##### Table of Contents



UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
 WASHINGTON, D.C. 20549
 FORM 10-Q
 QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
 For The Quarterly Period Ended March 31, 2007
 Commission File Number 0-16759
 FIRST FINANCIAL CORPORATION
  INDIANA
    
    35-1546989(State or other jurisdiction 
incorporation or organization)
    
    (I.R.S. Employer
Identification No.)
 One First Financial Plaza, Terre Haute, IN
    
    47807(Address of principal executive office)
    
    (Zip Code)
 (812)238-6000
 þ o
 o þ o
 o þ




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##### 



Page No.PART I. Financial InformationItem 1. Financial Statements:Consolidated Balance Sheets
    
    
    3Consolidated Statements of Income
    
    
    4Consolidated Statements of Shareholders Equity
    
    
    5Consolidated Statements of Cash Flows
    
    
    6Notes to Consolidated Financial Statements
    
    
    7Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    
    9Item 3. Quantitative and Qualitative Disclosures about Market Risk
    
    
    10Item 4. Controls and Procedures
    
    
     12PART II. Other Information:Item 1. Legal Proceedings
    
    
    12Item 1A. Risk Factors
    
    
    12Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
    
    
    12Item 3. Defaults upon Senior Securities
    
    
    12Item 4. Submission of Matters to a Vote of Security Holders
    
    
    12Item 5. Other Information
    
    
    12Item 6. Exhibits
    
    
    13Signatures
    
    
    14Exhibit 31.1Exhibit 31.2Exhibit 32.1
   2




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##### Table of Contents



Part I  Financial Information
 
  
 
 March 31,
    
    
    December 31,2007
    
    
    2006(Unaudited)ASSETSCash and due from banks
    
    $
    69,255
    
    
    $
    77,682Federal funds sold and short-term investments
    
    
    54,975
    
    
    
    21,437Securities available-for-sale
    
    
    563,773
    
    
    
    559,053Loans:Commercial, financial and agricultural
    
    
    420,188
    
    
    
    407,995Real estate  construction
    
    
    30,098
    
    
    
    33,336Real estate  mortgage
    
    
    685,355
    
    
    
    691,989Installment
    
    
    254,803
    
    
    
    257,065Lease financing
    
    
    2,270
    
    
    
    2,6041,392,714
    
    
    
    1,392,989Less:Unearned income
    
    
    (242
    )
    
    
    (234
    )Allowance for loan losses
    
    
    (15,830
    )
    
    
    (16,169
    )$
    1,376,642
    
    
    $
    1,376,586Accrued interest receivable
    
    
    12,433
    
    
    
    13,972Premises and equipment, net
    
    
    33,099
    
    
    
    33,267Bank-owned life insurance
    
    
    58,415
    
    
    
    57,905Goodwill
    
    
    7,102
    
    
    
    7,102Other intangible assets
    
    
    2,257
    
    
    
    2,363Other real estate owned
    
    
    2,878
    
    
    
    3,194Other assets
    
    
    22,901
    
    
    
    23,437TOTAL ASSETS
    
    $
    2,203,730
    
    
    $
    2,175,998LIABILITIES AND SHAREHOLDERS EQUITYDeposits:Noninterest-bearing
    
    $
    228,112
    
    
    $
    227,808Interest-bearing:Certificates of deposit of $100 or more
    
    
    212,590
    
    
    
    189,323Other interest-bearing deposits
    
    
    1,074,586
    
    
    
    1,085,5511,515,288
    
    
    
    1,502,682Short-term borrowings
    
    
    29,762
    
    
    
    16,203Other borrowings
    
    
    341,448
    
    
    
    341,805Other liabilities
    
    
    40,303
    
    
    
    44,048TOTAL LIABILITIES
    
    
    1,926,801
    
    
    
    1,904,738Shareholders equityCommon stock, $.125 stated value per share;Authorized shares-40,000,000
Issued shares-14,450,966
Outstanding shares-13,226,321 in 2007 and 13,270,321 in 2006
    
    
    1,806
    
    
    
    1,806Additional paid-in capital
    
    
    68,003
    
    
    
    68,003Retained earnings
    
    
    242,304
    
    
    
    235,967Accumulated other comprehensive income
    
    
    (4,754
    )
    
    
    (5,494
    )Treasury shares at cost-1,224,645 in 2007 and 1,180,645 in 2006
    
    
    (30,430
    )
    
    
    (29,022
    )TOTAL SHAREHOLDERS EQUITY
    
    
    276,929
    
    
    
    271,260TOTAL LIABILITIES AND SHAREHOLDERS EQUITY
    
    $
    2,203,730
    
    
    $
    2,175,998
   3




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##### Table of Contents



Three Months EndedMarch 31,2007
    
    
    2006(Unaudited)
    
    
    (Unaudited)INTEREST INCOME:Loans, including related fees
    
    $
    25,652
    
    
    $
    24,106Securities:Taxable
    
    
    5,612
    
    
    
    5,065Tax-exempt
    
    
    1,576
    
    
    
    1,535Other
    
    
    782
    
    
    
    717TOTAL INTEREST INCOME
    
    
    33,622
    
    
    
    31,423INTEREST EXPENSE:Deposits
    
    
    10,205
    
    
    
    8,198Short-term borrowings
    
    
    232
    
    
    
    142Other borrowings
    
    
    4,728
    
    
    
    4,687TOTAL INTEREST EXPENSE
    
    
    15,165
    
    
    
    13,027NET INTEREST INCOME
    
    
    18,457
    
    
    
    18,396Provision for loan losses
    
    
    1,690
    
    
    
    2,203NET INTEREST INCOME AFTER PROVISION
    FOR LOAN LOSSES
    
    
    16,767
    
    
    
    16,193NON-INTEREST INCOME:Trust department income
    
    
    978
    
    
    
    914Service charges and fees on deposit accounts
    
    
    2,721
    
    
    
    2,737Other service charges and fees
    
    
    1,305
    
    
    
    1,347Securities gains/(losses), net
    
    
    20
    
    
    
    8Insurance commissions
    
    
    1,398
    
    
    
    1,374Gain on sales of mortgage loans
    
    
    184
    
    
    
    131Other
    
    
    1,541
    
    
    
    902TOTAL NON-INTEREST INCOME
    
    
    8,147
    
    
    
    7,413NON-INTEREST EXPENSE:Salaries and employee benefits
    
    
    9,952
    
    
    
    10,259Occupancy expense
    
    
    1,040
    
    
    
    941Equipment expense
    
    
    1,098
    
    
    
    1,043Other
    
    
    3,968
    
    
    
    3,973TOTAL NON-INTEREST EXPENSE
    
    
    16,058
    
    
    
    16,216INCOME BEFORE INCOME TAXES
    
    
    8,856
    
    
    
    7,390Provision for income taxes
    
    
    2,433
    
    
    
    1,881NET INCOME
    
    $
    6,423
    
    
    $
    5,509PER SHARE DATABasic and DilutedEarnings per share
    
    $
    .48
    
    
    $
    .41Weighted average number of shares outstanding (in thousands)
    
    
    13,250
    
    
    
    13,351
   4




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##### Table of Contents



AccumulatedOtherCommon Additional
    
    
    Retained
    
    
    Comprehensive
    
    
    TreasuryStock
    
    
    Capital
    
    
    Earnings
    
    
    Income/(Loss)
    
    
    Stock
    
    
    TotalBalance, January 1, 2006
    
    $
    1,806
    
    
    $
    67,670
    
    
    $
    223,710
    
    
    $
    1,903
    
    
    
    ($25,766
    )
    
    $
    269,323Comprehensive income:Net income
    
    
    
    
    
    
    
    
    
    
    5,509
    
    
    
    
    
    
    
    
    
    
    
    5,509Change in net unrealized
gains/(losses) on securities
available for-sale
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (1,309
    )
    
    
    
    
    
    
    (1,309
    )Total comprehensive income/(loss)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    4,200Treasury stock purchase
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (1,690
    )
    
    
    (1,690
    )Balance, March 31, 2006
    
    $
    1,806
    
    
    $
    67,670
    
    
    $
    229,219
    
    
    $
    594
    
    
    $
    (27,456
    )
    
    $
    271,833Balance, January 1, 2007
    
    $
    1,806
    
    
    $
    68,003
    
    
    $
    235,967
    
    
    $
    (5,494
    )
    
    $
    (29,022
    )
    
    $
    271,260Comprehensive income:Net income
    
    
    
    
    
    
    
    
    
    
    6,423
    
    
    
    
    
    
    
    
    
    
    
    6,423Change in net unrealized
gains/(losses) on securities
available for-sale
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    421
    
    
    
    
    
    
    
    421Change in Pension Liability
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    319
    
    
    
    
    
    
    
    319Total comprehensive income/(loss)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    7,163Adoption of FIN48
    
    
    
    
    
    
    
    
    
    
    (86
    )
    
    
    
    
    
    
    
    
    
    
    (86
    )Treasury stock purchase
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (1,408
    )
    
    
    (1,408
    )Balance, March 31, 2007
    
    $
    1,806
    
    
    $
    68,003
    
    
    $
    242,304
    
    
    $
    (4,754
    )
    
    $
    (30,430
    )
    
    $
    276,929
   5




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##### Table of Contents



Three Months EndedMarch 31,2007
    
    
    2006(Unaudited)CASH FLOWS FROM OPERATING ACTIVITIES:Net Income
    
    $
    6,423
    
    
    $
    5,509Adjustments to reconcile net income to net cash
provided by operating activities:Net amortization (accretion) of premiums and discounts on investments
    
    
    (638
    )
    
    
    (517
    )Provision for loan losses
    
    
    1,690
    
    
    
    2,203Securities (gains) losses
    
    
    (20
    )
    
    
    (8
    )Gain on sale of other real estate
    
    
    (44
    )
    
    
    Depreciation and amortization
    
    
    903
    
    
    
    881Other, net
    
    
    3,547
    
    
    
    4,890NET CASH FROM OPERATING ACTIVITIES
    
    
    11,861
    
    
    
    12,958CASH FLOWS FROM INVESTING ACTIVITIES:Proceeds from sales of securities available-for-sale
    
    
    2,939
    
    
    
    736Calls, maturities and principal reductions on securities available-for-sale
    
    
    22,205
    
    
    
    25,383Purchases of securities available-for-sale
    
    
    (28,505
    )
    
    
    (49,523
    )Loans made to customers, net of repayment
    
    
    (2,178
    )
    
    
    12,806Proceeds from sales of other real estate owned
    
    
    726
    
    
    
    Net change in federal funds sold
    
    
    (33,538
    )
    
    
    (25,425
    )Additions to premises and equipment
    
    
    (629
    )
    
    
    (305
    )NET CASH FROM INVESTING ACTIVITIES
    
    
    (38,980
    )
    
    
    (36,328
    )CASH FLOWS FROM FINANCING ACTIVITIES:Net change in deposits
    
    
    12,606
    
    
    
    38,126Net change in short-term borrowings
    
    
    13,559
    
    
    
    (16,762
    )Dividends paid
    
    
    (5,708
    )
    
    
    (5,603
    )Purchase of treasury stock
    
    
    (1,408
    )
    
    
    (1,690
    )Repayments on other borrowings
    
    
    (357
    )
    
    
    (11
    )NET CASH FROM FINANCING ACTIVITIES
    
    
    18,692
    
    
    
    14,060NET CHANGE IN CASH AND CASH EQUIVALENTS
    
    
    (8,427
    )
    
    
    (9,310
    )CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD
    
    
    77,682
    
    
    
    78,201CASH AND CASH EQUIVALENTS, END OF PERIOD
    
    $
    69,255
    
    
    $
    68,891
   6




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##### Table of Contents



(000s)March 31,
    
    
    December 31,2007
    
    
    2006Impaired loans with related allowance for loan losses
calculated under SFAS No. 114
    
    $
    696
    
    
    $
    503Impaired loans with no related allowance for loan losses
    
    
    3,739
    
    
    
    4,865$
    4,435
    
    
    $
    5,368
  Securities
  (000s)
    
    
    (000s)March 31, 2007
    
    
    December 31, 2006Amortized Cost
    
    
    Fair Value
    
    
    Amortized Cost
    
    
    Fair ValueUnited States Government entity mortgage-
backed securities
    
    $
    331,288
    
    
    $
    328,806
    
    
    $
    334,383
    
    
    $
    330,846Collateralized Mortgage Obligations
    
    
    14,925
    
    
    
    15,045
    
    
    
    9,935
    
    
    
    9,970State and Municipal Obligations
    
    
    138,209
    
    
    
    141,867
    
    
    
    136,124
    
    
    
    140,070Corporate Obligations
    
    
    68,951
    
    
    
    69,408
    
    
    
    68,952
    
    
    
    69,472Equity Securities
    
    
    4,595
    
    
    
    8,647
    
    
    
    4,556
    
    
    
    8,695$
    557,968
    
    
    $
    563,773
    
    
    $
    553,950
    
    
    $
    559,053
 Short-Term Borrowings
  (000s)March 31,
    
    
    December 31,2007
    
    
    2006Federal Funds Purchased
    
    $
    7,113
    
    
    $
    10,179Repurchase Agreements
    
    
    22,647
    
    
    
    5,407Note Payable  U.S. Government
    
    
    2
    
    
    
    617$
    29,762
    
    
    $
    16,203
  7




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##### Table of Contents



Other Borrowings
  (000s)March 31,
    
    
    December 31,2007
    
    
    2006FHLB advances
    
    $
    334,848
    
    
    $
    335,205City of Terre Haute, Indiana economic development revenue bonds
    
    
    6,600
    
    
    
    6,600$
    341,448
    
    
    $
    341,805
 Components of Net Periodic Benefit Cost
 (000s)Post-RetirementPension Benefits
    
    
    Health BenefitsThree Months ended March 31,
    
    2007
    
    
    2006
    
    
    2007
    
    
    2006Service cost
    
    $
    787
    
    
    $
    751
    
    
    $
    29
    
    
    $
    29Interest cost
    
    
    704
    
    
    
    593
    
    
    
    78
    
    
    
    75Expected return on plan assets
    
    
    (911
    )
    
    
    (698
    )
    
    
    
    
    
    
    Amortization of transition obligation
    
    
    
    
    
    
    
    
    
    
    15
    
    
    
    15Amortization of prior service cost
    
    
    14
    
    
    
    14
    
    
    
    
    
    
    
    Amortization of net (gain) loss
    
    
    111
    
    
    
    191
    
    
    
    43
    
    
    
    60Net Periodic Benefit Cost
    
    $
    705
    
    
    $
    851
    
    
    $
    165
    
    
    $
    179
 Employer Contributions
  7. New accounting standards
        8




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Managements Discussion and Analysis of Financial Condition and Results of
Operations and Quantitative and Qualitative Disclosures About Market Risk
   Critical Accounting Policies
  Summary of Operating Results
   Net Interest Income
  Non-Interest Income
  Non-Interest Expenses
   9




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##### Table of Contents



Allowance for Loan Losses
  Non-performing Loans
  (000's)March 31, 2007
    
    
    December 31, 2006Non-accrual loans
    
    $
    10,195
    
    
    $
    9,893Restructured loans
    
    
    52
    
    
    
    5210,247
    
    
    
    9,945Accruing loans past due over 90 days
    
    
    3,924
    
    
    
    4,691$
    14,171
    
    
    $
    14,636Ratio of the allowance for loan losses
as a percentage of non-performing loans
    
    
    112
    %
    
    
    110
    %
  (000's)March 31, 2007
    
    
    December 31, 2006Non-Accrual Loans:1-4 family residential
    
    $
    1,734
    
    
    $
    1,598Commercial loans
    
    
    6,779
    
    
    
    6,551Installment loans
    
    
    1,682
    
    
    
    1,744$
    10,195
    
    
    $
    9,893Past due 90 days or more:1-4 family residential
    
    $
    968
    
    
    $
    1,607Commercial loans
    
    
    2,461
    
    
    
    2,542Installment loans
    
    
    495
    
    
    
    542$
    3,924
    
    
    $
    4,691
 Interest Rate Sensitivity and Liquidity
  Interest Rate Risk
    10




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##### Table of Contents



Basis Point
    
    Percentage Change in Net Interest IncomeInterest Rate Change
    
    12 months
    
    
    24 months
    
    
    36 monthsDown 200
    
    
    1.94
    %
    
    
    -4.38
    %
    
    
    -9.82
    %Down 100
    
    
    1.02
    
    
    
    -1.86
    
    
    
    -4.47Up 100
    
    
    -3.56
    
    
    
    -1.26
    
    
    
    1.52Up 200
    
    
    -9.78
    
    
    
    -4.88
    
    
    
    0.93
  Liquidity Risk
  Financial Condition
  Capital Adequacy
  To Be WellMarch 31, 2007
    
    
    December 31, 2006
    
    
    CapitalizedTotal risk-based capital ratioCorporation
    
    
    18.29
    %
    
    
    17.78
    %
    
    
    N/AFirst Financial Bank
    
    
    18.37
    %
    
    
    17.74
    %
    
    
    10.00
    %Tier I risk-based capital ratioCorporation
    
    
    17.28
    %
    
    
    16.77
    %
    
    
    N/AFirst Financial Bank
    
    
    17.53
    %
    
    
    16.90
    %
    
    
    6.00
    %Tier I leverage capital ratioCorporation
    
    
    12.60
    %
    
    
    12.43
    %
    
    
    N/AFirst Financial Bank
    
    
    12.67
    %
    
    
    12.48
    %
    
    
    5.00
    %
  11




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##### Table of Contents



Controls and Procedures
  
 PART II  Other Information
 
   
   
      (c)Total Number Of Shares
    
    
    (d)(a)
    
    
    (b)
    
    
    Purchased As Part Of
    
    
    Maximum Number OfTotal Number Of
    
    
    Average Price
    
    
    Publicly Announced Plans
    
    
    Shares That May YetShares Purchased
    
    
    Paid Per Share
    
    
    Or Programs *
    
    
    Be Purchased *January 1  31, 2007
    
    
    12,000
    
    
    
    30.95
    
    
    
    N/A
    
    
    
    N/AFebruary 1  28, 2007
    
    
    17,000
    
    
    
    33.28
    
    
    
    N/A
    
    
    
    N/AMarch 1  31, 2007
    
    
    15,000
    
    
    
    31.41
    
    
    
    N/A
    
    
    
    N/ATotal
    
    
    44,000
    
    
    
    32.01
    
    
    
    N/A
    
    
    
    N/A
 *
    
    The Corporation has not adopted a formal policy or program regarding repurchases of its shares of stock.
 
   
   
    12




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##### Table of Contents



Exhibits.
 Exhibit No:
    
    Description of Exhibit:3.1
    
    Amended and Restated Articles of Incorporation of First Financial Corporation,
incorporated by reference to Exhibit 3(i) of the Corporations Form 10-Q filed for the
quarter ended September 30, 2002.3.2
    
    Code of By-Laws of First Financial Corporation, incorporated by reference to
Exhibit 3(ii) of the Corporations Form 10-Q filed for the quarter ended September 30,
2002.10.1
    
    Employment Agreement for Norman L. Lowery, dated March 29, 2006 and effective
January 1, 2006, incorporated by reference to Exhibit 10.1 to the Corporations
Form 10-Q filed for the quarter ended March 31, 2006.10.2
    
    2001 Long-Term Incentive Plan of First Financial Corporation, incorporated by
reference to Exhibit 10.3 of the Corporations Form 10-Q filed for the quarter ended
September 30, 2002.10.3
    
    2007 Schedule of Director Compensation, incorporated by reference to Exhibit
10.3 of the Corporations Form 10-K filed for the fiscal year ended December 31, 2006.10.4
    
    2007 Schedule of Named Executive Officer Compensation, incorporated by
reference to the Corporations Form 8-K filed on December 22, 2006.31.1
    
    Sarbanes-Oxley Act 302 Certification for Quarterly Report on Form 10-Q for the
quarter ended March 31, 2007 by Principal Executive Officer, dated May 7 200631.2
    
    Sarbanes-Oxley Act 302 Certification for Quarterly Report on Form 10-Q for the
quarter ended March 31, 2007 by Principal Financial Officer, dated May 7, 2006.32.1
    
    Certification, dated May 7, 2006, of Principal Executive Officer and Principal
Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2005 on Form
10-Q for the quarter ended March 31, 2007.
  13




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##### Table of Contents



FIRST FINANCIAL CORPORATION
(Registrant)Date: May 7, 2007
    By:
    /s/ Donald E. SmithDonald E. Smith, ChairmanDate: May 7, 2007
    By:
    /s/ Norman L. LoweryNorman L. Lowery, Vice Chairman and CEODate: May 7, 2007
    By:
    /s/ Michael A. CartyMichael A. Carty, Treasurer and CFO  14




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##### Table of Contents



Exhibit Index
 Exhibit No:
    
    Description of Exhibit:3.1
    
    Amended and Restated Articles of Incorporation of First Financial Corporation,
incorporated by reference to Exhibit 3(i) of the Corporations Form 10-Q filed for the
quarter ended September 30, 2002.3.2
    
    Code of By-Laws of First Financial Corporation, incorporated by reference to
Exhibit 3(ii) of the Corporations Form 10-Q filed for the quarter ended September 30,
2002.10.1
    
    Employment Agreement for Norman L. Lowery, dated March 29, 2006 and effective
January 1, 2006, incorporated by reference to Exhibit 10.1 to the Corporations
Form 10-Q filed for the quarter ended March 31, 2006.10.2
    
    2001 Long-Term Incentive Plan of First Financial Corporation, incorporated by
reference to Exhibit 10.3 of the Corporations Form 10-Q filed for the quarter ended
September 30, 2002.10.3
    
    2007 Schedule of Director Compensation, incorporated by reference to Exhibit
10.3 of the Corporations Form 10-K filed for the fiscal year ended December 31, 2006.10.4
    
    2007 Schedule of Named Executive Officer Compensation, incorporated by
reference to the Corporations Form 8-K filed on December 22, 2006.31.1
    
    Sarbanes-Oxley Act 302 Certification for Quarterly Report on Form 10-Q for the
quarter ended March 31, 2007 by Principal Executive Officer, dated May 7 200731.2
    
    Sarbanes-Oxley Act 302 Certification for Quarterly Report on Form 10-Q for the
quarter ended March 31, 2007 by Principal Financial Officer, dated May 7, 2007.32.1
    
    Certification, dated May 7, 2007, of Principal Executive Officer and Principal
Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2005 on Form
10-Q for the quarter ended March 31, 2007.
  15