FORM 10-Q SECURITIES AND EXCHANGE COMMISSION Washington D.C. 20549 QUARTERLY REPORT UNDER SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended September 30, 2000 Commission file number 0-27878 First Financial Corp. (Exact name of registrant as specified in its charter) Rhode Island 05-0391383 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 180 Washington Street, Providence, Rhode Island 02903 (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code: (401) 421-3600 Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. X Yes ______ No --- At November 6, 2000, there were 1,328,041 shares of the Company's $1.00 par value stock issued, with 1,213,741 shares outstanding. FIRST FINANCIAL CORP. INDEX

PAGE PART I - FINANCIAL INFORMATION Item 1 - Financial Statements.................................................................................. 1 Consolidated Balance Sheets - ~~June~~September 30, 2000 and December 31, 1999...................................... 1 Consolidated Statements of Income - Three months and ~~six~~nine months ended ~~June~~September 30, 2000 and 1999..........~~...........................................................................~~ 2 Consolidated Statements of Stockholders' Equity and Comprehensive Income - ~~Six~~Nine months ended ~~June~~September 30, 2000 and year ended December 31, 1999............................................... 3 Consolidated Statements of Cash Flows - ~~Six~~Nine months ended ~~June~~September 30, 2000 and 1999....................... 4 Notes to Consolidated Financial Statements - ~~June~~September 30, 2000............................................. 5 Item 2 - Management's Discussion and Analysis of Financial Condition and Results of Operations.................~~..........................................................~~ 7 PART II - OTHER INFORMATION Item 1 - Legal Proceedings..................................................................................... 14 Item 2 - Changes in Securities................................................................................. 14 Item 3 - Defaults Upon Senior Securities....................................................................... 14 Item 4 - Submission of Matters to a Vote of Security Holders................................................... 14 Item 5 - Other Information..................................................................................... 14 Item 6 - Exhibits and Reports on Form 8-K...................................................................... 1514 SIGNATURES..................................................................................................... 1615 EXHIBITS Computation of per share earnings - Exhibit 11................................................................. 1716 Financial Data Schedule - Exhibit 27........................................................................... 1817

PART I - FINANCIAL INFORMATION Item 1 - Financial Statements FIRST FINANCIAL CORP. AND SUBSIDIARY CONSOLIDATED BALANCE SHEETS

~~June~~September 30, December 31, 2000 1999 ------------- -------------- ASSETS (Unaudited) CASH AND DUE FROM BANKS..................................................~~......~~ $ 2,~~613~~827,~~735~~061 $ 5,441,190 SECURITIES PURCHASED UNDER AGREEMENTS TO RESELL..........................~~......~~ 56,~~320~~430,~~932~~429 3,802,865 LOANS HELD FOR SALE......................................................~~......~~ ~~836~~394,~~501~~800 942,338 INVESTMENT SECURITIES: Held-to-maturity (market value: $2221,~~464~~460,~~164~~606 and $15,450,453)...........~~......~~ 2221,~~738~~639,~~391~~309 15,691,004 Available-for sale (amortized cost: $3132,~~417~~483,~~624~~555 and $21,167,567).......~~......~~ 3031,~~305~~717,~~517~~410 20,857,124 ------------- -------------- Total investment securities........................................~~....~~ 53,~~043~~356,~~908~~719 36,548,128 ------------- -------------- FEDERAL HOME LOAN BANK STOCK.............................................~~......~~ 716,000 681,500 LOANS: Commercial.............................................................~~......~~ 12,~~850~~653,~~215~~218 12,248,552 Commercial real estate.................................................~~......~~ 6869,~~691~~423,~~037~~849 65,812,129 Residential real estate................................................~~......~~ 1413,~~368~~578,~~931~~970 13,084,006 Home equity lines of credit............................................~~......~~ 2,~~735~~548,~~660~~527 3,051,265 Consumer...............................................................~~......~~ ~~750~~923,~~774~~811 766,383 ------------- -------------- 99,~~396~~128,~~617~~375 94,962,335 Less - Unearned discount...............................................~~......~~ 1410,~~024~~302 23,221 Allowance for loan losses..............................................~~......~~ 1,~~697~~796,~~072~~233 1,556,405 ------------- -------------- Net loans..........................................................~~....~~ 97,~~685~~321,~~521~~840 93,382,709 ------------- -------------- OTHER REAL ESTATE OWNED..................................................~~......~~ ~~268~~70,000 --- PREMISES AND EQUIPMENT, net..............................................~~......~~ 2,~~055~~000,~~826~~967 2,167,103 OTHER ASSETS.............................................................~~......~~ 3,~~136~~140,~~283~~591 1,815,822 ------------- -------------- TOTAL ASSETS.............................................................~~......~~ $~~165~~ 166,~~676~~258,~~706~~407 $ 144,781,655 ============= ============== LIABILITIES AND STOCKHOLDERS' EQUITY DEPOSITS: ~~DEPOSITS~~ Demand.................................................................~~......~~ $ 19,~~380~~267,~~911~~204 $ 17,522,309 Savings and money market accounts......................................~~......~~ 2124,~~062~~293,~~473~~038 23,838,702 Time deposits..........................................................~~......~~ 8584,~~064~~246,~~920~~687 63,227,494 ------------- -------------- Total deposits.....................................................~~.....~~ ~~125~~127,~~508~~806,~~304~~929 104,588,505 SECURITIES SOLD UNDER AGREEMENTS TO REPURCHASE...........................~~......~~ 9,~~496~~535,~~125~~174 9,411,111 FEDERAL HOME LOAN BANK ADVANCES..........................................~~......~~ 1310,~~491~~931,~~764~~715 13,610,400 ACCRUED EXPENSES AND OTHER LIABILITIES...................................~~......~~ 1,~~702~~912,~~951~~366 1,689,999 SENIOR DEBENTURE.........................................................~~......~~ --- --- ------------- -------------- TOTAL LIABILITIES........................................................~~......~~ 150,~~199~~186,~~144~~184 129,300,015 ------------- -------------- STOCKHOLDERS' EQUITY: Common Stock, $1 par value Authorized - 5,000,000 shares Issued - 1,328,041 shares...........................................~~.....~~ 1,328,041 1,328,041 Surplus...............................................................~~.......~~ 4,431,380 4,431,380 Retained earnings.....................................................~~.......~~ 11,~~140~~527,~~490~~573 10,504,194 Accumulated other comprehensive (loss) income.........................~~.......~~ (~~667~~459,~~264~~686) (186,265) ------------- -------------- 16,~~232~~827,~~647~~308 16,077,350 Less - Treasury stock, at cost, 114,300 shares in 2000; 101,800 shares in 1999.............................................................~~......~~ 755,085 595,710 ------------- -------------- TOTAL STOCKHOLDERS' EQUITY..............................................~~.......~~ 1516,~~477~~072,~~562~~223 15,481,640 ------------- -------------- TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY..............................~~.......~~ $~~165~~ 166,~~676~~258,~~706~~407 $ 144,781,655 ============= ==============

The accompanying notes are an integral part of these consolidated financial statements. 1 FIRST FINANCIAL CORP. AND SUBSIDIARY CONSOLIDATED STATEMENTS OF INCOME

~~Six~~Nine Months Ended Three Months Ended ~~June~~September 30, ~~June~~September ~~30,~~ --------------------------- -------------------------- 2000 1999 2000 1999 ---------- ---------- ---------- ----------- (Unaudited) INTEREST INCOME: Interest and fees on loans..................................~~.......~~ $47,~~733~~213,~~773~~639 $46,~~201~~423,~~084~~225 $2,~~408~~479,~~563~~866 $2,~~122~~222,~~507~~141 Interest and dividends on investment securities- U.S. Government and agency obligations.................... 1,~~030~~618,~~406~~847 ~~852~~1,~~965~~320,632 ~~575~~588,~~382~~441 ~~434~~467,~~950~~667 Collateralized mortgage obligations....................... 3953,~~303~~582 74102,~~070~~407 1714,~~447~~279 3528,~~032~~337 Mortgage-backed securities................................ ~~159~~234,~~820~~386 ~~207~~302,~~773~~415 7774,~~230~~566 9694,~~598~~642 Other debt securities..................................... ~~294~~501,~~790~~806 ---- ~~204~~207,~~372~~016 ---- Marketable equity securities and other.................... 4972,~~089~~212 3153,~~698~~748 23,~~321~~123 1222,~~111~~050 Interest on cash equivalents................................~~.......~~ ~~158~~230,~~439~~962 74112,~~509~~337 5072,~~923~~523 37,~~920~~828 ---------- ---------- ---------- ---------- Total interest income..................................... 69,~~465~~925,~~620~~434 58,~~442~~314,~~099~~764 3,~~357~~459,~~238~~814 2,~~739~~872,~~118~~665 ---------- ---------- ---------- ---------- INTEREST EXPENSE: Interest on deposits........................................~~.......~~ 23,~~525~~921,~~821~~748 12,~~857~~798,~~640~~458 1,~~355~~395,~~670~~927 ~~925~~940,~~849~~818 Interest on repurchase agreements...........................~~.......~~ ~~231~~345,~~649~~040 ~~300~~443,~~511~~843 ~~111~~113,~~821~~391 ~~149~~143,~~703~~332 Interest on advances........................................~~.......~~ ~~401~~597,~~347~~058 ~~215~~365,~~465~~661 ~~199~~195,~~880~~710 ~~115~~150,~~799~~197 Interest on debenture.......................................~~.......~~ ---- 84,503 ---- ~~33,803~~---- ---------- ---------- ---------- ---------- Total interest expense..................................... 34,~~158~~863,~~817~~846 23,~~458~~692,~~119~~465 1,~~667~~705,~~371~~028 1,~~225~~234,~~154~~347 ---------- ---------- ---------- ---------- Net interest income........................................ 35,~~306~~061,~~803~~588 24,~~983~~622,~~980~~299 1,~~689~~754,~~867~~786 1,~~513~~638,~~964~~318 PROVISION FOR LOAN LOSSES.....................................~~.........~~ ~~125~~175,000 ~~125~~200,000 7550,000 5075,000 ---------- ---------- ---------- ---------- Net interest income after provision for loan losses.......~~........................................~~ 34,~~181~~886,~~803~~588 24,~~858~~422,~~980~~299 1,~~614~~704,~~867~~786 1,~~463~~563,~~964~~318 ---------- ---------- ---------- ---------- NONINTEREST INCOME: Service charges on deposits.................................~~.......~~ ~~136~~207,~~880~~255 ~~132~~200,~~094~~080 6970,~~451~~375 6567,~~023~~986 Gain on loan sales..........................................~~.......~~ ~~152~~253,~~261~~748 ~~154~~236,~~154~~610 95101,~~955~~487 5382,~~952~~456 Other.......................................................~~.......~~ ~~140~~244,~~839~~023 99164,~~420~~215 65103,~~294~~183 4864,~~856~~795 ~~Total noninterest income...................................~~ ---------- ---------- ---------- ---------- ~~429~~Total noninterest income.................................. 705,~~980~~026 ~~385~~600,~~668~~000 ~~230~~275,~~700~~045 ~~167~~215,~~831~~237 ---------- ---------- ---------- ---------- NONINTEREST EXPENSE: Salaries and employee benefits..............................~~......~~ 1,~~203~~853,~~463~~968 1,~~022~~581,~~075~~673 ~~616~~650,~~098~~505 ~~515~~559,~~732~~598 Occupancy expense...........................................~~......~~ ~~228~~345,~~912~~140 ~~336~~441,~~947~~283 ~~109~~116,~~513~~228 ~~231~~104,~~257~~336 Equipment expense...........................................~~......~~ ~~130~~196,~~856~~350 ~~147~~224,~~257~~769 6465,~~686~~494 7477,~~875~~512 Other real estate owned net (gains) losses and expenses.....~~......~~ (41,~~261~~073) (~~212~~211,~~110~~028) (43,~~427)~~188 ~~(226~~1,~~681)~~082 Computer services...........................................~~......~~ ~~123~~188,~~558~~092 ~~124~~193,~~636~~567 6064,~~175~~534 6568,~~428~~931 Deposit insurance assessments...............................~~......~~ 1017,~~843~~296 58,~~977~~887 56,~~259~~453 2,~~977~~910 Other operating expenses....................................~~......~~ ~~480~~729,~~766~~544 ~~406~~671,~~755~~935 ~~251~~248,~~506~~778 ~~205~~265,~~095~~180 ---------- ---------- ---------- ---------- Total noninterest expense.................................. 3,329,317 2,~~174~~911,~~137~~086 1,~~831~~155,~~537~~180 1,~~102~~079,~~810~~549 ~~868,683~~ ---------- ---------- ---------- ---------- Income before provision for income taxes................... 12,~~437~~262,~~646~~297 12,~~413~~112,~~111~~118 ~~742~~824,~~757~~651 ~~763~~699,~~112~~006 PROVISION FOR INCOME TAXES....................................~~.........~~ ~~510~~801,~~052~~971 ~~517~~772,~~039~~792 ~~263~~291,~~903~~919 ~~274~~255,~~499~~751 ---------- ---------- ---------- ---------- NET INCOME....................................................~~.........~~ $ ~~927~~1,~~594~~460,326 $ ~~896~~1,~~072~~339,326 $ ~~478~~532,~~854~~732 $ ~~488~~443,~~613~~255 ========== ========== ========== ========== Earnings per share: Basic...................................................... $ 01.7620 $ 01.7309 $ 0.3944 $ 0.4036 ========== ========== ========== ========== Diluted.................................................... $ 01.7620 $ 01.7309 $ 0.3944 $ 0.4036 ========== ========== ========== ========== Weighted average common shares outstanding....................~~.........~~ 1,214,~~514~~254 1,~~235~~233,~~136~~823 1,213,741 1,231,241 Diluted effect of common stock equivalents....................~~.........~~ ---- ---- ---- ---- ---------- ---------- ---------- ---------- Weighted average common and common stock equivalent shares outstanding..........................................~~......~~ 1,214,~~514~~254 1,~~235~~233,~~136~~823 1,213,741 1,231,~~741~~241 ========== ========== ========== ==========

The accompanying notes are an integral part of these consolidated financial statements. 2 FIRST FINANCIAL CORP. AND SUBSIDIARY CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY AND COMPREHENSIVE INCOME

Accumulated Other Total Common Retained Comprehensive Treasury Stockholders' ~~Comprehensive~~stock ~~Stock~~ Surplus Earnings (Loss) Income Stock Equity ~~Income~~ ----------- ---------- ------------ ------------- ---------- ------------- ~~-------------~~ Balance, December 31, 1998................. $ 1,328,041 $4,431,380 $ 9,130,143 $ 70,638 $ (146,960) $ 14,813,242 Net income................................. ---- ---- 1,818,648 ---- ---- 1,818,648 ~~$ 1,818,648~~ Other comprehensive income, net of tax: Unrealized holding losses, net of reclassification adjustment............ ---- ---- ---- (256,903) ---- (256,903) ~~(256,903) ------------ of reclassification adjustment~~ Comprehensive income....................... ~~$ 1,561,745 ============~~ Dividends declared ($.36 per share)........~~....................~~ (444,597) (444,597) Repurchase of 35,000 shares of common stock.............................. (448,750) (448,750) ---------- ---------- ----------- ------------- ---------- ------------- Balance, December 31, 1999................. 1,328,041 4,431,380 10,504,194 (186,265) (595,710) 15,481,640 Net income................................. ---- ---- ~~927~~1,~~594~~460,326 ---- ---- ~~927~~1,~~594 $ 927~~460,~~594~~326 Other comprehensive income, net of tax: Unrealized holding losses, net of reclassification adjustment........... ---- ---- ---- (~~480~~273,~~999~~421) ---- (~~480~~273,~~999~~421) ~~(480,999) ------------ of reclassification adjustment~~ Comprehensive income....................... ~~$ 446,595 ============~~ Dividends declared ($.2436 per share)........~~....................~~ ---- ---- (~~291~~436,~~298~~947) ---- ---- (~~291~~436,~~298~~947) Repurchase of 12,500 shares of common stock............................. (159,375) (159,375) ----------- ---------- ----------- ------------- ---------- ------------- Balance, ~~June~~September 30, 2000................ $ 1,328,041 $4,431,380 $11,~~140~~527,~~490~~573 $ (~~667~~459,~~264~~686) $ (755,085) $ 1516,~~477~~072,~~562~~223 ========== ========== =========== ============= ========== ============= Comprehensive Income ------------- Balance, December 31, 1998................. Net income................................. $ 1,818,648 Other comprehensive income, net of tax: Unrealized holding losses, net of reclassification adjustment............ (256,903) ------------- Comprehensive income....................... $ 1,561,745 ============= Dividends declared ($.36 per share)........ Repurchase of 35,000 shares of common stock.............................. Balance, December 31, 1999................. Net income................................. $ 1,460,326 Other comprehensive income, net of tax: Unrealized holding losses, net of reclassification adjustment........... (273,421) ------------- Comprehensive income....................... $ 1,186,905 ============= Dividends declared ($.36 per share)........ Repurchase of 12,500 shares of common stock............................. Balance, September 30, 2000................

The accompanying notes are an integral part of these consolidated financial statements 3 FIRST FINANCIAL CORP. AND SUBSIDIARY CONSOLIDATED STATEMENTS OF CASH FLOWS

~~Six~~Nine Months Ended ~~June~~September 30, -------------------------------- 2000 1999 ------------- -------------- (Unaudited) CASH FLOWS FROM OPERATING ACTIVITIES: Net income.................................................................... $ ~~927~~1,~~594~~460,326 $ ~~896~~1,~~072~~339,326 Adjustments to reconcile net income to net cash provided by operating activities: Provision for loan losses.................................................... ~~125~~175,000 ~~125~~200,000 Depreciation and amortization................................................ ~~138~~208,~~550~~034 ~~153~~236,~~792~~282 Writeoff of impaired long-lived asset........................................ ---------- 129,362 Amortization of discount on debenture........................................ ---------- 15,860 Net accretion on investment securities held-to-maturity..................... (48,~~897~~524) (34,~~155~~751) Net accretion on investment securities available-for-sale.................... (~~169~~249,~~823~~256) (~~186~~294,~~185~~930) Gains on sale of OREO........................................................ (56,~~014~~430) (219,118) Gains on sales of loans...................................................... (~~152~~253,~~261~~748) (~~154~~236,~~154~~610) Proceeds from sales of loans................................................. 35,~~427~~760,~~708~~812 24,~~268~~255,~~857~~701 Loans originated for sale.................................................... (34,~~169~~959,~~610~~526) (34,~~958~~819,~~631~~805) Net decrease in unearned discount............................................ (912,~~197~~919) (2432,~~379~~898) Net increase in other assets................................................. (~~999~~1,~~795~~142,488) (~~140~~497,~~710~~425) Net (decrease) increase in deferred loan fees............................... (2027,~~588~~734) 1216,~~315~~289 Net increase in accrued expenses and other liabilities...................... 12222,~~952~~367 ~~289~~19,~~730~~366 ------------- ------------- Net cash provided by ~~(used in)~~ operating activities............................ ~~100~~1,~~619~~165,914 ~~(795~~106,~~344)~~649 ------------- ------------- CASH FLOWS FROM INVESTING ACTIVITIES: Purchase of Federal Home Loan Bank stock..................................... (34,500) (39162,~~800~~400) Proceeds from maturities of investment securities held-to-maturity..........~~.................................................~~ ~~707~~2,~~276~~392,828 23,~~425~~015,~~992~~257 Proceeds from maturities of investment securities available-for-sale........~~...................................................~~ ~~131~~197,~~856~~788,~~949~~918 ~~167~~251,~~546~~642,~~146~~803 Purchase of investment securities held-to-maturity........................... (78,~~749~~332,~~766~~609) (25,~~488~~483,~~394~~082) Purchase of investment securities available-for-sale......................... (~~141~~208,~~937~~855,~~184~~650) (~~165~~248,~~662~~969,~~016~~243) Net increase in loans....................................................... (4,~~828~~503,~~108~~559) (46,~~476~~201,~~327~~691) Purchase of premises and equipment........................................... (2741,~~273~~898) (8086,~~057~~299) Sales of OREO................................................................ ~~167~~366,~~095~~511 684,955 ------------- ------------- Net cash used in investing activities.................................. (21,~~845~~219,~~511~~959) (25,~~089~~559,~~501~~700) ------------- ------------- CASH FLOWS FROM FINANCING ACTIVITIES: Net increase in demand accounts.............................................. 1,~~858~~744,~~602~~895 45,~~888~~380,~~281~~841 Net ~~(decrease)~~ increase in savings and money market accounts........................... (2454,~~776,229)~~336 12,~~370~~031,~~394~~554 Net increase (decrease) in time deposits..................................... 21,~~837~~019,~~426~~193 (12,~~080~~328,~~634~~975) Net increase (decrease) in repurchase agreements............................ 85124,~~014~~063 (~~397~~2,~~990~~816,181) Net (decrease) increase in Federal Home Loan Bank advances.................. (~~118~~2,~~636~~678,685) 35,~~544~~996,~~349~~816 Repayment of senior debenture................................................ ---------- (2,708,777) Purchase of common stock for treasury........................................ (159,375) (384,375) Dividends paid............................................................... (~~291~~436,~~298~~947) (~~222~~333,~~974~~785) ------------- ------------- Net cash provided by financing activities............................ 20,~~435~~067,~~504~~480 54,~~008~~837,~~274~~118 ------------- ------------- NET INCREASE (DECREASE) ~~INCREASE~~ IN CASH AND CASH EQUIVALENTS...........................~~................................~~ 13,435 (1615,~~309,388~~933) ~~2,123,429~~ CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD.................................~~......................................~~ 9,244,055 5,066,270 ------------- ------------- CASH AND CASH EQUIVALENTS, END OF PERIOD....................................... $ 79,~~934~~257,~~667~~490 $ 74,~~189~~450,~~699~~337 ============= ============= SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION: Interest paid............................................................... $ 34,~~074~~786,~~250~~480 $ 23,~~462~~688,~~048~~797 ============= ============= Income taxes paid........................................................... $ ~~805~~1,125,000 $ ~~843~~936,000 ============= ============= SUPPLEMENTAL DISCLOSURE OF NONCASH TRANSACTIONS: Transfer of loans to OREO.................................................... $ 430,081 $ ---------- ============= ===============

The accompanying notes are an integral part of these consolidated financial statements. 4 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS FOR THE PERIOD ENDED SEPTEMBER 30, 2000 (1) BASIS OF PRESENTATION The accompanying unaudited consolidated financial statements have been prepared in accordance with generally accepted accounting principles for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. In the opinion of management, all adjustments considered necessary for a fair presentation of the financial statements, primarily consisting of normal recurring adjustments, have been included. Operating results for the three months and nine months ended September 30, 2000 are not necessarily indicative of the results that may be expected for the year ending December 31, 2000, or any other interim period. For further information refer to the consolidated financial statements, notes and other information included in the Company's Annual Report and Form 10-K for the period ended December 31, 1999, filed with the Securities and Exchange Commission. (2) DIVIDEND DECLARATION On October 16, 2000 the Company declared dividends of $145,649 or $.12 per share to all common stockholders of record on November 1, 2000, payable on November 13, 2000. (3) RECENT DEVELOPMENTS In June 1998, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards (SFAS) No. 133, "Accounting for Derivative Instruments and Hedging Activities". This statement, as amended by SFAS No. 138, "Accounting for Certain Derivative Instruments and Certain Hedging Activities", establishes accounting and reporting standards requiring that every derivative instrument (including certain derivative instruments embedded in other contracts) be recorded on the balance sheet as either an asset or liability measured at its fair value. This statement requires that changes in the derivative's fair value be recognized currently in income unless specific hedge accounting criteria are met. Special accounting for qualifying hedges allows a derivative's gains and losses to offset related results on the hedged item in the statement of income and requires that a company must formally document, designate and assess the effectiveness of transactions that receive hedge accounting. SFAS No. 133 is effective for fiscal years beginning after June 15, 2000. A company may also implement the statement as of the beginning of any fiscal quarter after issuance (that is, financial quarters beginning June 16, 1998 and thereafter). SFAS No. 133 cannot be applied retroactively. SFAS No. 133 must be applied to (a) derivative instruments and (b) certain derivative instruments embedded in hybrid contracts that were issued, acquired or substantively modified after December 31, 1997 (and, at the Company's election, before January 1, 1998). The Company has not yet quantified the impact of adopting SFAS No. 133 on its consolidated financial statements. However, the Company does not expect that the adoption of this statement will have a material impact on its financial position or results of operations. 5 (4) BUSINESS SEGMENTS The Company's community banking business segment consists of commercial and retail banking. The community banking business segment is managed as a single strategic unit which derives its revenue from a wide range of banking services, including investing and lending activities and acceptance of demand, savings and time deposits. There is no major customer and the Company operates within a single geographic area (southeastern New England). Nonreportable operating segments of the Company's operations which do not have similar characteristics to the community banking operations and do not meet the quantitative thresholds requiring disclosure, are included in the Other category in the disclosure of business segments below. These nonreportable segments include the Parent Company. The accounting policies used in the disclosure of business segments for these interim financial statements are the same as those used in the December 31, 1999 Annual Report and Form 10-K. The consolidation adjustments reflect certain eliminations of intersegment revenue. Reportable segment specific information and reconciliation to consolidated financial information is as follows:

Community Other Adjustments Banking Other and Eliminations Consolidated -------~~----~~ -----~~-----~~ ----------------~~---~~ ------------ Three Months Ended ~~June~~September 30, 2000 Net Interest Income $ 1,~~683~~748,~~804~~675 $ ~~499~~547,~~617~~791 $ (~~493~~541,~~554~~680) $ 1,~~689~~754,~~867~~786 Provision for Loan Losses 7550,000 --- --- 7550,000 Total Noninterest Income ~~230~~275,~~700~~045 --- --- ~~230~~275,~~700~~045 Total Noninterest Expense 1,~~078~~131,~~810~~180 24,000 --- 1,~~102~~155,~~810~~180 Net Income ~~493~~541,~~554~~680 ~~478~~532,~~854~~732 (~~493~~541,~~554~~680) ~~478~~532,~~854~~732 Three Months Ended ~~June~~September 30, 1999 Net Interest Income $1,~~529~~626,~~169~~814 ~~498~~$ 463,~~113~~005 $ (~~513~~451,~~318~~501) $1,~~513~~638,~~964~~318 Provision for Loan Losses 5075,000 --- --- 5075,000 Total Noninterest Income ~~167~~215,~~831~~237 --- --- ~~167~~215,~~831~~237 Total Noninterest Expense ~~846~~1,~~683~~055,549 2224,000 --- ~~868~~1,~~683~~079,549 Net Income ~~513~~451,~~318~~501 ~~488~~443,~~613~~255 (~~513~~451,~~318~~501) ~~488~~443,~~613~~255 ~~Six~~Nine Months Ended ~~June~~September 30, 2000 Net Interest Income 3$5,~~294~~043,~~682~~356 ~~964~~$1,~~646~~512,437 $(~~952~~1,~~525~~494,205) 3$5,~~306~~061,~~803~~588 Provision for Loan Losses ~~125~~175,000 --- --- ~~125~~175,000 Total Noninterest Income ~~429~~705,~~980~~026 --- --- ~~429~~705,~~980~~026 Total Noninterest Expense 23,~~126~~257,~~137~~317 4872,000 --- 23,~~174~~329,~~137~~317 Net Income ~~952~~1,~~525~~494,205 ~~927~~1,~~594~~460,326 (~~952~~1,~~525~~494,205) ~~927~~1,~~594~~460,326 ~~Six~~Nine Months Ended ~~June~~September 30, 1999 Net Interest Income 3$4,~~011~~638,~~320~~134 ~~918~~$1,~~112~~381,118 $(~~945~~1,~~452~~396,953) 2$4,~~983~~622,~~980~~299 Provision for Loan Losses ~~125~~200,000 --- --- ~~125~~200,000 Total Noninterest Income ~~385~~600,~~668~~905 --- --- ~~385~~600,~~668~~905 Total Noninterest Expense 12,~~785~~841,~~537~~086 4670,000 --- 12,~~831~~911,~~537~~086 Net Income ~~945~~1,~~452~~396,953 ~~896~~1,~~072~~339,326 (~~945~~1,~~452~~396,953) ~~896~~1,~~072~~339,326

6 Item 2 - Management's Discussion and Analysis of Financial Condition and Results of Operations General ------- First Financial Corp. ("Company") is a bank holding company that was organized under Rhode Island law in 1980 for the purposes of owning all of the outstanding capital stock of First Bank and Trust Company ("Bank") and providing greater flexibility in helping the Bank achieve its business objectives. The Bank is a Rhode Island chartered commercial bank that was originally chartered and opened for business on February 14, 1972. The Bank provides a broad range of lending and deposit products primarily to individuals and small businesses ($10 million or less in total revenues). Although the Bank has full commercial banking and trust powers, it has not exercised its trust powers and does not, at the current time, provide asset management or trust administration services. The Bank's deposits are insured by the FDIC up to applicable limits. The Bank offers a variety of commercial and consumer financial products and services designed to satisfy the deposit and loan needs of its customers. The Bank's deposit products include interest-bearing and noninterest-bearing checking accounts, money market accounts, passbook and statement savings accounts, club accounts, and short-term and long-term certificates of deposit. The Bank also offers customary check collection services, wire transfers, safe deposit box rentals, automated teller machine (ATM) cards and debit cards and services. Loan products include commercial, commercial mortgage, residential mortgage, construction, home equity and a variety of consumer loans. The Bank's products and services are delivered through it's four branch network system. The Bank's main office and branch are located in Providence, Rhode Island with branches in Cranston, Richmond and North Kingstown, Rhode Island. The Company's results of operations depend primarily on its net interest income, which is the difference between interest and dividend income on interest-earning assets and interest expense on its interest-bearing liabilities. Its interest- earning assets consist primarily of loans and investment securities, while its interest-bearing liabilities consist primarily of deposits, securities sold under agreements to repurchase and Federal Home Loan Bank advances. The Company's net income is also affected by its level of noninterest income, including fees and service charges, as well as by its noninterest expenses, such as salary and employee benefits, provisions to the allowance for loan losses, occupancy costs and, when necessary, expenses related to other real estate owned acquired through foreclosure (OREO) and to the administration of non-performing and other classified assets. Summary ------- For the three months ended September 30, 2000, the Company reported net income of $532,732 compared to net income of $443,255 for the three months ended September 30, 1999, or an increase of 20.2%. Basic and diluted net income per share were $0.44 for the quarter ended September 30, 2000, compared to $0.36 per share for the same three month period of the prior year. Net income for the nine months ended September 30, 2000 amounted to $1,460,326 compared to net income of $1,339,326 for the nine months ended September 30, 1999. Basic and diluted net income per share for the nine months ended September 30, 2000 were $1.20 compared to $1.09 per share for the nine months ended September 30, 1999. The third quarter ended September 30, 2000 was another record quarter for the Company and was the first time that quarterly earnings exceeded $500,000. Overall, this achievement was accomplished as a result of (i) exceptional strength in asset quality, (ii) ability to control net interest spreads and margins in a competitive interest rate environment (iii) balance sheet growth, and (iv) continued success with SBA (Small Business Administration) loan programs through origination, sale and servicing of the guaranteed portion of SBA loans. Total assets increased $21.5 million or 14.8% to $166.3 million at September 30, 2000, from $144.8 million at December 31, 1999. The loan portfolio, net of unearned discount, increased $4.2 million or 4.4% to $99.1 million at September 30, 2000, from $94.9 million at December 31, 1999. Investment securities increased $16.9 million to $53.4 million at September 30, 2000, from $36.5 million at December 31, 1999. The increase in the Company's total assets was funded 7 from retail deposits and, in particular, time deposits. Total deposits increased $23.2 million to $127.8 million at September 30, 2000, from $104.6 million at December 31, 1999, while time deposits increased $21.0 million to $84.2 million at September 30, 2000, from $63.2 million at December 31, 1999. During February 2000, the Company successfully marketed a 14 month certificate of deposit promotion through its branch network at a slightly above market rate of 6.77% (7.00% annual percentage yield). This promotion raised over $23 million in new deposits and opened over 1,000 new deposit accounts, substantially all of which were from the local community. The purpose of this retail deposit growth activity was to increase the Company's customer base; strengthen the Company's presence in the community; leverage the Company's strong capital position and; solidify the Company's ability to fund future loan portfolio growth. The Company invested the proceeds in government agency and corporate debt obligations. Financial Condition Asset Quality ------------- The following table sets forth information regarding nonperforming assets and delinquent loans 30-89 days past due as to interest or principal, and held by the Company at the dates indicated. The amounts and ratios shown as of and for the nine months and twelve months ended September 30, 1999 and December 31, 1999, respectively, are exclusive of the acquired loans and acquired allowance for loan losses associated with the 1992 acquisition of certain assets and the assumption of certain liabilities of the former Chariho-Exeter Credit Union:

As of and for the As of and for the ~~six~~nine months ended year ended ~~June~~September 30, December 31, -------------------------- ----------------- 2000 1999 1999 ------ ------ -----~~----~~ (Dollars in Thousands) Nonperforming loans................................. $ ~~120~~158 $ ~~126~~344 $ 181 Other real estate owned............................. $ ~~268~~70 $ 47 $ -0- Total nonperforming assets.......................... $ ~~388~~228 $ ~~173~~391 $ 181 Loans 30-89 days delinquent......................... $ ~~347~~186 $ ~~583~~75 $ 154 Nonperforming assets to total assets................ 0.2314% 0.1226% 0.12% Nonperforming loans to total loans.................. 0.1216% 0.1437% 0.19% Net loan (recoveries) charge-offs to average loans.. (0.0207)% 0.0201% 0.01% Allowance for loan losses to total loans............ 1.7181% 1.5360% 1.64% Allowance for loan losses to nonperforming loans (multiple).................. 1411.~~10X~~38X 114.~~10X~~31X 8.62X

In May 1992, the Company issued a $3 million Senior Debenture to the Depositors Economic Protection Corporation (DEPCO) in connection with its acquisition of certain assets and the assumption of certain liabilities of Chariho-Exeter Credit Union. Under the terms of the Senior Debenture, the Company was allowed to charge net acquired loan losses in excess of the acquired loan loss reserve against the outstanding Senior Debenture. On May 31, 1999, the Senior Debenture matured. The Company repaid the Debenture in the amount of $2,708,777, which represented the original face value of $3,000,000, less $291,223 in net acquired loan losses in excess of the acquired loan loss reserve. 8 The following represents the activity in the allowance for loan losses for the three and nine months ended September 30, 2000 and 1999:

~~Six~~Nine Months Ended Three Months Ended ~~June~~September 30, ~~June~~September 30, ------------------------- --------------------------- 2000 1999 2000 1999 ----~~-------~~ ----~~-------~~ ----~~-------~~ ----~~--------~~ Bank Reserve: Balance at beginning of period............................. $ 1,556,405 $ 1,287,058 $ 1,~~615~~697,~~727~~072 $ 1,~~318~~393,~~374~~652 Provision................................................ ~~125~~175,000 ~~125~~200,000 7550,000 5075,000 Loan charge-offs......................................... (4144,~~920~~678) (4653,~~852~~633) (402,~~480~~758) ~~---~~(6,781) Recoveries............................................... 57109,~~587~~506 2846,~~446~~357 4651,~~825~~919 2517,~~278~~911 ----------- ----------- ----------- ------------ Balance at end of period................................... 11796,~~697,072~~233 1,~~393~~479,~~652~~782 1,~~697~~796,~~072~~233 1,~~393~~479,~~652~~782 ----------- ----------- ----------- ------------ Acquired Reserve: Balance at beginning of period ............................ --- --- --- --- Loan charge-offs......................................... --- (266,482) --- ~~(266,482)~~--- Recoveries ~~(Administrative Costs)~~............................................... --- 1,638 --- ~~155~~--- Reclassification to senior debenture..................... --- 264,844 --- ~~266,327~~--- ---------- ---------- ---------- ---------- Balance at end of period................................... --- --- --- --- ----------- ----------- ----------- ------------ Total Reserve.............................................. $ 1,~~697~~796,~~072~~233 $ 1,~~393~~479,~~652~~782 $ 1,~~697~~796,~~072~~233 $ 1,~~393~~479,~~652~~782 =========== =========== =========== ============

The Company continually reviews its delinquency position, underwriting and appraisal procedures, charge-off experience and current real estate market conditions with respect to its entire loan portfolio. While management believes it uses the best information available in establishing the allowance for loan losses, future adjustments may be necessary if economic conditions differ substantially from the assumptions used in making the evaluation. Deposits and Other Borrowings ----------------------------- Total deposits increased $23.2 million or 22.2% to $127.8 million at September 30, 2000 from $104.6 million at December 31, 1999. During the nine months ended September 30, 2000, demand deposits increased $1.7 million, savings and money market accounts increased $0.5 million, and time deposits increased $21.0 million. The previously mentioned promotional activity and market acceptance of new deposit product offerings accounted for the positive deposit growth. Also contributing to the deposit activity were customers seeking banking relationships as an alternative to the merger and acquisition activity of area financial institutions. Securities sold under agreements to repurchase remained virtually flat at $9.5 million at September 30, 2000 and December 31, 1999. Federal Home Loan Bank advances declined $2.7 million to $10.9 million at September 30, 2000 from $13.6 million at December 31, 1999. During September 2000, a 10 year/1 year callable advance for $2.5 million was called. The Company repaid the advance with excess liquidity. Results of Operations Net Interest Income ------------------- Net interest income (the difference between interest earned on loans and investments and interest paid on deposits and other borrowings) was $5,061,588 for the nine months ended September 30, 2000, compared to $4,622,299 for the nine months ended September 30, 1999. This increase was the result of an increase in interest-earning assets, offset somewhat by a decline in net interest margins. The following table sets forth certain information relating to the Company's average balance sheet and reflects the average yield on assets and average cost of liabilities for the periods indicated. Such yields and costs are derived by dividing income or expense by the average balance of assets or liabilities. Average balances are derived from daily balances. Loans are net of unearned discount. Non-accrual loans are included in the average balances used in calculating this table. 9

~~Six~~Nine Months Ended ~~June~~September 30, ------------------------------------------------------------------------------~~---------~~ 2000 1999 -------------------------------------~~-----~~ -----------------------------------~~---~~ Interest Average Interest Average Average Income/ Yield/ Average Income/ Yield/ Balance Expense Rate Balance Expense Rate -------~~------~~ -------~~-----~~ ----~~-------~~ --------~~----~~ -------~~---~~ ----~~--------~~ Interest - earning assets: Loans.....................................~~....~~ $ 9899,~~713~~406,~~438~~207 $ 47,~~733~~213,~~773~~639 9.5968% $ 8990,~~835~~874,~~475~~046 $ 46,~~201~~423,~~084~~225 9.3542% Investment securities - AFS...............~~....~~ 2930,~~675~~078,~~090~~017 ~~957~~1,~~232~~497,657 6.4564% 3029,~~037~~477,~~301~~563 ~~786~~1,~~661~~179,815 5.2434% Investment securities - HTM...............~~...~~ 2021,~~146~~091,~~672~~095 ~~590~~944,~~993~~088 5.8797% 13,~~269~~949,~~027~~265 ~~363~~575,~~998~~671 5.4950% Securities purchased under agreements to resell.............................~~.......~~ 6,~~594~~161,~~388~~779 ~~158~~230,~~438~~962 45.8100% 3,~~790~~772,~~269~~509 74112,~~509~~336 3.9397% Federal Home Loan Bank Stock and other.... ~~786~~810,~~875~~155 2539,~~184~~088 6.4043% ~~472~~509,~~255~~291 1523,~~847~~717 6.7121% ------------ ----------- ------- ------------ ------------ ------- Total interest-earning assets...............~~...~~ ~~155~~157,~~916~~547,~~463~~253 69,~~465~~925,~~620~~434 8.2940% ~~137~~138,~~404~~582,~~327~~674 58,~~442~~314,~~099~~764 78.9200% ----------- ------- ------------ ------- Noninterest-earning assets: Cash and due from banks...................~~...~~ 32,~~073~~884,~~862~~584 2,~~401~~455,~~343~~368 Premises and equipment....................~~...~~ 2,~~123~~093,~~663~~572 2,~~386~~316,~~403~~530 Other real estate owned...................~~...~~ ~~129~~122,~~975~~845 ~~421~~295,~~736~~549 Allowance for loan losses.................~~...~~ (1,~~625~~663,~~582~~524) (1,~~259~~317,~~705~~545) Other assets..............................~~...~~ 2,~~040~~163,~~338~~231 1,~~322~~347,~~010~~378 ------------ ------------ Total noninterest-earning assets............~~...~~ 5,~~742~~600,~~256~~708 5,~~271~~097,~~787~~280 ------------ ------------ Total assets................................~~...~~ $~~161~~163,~~658~~147,~~719~~961 $~~142~~143,~~676~~679,~~114~~954 ============ ============ Interest - bearing liabilities: Deposits: Interest bearing demand and NOW deposits............................... $ 3,~~240~~138,~~912~~119 $ 2334,~~643~~508 1.4647% $ 3,~~457~~370,~~562~~488 $ 2537,~~204~~032 1.46% Savings deposits........................ 17,~~441~~469,~~758~~233 ~~185~~282,~~057~~390 2.1216% 1718,~~843~~164,~~570~~147 ~~188~~290,~~545~~654 2.1113% Money market deposits................... 1,~~315~~390,~~497~~738 1321,~~648~~625 2.0807% 1,~~510~~708,~~307~~890 1526,~~173~~234 2.0105% Time deposits........................... 8182,~~382~~584,~~491~~747 23,~~303~~583,~~473~~225 5.6679% 65,~~537~~451,~~310~~593 12,~~628~~444,~~718~~538 4.9798% Securities sold under agreements to repurchase............................~~...~~ 9,~~453~~087,~~410~~353 ~~231~~345,~~649~~040 45.9006% 1211,~~043~~779,~~802~~565 ~~300~~443,~~511~~843 45.9902% Federal Home Loan Bank Advances.......... 13,~~552~~427,~~230~~761 ~~401~~597,~~347~~058 5.9293% 78,~~639~~431,~~702~~741 ~~215~~365,~~465~~661 5.6478% Senior debenture.........................~~...~~ 0.00 0.00 0.00% 21,~~428~~610,~~590~~164 84,503 67.9600% ------------ ---------- ------~~---~~ ------------ ------------ ------ Total interest-bearing liabilities..........~~...~~ ~~126~~127,~~386~~097,~~298~~951 34,~~158~~863,~~817~~846 5.0010% 110,~~460~~516,~~843~~588 23,~~458~~692,~~119~~465 4.45% ---------- ------~~---~~ ------------ ------ Noninterest-bearing liabilities: Noninterest-bearing deposits..............~~...~~ 1819,~~460~~204,~~724~~794 1617,~~275~~055,~~856~~731 Other liabilities.........................~~...~~ 1,~~396~~315,~~903~~190 1,~~278~~275,~~526~~887 ------------ ------------ Total noninterest-bearing liabilities.......~~...~~ 1920,~~857~~519,~~627~~984 1718,~~554~~331,~~382~~618 Stockholders' equity........................~~...~~ 15,~~414~~530,~~794~~026 14,~~660~~831,~~889~~748 ------------ ------------ Total liabilities and stockholders' equity.. $~~161~~163,~~658~~147,~~719~~961 $~~142~~143,~~676~~679,~~114~~954 ============ ============ Net interest income.........................~~...~~ $35,~~306~~061,~~803~~588 $ 24,~~983~~622,~~980~~299 ========== ============ Net interest spread.........................~~...~~ 3.30% 3.4755% ======~~====~~ ====== Net interest margin.........................~~...~~ 4.2428% 4.3445% ======~~====~~ ======

10 Total interest income for the three months ended September 30, 2000 was $3,459,814, compared to $2,872,665 for the same three month period of the prior year. This increase of $587,149 or 20.4% was primarily the result of a $19.9 million increase in quarterly average interest-earning assets to $160.7 million for the third quarter of 2000 from $140.8 million for the third quarter of 1999. During the third quarter of 2000, the loan portfolio represented 62.7% of total quarterly average interest-earning assets compared to 65.9% during the third quarter of 1999. Nonetheless, a higher interest rate environment coupled with repricing opportunities within the loan and investment portfolios pushed the yield on interest-earning assets to 8.61% for the three months ended September 30, 2000, compared to 8.16% during the same three month period of the prior year. Total interest expense increased $470,681 to $1,705,028 for the three months ended September 30, 2000, compared to $1,234,347 for the same three month period of 1999. This increase reflected the growth of quarterly average interest-bearing liabilities of $17.9 million to $128.5 million in the third quarter of 2000 from $110.6 million in the third quarter of 1999. The preponderance of this growth occurred within the higher cost time deposits which, coupled with a higher interest rate environment, accounted for the increase in the Company's cost of funds to 5.31% in the third quarter of 2000, third quarter. Overall, the Company's quarterly net interest spread decreased to 3.30% from 3.71% and its quarterly margin also declined to 4.36% from 4.67%. However, this spread and margin compression was anticipated when the Company ran a certificate of deposit promotion to partially leverage the Company's capital position and presumably increase market share. Effectively, net interest income increased $116,468 or 7.1% during the third quarter of 2000, compared to the third quarter of 1999. Total interest income for the nine months ended September 30, 2000 was $9,925,434, compared to $8,314,764 for the nine months ended September 30, 1999. This increase of $1,610,670 or 19.4% was largely the result of an $19.0 million increase in average interest-earning assets, of which $8.5 million took place in the loan portfolio and the remaining $10.5 million of growth occurred within the investment portfolio. Of the increase in total interest income, approximately $1,073,000 was related to balance sheet growth (volume). A rising interest rate environment boosted the yield on interest-earning assets to 8.40% for the first nine months of 2000, compared to 8.00% for the first nine months of 1999. This yield improvement added nearly $538,000 to the increase in interest income. The total interest expense increased $1,171,381 or 31.7% to $4,863,846 for the nine months ended September 30, 2000 from $3,692,465 for the nine months ended September 30, 1999. Total average interest-bearing liabilities increased $16.6 million to $127.1 million from $110.5 million. All of this increase occurred within higher cost time deposits which funded interest-earning asset growth. This volume related increase accounted for nearly $760,000 of the increase in interest expense. The Company's cost of funds increased to 5.10% for the nine months ended September 30, 2000 from 4.45% for the same nine month period of the prior year. This increase in cost of funds was due in part to a rising interest rate environment, along with a change in the composition mix of interest-bearing liabilities. This increase in funding costs added approximately $411,000 to the increase in interest expense. Overall, net interest income increased $439,289 to $5,061,588 from $4,622,299. Changes in volume (balance sheet growth) contributed nearly $313,000 to this increase, while changes in rates added approximately $126,000. Net interest spread declined 25 basis points to 3.30% from 3.55%, while net interest margin decreased 17 basis points to 4.28% for the first nine months of 2000 from 4.45% for last year's first nine months. Provision for Loan Losses ------------------------- The provision for loan losses totaled $50,000 for the three months ended September 30, 2000 and $75,000 for the three months ended September 30, 1999. For the nine months ended September 30, 2000 and 1999, the provision for loan losses amounted to $175,000 and $200,000, respectively. With solid asset quality and a net recovery (as opposed to the net charge-off) position, a slightly lower provision for loan losses was considered appropriate for the first nine months of 2000, despite the growth in total loans outstanding. This is consistent with management's systematic assessment of the adequacy of its loan loss reserves (See "Asset Quality"). Noninterest Income ------------------ Total noninterest income increased $59,808 to $275,045 for the three months ended September 30, 2000, from $215,237 for the three months ended September 30, 1999. For the nine months ended September 30, 2000 and 1999, noninterest income increased $104,121 to $705,026 from $600,905. For both the three month and nine month reporting period, the increases were attributable to an increase in gains on the sale of the guaranteed portion of Small Business Administration 11 ("SBA") loans plus SBA loan servicing fees, fee income from the residential mortgage program and ATM surcharge income. Noninterest Expense ------------------- Total noninterest expense amounted to $1,155,180 and $1,079,549 for the three months ended September 30, 2000 and 1999, respectively. For the nine months ended September 30, 2000 and 1999, noninterest expense was $3,329,317 and $2,911,086 respectively. For both the three month and nine month periods ended September 30, 2000, the increases in overhead costs are primarily the result of (i) higher salaries and wages associated with filling additional staff positions, and across-the-board pay increases, (ii) higher benefit costs, and (iii) increases in legal and professional fees. Income Taxes ------------ Income taxes for the three months ended September 30, 2000, were $291,919 or 35.4% of pretax income, compared to $255,751 or 36.6% of pretax income for the three months ended September 30, 1999. For the nine months ended September 30, 2000 and 1999, income taxes were $801,971 and $772,792, respectively, or 35.4% and 36.6% of pretax income, respectively. The Company's combined federal and state (net of federal benefit) statutory income tax rate is 39.9%. The Company's effective combined federal and state tax rate was lower than the statutory rate primarily due to the exclusion, from state taxable income, interest income on U.S. Treasury obligations and certain government agency debt securities. The lower effective tax rates in 2000 were primarily due to proportionately more income excluded for state income tax purposes. Capital Adequacy ---------------- The FDIC and the Federal Reserve Board have established guidelines with respect to the maintenance of appropriate levels of capital by both the Bank and the Company. Set forth below is a summary of FDIC and Federal Reserve Board capital requirements, and the Company's and the Bank's capital ratios as of September 30, 2000: Regulatory Minimum (1) Actual ----------- ------ The Company Risk-based: Tier 1.......... 4.00% 15.01% Totals.......... 8.00 16.26 Leverage......... 3.00 9.90 The Bank Risk-based: Tier 1.......... 4.00% 14.48% Totals.......... 8.00 15.73 Leverage.......... 3.00 9.60 (1) The 3% regulatory minimum leverage ratio applies only to certain highly- rated banks. Other institutions are subject to higher requirements. 12 Asset/Liability Management -------------------------- The Company's objective with respect to asset/liability management is to position the Company so that sudden changes in interest rates do not have a material impact on net interest income and stockholders' equity. The primary objective is to manage the assets and liabilities to provide for profitability and capital at prudent levels of liquidity and interest rate, credit, and market risk. The Company uses a static gap measurement as well as a modeling approach to review its level of interest rate risk. The internal targets established by the Company are to maintain: (i) a static gap of no more than a positive 10% or negative 15% of total assets at the one year time frame; (ii) a change in economic market value from base present value of no more than positive or negative 30%; and (iii) a change in net interest income from base of no more than positive or negative 17%. At September 30, 2000, the Company's one year static gap position was a negative $36.3 million or 21.8% of total assets. By using simulation modeling techniques, the Company is able to measure its interest rate risk exposure as determined by the impact of sudden movements in interest rates on net interest income and equity. This exposure is termed Aearnings-at-risk' and equity-at-risk'. At September 30, 2000, the Company's earnings-at-risk under a "200 basis point interest rate shock test measured a negative 3.6% in a worst case scenario. Under a similar test, the Company's equity-at-risk measured a negative 16.2% of market value of equity at September 30, 2000. At September 30, 2000, the Company's earnings-at-risk and equity-at-risk fell well within tolerance levels established by internal policy. Liquidity --------- Liquidity is defined as the ability to meet current and future financial obligations of a short-term nature. The Company further defines liquidity as the ability to respond to the needs of depositors and borrowers and to earning enhancement opportunities in a changing marketplace. Primary sources of liquidity consist of deposit inflows, loan repayments, securities sold under agreements to repurchase, FHLB advances, maturity of investment securities and sales of securities from the available-for-sale portfolio. These sources fund the Bank's lending and investment activities. At September 30, 2000, cash and due from banks, securities purchased under agreements to resell, and short-term investments (unpledged and maturing within one year) amounted to $20.0 million, or 12.0% of total assets. Management is responsible for establishing and monitoring liquidity targets as well as strategies and tactics to meet these targets. Through membership in the Federal Home Loan Bank of Boston (FHLB), the Company has an unused borrowing capacity of nearly $31.5 million, which could assist the Company in meeting its liquidity needs and funding its asset mix. At September 30, 2000, the Company held state and municipal demand deposits of $.8 million which it considered highly volatile. Nonetheless, the Company believes that there are no adverse trends in the Company's liquidity or capital reserves, and the Company believes that it maintains adequate liquidity to meet its commitments. 13 PART II - OTHER INFORMATION Item 1 - Legal Proceedings The Company and the Bank are involved in routine legal proceedings occurring in the ordinary course of business. In the opinion of management, final disposition of these lawsuits will not have a material adverse effect on the financial condition or results of operations of the Company or the Bank in the aggregate. Item 2 - Changes in Securities Not applicable Item 3 - Defaults Upon Senior Securities Not applicable Item 4 - Submission of Matters to a Vote of Security Holders Not applicable Item 5 - Other Information Not applicable Item 6 - Exhibits and Reports on Form 8-K (A) Exhibits Exhibit Number Description -------------- ----------- 11 Computation of Per Share Earnings 27 Financial Data Schedule (B) Reports on Form 8-K None 14 SIGNATURES Under 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 Corp. November 6, 2000 /s/ Patrick J. Shanahan, Jr. --------------------- ---------------------------- Date Patrick J. Shanahan, Jr. Chairman, President and Chief Executive Officer November 6, 2000 /s/ John A. Macomber --------------------- -------------------- Date John A. Macomber Vice President, Treasurer and Chief Financial Officer 15 Exhibit 11 - Computation of per share earnings

~~Regulatory~~Nine ~~Minimum~~Months ~~(1)~~Ended ~~Actual~~Three Months Ended September 30, September 30, ---------------------- ---------------------- ~~The~~2000 ~~Company~~1999 ~~Risk~~2000 1999 -~~based:~~--------- ~~Tier~~---------- ---------- ---------- Weighted average common shares outstanding 1~~........................~~,214,254 ~~4.00%~~1,233,823 ~~14.57%~~1,213,741 ~~Totals........................~~1,231,241 ~~8.00~~Weighted ~~15.83~~average ~~Leverage........................~~equivalent ~~3.00~~shares ~~9.71~~--- ~~The~~--- ~~Bank~~--- ~~Risk~~-~~based~~-- ---------- --------- ---------- --------- Weighted average common and common stock equivalent shares outstanding 1,214,254 1,233,823 1,213,741 1,231,241 ========== ========= ========== ========= Net income $1,460,326 $1,339,326 $ 532,732 $ 443,255 ========== ========== ========== ========== Earnings per share: ~~Tier~~Basic $ 1.~~........................~~20 ~~4.00%~~$ 141.~~03%~~09 ~~Totals~~$ 0.~~......................~~44 8$ 0.0036 15========== ========== ========== ========== Diluted $ 1.2920 ~~Leverage~~$ 1.~~........................~~09 3$ 0.0044 9$ 0.3736 ========== ========== ========== ==========

For Against Abstention ---------- ----------- ------------ (i) To elect Directors of the Company for three years: Artin H. Coloian, Esq. 1,057,701 18,362 John Nazarian, Ph.D. 1,057,801 18,262 William P. Shields 1,057,801 18,262 (ii) To select Arthur Andersen LLP as independent public accountants for the Company for the 1,069,411 6,050 602 fiscal year ending December 31, 2000

Name Term to Expire in: ---- -------------------- Patrick J. Shanahan, Jr. 2001 Gary R. Alger 2001 Joseph V. Mega 2001 Raymond F. Bernardo 2002 Joseph A. Keough, Esq. 2002 Peter L. Mathieu, Jr., M.D. 2002 Fred J. Simon, Jr. 2002

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