    
    
    $
    16,042
    
    
    $
    19,918
    
    
    $
    21,239Ratio of net charge-offs during period
to average loans outstanding
    
    
    .53
    %
    
    
    .50
    %
    
    
    1.08
    %
    
    
    .66
    %
    
    
    .53
    %
    40




---



##### 



2007 ANNUAL REPORT
 Financial Condition  Summary
 Years Ended December 31,(Dollar amounts in thousands)
    
    2007
    
    
    2006
    
    
    2005
    
    
    2004
    
    
    2003Commercial, financial and agricultural
    
    $
    10,090
    
    
    $
    9,043
    
    
    $
    8,148
    
    
    $
    11,840
    
    
    $
    13,844Real estate  mortgage
    
    
    1,245
    
    
    
    1,364
    
    
    
    867
    
    
    
    850
    
    
    
    1,254Consumer
    
    
    4,016
    
    
    
    5,762
    
    
    
    7,027
    
    
    
    7,228
    
    
    
    6,141Total Allowance for Loan Losses
    
    $
    15,351
    
    
    $
    16,169
    
    
    $
    16,042
    
    
    $
    19,918
    
    
    $
    21,239
 NONPERFORMING LOANS
  (Dollar amounts in thousands)
    
    2007
    
    
    2006
    
    
    2005
    
    
    2004
    
    
    2003Non-accrual loans
    
    $
    7,971
    
    
    $
    9,893
    
    
    $
    8,464
    
    
    $
    19,862
    
    
    $
    8,429Restructured loans
    
    
    50
    
    
    
    52
    
    
    
    57
    
    
    
    430
    
    
    
    542Accruing loans past due over 90 days
    
    
    4,462
    
    
    
    4,691
    
    
    
    6,354
    
    
    
    7,813
    
    
    
    5,384$
    12,483
    
    
    $
    14,636
    
    
    $
    14,875
    
    
    $
    28,105
    
    
    $
    14,355
  (Dollar amounts in thousands)
    
    2007
    
    
    2006Non-accrual loans:1-4 family residential
    
    $
    2,574
    
    
    
    32
    %
    
    $
    1,598
    
    
    
    16
    %Commercial loans
    
    
    3,938
    
    
    
    50
    
    
    
    6,551
    
    
    
    66Consumer loans
    
    
    1,459
    
    
    
    18
    
    
    
    1,744
    
    
    
    18$
    7,971
    
    
    
    100
    %
    
    $
    9,893
    
    
    
    100
    %Past due 90 days or more:1-4 family residential
    
    $
    1,230
    
    
    
    28
    %
    
    $
    1,607
    
    
    
    34
    %Commercial loans
    
    
    2,795
    
    
    
    62
    
    
    
    2,542
    
    
    
    54Consumer loans
    
    
    437
    
    
    
    10
    
    
    
    542
    
    
    
    12$
    4,462
    
    
    
    100
    %
    
    $
    4,691
    
    
    
    100
    %
  41




---



##### 



FIRST FINANCIAL CORPORATION
 Financial Condition  Summary
 DEPOSITS
  2007
    
    
    2006
    
    
    2005(Dollar amounts in thousands)
    
    Amount
    
    
    Rate
    
    
    Amount
    
    
    Rate
    
    
    Amount
    
    
    RateNon-interest-bearing
demand deposits
    
    $
    226,822
    
    
    
    
    
    
    $
    206,839
    
    
    
    
    
    
    $
    153,027Interest-bearing demand deposits
    
    
    198,368
    
    
    
    0.94
    %
    
    
    201,928
    
    
    
    1.14
    %
    
    
    294,344
    
    
    
    0.77
    %Savings deposits
    
    
    410,919
    
    
    
    2.62
    %
    
    
    410,458
    
    
    
    1.87
    %
    
    
    392,791
    
    
    
    1.21
    %Time deposits:$100,000 or more
    
    
    189,501
    
    
    
    4.66
    %
    
    
    188,572
    
    
    
    4.27
    %
    
    
    185,436
    
    
    
    3.11
    %Other time deposits
    
    
    477,114
    
    
    
    4.30
    %
    
    
    480,116
    
    
    
    4.01
    %
    
    
    457,685
    
    
    
    3.11
    %TOTAL
    
    $
    1,502,724
    
    
    
    
    
    
    $
    1,487,913
    
    
    
    
    
    
    $
    1,483,283
  3 months or less
    
    $
    11,402Over 3 through 6 months
    
    
    35,587Over 6 through 12 months
    
    
    44,677Over 12 months
    
    
    102,235TOTAL
    
    $
    193,901
  42




---



##### 



2007 ANNUAL REPORT
 Financial Condition  Summary
 OTHER BORROWINGS
  CAPITAL RESOURCES
   INTEREST RATE SENSITIVITY AND LIQUIDITY
  Interest Rate Risk:
     43




---



##### 



FIRST FINANCIAL CORPORATION
 Financial Condition  Summary
 Basis Point
    
    Percentage Change in Net Interest IncomeInterest Rate Change
    
    12 months
    
    
    24 months
    
    
    36 monthsDown 200
    
    
    0.46
    %
    
    
    -3.63
    %
    
    
    -7.16
    %Down 100
    
    
    0.27
    
    
    
    -1.31
    
    
    
    -2.92Up 100
    
    
    -0.54
    
    
    
    0.93
    
    
    
    2.48Up 200
    
    
    -4.32
    
    
    
    -1.59
    
    
    
    2.51
  Liquidity Risk:
 CONTRACTUAL OBLIGATIONS, COMMITMENTS, CONTINGENT LIABILITIES AND OFF-BALANCE SHEET ARRANGEMENTS
  Contractual Obligations:
 Payments Due InNote
    
    
    One Year
    
    
    One to
    
    
    Three to
    
    
    Over Five(Dollar amounts in thousands)
    
    Reference
    
    
    or Less
    
    
    Three Years
    
    
    Five Years
    
    
    Years
    
    
    TotalDeposits without a stated maturity
    
    
    
    
    
    $
    881,114
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    881,114Consumer certificates of deposit
    
    
    
    
    
    
    513,361
    
    
    
    115,846
    
    
    
    19,179
    
    
    
    221
    
    
    
    648,607Short-term borrowings
    
    
    10
    
    
    
    27,331
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    27,331Other borrowings
    
    
    11
    
    
    
    90,232
    
    
    
    249,760
    
    
    
    724
    
    
    
    569
    
    
    
    341,285
 Commitments:
 Total Amount
    
    
    One Year
    
    
    Over One(Dollar amounts in thousands)
    
    Committed
    
    
    or Less
    
    
    YearCommitments to extend credit:Unused loan commitments
    
    $
    275,656
    
    
    $
    178,285
    
    
    $
    97,371Commercial letters of credit
    
    
    17,336
    
    
    
    13,685
    
    
    
    3,651
  OUTLOOK
   44




---



##### 



2007 ANNUAL REPORT
 Consolidated Balance Sheet  Average Balances And Interest Rates
 December 31,2007
    
    
    2006
    
    
    2005Average
    
    
    
    
    
    
    Yield/
    
    
    Average
    
    
    
    
    
    
    Yield/
    
    
    Average
    
    
    
    
    
    
    Yield/(Dollar amounts in thousands)
    
    Balance
    
    
    Interest
    
    
    Rate
    
    
    Balance
    
    
    Interest
    
    
    Rate
    
    
    Balance
    
    
    Interest
    
    
    RateASSETSInterest-earning assets:Loans (1)(2)
    
    $
    1,409,051
    
    
    
    105,804
    
    
    
    7.51
    %
    
    $
    1,384,138
    
    
    
    100,475
    
    
    
    7.26
    %
    
    $
    1,441,247
    
    
    
    96,957
    
    
    
    6.73
    %Taxable investment securities
    
    
    444,220
    
    
    
    23,545
    
    
    
    5.30
    
    
    
    430,492
    
    
    
    21,877
    
    
    
    5.08
    
    
    
    387,269
    
    
    
    16,802
    
    
    
    4.34Tax-exempt investments (2)
    
    
    188,012
    
    
    
    13,354
    
    
    
    7.10
    
    
    
    176,044
    
    
    
    12,794
    
    
    
    7.27
    
    
    
    171,802
    
    
    
    12,248
    
    
    
    7.13Federal funds sold
    
    
    14,756
    
    
    
    768
    
    
    
    5.20
    
    
    
    16,203
    
    
    
    788
    
    
    
    4.87
    
    
    
    13,772
    
    
    
    496
    
    
    
    3.60Total interest-earning assets
    
    
    2,056,039
    
    
    
    143,471
    
    
    
    6.98
    %
    
    
    2,006,877
    
    
    
    135,934
    
    
    
    6.77
    %
    
    
    2,014,090
    
    
    
    126,503
    
    
    
    6.28
    %Non-interest earning assets:Cash and due from banks
    
    
    61,655
    
    
    
    
    
    
    
    
    
    
    
    66,302
    
    
    
    
    
    
    
    
    
    
    
    74,005Premises and equipment, net
    
    
    32,762
    
    
    
    
    
    
    
    
    
    
    
    31,309
    
    
    
    
    
    
    
    
    
    
    
    30,720Other assets
    
    
    64,801
    
    
    
    
    
    
    
    
    
    
    
    59,363
    
    
    
    
    
    
    
    
    
    
    
    62,779Less allowance for loan losses
    
    
    (15,665
    )
    
    
    
    
    
    
    
    
    
    
    (16,533
    )
    
    
    
    
    
    
    
    
    
    
    (18,298
    )Totals
    
    $
    2,199,592
    
    
    
    
    
    
    
    
    
    
    $
    2,147,318
    
    
    
    
    
    
    
    
    
    
    $
    2,163,296LIABILITIES AND
SHAREHOLDERS EQUITYInterest-bearing liabilities:Transaction accounts
    
    $
    609,287
    
    
    
    12,634
    
    
    
    2.07
    %
    
    $
    612,387
    
    
    
    10,845
    
    
    
    1.77
    %
    
    $
    687,135
    
    
    
    7,031
    
    
    
    1.02
    %Time deposits
    
    
    666,615
    
    
    
    29,322
    
    
    
    4.40
    
    
    
    668,687
    
    
    
    26,440
    
    
    
    3.95
    
    
    
    643,121
    
    
    
    20,153
    
    
    
    3.13Short-term borrowings
    
    
    32,140
    
    
    
    1,611
    
    
    
    5.01
    
    
    
    15,759
    
    
    
    746
    
    
    
    4.73
    
    
    
    25,766
    
    
    
    783
    
    
    
    3.04Other borrowings
    
    
    343,767
    
    
    
    19,394
    
    
    
    5.64
    
    
    
    343,014
    
    
    
    19,098
    
    
    
    5.57
    
    
    
    356,728
    
    
    
    19,502
    
    
    
    5.47Total interest-bearing
liabilities:
    
    
    1,651,809
    
    
    
    62,961
    
    
    
    3.81
    %
    
    
    1,639,847
    
    
    
    57,129
    
    
    
    3.48
    %
    
    
    1,712,750
    
    
    
    47,469
    
    
    
    2.77
    %Non interest-bearing
liabilities:Demand deposits
    
    
    226,822
    
    
    
    
    
    
    
    
    
    
    
    206,839
    
    
    
    
    
    
    
    
    
    
    
    153,027Other
    
    
    42,974
    
    
    
    
    
    
    
    
    
    
    
    25,958
    
    
    
    
    
    
    
    
    
    
    
    26,9421,921,605
    
    
    
    
    
    
    
    
    
    
    
    1,872,644
    
    
    
    
    
    
    
    
    
    
    
    1,892,719Shareholders equity
    
    
    277,987
    
    
    
    
    
    
    
    
    
    
    
    274,674
    
    
    
    
    
    
    
    
    
    
    
    270,577Totals
    
    $
    2,199,592
    
    
    
    
    
    
    
    
    
    
    $
    2,147,318
    
    
    
    
    
    
    
    
    
    
    $
    2,163,296Net interest earnings
    
    
    
    
    
    $
    80,510
    
    
    
    
    
    
    
    
    
    
    $
    78,805
    
    
    
    
    
    
    
    
    
    
    $
    79,034Net yield on interest-earning assets
    
    
    
    
    
    
    
    
    
    
    3.92
    %
    
    
    
    
    
    
    
    
    
    
    3.93
    %
    
    
    
    
    
    
    
    
    
    
    3.92
    %
 (1)
    
    For purposes of these computations, nonaccruing loans are included in the daily
average loan amounts outstanding.(2)
    
    Interest income includes the effect of tax equivalent adjustments using a federal
tax rate of 35%.  45




---



##### 



FIRST FINANCIAL CORPORATION
 MARKET AND DIVIDEND INFORMATION
   2007
    
    
    2006Cash
    
    
    
    
    
    
    
    
    
    
    CashTrade Price
    
    
    Dividends
    
    
    Trade Price
    
    
    DividendsQuarter ended
    
    High
    
    
    Low
    
    
    Declared
    
    
    High
    
    
    Low
    
    
    DeclaredMarch 31
    
    $
    35.74
    
    
    $
    28.20
    
    
    
    
    
    
    $
    29.80
    
    
    $
    27.00June 30
    
    $
    32.45
    
    
    $
    27.26
    
    
    $
    .43
    
    
    $
    31.91
    
    
    $
    27.42
    
    
    $
    .42September 30
    
    $
    32.78
    
    
    $
    23.48
    
    
    
    
    
    
    $
    33.45
    
    
    $
    28.21December 31
    
    $
    32.29
    
    
    $
    26.93
    
    
    $
    .44
    
    
    $
    35.92
    
    
    $
    31.50
    
    
    $
    .43
 TOTAL RETURN PERFORMANCE
 Period EndingIndex
    
    12/31/02
    
    
    12/31/03
    
    
    12/31/04
    
    
    12/31/05
    
    
    12/31/06
    
    
    12/31/07First Financial Corporation
    
    $
    100.00
    
    
    $
    126.43
    
    
    $
    151.23
    
    
    $
    120.06
    
    
    $
    161.93
    
    
    $
    133.53Russell 2000
    
    
    100.00
    
    
    
    147.25
    
    
    
    174.24
    
    
    
    182.18
    
    
    
    215.64
    
    
    
    212.26SNL $1B-$5B Bank Index
    
    
    100.00
    
    
    
    135.99
    
    
    
    167.83
    
    
    
    164.97
    
    
    
    190.90
    
    
    
    139.06
  46