FIRST FINANCIAL CORPORATION





The Audit Committee (the Committee) is appointed by the Board of Directors (the Board) to assist the Board in fulfilling its oversight responsibilities with respect to monitoring (1) the integrity of the financial statements of First Financial Corporation (the Company), (2) the independent auditor’s qualifications and independence, (3)the performance of the Company’s internal audit function and independent auditors, and (4)the compliance by the Company with legal and regulatory requirements.


The Committee shall prepare the report required by the rules of the Securities and Exchange Commission (the Commission) to be included in the Company’s annual proxy statement.


Committee Membership


The Committee shall consist of no fewer than three members.  The members of the Committee shall meet the independence and experience requirements of NASDAQ STOCK MARKET, INC., Section 10A (m)(3) of the Securities Exchange Act of 1934 (the Exchange Act) and the rules and regulations of the Commission.  As required by the Commission, if a member of the Committee meets the definition of a financial expert, as defined by the Commission, that member shall be so designated.  The members of the Committee shall be appointed by the Board.




The Committee will meet at least quarterly but reserves the right to meet as often as it shall determine.  The Committee shall meet periodically with management, the internal auditors and the independent auditor in separate executive sessions.


The Committee shall have the authority to retain special legal, accounting or other consultants to advise the Company.  The Committee may request any officer or employee of the Company or the Company’s outside counsel or independent auditors to attend a meeting of the Committee or to meet with any members of, or consultants to , the Company.  The Committee shall periodically make reports to the Board.


Committee Authority and Responsibilites


The Committee shall have sole authority to appoint or replace the independent auditor.  The Committee shall be directly responsible for the compensation and oversight of the work of the independent auditor (including resolution of disagreements between management and the independent auditor regarding financial reporting) for the purpose of preparing or issuing an audit report or related work.  The independent auditor shall report directly to the Committee.


The Committee shall preapprove all auditing services and permitted non-audit services to be performed for the Company by its independent auditor.  The Committee shall also approve fees for services as outlined in engagement letters or quoted by the independent auditors.  Fees for routine preapproved services will be reported to the Committee as invoiced.  The Committee may form and delegate authority to subcommittees consisting of one or more members when appropriate, including the authority to grant preapprovals of audit and permitted non-audit services, provided that decisions of such subcommittees to grant preapprovals shall be presented to the full Committee at its next scheduled meeting.


The Committee, to the extent it considers necessary, shall:


Financial Statement and Disclosure Matters


1.)        Review and reassess the adequacy of this Charter annually and recommend any proposed changes to the Board for approval.


2.)    Review and discuss the annual audited financial statements with management and the

independent auditor, including disclosures made in management’s discussion and

analysis, accounting and auditing principles and practices, and the adequacy of internal

controls that could significantly affect the Company’s financial statements, and

recommend inclusion of the financial statements in the 10K to the Board.


      3.)    Review with management and the independent auditor the Company’s financial results

  prior to the filing of Form 10Q and review results of the SAS 100 review of the

  quarterly financial statements included in Form 10Q.  Such review will include:


a.)    all critical accounting policies and practices to be used.


b.)    all alternative treatments of financial information within generally accepted accounting principles that have been discussed with management, ramifications of the use of such alternative disclosures and treatments, and the treatment preferred by the independent auditor.


c.)    other material written communications between the independent auditor and management, such as any management letter or schedule of unadjusted differences.


4.)    Discuss with management the Company’s earnings press releases, including the use of “pro forma” or “adjusted” non-GAAP information, as well as financial information and earnings guidance provided to analysts and rating agencies.


5.)    Review with management and the independent auditor the effect of regulatory and accounting initiatives as well as off-balance sheet structures on the Company’s financial statements.


Oversight of the Company’s Relationship with the Independent Auditor


6.)    Report annually to the Board the appointment of the independent auditor and monitor the fees, duties and independence concerns.



       7.) Approve in advance all audit services to be provided by the independent auditor,

             including any written engagement letters related thereto.  (By approving the audit

             engagement , the audit service contemplated in any written engagement letter shall

             be deemed to have been pre-approved.)


       8.)  Establish policies and procedures for the engagement of the independent auditor

              to provide permissible non-audit services, which shall require pre-approval by the

 Audit Committee of all permissible non-audit services to be provided by the

  independent auditor.  All engagements pertaining to internal control consulting require        

              approval of the specific engagement.


           9.)  Review the experience and qualifications of the senior members of the independent

       auditor team and the quality control procedures of the independent auditor.


10.) Approve the retention of the independent auditor for any non-audit service and the fee

  for such service.


11.) Receive periodic reports from the independent auditor regarding the auditor’s

        independence, discuss such reports with the auditor, and if necessary, recommend that

        the Board take appropriate action to satisfy itself of the independence of the auditor.


12.) Evaluate together with the Board the performance of the independent auditor and if the                      

              performance is considered to be unsatisfactory, recommend that the Board replace the                     

              independent auditor.



       13.) Discuss with the independent auditor the matters required to be discussed by Statement    

  on Auditing Standards No. 61 or other standards that may in time modify, supplement or                      

              replace SAS 61 relating to the conduct of the audit.


              a.)  on an annual basis, the Committee shall ensure receipt of,  and review with the

                    independent auditor, the written statement required by Independence Standards

                    Board (ISB) Standard No. 1, as may be modified, supplemented or replaced, and

                    discuss with the auditors their independence.


 14.) Review with the independent auditor any significant difficulties the auditor may have 

              encountered in conducting the audit or working with management and any management                               

              letter provided by the auditor and the Company’s response to that letter.  Such review

              should include:


 a.)  any significant difficulties encountered in the course of the audit work, including 

       any restrictions on the scope of activities or access to required information, and any

       disagreements with management.


 b.)  any changes required in the planned scope of the audit.


 c.)  any significant concerns about the internal audit department’s responsibilities,

       budgeting and staffing.


 15.) Ensure the rotation of the lead audit partner having primary responsibility for the audit         

  and the audit partner responsible for reviewing the audit as required by law.


16.) Obtain and review a report from the independent auditor periodically regarding

(a)the independent  auditor’s internal quality control procedures, (b)any material issues  

 raised by the most recent quality control review or peer review of the firm.


Oversight of the Company’s Internal Audit Function


17.) Review the appointment, performance and replacement of the senior internal auditing 



18.) Review the reports to management prepared by the internal auditing department and

       management’s responses.


      19.) Review and approve the annual internal audit plan.


Compliance Oversight Responsibilities


      20.) Establish procedures for the receipt, retention and treatment of complaints received

 by the Company regarding accounting, internal accounting controls or auditing matters,

 and the confidential, anonymous submission by employees of concerns regarding

 questionable accounting or auditing matters.


 21.) Discuss with management and the independent auditor any correspondence with

   regulators or governmental agencies and any published reports which raise material

   issues regarding the Company’s financial statements or accounting policies.


 22.) Discuss with the independent auditor any illegal act(s) identified during the conduct 

   of the audit, if applicable, and any  conclusions  reached regarding such matter(s).


       23.) Ascertain that there have been no violations of the Company’s Code of Business

   Conduct and Ethics, which shall include a review of insider and related party



       24.) Periodically review and discuss the adequacy and effectiveness of the Company’s

              internal and disclosure controls and procedures related to financial reporting and

              management and independent auditor reports thereon.


       25.) Ensure the Company adheres to regulatory guidelines regarding the hiring of employees

              and former employees of the independent auditor.


       26.) The Committee shall approve all transactions with related parties, including loans

              and extensions of credit, fees and commissions for services, purchases or sales of assets

              and any other financial arrangements.  For purposes of this responsibility, the definition 

              of related parties will follow the definition of insider loans, as provided in Regulation O.


Limitation of Audit Committee’s Role


While the committee has the responsibilities and powers set forth in this Charter, it is not the duty of the Committee to plan or conduct audits or to determine that the Company’s financial statements and disclosures are complete and accurate and are in accordance with generally accepted accounting principles and applicable rules and regulations.  These are the responsibilities of management and the independent auditor.