Edgar Filing: FIRST FINANCIAL CORP /IN/

10-Q

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 September 30, 2015

Commission File Number 0-16759

FIRST FINANCIAL CORPORATION

(Exact name of registrant as specified in its charter)



INDIANA	35-1546989
(State or other jurisdiction	(I.R.S. Employer
incorporation or organization)	Identification No.)

One First Financial Plaza, Terre Haute, IN	47807
(Address of principal executive office)	(Zip Code)

(812)238-6000
(Registrant's telephone number, including area code)

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

Yes x No ¨.

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

Yes x No ¨.

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



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

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

Yes ¨ No x.

As of November 3, 2015, the registrant had outstanding 12,703,869 shares of common stock, without par value.

Table of Contents

FIRST FINANCIAL CORPORATION

FORM 10-Q

INDEX



	Page No.
PART I. Financial Information

Item 1. Financial Statements:

Consolidated Balance Sheets	3

Consolidated Statements of Income and Comprehensive Income	4

Consolidated Statements of Shareholders’ Equity	5

Consolidated Statements of Cash Flows	7

Notes to Consolidated Financial Statements	8

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations	32

Item 3. Quantitative and Qualitative Disclosures about Market Risk	34

Item 4. Controls and Procedures	37

PART II. Other Information:

Item 1. Legal Proceedings	38

Item 1A. Risk Factors	38

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds	38

Item 3. Defaults upon Senior Securities	38

Item 4. Mine Safety Disclosures	38

Item 5. Other Information	38

Item 6. Exhibits	39

Signatures	40

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Part I – Financial Information


Item 1.	Financial Statements

FIRST FINANCIAL CORPORATION

CONSOLIDATED BALANCE SHEETS

(Dollar amounts in thousands, except per share data)



	September 30, 2015			December 31, 2014
	(unaudited)
ASSETS
Cash and due from banks	$	63,278		$	78,102
Federal funds sold	—			8,000
Securities available-for-sale	885,836			897,053
Loans:
Commercial	1,040,677			1,044,522
Residential	451,425			469,172
Consumer	272,235			266,656
	1,764,337			1,780,350
(Less) plus:
Net deferred loan costs	2,330			1,078
Allowance for loan losses	(19,925		)	(18,839		)
	1,746,742			1,762,589
Restricted stock	10,838			16,404
Accrued interest receivable	12,265			11,593
Premises and equipment, net	50,834			51,802
Bank-owned life insurance	81,961			80,730
Goodwill	39,489			39,489
Other intangible assets	3,375			3,901
Other real estate owned	3,382			3,965
Other assets	44,833			48,857
TOTAL ASSETS	$	2,942,833		$	3,002,485

LIABILITIES AND SHAREHOLDERS’ EQUITY
Deposits:
Non-interest-bearing	$	521,310		$	556,389
Interest-bearing:
Certificates of deposit exceeding the FDIC insurance limits	47,154			53,733
Other interest-bearing deposits	1,850,125			1,847,075
	2,418,589			2,457,197
Short-term borrowings	23,336			48,015
FHLB advances	13,251			12,886
Other liabilities	79,066			90,173
TOTAL LIABILITIES	2,534,242			2,608,271

Shareholders’ equity
Common stock, $.125 stated value per share;
Authorized shares-40,000,000
Issued shares-14,557,815 in 2015 and 14,538,132 in 2014
Outstanding shares-12,703,869 in 2015 and 12,962,607 in 2014	1,817			1,815
Additional paid-in capital	72,916			72,405
Retained earnings	394,761			377,970
Accumulated other comprehensive loss	(8,758		)	(14,529		)
Less: Treasury shares at cost-1,853,946 in 2015 and 1,575,525 in 2014	(52,145		)	(43,447		)
TOTAL SHAREHOLDERS’ EQUITY	408,591			394,214
TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY	$	2,942,833		$	3,002,485

See accompanying notes.

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FIRST FINANCIAL CORPORATION

CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME

(Dollar amounts in thousands, except per share data)



	Three Months Ended September 30,				Nine Months Ended September 30,
	2015		2014		2015		2014
	(unaudited)		(unaudited)		(unaudited)		(unaudited)
INTEREST INCOME:
Loans, including related fees	$	21,478	$	21,939	$	63,048	$	65,782
Securities:
Taxable	3,918		4,196		11,970		12,938
Tax-exempt	1,806		1,782		5,375		5,294
Other	401		459		1,265		1,301
TOTAL INTEREST INCOME	27,603		28,376		81,658		85,315
INTEREST EXPENSE:
Deposits	963		1,088		2,980		3,611
Short-term borrowings	22		49		54		85
Other borrowings	42		94		129		726
TOTAL INTEREST EXPENSE	1,027		1,231		3,163		4,422
NET INTEREST INCOME	26,576		27,145		78,495		80,893
Provision for loan losses	1,050		1,506		3,650		3,110
NET INTEREST INCOME AFTER PROVISION
FOR LOAN LOSSES	25,526		25,639		74,845		77,783
NON-INTEREST INCOME:
Trust and financial services	1,382		1,386		4,127		4,289
Service charges and fees on deposit accounts	2,688		2,813		7,557		8,058
Other service charges and fees	3,080		3,112		8,918		8,940
Securities gains/(losses), net	9		—		23		(1		)
Insurance commissions	1,693		2,091		5,202		5,620
Gain on sales of mortgage loans	611		519		1,512		1,352
Other	488		573		2,451		1,676
TOTAL NON-INTEREST INCOME	9,951		10,494		29,790		29,934
NON-INTEREST EXPENSE:
Salaries and employee benefits	14,963		14,081		45,105		42,064
Occupancy expense	1,756		1,776		5,322		5,490
Equipment expense	1,736		1,905		5,210		5,467
FDIC Expense	468		537		1,348		1,496
Other	5,229		6,406		16,470		17,706
TOTAL NON-INTEREST EXPENSE	24,152		24,705		73,455		72,223
INCOME BEFORE INCOME TAXES	11,325		11,428		31,180		35,494
Provision for income taxes	2,927		3,156		8,098		10,903
NET INCOME	8,398		8,272		23,082		24,591
OTHER COMPREHENSIVE INCOME
Change in unrealized gains/losses on securities, net of reclassifications and taxes	4,471		1,879		1,669		11,298
Change in funded status of post retirement benefits, net of taxes	819		116		4,102		346
COMPREHENSIVE INCOME	$	13,688	$	10,267	$	28,853	$	36,235
PER SHARE DATA
Basic and Diluted Earnings per Share	$	0.65	$	0.62	$	1.79	$	1.85
Weighted average number of shares outstanding (in thousands)	12,773		13,269		12,874		13,325

See accompanying notes.

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FIRST FINANCIAL CORPORATION

CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY

Three Months Ended

September 30, 2015, and 2014

(Dollar amounts in thousands, except per share data)

(Unaudited)



	Common Stock		Additional Capital		Retained Earnings		Accumulated Other Comprehensive Income/(Loss)			Treasury Stock			Total
Balance, July 1, 2014	$	1,812	$	71,557	$	366,858	$	(4,320	)	$	(30,161	)	$	405,746
Net income	—		—		8,272		—			—			8,272
Other comprehensive income	—		—		—		1,995			—			1,995
Omnibus Equity Incentive Plan	2		357		—		—			—			359
Treasury shares purchased (392,665 shares)	—		—		$	—	$	—		(12,499		)	(12,499		)
Balance, September 30, 2014	$	1,814	$	71,914	$	375,130	$	(2,325	)	$	(42,660	)	$	403,873

Balance, July 1, 2015	$	1,816	$	72,746	$	386,363	$	(14,048	)	$	(47,819	)	$	399,058
Net income	—		—		8,398		—			—			8,398
Other comprehensive income	—		—		—		5,290			—			5,290
Omnibus Equity Incentive Plan	1		170		—		—			—			171
Treasury shares purchased (130,247 shares)	—		—		—		—			(4,326		)	(4,326		)
Balance, September 30, 2015	$	1,817	$	72,916	$	394,761	$	(8,758	)	$	(52,145	)	$	408,591

See accompanying notes.

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FIRST FINANCIAL CORPORATION

CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY

Nine Months Ended

September 30, 2015, and 2014

(Dollar amounts in thousands, except per share data)

(Unaudited)



	Common Stock		Additional Capital		Retained Earnings			Accumulated Other Comprehensive Income/(Loss)			Treasury Stock			Total
Balance, January 1, 2014	$	1,811	$	71,074	$	357,083		$	(13,969	)	$	(29,804	)	$	386,195
Net income	—		—		24,591			—			—			24,591
Other comprehensive income	—		—		—			11,644			—			11,644
Omnibus Equity Incentive Plan	3		840		—			—			—			843
Treasury shares purchased (402,441 shares)	—		—		—			—			(12,856		)	(12,856		)
Cash dividends, $.49 per share	—		—		(6,544		)	—			—			(6,544		)
Balance, September 30, 2014	$	1,814	$	71,914	$	375,130		$	(2,325	)	$	(42,660	)	$	403,873

Balance, January 1, 2015	$	1,815	$	72,405	$	377,970		$	(14,529	)	$	(43,447	)	$	394,214
Net income	—		—		23,082			—			—			23,082
Other comprehensive income	—		—		—			5,771			—			5,771
Omnibus Equity Incentive Plan	2		511		—			—			—			513
Treasury shares purchased (257,989 shares)	—		—		—			—			(8,698		)	(8,698		)
Cash dividends, $.49 per share	—		—		(6,291		)	—			—			(6,291		)
Balance, September 30, 2015	$	1,817	$	72,916	$	394,761		$	(8,758	)	$	(52,145	)	$	408,591

See accompanying notes.

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FIRST FINANCIAL CORPORATION

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Dollar amounts in thousands, except per share data)



	Nine Months Ended September 30,
	2015			2014
	(Unaudited)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income	$	23,082		$	24,591
Adjustments to reconcile net income to net cash provided by operating activities:
Net amortization (accretion) of premiums and discounts on investments	2,209			1,988
Provision for loan losses	3,650			3,110
Securities (gains) losses	(23		)	1
(Gain) loss on sale of other real estate	76			(150		)
Restricted stock compensation	513			843
Depreciation and amortization	4,159			4,536
Other, net	(18		)	3,641
NET CASH FROM OPERATING ACTIVITIES	33,648			38,560
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from sales of securities available-for-sale	3,465			355
Calls, maturities and principal reductions on securities available-for-sale	110,221			99,027
Purchases of securities available-for-sale	(101,766		)	(68,704		)
Loans made to customers, net of repayment	11,378			(26,518		)
Redemption of restricted stock	5,576			—
Purchase of restricted stock	(10		)	(18		)
Purchase of customer list	(103		)	—
Proceeds from sales of other real estate owned	1,412			2,468
Net change in federal funds sold	8,000			(10,704		)
Additions to premises and equipment	(2,562		)	(4,870		)
NET CASH FROM INVESTING ACTIVITIES	35,611			(8,964		)
CASH FLOWS FROM FINANCING ACTIVITIES:
Net change in deposits	(38,662		)	(7,265		)
Net change in short-term borrowings	(24,679		)	(561		)
Maturities of other borrowings	(30,212		)	(397,000		)
Proceeds from other borrowings	30,800			427,000
Purchase of treasury stock	(8,698		)	(12,856		)
Dividends paid	(12,632		)	(12,949		)
NET CASH FROM FINANCING ACTIVITIES	(84,083		)	(3,631		)
NET CHANGE IN CASH AND CASH EQUIVALENTS	(14,824		)	25,965
CASH AND DUE FROM BANKS, BEGINNING OF PERIOD	78,102			71,033
CASH AND DUE FROM BANKS, END OF PERIOD	$	63,278		$	96,998

See accompanying notes.

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FIRST FINANCIAL CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

The accompanying September 30, 2015 and 2014 consolidated financial statements are unaudited. The December 31, 2014 consolidated financial statements are as reported in the First Financial Corporation (the “Corporation”) 2014 annual report. The information presented does not include all information and footnotes required by U.S. generally accepted accounting principles for complete financial statements. The following notes should be read together with notes to the consolidated financial statements included in the 10-K filed with the Securities and Exchange Commission for the fiscal year ended December 31, 2014.


1.	Significant Accounting Policies

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

The Omnibus Equity Incentive Plan is a long-term incentive plan that was designed to align the interests of participants with the interests of shareholders. Under the plan, awards may be made based on certain performance measures. The grants are made in restricted stock units that are subject to a vesting schedule. These shares vest over 3 years in increments of 33%, 33%, and 34% respectively. In 2015 and 2014, 19,683 and 22,019 shares were awarded, respectively. These shares had a grant date value of $667 thousand and $708 thousand for 2015 and 2014, vest over three years and their grant is not subject to future performance measures. Outstanding shares are increased at the award date for the total shares awarded.


2.	Allowance for Loan Losses

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

ended September 30.



Allowance for Loan Losses:	September 30, 2015
(Dollar amounts in thousands)	Commercial			Residential			Consumer			Unallocated			Total
Beginning balance	$	10,931		$	1,760		$	4,678		$	2,492		$	19,861
Provision for loan losses	1,338			158			1,052			(1,498		)	1,050
Loans charged -off	(1,874		)	(220		)	(1,201		)	—			(3,295		)
Recoveries	1,694			196			419			—			2,309
Ending Balance	$	12,089		$	1,894		$	4,948		$	994		$	19,925



Allowance for Loan Losses:	September 30, 2014
(Dollar amounts in thousands)	Commercial			Residential			Consumer			Unallocated			Total
Beginning balance	$	10,850		$	1,374		$	3,769		$	2,262		$	18,255
Provision for loan losses*	589			72			1,047			(178		)	1,530
Loans charged -off	(1,310		)	(153		)	(1,193		)	—			(2,656		)
Recoveries	51			34			293			—			378
Ending Balance	$	10,180		$	1,327		$	3,916		$	2,084		$	17,507

* Provision before decrease of $24 thousand in 2014 for increase in FDIC indemnification asset

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

ended September 30



Allowance for Loan Losses:	September 30, 2015
(Dollar amounts in thousands)	Commercial			Residential			Consumer			Unallocated			Total
Beginning balance	$	10,915		$	1,374		$	4,370		$	2,180		$	18,839
Provision for loan losses	1,505			811			2,520			(1,186		)	3,650
Loans charged -off	(2,482		)	(626		)	(3,489		)	—			(6,597		)
Recoveries	2,151			335			1,547			—			4,033
Ending Balance	$	12,089		$	1,894		$	4,948		$	994		$	19,925



Allowance for Loan Losses:	September 30, 2014
(Dollar amounts in thousands)	Commercial			Residential			Consumer			Unallocated			Total
Beginning balance	$	12,450		$	1,585		$	3,650		$	2,383		$	20,068
Provision for loan losses*	270			84			2,380			(299		)	2,435
Loans charged -off	(2,956		)	(958		)	(3,228		)	—			(7,142		)
Recoveries	416			616			1,114			—			2,146
Ending Balance	$	10,180		$	1,327		$	3,916		$	2,084		$	17,507

* Provision before increase of $675 thousand in 2014 for decrease in FDIC indemnification asset

The following table presents the allocation of the allowance for loan losses and the recorded investment in loans by portfolio segment and based on the impairment method at September 30, 2015 and December 31, 2014.



Allowance for Loan Losses	September 30, 2015
(Dollar amounts in thousands)	Commercial		Residential		Consumer		Unallocated		Total
Individually evaluated for impairment	$	996	$	232	$	—	$	—	$	1,228
Collectively evaluated for impairment	10,902		1,662		4,948		994		18,506
Acquired with deteriorated credit quality	191		—		—		—		191
Ending Balance	$	12,089	$	1,894	$	4,948	$	994	$	19,925



Loans:	September 30, 2015
(Dollar amounts in thousands)	Commercial		Residential		Consumer		Total
Individually evaluated for impairment	$	9,648	$	934	$	—	$	10,582
Collectively evaluated for impairment	1,032,992		450,198		273,436		1,756,626
Acquired with deteriorated credit quality	4,194		1,586		—		5,780
Ending Balance	$	1,046,834	$	452,718	$	273,436	$	1,772,988



Allowance for Loan Losses:	December 31, 2014
(Dollar amounts in thousands)	Commercial		Residential		Consumer		Unallocated		Total
Individually evaluated for impairment	1,911		—		—		—		1,911
Collectively evaluated for impairment	8,733		1,365		4,370		2,180		16,648
Acquired with deteriorated credit quality	271		9		—		—		280
Ending Balance	$	10,915	$	1,374	$	4,370	$	2,180	$	18,839

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Loans	December 31, 2014
(Dollar amounts in thousands)	Commercial		Residential		Consumer		Total
Individually evaluated for impairment	14,573		33		—		14,606
Collectively evaluated for impairment	1,030,949		468,872		267,880		1,767,701
Acquired with deteriorated credit quality	4,887		1,631		—		6,518
Ending Balance	$	1,050,409	$	470,536	$	267,880	$	1,788,825

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



					September 30, 2015
	Unpaid Principal		Recorded		Allowance for Loan Losses		Average Recorded		Interest Income		Cash Basis Interest
(Dollar amounts in thousands)	Balance		Investment		Allocated		Investment		Recognized		Recognized
With no related allowance recorded:
Commercial
Commercial & Industrial	$	1,565	$	1,272	$	—	$	1,939	$	—	$	—
Farmland	—		—		—		—		—		—
Non Farm, Non Residential	3,243		3,243		—		1,800		—		—
Agriculture	—		—		—		—		—		—
All Other Commercial	1,776		1,776		—		1,029		—		—
Residential
First Liens	30		30		—		15		—		—
Home Equity	—		—		—		—		—		—
Junior Liens	—		—		—		—		—		—
Multifamily	—		—		—		—		—		—
All Other Residential	—		—		—		—		—		—
Consumer
Motor Vehicle	—		—		—		—		—		—
All Other Consumer	—		—		—		—		—		—
With an allowance recorded:
Commercial
Commercial & Industrial	1,618		1,618		278		4,080		—		—
Farmland	—		—		—		—		—		—
Non Farm, Non Residential	1,506		1,506		718		4,248		—		—
Agriculture	—		—		—		—		—		—
All Other Commercial	233		233		—		548		—		—
Residential
First Liens	904		904		232		357		—		—
Home Equity	—		—		—		—		—		—
Junior Liens	—		—		—		—		—		—
Multifamily	—		—		—		—		—		—
All Other Residential	—		—		—		—		—		—
Consumer
Motor Vehicle	—		—		—		—		—		—
All Other Consumer	—		—		—		—		—		—
TOTAL	$	10,875	$	10,582	$	1,228	$	14,016	$	—	$	—

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					December 31, 2014
	Unpaid Principal		Recorded		Allowance for Loan Losses		Average Recorded		Interest Income		Cash Basis Interest Income
(Dollar amounts in thousands)	Balance		Investment		Allocated		Investment		Recognized		Recognized
With no related allowance recorded:
Commercial
Commercial & Industrial	$	1,200	$	926	$	—	$	2,589	$	—	$	—
Farmland	—		—		—		—		—		—
Non Farm, Non Residential	—		—		—		58		—		—
Agriculture	—		—		—		—		—		—
All Other Commercial	292		292		—		58		—		—
Residential
First Liens	—		—		—		5		—		—
Home Equity	—		—		—		—		—		—
Junior Liens	—		—		—		—		—		—
Multifamily	—		—		—		—		—		—
All Other Residential	—		—		—		—		—		—
Consumer
Motor Vehicle	—		—		—		—		—		—
All Other Consumer	—		—		—		—		—		—
With an allowance recorded:
Commercial
Commercial & Industrial	7,388		5,874		1,056		6,177		—		—
Farmland	—		—		—		—		—		—
Non Farm, Non Residential	6,654		6,654		753		6,698		—		—
Agriculture	—		—		—		—		—		—
All Other Commercial	827		827		102		1,112		—		—
Residential
First Liens	33		33		—		35		—		—
Home Equity	—		—		—		—		—		—
Junior Liens	—		—		—		—		—		—
Multifamily	—		—		—		—		—		—
All Other Residential	—		—		—		—		—		—
Consumer
Motor Vehicle	—		—		—		—		—		—
All Other Consumer	—		—		—		—		—		—
TOTAL	$	16,394	$	14,606	$	1,911	$	16,732	$	—	$	—

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	Three Months Ended September 30, 2015						Nine Months Ended September 30, 2015
	Average Recorded		Interest Income		Cash Basis Interest Income		Average Recorded		Interest Income		Cash Basis Interest Income
(Dollar amounts in thousands)	Investment		Recognized		Recognized		Investment		Recognized		Recognized
With no related allowance recorded:
Commercial
Commercial & Industrial	$	3,290	$	—	$	—	$	1,939	$	—	$	—
Farmland	—		—		—		—		—		—
Non Farm, Non Residential	3,599		—		—		1,800		—		—
Agriculture	—		—		—		—		—		—
All Other Commercial	1,785		—		—		1,029		—		—
Residential
First Liens	31		—		—		15		—		—
Home Equity	—		—		—		—		—		—
Junior Liens	—		—		—		—		—		—
Multifamily	—		—		—		—		—		—
All Other Residential	—		—		—		—		—		—
Consumer
Motor Vehicle	—		—		—		—		—		—
All Other Consumer	—		—		—		—		—		—
With an allowance recorded:
Commercial
Commercial & Industrial	1,714		—		—		4,080		—		—
Farmland	—		—		—		—		—		—
Non Farm, Non Residential	1,929		—		—		4,248		—		—
Agriculture	—		—		—		—		—		—
All Other Commercial	393		—		—		548		—		—
Residential
First Liens	565		—		—		357		—		—
Home Equity	—		—		—		—		—		—
Junior Liens	—		—		—		—		—		—
Multifamily	—		—		—		—		—		—
All Other Residential	—		—		—		—		—		—
Consumer
Motor Vehicle	—		—		—		—		—		—
All Other Consumer	—		—		—		—		—		—
TOTAL	$	13,306	$	—	$	—	$	14,016	$	—	$	—

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	Three Months Ended September 30, 2014						Nine Months Ended September 30, 2014
	Average Recorded		Interest Income		Cash Basis Interest Income		Average Recorded		Interest Income		Cash Basis Interest Income
(Dollar amounts in thousands)	Investment		Recognized		Recognized		Investment		Recognized		Recognized
With no related allowance recorded:
Commercial
Commercial & Industrial	$	4,103	$	—	$	—	$	3,005	$	—	$	—
Farmland	—		—		—		—		—		—
Non Farm, Non Residential	42		—		—		73		—		—
Agriculture	—		—		—		—		—		—
All Other Commercial	—		—		—		—		—		—
Residential
First Liens	12		—		—		6		—		—
Home Equity	—		—		—		—		—		—
Junior Liens	—		—		—		—		—		—
Multifamily	—		—		—		—		—		—
All Other Residential	—		—		—		—		—		—
Consumer
Motor Vehicle	—		—		—		—		—		—
All Other Consumer	—		—		—		—		—		—
With an allowance recorded:
Commercial
Commercial & Industrial	4,420		—		—		6,253		—		—
Farmland	—		—		—		—		—		—
Non Farm, Non Residential	6,677		—		—		6,709		—		—
Agriculture	—		—		—		—		—		—
All Other Commercial	1,322		—		—		1,184		—		—
Residential
First Liens	35		—		—		36		—		—
Home Equity	—		—		—		—		—		—
Junior Liens	—		—		—		—		—		—
Multifamily	—		—		—		—		—		—
All Other Residential	—		—		—		—		—		—
Consumer
Motor Vehicle	—		—		—		—		—		—
All Other Consumer	—		—		—		—		—		—
TOTAL	$	16,611	$	—	$	—	$	17,266	$	—	$	—

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



	September 30, 2015
	Loans Past Due Over 90 Day Still		Troubled Debt
(Dollar amounts in thousands)	Accruing		Accruing		Nonaccrual		Nonaccrual
Commercial
Commercial & Industrial	$	—	$	5	$	430	$	3,943
Farmland	—		—		—		385
Non Farm, Non Residential	—		7		3,190		2,666
Agriculture	588		—		—		289
All Other Commercial	—		—		—		1,993
Residential
First Liens	798		4,558		995		5,062
Home Equity	62		—		—		295
Junior Liens	13		—		—		230
Multifamily	—		—		—		—
All Other Residential	—		—		—		115
Consumer
Motor Vehicle	234		181		11		150
All Other Consumer	6		40		423		984
TOTAL	$	1,701	$	4,791	$	5,049	$	16,112



	December 31, 2014
	Loans Past Due Over 90 Day Still		Troubled Debt
(Dollar amounts in thousands)	Accruing		Accruing		Nonaccrual		Nonaccrual
Commercial
Commercial & Industrial	$	—	$	7	$	4,961	$	3,720
Farmland	—		—		—		79
Non Farm, Non Residential	—		10		3,987		3,388
Agriculture	—		—		—		767
All Other Commercial	—		—		—		1,258
Residential
First Liens	603		4,357		842		3,861
Home Equity	88		—		—		404
Junior Liens	12		—		—		275
Multifamily	—		—		—		—
All Other Residential	5		—		—		111
Consumer
Motor Vehicle	162		257		83		210
All Other Consumer	3		1		269		961
TOTAL	$	873	$	4,632	$	10,142	$	15,034

There are $184 thousand loans covered by loss share agreements with the FDIC included in loans past due over 90 days still on accrual at September 30, 2015 and there were $37 thousand at December 31, 2014. There were $242 thousand of covered loans included in non-accrual loans at September 30, 2015 and there were $274 thousand at December 31, 2014. There were no covered loans at September 30, 2015 or December 31, 2014 that were deemed impaired.

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

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



	September 30, 2015
	30-59 Days		60-89 Days		Greater than 90 days		Total
(Dollar amounts in thousands)	Past Due		Past Due		Past Due		Past Due		Current		Total
Commercial
Commercial & Industrial	$	190	$	321	$	1,825	$	2,336	$	474,550	$	476,886
Farmland	25		567		—		592		103,759		104,351
Non Farm, Non Residential	157		—		321		478		211,797		212,275
Agriculture	306		368		615		1,289		130,491		131,780
All Other Commercial	54		—		148		202		121,340		121,542
Residential
First Liens	1,083		813		1,723		3,619		298,948		302,567
Home Equity	154		61		161		376		37,837		38,213
Junior Liens	306		87		187		580		30,602		31,182
Multifamily	—		—		—		—		71,916		71,916
All Other Residential	—		—		—		—		8,840		8,840
Consumer
Motor Vehicle	2,619		495		251		3,365		247,719		251,084
All Other Consumer	94		49		6		149		22,203		22,352
TOTAL	$	4,988	$	2,761	$	5,237	$	12,986	$	1,760,002	$	1,772,988



	December 31, 2014
	30-59 Days		60-89 Days		Greater than 90 days		Total
(Dollar amounts in thousands)	Past Due		Past Due		Past Due		Past Due		Current		Total
Commercial
Commercial & Industrial	$	574	$	416	$	3,046	$	4,036	$	451,549	$	455,585
Farmland	—		—		—		—		95,452		95,452
Non Farm, Non Residential	1,528		68		202		1,798		232,440		234,238
Agriculture	246		18		502		766		149,099		149,865
All Other Commercial	255		—		—		255		115,014		115,269
Residential
First Liens	6,011		963		1,522		8,496		308,068		316,564
Home Equity	141		33		310		484		40,043		40,527
Junior Liens	270		83		217		570		31,487		32,057
Multifamily	—		—		—		—		72,310		72,310
All Other Residential	112		—		5		117		8,961		9,078
Consumer
Motor Vehicle	3,026		557		180		3,763		242,406		246,169
All Other Consumer	114		7		3		124		21,587		21,711
TOTAL	$	12,277	$	2,145	$	5,987	$	20,409	$	1,768,416	$	1,788,825

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During the three and nine months ended September 30, 2015 and 2014, the terms of certain loans were modified as troubled debt restructurings (TDRs). The following tables present the activity for TDR's.



			2015
(Dollar amounts in thousands)	Commercial		Residential		Consumer		Total
July 1,	8,705		5,589		657		14,951
Added	—		16		50		66
Charged Off	—		—		(4	)	(4	)
Payments	(5,081	)	(63	)	(41	)	(5,185	)
September 30,	3,624		5,542		662		9,828



			2015
(Dollar amounts in thousands)	Commercial		Residential		Consumer		Total
January 1,	8,955		5,189		614		14,758
Added	—		668		239		907
Charged Off	—		(62	)	(44	)	(106	)
Payments	(5,331	)	(253	)	(147	)	(5,731	)
September 30,	3,624		5,542		662		9,828



			2014
(Dollar amounts in thousands)	Commercial		Residential		Consumer		Total
July 1,	9,206		4,956		559		14,721
Added	—		340		115		455
Charged Off	—		(67	)	(24	)	(91	)
Payments	(122	)	(124	)	(81	)	(327	)
September 30,	9,084		5,105		569		14,758



			2014
(Dollar amounts in thousands)	Commercial		Residential		Consumer		Total
January 1,	12,327		4,330		644		17,301
Added	441		1,141		213		1,795
Charged Off	(1,069	)	(67	)	(63	)	(1,199	)
Payments	(2,615	)	(299	)	(225	)	(3,139	)
September 30,	9,084		5,105		569		14,758

Modification of the terms of such loans typically include one or a combination of the following: a reduction of the stated interest rate of the loan; an extension of the maturity date at a stated rate of interest lower than the current market rate for new debt with similar risk; or a permanent reduction of the recorded investment in the loan. No modification in 2015 or 2014 resulted in the permanent reduction of the recorded investment in the loan. Modifications involving a reduction of the stated interest rate of the loan were for periods ranging from twelve months to five years. Modifications involving an extension of the maturity date were for periods ranging from twelve months to ten years. Troubled debt restructurings during the three and nine months ended September 30, 2015 and 2014 did not result in any material charge-offs or additional provision expense.

The Corporation has allocated $36 thousand and $81 thousand of specific reserves to customers whose loan terms have been modified in troubled debt restructurings at both September 30, 2015 and 2014, respectively. The Corporation has not committed to lend additional amounts as of September 30, 2015 and 2014 to customers with outstanding loans that are classified as troubled debt restructurings. The charge-offs during the three and nine months ended September 30, 2015 and 2014 were not of any restructurings that had taken place in the previous 12 months.

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Credit Quality Indicators:

The Corporation categorizes loans into risk categories based on relevant information about the ability of borrowers to service their debt such as: current financial information, historical payment experience, credit documentation, public information, and current economic trends, among other factors. The Corporation analyzes loans individually by classifying the loans as to credit risk. This analysis includes non-homogeneous loans, such as commercial loans, with an outstanding balance greater than $100 thousand. Any consumer loans outstanding to a borrower who had commercial loans analyzed will be similarly risk rated. This analysis is performed on a quarterly basis. The Corporation uses the following definitions for risk ratings:

Special Mention: Loans classified as special mention have a potential weakness that deserves management’s close attention. If left uncorrected, these potential weaknesses may result in deterioration of the repayment prospects for the loan or of the institution’s credit position at some future date.

Substandard: Loans classified as substandard are inadequately protected by the current net worth and debt service capacity of the borrower or of any pledged collateral. These loans have a well-defined weakness or weaknesses which have clearly jeopardized repayment of principal and interest as originally intended. They are characterized by the distinct possibility that the institution will sustain some future loss if the deficiencies are not corrected.

Doubtful: Loans classified as doubtful have all the weaknesses inherent in those graded substandard, with the added characteristic that the severity of the weaknesses makes collection or liquidation in full highly questionable or improbable based upon currently existing facts, conditions, and values.

Furthermore, non-homogeneous loans which were not individually analyzed, but are 90+ days past due or on non-accrual are classified as substandard. Loans included in homogeneous pools, such as residential or consumer may be classified as substandard due to 90+ days delinquency, non-accrual status, bankruptcy, or loan restructuring.

Loans not meeting the criteria above that are analyzed individually as part of the above described process are considered to be pass rated loans. Loans listed as not rated are either less than $100 thousand or are included in groups of homogeneous loans. As of September 30, 2015 and December 31, 2014, and based on the most recent analysis performed, the risk category of loans by class of loans are as follows:



	September 30, 2015
(Dollar amounts in thousands)	Pass		Special Mention		Substandard		Doubtful		Not Rated		Total
Commercial
Commercial & Industrial	$	408,039	$	28,331	$	31,171	$	1,295	$	6,607	$	475,443
Farmland	90,255		7,354		4,825		—		16		102,450
Non Farm, Non Residential	184,252		8,191		19,380		36		—		211,859
Agriculture	111,296		9,804		8,790		27		166		130,083
All Other Commercial	105,584		2,691		11,193		101		1,273		120,842
Residential
First Liens	98,630		4,591		8,633		718		189,034		301,606
Home Equity	11,097		453		1,348		11		25,247		38,156
Junior Liens	7,578		119		482		59		22,862		31,100
Multifamily	69,077		1,616		1,026		—		25		71,744
All Other Residential	902		—		25		—		7,892		8,819
Consumer
Motor Vehicle	10,555		498		508		—		238,435		249,996
All Other Consumer	3,181		89		121		15		18,833		22,239
TOTAL	$	1,100,446	$	63,737	$	87,502	$	2,262	$	510,390	$	1,764,337

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	December 31, 2014
(Dollar amounts in thousands)	Pass		Special Mention		Substandard		Doubtful		Not Rated		Total
Commercial
Commercial & Industrial	$	393,449	$	29,081	$	24,013	$	2,900	$	4,717	$	454,160
Farmland	85,772		7,618		436		—		13		93,839
Non Farm, Non Residential	186,346		21,765		25,613		36		—		233,760
Agriculture	138,713		7,399		1,746		177		67		148,102
All Other Commercial	101,942		4,356		7,055		33		1,275		114,661
Residential
First Liens	104,854		5,929		7,733		1,035		196,008		315,559
Home Equity	12,592		375		1,374		6		26,116		40,463
Junior Liens	8,112		173		561		63		23,053		31,962
Multifamily	69,080		1,801		1,249		—		3		72,133
All Other Residential	1,799		—		28		—		7,228		9,055
Consumer
Motor Vehicle	11,135		402		224		—		233,302		245,063
All Other Consumer	3,169		141		87		21		18,175		21,593
TOTAL	$	1,116,963	$	79,040	$	70,119	$	4,271	$	509,957	$	1,780,350


3.	Securities

The amortized cost and fair value of the Corporation’s investments are shown below. All securities are classified as available-for-sale.




	September 30, 2015
(Dollar amounts in thousands)	Amortized Cost		Unrealized Gains		Unrealized Losses			Fair Value
U.S. Government agencies	$	11,059	$	61	$	—		$	11,120
Mortgage Backed Securities - Residential	188,184		6,391		(235		)	194,340
Mortgage Backed Securities - Commercial	10		—		—			10
Collateralized Mortgage Obligations	453,593		4,019		(3,703		)	453,909
State and Municipal Obligations	204,279		7,438		(377		)	211,340
Collateralized Debt Obligations	9,715		5,402		—			15,117
TOTAL	$	866,840	$	23,311	$	(4,315	)	$	885,836




	December 31, 2014
(Dollar amounts in thousands)	Amortized Cost		Unrealized Gains		Unrealized Losses			Fair Value
U.S. Government agencies	$	1,411	$	56	$	—		$	1,467
Mortgage Backed Securities-residential	180,673		7,593		(330		)	187,936
Mortgage Backed Securities-commercial	17		—		—			17
Collateralized mortgage obligations	489,765		2,513		(7,623		)	484,655
State and municipal	198,875		9,019		(219		)	207,675
Collateralized debt obligations	10,205		5,115		(17		)	15,303
TOTAL	$	880,946	$	24,296	$	(8,189	)	$	897,053

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Contractual maturities of debt securities at September 30, 2015 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-Sale
	Amortized		Fair
(Dollar amounts in thousands)	Cost		Value
Due in one year or less	$	3,399	$	3,426
Due after one but within five years	40,291		41,512
Due after five but within ten years	88,042		91,552
Due after ten years	93,321		101,087
	225,053		237,577
Mortgage-backed securities and collateralized mortgage obligations	641,787		648,259
TOTAL	$	866,840	$	885,836

There were $9 thousand in gross gains and no losses from investment sales realized by the Corporation for the three months ended September 30, 2015. For the nine months ended September 30, 2015 there were $23 thousand in gross gains and no losses. For the nine months ended September 30, 2014 there were $1 thousand in gross losses on sales of investment securities. There were no gains or losses on investment securities in the third quarter of 2014.

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 September 30, 2015 and December 31, 2014.



	September 30, 2015
	Less Than 12 Months					More Than 12 Months							Total
			Unrealized					Unrealized					Unrealized
(Dollar amounts in thousands)	Fair Value		Losses			Fair Value		Losses			Fair Value		Losses
Mortgage Backed Securities - Residential	$	18,372	$	(180	)	$	19,957	$	(55	)	$	38,329	$	(235	)
Collateralized mortgage obligations	147,188		(3,318		)	55,710		(385		)	202,898		(3,703		)
State and municipal obligations	4,372		(101		)	23,387		(276		)	27,759		(377		)
Total temporarily impaired securities	$	169,932	$	(3,599	)	$	99,054	$	(716	)	$	268,986	$	(4,315	)



	December 31, 2014
	Less Than 12 Months					More Than 12 Months							Total
			Unrealized					Unrealized					Unrealized
(Dollar amounts in thousands)	Fair Value		Losses			Fair Value		Losses			Fair Value		Losses
Mortgage Backed Securities - Residential	$	—	$	—		$	23,849	$	(330	)	$	23,849	$	(330	)
Collateralized mortgage obligations	50,832		(128		)	264,940		(7,495		)	315,772		(7,623		)
State and municipal obligations	6,500		(35		)	10,547		(184		)	17,047		(219		)
Collateralized Debt Obligations	—		—			200		(17		)	200		(17		)
Total temporarily impaired securities	$	57,332	$	(163	)	$	299,536	$	(8,026	)	$	356,868	$	(8,189	)

Management evaluates securities for other-than-temporary impairment (“OTTI”) at least on a quarterly basis, and more frequently when economic or market conditions warrant such an evaluation. The investment securities portfolio is evaluated for OTTI by segregating the portfolio into two general segments and applying the appropriate OTTI model. Investment securities are generally evaluated for OTTI under FASB ASC 320, Investments - Debt and Equity Securities. However, certain purchased beneficial interests, including non-agency mortgage-backed securities, asset-backed securities, and collateralized debt obligations, that had credit ratings at the time of purchase of below AA are evaluated using the model outlined in FASB ASC 325-40, Beneficial Interests in Securitized Financial Assets.

When OTTI occurs under either model, the amount of the OTTI recognized in earnings depends on whether an entity intends to sell the security or it is more likely than not it will be required to sell the security before recovery of its amortized cost basis, less any current-period credit loss. If an entity intends to sell or it is more likely than not it will be required to sell the security

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before recovery of its amortized cost basis, less any current-period credit loss, the OTTI shall be recognized in earnings equal to the entire difference between the investment’s amortized cost basis and its fair value at the balance sheet date. If an entity does not intend to sell the security and it is not more likely than not that the entity will be required to sell the security before recovery of its amortized cost basis less any current-period loss, the OTTI shall be separated into the amount representing the credit loss and the amount related to all other factors. The amount of the total OTTI related to the credit loss is determined based on the present value of cash flows expected to be collected and is recognized in earnings. The amount of the total OTTI related to other factors is recognized in other comprehensive income, net of applicable taxes. The previous amortized cost basis less the OTTI recognized in earnings becomes the new amortized cost basis of the investment.

Gross unrealized losses on investment securities were $4.3 million as of September 30, 2015 and $8.2 million as of December 31, 2014. A majority of these losses represent negative adjustments to market value relative to the interest rate environment reflecting the increase in market rates and not losses related to the creditworthiness of the issuer. Based upon our review of the issuers, we do not believe these investments to be other than temporarily impaired. Management does not intend to sell these securities and it is not more likely than not that we will be required to sell them before their anticipated recovery.

There are three collateralized debt obligations securities with previously recorded OTTI but there is no OTTI in 2015 or 2014.

Management has consistently used Standard & Poors pricing to value these investments. There are a number of other pricing sources available to determine fair value for these investments. These sources utilize a variety of methods to determine fair value. The result is a wide range of estimates of fair value for these securities. The Standard & Poors pricing ranges from 44.9 to 63.8 while Moody Investor Service pricing ranges from 7.2 to 16.3, with others falling somewhere in between. We recognize that the Standard & Poors pricing utilized is an estimate, but have been consistent in using this source and its estimate of fair value.

The table below presents a rollforward of the credit losses recognized in earnings for the three and nine month periods ended September 30, 2015 and 2014:



	Three Months Ended September 30,					Nine Months Ended September 30,
(Dollar amounts in thousands)	2015		2014			2015			2014
Beginning balance	$	13,995	$	14,079		$	14,050		$	14,079
Increases to the amount related to the credit
Loss for which other-than-temporary was previously recognized	—		—			—			—
Reductions for increases in cash flows collected	—		(29		)	(55		)	(29		)
Amounts realized for securities sold during the period	—		—			—			—
Ending balance	$	13,995	$	14,050		$	13,995		$	14,050


4.	Fair Value

FASB ASC No. 820-10 establishes a fair value hierarchy which requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. The standard describes three levels of inputs that may be used to measure fair value:

Level 1: Quoted prices (unadjusted) of identical assets or liabilities in active markets that the entity has the ability to access as of the measurement date.

Level 2: Significant other observable inputs other than Level I prices such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data.

Level 3: Significant unobservable inputs that reflect a reporting entity’s own assumptions about the assumptions that market participants would use in pricing an asset or liability.

The fair value of most securities available for sale is determined by obtaining quoted prices on nationally recognized securities exchanges (Level 1 inputs) or matrix pricing, which is a mathematical technique widely used in the industry to value debt securities without relying exclusively on quoted prices for the specific securities but rather by relying on the securities’ relationship to other benchmark quoted securities (Level 2 inputs).

For those securities that cannot be priced using quoted market prices or observable inputs a Level 3 valuation is determined. These securities are primarily trust preferred securities, which are priced using Level 3 due to current market illiquidity and certain investments in state and municipal securities. The fair value of the trust preferred securities is obtained from a third party provider without adjustment. As described previously, management obtains values from other pricing sources to validate the Standard &

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Poors pricing that they currently utilize. The fair value of state and municipal obligations are derived by comparing the securities to current market rates plus an appropriate credit spread to determine an estimated value. Illiquidity spreads are then considered. Credit reviews are performed on each of the issuers. The significant unobservable inputs used in the fair value measurement of the Corporation’s state and municipal obligations are credit spreads related to specific issuers. Significantly higher credit spread assumptions would result in significantly lower fair value measurement. Conversely, significantly lower credit spreads would result in a significantly higher fair value measurements.

The fair value of derivatives is based on valuation models using observable market data as of the measurement date (Level 2 inputs).



	September 30, 2015
	Fair Value Measurements Using Significant Unobservable Inputs (Level 3)
(Dollar amounts in thousands)	Level 1		Level 2			Level 3		Total
U.S. Government agencies	$	—	$	11,120		$	—	$	11,120
Mortgage Backed Securities-residential	—		194,340			—		194,340
Mortgage Backed Securities-commercial	—		10			—		10
Collateralized mortgage obligations	—		453,909			—		453,909
State and municipal	—		206,615			4,725		211,340
Collateralized debt obligations	—		—			15,117		15,117
TOTAL	$	—	$	865,994		$	19,842	$	885,836
Derivative Assets			1,568
Derivative Liabilities			(1,568		)



	December 31, 2014
	Fair Value Measurements Using Significant Unobservable Inputs (Level 3)
(Dollar amounts in thousands)	Level 1		Level 2			Level 3		Total
U.S. Government agencies	$	—	$	1,467		$	—	$	1,467
Mortgage Backed Securities-residential	—		187,936			—		187,936
Mortgage Backed Securities-commercial	—		17			—		17
Collateralized mortgage obligations	—		484,655			—		484,655
State and municipal	—		201,775			5,900		207,675
Collateralized debt obligations	—		—			15,303		15,303
TOTAL	$	—	$	875,850		$	21,203	$	897,053
Derivative Assets			1,062
Derivative Liabilities			(1,062		)

There were no transfers between Level 1 and Level 2 during 2015 and 2014.

The tables below presents a reconciliation and income statement classification of gains and losses for all assets measured at fair value on a recurring basis using significant unobservable inputs (Level 3) for the three and nine months ended September 30, 2015 and the year ended December 31, 2014.

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	Fair Value Measurements Using Significant Unobservable Inputs (Level 3)
	Three Months Ended September 30, 2015
	State and municipal obligations		Collateralized debt obligations			Total
Beginning balance, July 1	$	4,725	$	14,866		$	19,591
Total realized/unrealized gains or losses
Included in earnings	—		—			—
Included in other comprehensive income	—		307			307
Transfers	—		—			—
Settlements	—		(56		)	(56		)
Ending balance, September 30	$	4,725	$	15,117		$	19,842



	Fair Value Measurements Using Significant Unobservable Inputs (Level 3)
	Nine Months Ended September 30, 2015
	State and municipal obligations			Collateralized debt obligations			Total
Beginning balance, January 1	$	5,900		$	15,303		$	21,203
Total realized/unrealized gains or losses
Included in earnings	—			—			—
Included in other comprehensive income	—			122			122
Transfers	—			—			—
Settlements	(1,175		)	(308		)	(1,483		)
Ending balance, September 30	$	4,725		$	15,117		$	19,842



	Fair Value Measurements Using Significant Unobservable Inputs (Level 3)
	Year Ended December 31, 2014
	State and municipal obligations			Collateralized debt obligations			Total
Beginning balance, January 1	$	4,525		$	9,044		$	13,569
Total realized/unrealized gains or losses
Included in earnings	—			—			—
Included in other comprehensive income	—			7,100			7,100
Purchases	4,000			—			4,000
Settlements	(2,625		)	(841		)	(3,466		)
Ending balance, December 31	$	5,900		$	15,303		$	21,203

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The following table presents quantitative information about recurring and non-recurring Level 3 fair value measurements at September 30, 2015.



	Fair Value		Valuation Technique(s)	Unobservable Input(s)	Range
State and municipal obligations	$	4,725	Discounted cash flow	Discount rate Probability of default	3.05%-5.50% 0%
Other real estate	$	3,382	Sales comparison/income approach	Discount rate for age of appraisal and market conditions	5.00%-20.00%
Impaired Loans	$	3,033	Sales comparison/income approach	Discount rate for age of appraisal and market conditions	0.00%-50.00%

The following table presents quantitative information about recurring and non-recurring Level 3 fair value measurements at December 31, 2014.



	Fair Value		Valuation Technique(s)	Unobservable Input(s)	Range
State and municipal obligations	$	5,900	Discounted cash flow	Discount rate Probability of default	3.05%-5.50% 0%
Other real estate	$	3,965	Sales comparison/income approach	Discount rate for age of appraisal and market conditions	5.00%-20.00%
Impaired Loans	11,477		Sales comparison/income approach	Discount rate for age of appraisal and market conditions	0.00%-50.00%

Impaired loans disclosed in footnote 2, which are measured for impairment using the fair value of collateral, are valued at Level 3. They are carried at a fair value of $3.0 million, after a valuation allowance of $1.2 million at September 30, 2015 and at a fair value of $11.5 million, net of a valuation allowance of $1.9 million at December 31, 2014. The impact to the provision for loan losses for the three months ended September 30, 2015 and for the 12 months ended December 31, 2014 was a $221 thousand decrease and a $1.2 million decrease, respectively. Other real estate owned is valued at Level 3. Other real estate owned at September 30, 2015 with a value of $3.4 million was reduced $0.7 million for fair value adjustment. At September 30, 2015 other real estate owned was comprised of $2.8 million from commercial loans and $0.6 million from residential loans. Other real estate owned at December 31, 2014 with a value of $4.0 million was reduced $1.1 million for fair value adjustment. At December 31, 2014 other real estate owned was comprised of $3.0 million from commercial loans and $1.0 million from residential loans.

Fair value is measured based on the value of the collateral securing those loans, and is determined using several methods. Generally the fair value of real estate is determined based on appraisals by qualified licensed appraisers. Appraisals for real estate generally use three methods to derive value: cost, sales or market comparison and income approach. The cost method bases value on the cost to replace current property. The market comparison evaluates the sales price of similar properties in the same market area. The income approach considers net operating income generated by the property and the investor’s required return. The final fair value is based on a reconciliation of these three approaches. If an appraisal is not available, the fair value may be determined by using a cash flow analysis, a broker’s opinion of value, the net present value of future cash flows, or an observable market price from an active market. Fair value of other real estate is based upon the current appraised values of the properties as determined by qualified licensed appraisers and the Company’s judgment of other relevant market conditions. Appraisals are obtained annually and reductions in value are recorded as a valuation through a charge to expense. The primary unobservable input used by management in estimating fair value are additional discounts to the appraised value to consider market conditions and the age of the appraisal, which are based on management’s past experience in resolving these types of properties. These discounts range from 0% to 50%. Values for non-real estate collateral, such as business equipment, are based on appraisals performed by qualified licensed appraisers or the customers financial statements. Values for non real estate collateral use much higher discounts that real estate collateral. Other real estate and impaired loans carried at fair value are primarily comprised of smaller balance properties.

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The following tables presents loans identified as impaired by class of loans as of September 30, 2015 and December 31, 2014, which are all considered Level 3.



	September 30, 2015
(Dollar amounts in thousands)	Carrying Value		Allowance for Loan Losses Allocated		Fair Value
Commercial
Commercial & Industrial	$	1,618	$	278	$	1,340
Farmland	—		—		—
Non Farm, Non Residential	1,506		718		788
Agriculture	—		—		—
All Other Commercial	233		—		233
Residential
First Liens	904		232		672
Home Equity	—		—		—
Junior Liens	—		—		—
Multifamily	—		—		—
All Other Residential	—		—		—
Consumer
Motor Vehicle	—		—		—
All Other Consumer	—		—		—
TOTAL	$	4,261	$	1,228	$	3,033



	December 31, 2014
(Dollar amounts in thousands)	Carrying Value		Allowance for Loan Losses Allocated		Fair Value
Commercial
Commercial & Industrial	$	5,874	$	1,056	$	4,818
Farmland	—		—		—
Non Farm, Non Residential	6,654		753		5,901
Agriculture	—		—		—
All Other Commercial	827		102		725
Residential
First Liens	33		—		33
Home Equity	—		—		—
Junior Liens	—		—		—
Multifamily	—		—		—
All Other Residential	—		—		—
Consumer
Motor Vehicle	—		—		—
All Other Consumer	—		—		—
TOTAL	$	13,388	$	1,911	$	11,477

The carrying amounts and estimated fair value of financial instruments at September 30, 2015 and December 31, 2014, are shown below. Carrying amount is the estimated fair value for cash and due from banks, federal funds sold, short-term borrowings, accrued interest receivable and payable, demand deposits, short-term debt and variable-rate loans or deposits that reprice frequently and fully. Security fair values were described previously. For fixed-rate, non-impaired 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 considering credit risk. The valuation of impaired loans was described previously. Loan fair value estimates do not necessarily represent an exit price. Fair values of loans held for sale are based on

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market bids on the loans or similar loans. It was not practicable to determine the fair value of Federal Home Loan Bank stock due to restrictions placed on its transferability. Fair value of debt is based on current rates for similar financing. The fair value of off-balance sheet items is not considered material.



	September 30, 2015
	Carrying			Fair Value
(Dollar amounts in thousands)	Value			Level 1		Level 2			Level 3		Total
Cash and due from banks	$	63,278		$	21,962	$	41,316		$	—	$	63,278
Federal funds sold	—			—		—			—		—
Securities available-for-sale	885,836			—		865,994			19,842		885,836
Restricted stock	10,838			n/a		n/a			n/a		n/a
Loans, net	1,746,742			—		—			1,804,961		1,804,961
Accrued interest receivable	12,265			—		3,719			8,546		12,265
Deposits	(2,418,589		)	—		(2,420,624		)	—		(2,420,624		)
Short-term borrowings	(23,336		)	—		(23,336		)	—		(23,336		)
Federal Home Loan Bank advances	(13,251		)	—		(13,683		)	—		(13,683		)
Accrued interest payable	(396		)	—		(396		)	—		(396		)



	December 31, 2014
	Carrying			Fair Value
(Dollar amounts in thousands)	Value			Level 1		Level 2			Level 3		Total
Cash and due from banks	$	78,102		$	22,597	$	55,505		$	—	$	78,102
Federal funds sold	8,000			—		8,000			—		8,000
Securities available-for-sale	897,053			—		875,850			21,203		897,053
Restricted stock	16,404			n/a		n/a			n/a		n/a
Loans, net	1,762,589			—		—			1,810,885		1,810,885
FDIC Indemnification Asset	(74		)	—		(74		)	—		(74		)
Accrued interest receivable	11,593			—		3,183			8,410		11,593
Deposits	(2,457,197		)	—		(2,459,703		)	—		(2,459,703		)
Short-term borrowings	(48,015		)	—		(48,015		)	—		(48,015		)
Federal Home Loan Bank advances	(12,886		)	—		(13,605		)	—		(13,605		)
Accrued interest payable	(456		)	—		(456		)	—		(456		)


5.	Short-Term Borrowings

Period–end short-term borrowings were comprised of the following:



	(000 's)
	September 30, 2015		December 31, 2014
Federal Funds Purchased	$	550	$	21,192
Repurchase Agreements	22,786		26,823
	$	23,336	$	48,015

The Corporation enters into sales of securities under agreements to repurchase. The amounts received under these agreements represent short-term borrowings and are reflected as a liability in the consolidated balance sheets. The securities underlying these agreements are included in investment securities in the consolidated balance sheets. The Corporation has no control over the market value of the securities, which fluctuates due to market conditions. However, the Corporation is obligated to promptly transfer additional securities if the market value of the securities falls below the repurchase agreement price. The Corporation manages this risk by maintaining an unpledged securities portfolio that it believes is sufficient to cover a decline in the market value of the securities sold under agreements to repurchase.

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Collateral pledged to repurchase agreements by remaining maturity are as follows:



	September 30, 2015
Repurchase Agreements	Remaining Contractual Maturity of the Agreements
(Dollar amounts in thousands)	Overnight and continuous		Up to 30 days		30 - 90 days		Greater than 90 days		Total
Mortgage Backed Securities - Residential and Collateralized Mortgage Obligations	$	10,225	$	—	$	—	$	12,561	$	22,786



	December 31, 2014
Repurchase Agreements	Remaining Contractual Maturity of the Agreements
(Dollar amounts in thousands)	Overnight and continuous		Up to 30 days		30 - 90 days		Greater than 90 days		Total
Mortgage Backed Securities - Residential and Collateralized Mortgage Obligations	$	14,787	$	5,748	$	5,670	$	618	$	26,823


6.	Components of Net Periodic Benefit Cost



	Three Months Ended September 30,										Nine Months Ended September 30,
	(000's)										(000's)
	Pension Benefits						Post-Retirement Health Benefits				Pension Benefits						Post-Retirement Health Benefits
	2015			2014			2015		2014		2015			2014			2015		2014
Service cost	$	538		$	510		$	16	$	13	$	1,615		$	1,530		$	47	$	40
Interest cost	879			939			43		44		2,637			2,817			130		131
Expected return on plan assets	(863		)	(948		)	—		—		(2,589		)	(2,845		)	—		—
Amortization of transition obligation	—			—			—		—		—			—			—		—
Net amortization of prior service cost	—			(2		)	—		—		1			(7		)	—		—
Net amortization of net (gain) loss	1,185			190			—		—		3,555			569			—		(1		)
Net Periodic Benefit Cost	$	1,739		$	689		$	59	$	57	$	5,219		$	2,064		$	177	$	170

Employer Contributions

First Financial Corporation previously disclosed in its financial statements for the year ended December 31, 2014 that it expected to contribute $1.8 million and $1.1 million respectively to its Pension Plan and ESOP and $247 thousand to the Post Retirement Health Benefits Plan in 2015. Contributions of $1.3 million have been made to the Pension Plan thus far in 2015. Contributions of $161 thousand have been made through the first nine months of 2015 for the Post Retirement Health Benefits plan. No contributions have been made in 2015 for the ESOP. The Pension plan was frozen for most employees at the end of 2012 and for those employees there will be discretionary contributions to the ESOP plan and a 401K plan in place of the former Pension benefit. In the first nine months of 2015 and 2014 there has been $1.1 million and $1.0 million of expense accrued for potential contributions to these alternative retirement benefit options.

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7.	New accounting standards

In May 2014, the FASB and the International Accounting Standards Board (the "IASB") jointly issued a comprehensive new revenue recognition standard that will supersede nearly all existing revenue recognition guidance under GAAP and International Financial Reporting Standards ("IFRS"). Previous revenue recognition guidance in GAAP comprised broad revenue recognition concepts together with numerous revenue requirements for particular industries or transactions, which sometimes resulted in different accounting for economically similar transactions. In contrast, IFRS provided limited revenue recognition guidance and, consequently, could be difficult to apply to complex transactions. Accordingly, the FASB and the IASB initiated a joint project to clarify the principles for recognizing revenue and to develop a common revenue standard for U.S. GAAP and IFRS that would: (1) Remove inconsistencies and weaknesses in revenue requirements; (2) Provide a more robust framework for addressing revenue issues; (3) Improve comparability of revenue recognition practices across entities, industries, jurisdictions, and capital markets; (4) Provide more useful information to users of financial statements through improved disclosure requirements; and (5) Simplify the preparation of financial statements by reducing the number of requirements to which an entity must refer. To meet those objectives, the FASB issued ASU No. 2014-09, "Revenue from Contracts with Customers." The standard’s core principle is that a company will recognize revenue when it transfers promised goods or services to customers in an amount that reflects the consideration to which the company expects to be entitled in exchange for those goods or services. In doing so, companies generally will be required to use more judgment and make more estimates than under current guidance. These may include identifying performance obligations in the contract, estimating the amount of variable consideration to include in the transaction price and allocating the transaction price to each separate performance obligation. The standard is effective for public entities for interim and annual periods beginning after December 15, 2017. For financial reporting purposes, the standard allows for either full retrospective adoption, meaning the standard is applied to all of the periods presented, or modified retrospective adoption, meaning the standard is applied only to the most current period presented in the financial statements with the cumulative effect of initially applying the standard recognized at the date of initial application. The Corporation is currently evaluating the provisions of ASU No. 2014-09 and will be closely monitoring developments and additional guidance to determine the potential impact the new standard will have on the Corporation's Consolidated Financial Statements.

In August 2014, the FASB issued ASU 2014-14, Classification of Certain Government-Guaranteed Mortgage Loans upon Foreclosure. This ASU requires that a mortgage loan be derecognized and that a separate other receivable be recognized if certain conditions are met in the case of government guarantees. The amendments are effective for annual periods, and interim periods within those years, beginning after December 15, 2014. The adoption of this ASU has not had a significant impact on the Corporation's financial statements.

In June 2014, the FASB issued ASU No. 2014-11, "Repurchase-to-Maturity Transactions, Repurchase Financings, and Disclosures." The new guidance aligns the accounting for repurchase-to-maturity transactions and repurchase agreements executed as repurchase financings with the accounting for other typical repurchase agreements. Going forward, these transactions would all be accounted for as secured borrowings. The guidance eliminates sale accounting for repurchase-to-maturity transactions and supersedes the guidance under which a transfer of a financial asset and a contemporaneous repurchase financing could be accounted for on a combined basis as a forward agreement, which has resulted in outcomes referred to as off-balance-sheet accounting. The amendments in the ASU require a new disclosure for transactions economically similar to repurchase agreements in which the transferor retains substantially all of the exposure to the economic return on the transferred financial assets throughout the term of the transaction. The amendments in the ASU also require expanded disclosures, effective for the current reporting period of June 30, 2015, about the nature of collateral pledged in repurchase agreements and similar transactions accounted for as secured borrowings (see Note 5 to the Consolidated Financial Statements). The Corporation adopted the amendments in this ASU effective January 1, 2015. As of September 30, 2015, all of the Company's repurchase agreements were typical in nature (i.e., not repurchase-to-maturity transactions or repurchase agreements executed as a repurchase financing) and are accounted for as secured borrowings. As such, the adoption of ASU No. 2014-11 did not have a material impact on the Corporation's Consolidated Financial Statements.

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8.	Acquisitions and FDIC Indemnification Asset

The Bank is party to a loss sharing agreement with the FDIC as a result of a 2009 acquisition. Under the loss-sharing agreement (“LSA”), the Bank will share in the losses on assets covered under the agreement (referred to as covered assets). On losses up to $29 million, the FDIC has agreed to reimburse the Bank for 80 percent of the losses. On losses exceeding $29 million, the FDIC has agreed to reimburse the Bank for 95 percent of the losses. The loss-sharing agreement is subject to following servicing procedures as specified in the agreement with the FDIC. Loans acquired that are subject to the loss-sharing agreement with the FDIC are referred to as covered loans for disclosure purposes. Since the acquisition date the Bank has been reimbursed $19.4 million for losses and carrying expenses and currently carries an immaterial balance in the indemnification asset. The balance of loans covered by the loss share agreement at September 30, 2015 and December 31, 2014 totaled $6.5 million and $7.3 million, respectively. The only loans still covered by the loss share agreement are the single family loans; however recoveries on non-single family loans are still subject to sharing with the FDIC until 2017.

FASB ASC 310-30, Loans and Debt Securities Acquired with Deteriorated Credit Quality, applies to a loan with evidence of deterioration of credit quality since origination, acquired by completion of a transfer for which it is probable, at acquisition, that the investor will be unable to collect all contractually required payments receivable. FASB ASC 310-30 prohibits carrying over or creating an allowance for loan losses upon initial recognition. The carrying amount of loans accounted for in accordance with FASB ASC 310-30 at September 30, 2015 and 2014 are shown in the following table:



							2015
(Dollar amounts in thousands)	Commercial			Consumer			Total
Beginning balance, July 1,	$	4,329		$	1,547		$	5,876
Discount accretion	—			—			—
Disposals	(105		)	(9		)	(114		)
ASC 310-30 Loans, September 30,	$	4,224		$	1,538		$	5,762



							2015
(Dollar amounts in thousands)	Commercial			Consumer			Total
Beginning balance, January 1,	$	4,803		$	1,571		$	6,374
Discount accretion	—			—			—
Disposals	(579		)	(33		)	(612		)
ASC 310-30 Loans, September 30,	$	4,224		$	1,538		$	5,762



							2014
(Dollar amounts in thousands)	Commercial			Consumer			Total
Beginning balance, July 1,	$	7,337		$	1,885		$	9,222
Discount accretion	—			—			—
Disposals	(1,569		)	(108		)	(1,677		)
ASC 310-30 Loans, September 30,	$	5,768		$	1,777		$	7,545



							2014
(Dollar amounts in thousands)	Commercial			Consumer			Total
Beginning balance, January 1,	$	7,676		$	2,409		$	10,085
Discount accretion	—			—			—
Disposals	(1,908		)	(632		)	(2,540		)
ASC 310-30 Loans, September 30,	$	5,768		$	1,777		$	7,545

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9.	Accumulated Other Comprehensive Income

The following table summarizes the changes, net of tax within each classification of accumulated other comprehensive income for the three and nine months ended September 30, 2015 and 2014.



	Unrealized
	gains and		2015
	Losses on available- for-sale		Retirement
(Dollar amounts in thousands)	Securities		plans			Total
Beginning balance, July 1,	$	7,476	$	(21,524	)	$	(14,048	)
Change in other comprehensive income before reclassification	4,464		—			4,464
Amounts reclassified from accumulated other comprehensive income	7		819			826
Net Current period other comprehensive other income	4,471		819			5,290
Ending balance, September 30,	$	11,947	$	(20,705	)	$	(8,758	)



	Unrealized
	gains and		2015
	Losses on available- for-sale		Retirement
(Dollar amounts in thousands)	Securities		plans			Total
Beginning balance, January 1,	$	10,278	$	(24,807	)	$	(14,529	)
Change in other comprehensive income before reclassification	1,654		—			1,654
Amounts reclassified from accumulated other comprehensive income	15		4,102			4,117
Net Current period other comprehensive other income	1,669		4,102			5,771
Ending balance, September 30,	$	11,947	$	(20,705	)	$	(8,758	)



	Unrealized
	gains and		2014
	Losses on available- for-sale		Retirement
(Dollar amounts in thousands)	Securities		plans			Total
Beginning balance, July 1,	$	5,784	$	(10,104	)	$	(4,320	)
Change in other comprehensive income before reclassification	1,879		—			1,879
Amounts reclassified from accumulated other comprehensive income	—		116			116
Net Current period other comprehensive other income	1,879		116			1,995
Ending balance, September 30,	$	7,663	$	(9,988	)	$	(2,325	)

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	Unrealized
	gains and			2014
	Losses on available- for-sale			Retirement
(Dollar amounts in thousands)	Securities			plans			Total
Beginning balance, January 1,	$	(3,635	)	$	(10,334	)	$	(13,969	)
Change in other comprehensive income before reclassification	11,297			—			11,297
Amounts reclassified from accumulated other comprehensive income	1			346			347
Net Current period other comprehensive other income	11,298			346			11,644
Ending balance, September 30,	$	7,663		$	(9,988	)	$	(2,325	)



	Balance at			Current Period		Balance at
(Dollar amounts in thousands)	7/1/2015			Change		9/30/2015
Unrealized gains (losses) on securities available-for-sale
without other than temporary impairment	$	4,429		$	4,231	$	8,660
Unrealized gains (losses) on securities available-for-sale
with other than temporary impairment	3,047			240		3,287
Total unrealized loss on securities available-for-sale	$	7,476		$	4,471	$	11,947
Unrealized loss on retirement plans	(21,524		)	819		(20,705		)
TOTAL	$	(14,048	)	$	5,290	$	(8,758	)



	Balance at			Current Period		Balance at
(Dollar amounts in thousands)	12/31/2014			Change		9/30/2015
Unrealized gains (losses) on securities available-for-sale
without other than temporary impairment	$	7,164		$	1,496	$	8,660
Unrealized gains (losses) on securities available-for-sale
with other than temporary impairment	3,114			173		3,287
Total unrealized loss on securities available-for-sale	$	10,278		$	1,669	$	11,947
Unrealized loss on retirement plans	(24,807		)	4,102		(20,705		)
TOTAL	$	(14,529	)	$	5,771	$	(8,758	)



	Balance at			Current Period		Balance at
(Dollar amounts in thousands)	7/1/2014			Change		9/30/2014
Unrealized gains (losses) on securities available-for-sale
without other than temporary impairment	$	3,296		$	831	$	4,127
Unrealized gains (losses) on securities available-for-sale
with other than temporary impairment	2,488			1,048		3,536
Total unrealized loss on securities available-for-sale	$	5,784		$	1,879	$	7,663
Unrealized loss on retirement plans	(10,104		)	116		(9,988		)
TOTAL	$	(4,320	)	$	1,995	$	(2,325	)

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	Balance at			Current Period		Balance at
(Dollar amounts in thousands)	12/31/2013			Change		9/30/2014
Unrealized gains (losses) on securities available-for-sale
without other than temporary impairment	$	(2,499	)	$	6,626	$	4,127
Unrealized gains (losses) on securities available-for-sale
with other than temporary impairment	(1,136		)	4,672		3,536
Total unrealized loss on securities available-for-sale	$	(3,635	)	$	11,298	$	7,663
Unrealized loss on retirement plans	(10,334		)	346		(9,988		)
TOTAL	$	(13,969	)	$	11,644	$	(2,325	)



	Three Months Ended September 30, 2015
Details about accumulated	Amount reclassified from			Affected line item in
other comprehensive	accumulated other			the statement where
income components	comprehensive income			net income is presented
	(in thousands)
Unrealized gains and losses	$	9		Net securities gains (losses)
on available-for-sale	(2		)	Income tax expense
securities	$	7		Net of tax

Amortization of	$	1,365		(a) Salary and benefits
retirement plan items	(546		)	Income tax expense
	$	819		Net of tax
Total reclassifications for the period	$	826		Net of tax

(a) Included in the computation of net periodic benefit cost. (see Footnote 7 for additional details).



	Nine Months Ended September 30, 2015
Details about accumulated	Amount reclassified from			Affected line item in
other comprehensive	accumulated other			the statement where
income components	comprehensive income			net income is presented
	(in thousands)
Unrealized gains and losses	$	23		Net securities gains (losses)
on available-for-sale	(8		)	Income tax expense
securities	$	15		Net of tax

Amortization of	$	6,837		(a) Salary and benefits
retirement plan items	(2,735		)	Income tax expense
	$	4,102		Net of tax
Total reclassifications for the period	$	4,117		Net of tax

(a) Included in the computation of net periodic benefit cost. (see Footnote 7 for additional details).

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	Three Months Ended September 30, 2014
Details about accumulated	Amount reclassified from			Affected line item in
other comprehensive	accumulated other			the statement where
income components	comprehensive income			net income is presented
	(in thousands)
Unrealized gains and losses	$	—		Net securities gains (losses)
on available-for-sale	—			Income tax expense
securities	$	—		Net of tax

Amortization of	$	(237	)	(a) Salary and benefits
retirement plan items	121			Income tax expense
	$	(116	)	Net of tax
Total reclassifications for the period	$	(116	)	Net of tax

(a) Included in the computation of net periodic benefit cost. (see Footnote 7 for additional details).



	Nine Months Ended September 30, 2014
Details about accumulated	Amount reclassified from			Affected line item in
other comprehensive	accumulated other			the statement where
income components	comprehensive income			net income is presented
	(in thousands)
Unrealized gains and losses	$	(1	)	Net securities gains (losses)
on available-for-sale	—			Income tax expense
securities	$	(1	)	Net of tax

Amortization of	$	(711	)	(a) Salary and benefits
retirement plan items	365			Income tax expense
	$	(346	)	Net of tax
Total reclassifications for the period	$	(347	)	Net of tax

(a) Included in the computation of net periodic benefit cost. (see Footnote 7 for additional details).

ITEMS 2. and 3. Management's Discussion and Analysis of Financial Condition and Results of Operations

and Quantitative and Qualitative Disclosures About Market Risk

The purpose of this discussion is to point out key factors in the Corporation’s recent performance compared with earlier periods. The discussion should be read in conjunction with the financial statements beginning on page three of this report. All figures are for the consolidated entities. It is presumed the readers of these financial statements and of the following narrative have previously read the Corporation’s financial statements for 2014 in the 10-K filed for the fiscal year ended December 31, 2014.

This Quarterly Report on Form 10-Q contains forward-looking statements. Forward-looking statements provide current expectations or forecasts of future events and are not guarantees of future performance, nor should they be relied upon as representing management’s views as of any subsequent date. The forward-looking statements are based on management’s expectations and are subject to a number of risks and uncertainties. Although management believes that the expectations reflected in such forward-looking statements are reasonable, actual results may differ materially from those expressed or implied in such statements. Risks and uncertainties that could cause actual results to differ materially include, without limitation, the Corporation’s ability to effectively execute its business plans; changes in general economic and financial market conditions; changes in interest rates; changes in the competitive environment; continuing consolidation in the financial services industry; new litigation or changes in existing litigation; losses, customer bankruptcy, claims and assessments; changes in banking regulations or other regulatory or legislative requirements affecting the Corporation’s business; and changes in accounting policies or procedures as may be required

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by the Financial Accounting Standards Board or other regulatory agencies. Additional information concerning factors that could cause actual results to differ materially from those expressed or implied in the forward-looking statements is available in the Corporation’s Form 10-K for the year ended December 31, 2014, and subsequent filings with the United States Securities and Exchange Commission (SEC). Copies of these filings are available at no cost on the SEC’s Web site at www.sec.gov or on the Corporation’s Web site at www.first-online.com. Management may elect to update forward-looking statements at some future point; however, it specifically disclaims any obligation to do so.

Critical Accounting Policies

Certain of the Corporation’s accounting policies are important to the portrayal of the Corporation’s financial condition and results of operations, since they require management to make difficult, complex or subjective judgments, some of which may relate to matters that are inherently uncertain. Estimates associated with these policies are susceptible to material changes as a result of changes in facts and circumstances. Facts and circumstances which could affect these judgments include, without limitation, changes in interest rates, in the performance of the economy or in the financial condition of borrowers. Management believes that its critical accounting policies include determining the allowance for loan losses and the valuation of goodwill and valuing investment securities. See further discussion of these critical accounting policies in the 2014 Form 10-K.

Summary of Operating Results

Net income for the three months ended September 30, 2015 was $8.4 million, compared to $8.3 million for the same period of 2014. Basic earnings per share increased to $0.65 for the third quarter of 2015 compared to $0.62 for same period of 2014. Return on Assets and Return on Equity were 1.14% and 8.36% respectively, for the three months ended September 30, 2015 compared to 1.10% and 8.27% for the three months ended September 30, 2014. Net income for the nine months ended September 30, 2015 was $23.1 million, compared to $24.6 million for the same period of 2014. Basic earnings per share decreased to $1.79 for the nine months ended September, 30, 2015 compared to $1.85 for same period of 2014. Return on Assets and Return on Equity were 1.03% and 7.61% respectively, for the nine months ended September 30, 2015 compared to 1.08% and 8.17% for the nine months ended September 30, 2014.

The primary components of income and expense affecting net income are discussed in the following analysis.

Net Interest Income

The Corporation's primary source of earnings is net interest income, which is the difference between the interest earned on loans and other investments and the interest paid for deposits and other sources of funds. Net interest income decreased $0.6 million in the three months ended September 30, 2015 to $26.6 million from $27.1 million in the same period in 2014. The net interest margin for the three months ended September 30, 2015 is 4.12% compared to 4.15% for the same period of 2014, a .03% decrease, driven by a greater decline in the income realized on earning assets than the decline in costs of funding. Net interest income decreased $2.8 million in the nine months ended September 30, 2015 to $78.5 million from $80.9 million in the same period in 2014. The net interest margin for the nine months ended September 30, 2015 is 4.04% compared to 4.11% for the same period of 2014, a .07% decrease, driven by a greater decline in the income realized on earning assets than the decline in costs of funding.

Non-Interest Income

Non-interest income for the three months ended September 30, 2015 was $10.0 million compared to $10.5 million for the same period of 2014. Gain on the sale of mortgages increased $92 thousand. Service charges and fees on deposit accounts decreased by $125 thousand and other service fees increased by $64 thousand. Insurance commission income decreased by $398 thousand for the 3 months ended September 30, 2015 compared to the same period of 2014. Non-interest income for the nine months ended September 30, 2015 was $29.8 million compared to $29.9 million for the same period of 2014.

Non-Interest Expenses

The Corporation’s non-interest expense for the quarter ended September 30, 2015 increased by $553 thousand to $24.2 million compared to the same period in 2014. Salaries and employee benefits increased $882 thousand driven by normal merit increases and increased pension expense due in part to lower discount rates used in determining the liability as well as the use of the new RP-2014 Mortality Table. The pension plan was frozen for the majority of employees as of December 31, 2012. The Corporation’s efficiency ratio was 63.42% for the quarter ending September 30, 2015 versus 63.00% for the same period in 2014. The Corporation’s non-interest expense for the nine months ended September 30, 2015 increased by $1.2 million to $73.5 million compared to the same period in 2014.

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Allowance for Loan Losses

The Corporation’s provision for loan losses decreased $456 thousand to $1.05 million for third quarter of 2015 compared to $1.5 million for the same period of 2014. Net charge offs for the third quarter of 2015 were $985 thousand compared to $2.3 million for the same period of 2014. During 2015, the specific allocations for impaired loans decreased as compared to the same period of 2014. The unallocated allocation decreased to $1.0 million at September 30, 2015 compared to $2.1 million for the same period of 2014. The Corporation’s provision for loan losses increased $540 thousand to $3.6 million for nine months ended September 30, 2015 compared to $3.1 million for the same period of 2014. The allowance for loan losses has increased to $19.9 million at September 30, 2015 compared to $18.8 million at December 31, 2014. The increase in the allowance was based on an increase in loans classified as substandard. Based on management’s analysis of the current portfolio, an evaluation that includes consideration of historical loss experience, non-performing loans trends, and probable incurred losses on identified problem loans, management believes the allowance is adequate.

Non-performing Loans

Non-performing loans consist of (1) non-accrual loans on which the ultimate collectability of the full amount of interest is uncertain, (2) loans which have been renegotiated to provide for a reduction or deferral of interest or principal because of a deterioration in the financial position of the borrower, and (3) loans past due ninety days or more as to principal or interest. Non-performing loans decreased to $27.6 million at September 30, 2015 compared to $30.6 million at December 31, 2014. Nonperforming loans decreased 19.4% to $27.6 million as of September 30, 2015 versus $34.2 million as of September 30, 2014. A summary of non-performing loans at September 30, 2015 and December 31, 2014 follows:



	(000's)
	September 30, 2015			December 31, 2014
Non-accrual loans	$	16,112		$	15,034
Accruing restructured loans	4,779			4,616
Nonaccrual restructured loans	5,049			10,142
Accruing loans past due over 90 days	1,632			780
	$	27,572		$	30,572
Ratio of the allowance for loan losses
as a percentage of non-performing loans	72.3		%	61.6		%

The following loan categories comprise significant components of the nonperforming non-restructured loans:



	(000's)
	September 30, 2015		December 31, 2014
Non-accrual loans
Commercial loans	$	9,276	$	9,212
Residential loans	5,702		4,651
Consumer loans	1,134		1,171
	$	16,112	$	15,034
Past due 90 days or more
Commercial loans	$	572	$	—
Residential loans	829		624
Consumer loans	231		156
	$	1,632	$	780

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Interest Rate Sensitivity and Liquidity

First Financial Corporation has established risk measures, limits and policy guidelines for managing interest rate risk and liquidity. Responsibility for management of these functions resides with the Asset Liability Committee. The primary goal of the Asset Liability Committee is to maximize net interest income within the interest rate risk limits approved by the Board of Directors.

Interest Rate Risk

Management considers interest rate risk to be the Corporation’s most significant market risk. Interest rate risk is the exposure to changes in net interest income as a result of changes in interest rates. Consistency in the Corporation’s net interest income is largely dependent on the effective management of this risk.

The Asset Liability position is measured using sophisticated risk management tools, including earning simulation and market value of equity sensitivity analysis. These tools allow management to quantify and monitor both short-term and long-term exposure to interest rate risk. Simulation modeling measures the effects of changes in interest rates, changes in the shape of the yield curve and the effects of embedded options on net interest income. This measure projects earnings in the various environments over the next three years. It is important to note that measures of interest rate risk have limitations and are dependent on various assumptions. These assumptions are inherently uncertain and, as a result, the model cannot precisely predict the impact of interest rate fluctuations on net interest income. Actual results will differ from simulated results due to timing, frequency and amount of interest rate changes as well as overall market conditions. The Committee has performed a thorough analysis of these assumptions and believes them to be valid and theoretically sound. These assumptions are continuously monitored for behavioral changes.

The Corporation from time to time utilizes derivatives to manage interest rate risk. Management continuously evaluates the merits of such interest rate risk products but does not anticipate the use of such products to become a major part of the Corporation’s risk management strategy.

The table below shows the Corporation’s estimated sensitivity profile as of September 30, 2015. The change in interest rates assumes a parallel shift in interest rates of 100 and 200 basis points. Given a 100 basis point increase in rates, net interest income would increase 2.48% over the next 12 months and increase 5.83% over the following 12 months. Given a 100 basis point decrease in rates, net interest income would decrease 0.40% over the next 12 months and decrease 1.64% over the following 12 months. These estimates assume all rate changes occur overnight and management takes no action as a result of this change.



Basis Point	Percentage Change in Net Interest Income
Interest Rate Change	12 months		24 months		36 months
Down 200	-0.70	%	-2.92	%	-4.90	%
Down 100	-0.40		-1.64		-2.78
Up 100	2.48		5.83		9.69
Up 200	1.83		8.07		15.66

Typical rate shock analysis does not reflect management’s ability to react and thereby reduce the effect of rate changes, and represents a worst-case scenario.

Liquidity Risk

Liquidity represents an institution’s ability to provide funds to satisfy demands from depositors, borrowers, and other creditors by either converting assets into cash or accessing new or existing sources of incremental funds. Generally the Corporation relies on deposits, loan repayments and repayments of investment securities as its primary sources of funds. The Corporation has $3.4 million of investments that mature throughout the next 12 months. The Corporation also anticipates $123.9 million of principal payments from mortgage-backed securities. Given the current rate environment, the Corporation anticipates $21.1 million in securities to be called within the next 12 months. The Corporation also has unused borrowing capacity available with the Federal Home Loan Bank of Indianapolis and several correspondent banks. With these many sources of funds, the Corporation currently anticipates adequate liquidity to meet the expected obligations of its customers.

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Financial Condition

Comparing the first nine months of 2015 to the same period in 2014, loans, net of deferred loan costs, have decreased to $1.77 billion from $1.81 billion. Deposits remained stable at $2.4 billion at September 30, 2015, substantially the same as at September 30, 2014. Shareholders' equity increased 1.2% or $4.7 million. This financial performance increased book value per share 3.2% to $32.16 at September 30, 2015 from $31.16 at September 30, 2014. Book value per share is calculated by dividing the total shareholders' equity by the number of shares outstanding.

Capital Adequacy

The Federal Reserve, OCC and Federal Deposit Insurance Corporation (collectively, joint agencies) establish regulatory capital guidelines for U.S. banking organizations. Regulatory capital guidelines require that capital be measured in relation to the credit and market risks of both on- and off-balance sheet items using various risk weights. On January 1, 2015, the Basel 3 rules became effective and include transition provisions through January 1, 2019. Under Basel 3, Total capital consists of two tiers of capital, Tier 1 and Tier 2. Tier 1 capital is further composed of Common equity tier 1 capital and additional tier 1 capital.

Common equity tier 1 capital primarily includes qualifying common shareholders’ equity, retained earnings and certain minority interests. Goodwill, disallowed intangible assets and certain disallowed deferred tax assets are excluded from Common equity tier 1 capital.

Additional tier 1 capital primarily includes qualifying non-cumulative preferred stock, trust preferred securities (Trust Securities) subject to phase-out and certain minority interests. Certain deferred tax assets are also excluded.

Tier 2 capital primarily consists of qualifying subordinated debt, a limited portion of the allowance for loan and lease losses, Trust Securities subject to phase-out and reserves for unfunded lending commitments. The Corporation’s Total capital is the sum of Tier 1 capital plus Tier 2 capital.

To meet adequately capitalized regulatory requirements, an institution must maintain a Tier 1 capital ratio of 6.0 percent and a Total capital ratio of 8.0 percent. A “well-capitalized” institution must generally maintain capital ratios 200 bps higher than the minimum guidelines. The risk-based capital rules have been further supplemented by a Tier 1 leverage ratio, defined as Tier 1 capital divided by quarterly average total assets, after certain adjustments. BHCs must have a minimum Tier 1 leverage ratio of at least 4.0 percent. National banks must maintain a Tier 1 leverage ratio of at least 5.0 percent to be classified as “well capitalized.” Failure to meet the capital requirements established by the joint agencies can lead to certain mandatory and discretionary actions by regulators that could have a material adverse effect on the Corporation’s financial position. Below are the capital ratios for the Corporation and lead bank.



	September 30, 2015		December 31, 2014		To Be Well Capitalized
Common equity tier 1 capital
Corporation	17.73	%	16.99	%	N/A
First Financial Bank	17.08	%	16.36	%	6.50	%
Total risk-based capital
Corporation	18.67	%	17.86	%	N/A
First Financial Bank	17.91	%	17.13	%	10.00	%
Tier I risk-based capital
Corporation	17.73	%	16.99	%	N/A
First Financial Bank	17.08	%	16.36	%	8.00	%
Tier I leverage capital
Corporation	12.92	%	12.33	%	N/A
First Financial Bank	12.34	%	11.83	%	5.00	%

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ITEM 4.	Controls and Procedures

First Financial Corporation’s management is responsible for establishing and maintaining effective disclosure controls and procedures, as defined under Rules 13a-15(e) and 15d-15(e) of the Securities Exchange Act of 1934. As of September 30, 2015, an evaluation was performed under the supervision and with the participation of management, including the principal executive officer and principal financial officer, of the effectiveness of the design and operation of the Corporation's disclosure controls and procedures. Based on that evaluation, management, including the principal executive officer and principal financial officer, concluded that the Corporation’s disclosure controls and procedures as of September 30, 2015 were effective in ensuring material information required to be disclosed in this Quarterly Report on Form 10-Q was recorded, processed, summarized, and reported on a timely basis. Additionally, there was no change in the Corporation's internal control over financial reporting that occurred during the quarter ended September 30, 2015 that has materially affected, or is reasonably likely to materially affect, the Corporation's internal control over financial reporting.

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PART II – Other Information


ITEM 1.	Legal Proceedings.

There are no material pending legal proceedings, other than routine litigation incidental to the business of the Corporation or its subsidiaries, to which the Corporation or any of the subsidiaries is a party to or of which any of their respective property is subject. Further, there is no material legal proceeding in which any director, officer, principal shareholder, or affiliate of the Corporation or any of its subsidiaries, or any associate of such director, officer, principal shareholder or affiliate is a party, or has a material interest, adverse to the Corporation or any of its subsidiaries.


ITEM 1A.	Risk Factors.

There have been no material changes in the risk factors from those disclosed in the Corporation’s 2014 financial statements in the Form 10-K filed for December 31, 2014.


ITEM 2.	Unregistered Sales of Equity Securities and Use of Proceeds.

(a) None.

(b) Not applicable.

The Corporation periodically acquires shares of its common stock directly from shareholders in individually negotiated transactions. On August 25, 2014 First Financial Corporation issued a press release announcing that its Board of Directors has authorized a stock repurchase program pursuant to which up to 5% of the Corporations outstanding shares of common stock, or approximately 667,700 shares may be repurchased.

Following is certain information regarding shares of common stock purchased by the Corporation during the quarter covered by this report.



			(c)
			Total Number Of Shares
			Purchased As Part Of	(c) Maximum
	(a) Total Number Of	(b) Average Price	Publicly Announced Plans	Number of Shares That May Yet
	Shares Purchased	Paid Per Share	Or Programs *	Be Purchased *
July 1-31, 2015	—	—	N/A	N/A
August 1-31, 2015	130,247	33.22	104,507	N/A
September 1-30, 2015	—	—	—	N/A
Total	130,247	33.22	104,507	—


ITEM 3.	Defaults upon Senior Securities.

Not applicable.


ITEM 4.	Mine Safety Disclosures

Not applicable.


ITEM 5.	Other Information.

Not applicable.

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ITEM 6.	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 8-K filed on August 24, 2012.
10.1*	Employment Agreement for Norman L. Lowery, dated and effective July 1, 2015, incorporated by reference to Exhibit 10.01 of the Corporation’s Form 8-K filed on June 24, 2015.
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*	2015 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, 2014.
10.4*	2015 Schedule of Named Executive Officer Compensation, incorporated by reference to Exhibit 10.4 of the Corporation’s Form 10-K filed for the fiscal year ended December 31, 2014.
10.5*	2005 Long-Term Incentive Plan of First Financial Corporation, incorporated by reference to Exhibit 10.7 of the Corporation’s Form 8-K filed on September 4, 2007.
10.6*	2005 Executives Deferred Compensation Plan, incorporated by reference to Exhibit 10.5 of the Corporation’s Form 8-K filed on September 4, 2007.
10.7*	2005 Executives Supplemental Retirement Plan, incorporated by reference to Exhibit 10.6 of the Corporation’s Form 8-K filed on September 4, 2007.
10.9*	First Financial Corporation 2010 Long-Term Incentive Compensation Plan incorporated by reference to Exhibit 10. 9 of the Corporation’s Form 10-K filed March 15, 2011.
10.10*	First Financial Corporation 2011 Short-Term Incentive Compensation Plan incorporated by reference to Exhibit 10.10 of the Corporation’s Form 10-K filed March 15, 2011.
10.11*	First Financial Corporation 2011 Omnibus Equity Incentive Plan incorporated by reference to Exhibit 10.11 of the Corporation’s Form 10-Q for the quarter ended March 31, 2011 filed on May 9, 2011.
10.12*	Form of Restricted Stock Award Agreement under the First Financial Corporation 2011 Omnibus Equity Incentive Plan
31.1	Sarbanes-Oxley Act 302 Certification for Quarterly Report on Form 10-Q for the quarter ended September 30, 2015 by Principal Executive Officer, dated November 5, 2015.
31.2	Sarbanes-Oxley Act 302 Certification for Quarterly Report on Form 10-Q for the quarter ended September 30, 2015 by Principal Financial Officer, dated November 5, 2015.
32.1	Certification, dated November 5, 2015, 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 September 30, 2015.
101.1	Financial statements from the Quarterly Report on Form 10-Q of the Corporation for the quarter ended September 30, 2015, formatted in XBRL pursuant to Rule 405 : (i) Consolidated Balance Sheets, (ii) Consolidated Statements of Income and Comprehensive Income, (iii) Consolidated Statements of Cash Flows, (iv) Consolidated Statements of Shareholders’ Equity, and (v) Notes to Consolidated Financial Statements, as blocks of text and in detail**.

*Management contract or compensatory plan or arrangement.

**Furnished, not filed, for purposes of Sections 11 and 12 of the Securities Act of 1933 and Section 18 of the Securities Exchange Act of 1934.

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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.



		FIRST FINANCIAL CORPORATION
		(Registrant)

Date:	November 5, 2015	By /s/ Norman L. Lowery
		Norman L. Lowery, Vice Chairman, President and CEO
		(Principal Executive Officer)

Date:	November 5, 2015	By /s/ Rodger A. McHargue
		Rodger A. McHargue, Treasurer and CFO
		(Principal Financial Officer)