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 June 30, 1996 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 filing
requirements for the past 90 days. Yes X No
--- ---
At August 6, 1996, there were 1,328,041 shares of the Company's $1.00 par value
stock issued, with 1,261,241 shares outstanding.
FIRST FINANCIAL CORP.
INDEX
<TABLE>
<S> <C>
PART I - FINANCIAL INFORMATION
Item 1 - Financial Statements 1
Consolidated Balance Sheets - June 30, 1996 and December 31, 1995 1
Consolidated Statements of Income - Three months and six months
ended June 30, 1996 and 1995 2
Consolidated Statements of Stockholders' Equity - Six months ended
June 30, 1996 and year ended December 31, 1995 3
Consolidated Statements of Cash Flows - Six months ended June 30, 1996 and 1995 4
Notes to Consolidated Financial Statements - June 30, 1996 5
Item 2 - Management's Discussion and Analysis of Financial Condition and
Results of Operations 6
PART II - OTHER INFORMATION
Item 1 - Legal Proceedings 13
Item 2 - Changes in Securities 13
Item 3 - Defaults Upon Senior Securities 13
Item 4 - Submission of Matters to a Vote of Security Holders 13
Item 5 - Other Information 14
Item 6 - Exhibits and Reports on Form 8-K 14
SIGNATURES 15
EXHIBITS
Computation of per share earnings - Exhibit 11 16
Financial Data Schedule - Exhibit 27 17
</TABLE>
PART I - FINANCIAL INFORMATION
ITEM 1 - FINANCIAL STATEMENTS
FIRST FINANCIAL CORP. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
1996 1995
---- ----
ASSETS (UNAUDITED)
<S> <C> <C>
CASH AND DUE FROM BANKS $1,981,616 $1,866,249
------------ ------------
SECURITIES PURCHASED UNDER AGREEMENTS TO RESELL 2,601,000 1,035,000
------------ ------------
LOANS HELD FOR SALE 453,750 -------
------------ ------------
SECURITIES:
Held-to-maturity (market value: $14,343,539 and $14,566,501) 14,471,081 14,644,165
Available-for-sale (amortized cost: $18,214,958 and $15,006,743) 18,231,470 15,131,595
------------ ------------
Total investment securities 32,702,551 29,775,760
------------ ------------
FEDERAL HOME LOAN BANK STOCK 348,100 348,100
------------ ------------
LOANS:
Commercial 4,012,953 3,549,458
Commercial real estate 36,225,873 32,412,836
Residential real estate 22,693,362 23,657,622
Home equity lines of credit 3,194,576 3,671,892
Consumer 1,523,831 1,496,933
------------ ------------
67,650,595 64,788,741
Less - unearned discount 75,551 88,141
Allowance for possible loan losses 1,756,303 1,828,040
------------ ------------
Net loans 65,818,741 62,872,560
------------ ------------
OTHER REAL ESTATE OWNED 1,181,810 1,470,310
------------ ------------
PREMISES AND EQUIPMENT, net 1,735,013 1,816,893
------------ ------------
OTHER ASSETS 1,315,363 1,118,950
------------ ------------
TOTAL ASSETS $108,137,944 $100,303,822
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
DEPOSITS:
Demand $11,358,796 $12,483,433
Savings and money market accounts 23,993,268 24,191,981
Time deposits 57,045,233 52,915,128
------------ ------------
Total deposits 92,397,297 89,590,542
------------ ------------
ACCRUED EXPENSES AND OTHER LIABILITIES 722,640 677,059
------------ ------------
SENIOR DEBENTURE, net of unamortized discount
of $129,371 and $155,368 2,870,629 2,844,632
------------ ------------
STOCKHOLDERS' EQUITY:
Common Stock, $ I par value
Authorized - 5,000,000 shares
Issued - 1,328,041 shares and 750,000 shares 1,328,041 750,000
Surplus 4,554,491 500,000
Retained earnings 6,401,899 6,013,638
Unrealized gain on securities available-for-sale, net of taxes 9,907 74,911
------------ ------------
12,294,338 7,338,549
Less - Treasury stock, at cost, 66,800 shares 146,960 146,960
------------ ------------
Total stockholders' equity 12,147,378 7,191,589
------------ ------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $108,137,944 $100,303,822
============ ============
The accompanying notes are an integral part of these consolidated financial statements.
</TABLE>
1
FIRST FINANCIAL CORP. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
SIX MONTHS ENDED THREE MONTHS ENDED
JUNE 30, JUNE 30,
-------- --------
1996 1995 1996 1995
---- ---- ---- ----
(UNAUDITED)
<S> <C> <C> <C> <C>
INTEREST INCOME:
Interest and fees on loans $3,306,431 $2,900,481 $ 1,684,681 $ 1,448,195
Interest on investment securities -
U.S. Government and agency obligations 686,675 668,917 354,312 349,902
Collateralized mortgage obligations 58,933 82,560 32,008 44,485
Marketable equity securities and other 7,480 630 5,842 330
Interest on cash equivalents 97,898 61,438 57,327 26,880
---------- ---------- ----------- -----------
Total interest income 4,157,417 3,714,026 2,134,170 1,869,792
---------- ---------- ----------- -----------
INTEREST EXPENSE:
Interest on deposits 1,834,027 1,604,361 925,896 837,493
Interest on debenture 126,347 106,925 64,253 61,184
---------- ---------- ----------- -----------
Total interest expense 1,960,374 1,711,286 990,149 898,677
---------- ---------- ----------- -----------
Net interest income 2,197,043 2,002,740 1,144,021 971,115
PROVISION FOR POSSIBLE LOAN LOSSES 175,000 465,000 105,000 360,000
---------- ---------- ----------- -----------
Net interest income after provision for possible
loan losses 2,022,043 1,537,740 1,039,021 611,115
---------- ---------- ----------- -----------
NONINTEREST INCOME:
Service charges on deposits 149,983 140,017 74,818 72,833
Gain on loan sales 15,973 79,055 15,973 79,055
Other 63,059 58,517 26,403 16,174
---------- ---------- ----------- -----------
Total noninterest income 229,015 277,589 117,194 168,062
---------- ---------- ----------- -----------
NONINTEREST EXPENSE:
Salaries and employee benefits 823,159 786,318 403,226 396,393
Occupancy expense 187,482 166,445 88,066 83,409
Equipment expense 103,066 109,609 51,540 55,475
Other real estate owned (gains) losses, and expenses 39,925 12,913 11,836 22,282
Computer services 82,364 70,632 40,474 35,322
Deposit insurance assessments 500 92,022 500 46,011
Other operating expenses 347,542 282,404 180,528 134,370
---------- ---------- ----------- -----------
Total noninterest expense 1,584,038 1,520,343 776,170 773,262
---------- ---------- ----------- -----------
Income before provision for income taxes 667,020 294,986 380,045 5,915
PROVISION (BENEFIT) FOR INCOME TAXES 220,426 86,646 133,539 (13,802)
---------- ---------- ----------- -----------
Net income $446,594 $208,340 $246,506 $19,717
========== ========== =========== ===========
Earnings per share $ 0.52 $ 0.29 $ 0.25 $ 0.03
========== ========== =========== ===========
Dividends declared per share $ 0.06 $ 0.055 $ 0.03 $ 0.055
========== ========== =========== ===========
Weighted average common and common stock
equivalent shares outstanding 856,474 728,708 1,001,465 728,461
========== ========== =========== ===========
The accompanying notes are an integral part of these consolidated financial statements.
</TABLE>
2
FIRST FINANCIAL CORP. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
UNREALIZED
GAIN (LOSS)
ON SECURITIES
AVAILABLE TOTAL
COMMON RETAINED FOR SALE, NET TREASURY STOCKHOLDERS'
STOCK SURPLUS EARNINGS OF TAXES STOCK EQUITY
----- ------- -------- -------- ----- ------
<S> <C> <C> <C> <C> <C> <C>
Balance, December 31, 1994 $750,000 $500,000 $5,571,013 $(114,893) $(146,960) $6,559,160
Net income -------- -------- 517,777 --------- --------- 517,777
Dividends ($.11 per share) -------- -------- (75,152) --------- --------- (75,152)
Change in net unrealized gain (loss)
on securities available-for-sale -------- -------- ---------- 189,804 --------- 189,804
-------- ---------- ---------- --------- --------- -----------
Balance, December 31, 1995 750,000 500,000 6,013,638 74,911 (146,960) 7,191,589
Net income -------- -------- 446,594 --------- --------- 446,594
Dividends ($.06 per share) -------- -------- (58,333) --------- --------- (58,333)
Exercise of stock options and
related tax effect 28,041 (41,744) ---------- --------- --------- (13,703)
Issuance of 550,000 shares of
common stock net of offering
costs 550,000 4,096,235 ---------- --------- --------- 4,646,235
Change in net unrealized gain (loss)
on securities available-for-sale -------- -------- ---------- (65,004) --------- (65,004)
---------- ---------- ---------- --------- --------- -----------
Balance, June 30, 1996 $1,328,041 $4,554,491 $6,401,899 $9,907 $(146,960) $12,147,378
========== ========== ========== ========= ========= ===========
The accompanying notes are an integral part of these consolidated financial statements.
</TABLE>
3
FIRST FINANCIAL CORP. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
SIX MONTHS ENDED JUNE 30
------------------------
1996 1995
---- ----
(UNAUDITED)
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $446,594 $208,340
Adjustments to reconcile net income to net cash provided by operating
activities:
Provision for possible loan losses 175,000 465,000
Depreciation and amortization 92,882 82,172
Accretion of discount on debenture 126,347 87,275
Net (accretion) amortization on investment securities held-to-maturity (2,794) 2,623
Net (accretion) on investment securities available-for-sale (45,214) (29,142)
(Gains) losses on sale of OREO (11,689) (11,206)
Gain on sales of loans (15,973) (79,055)
Proceeds from sales of loans 338,139 905,305
Loans originated for sale (765,147) (826,250)
Net (decrease) increase in unearned discount (12,590) 13,233
Net (increase) decrease in other assets (153,077) (96,080)
Net (decrease) increase in deferred loan fees (5,064) 10,084
Net (decrease) increase in accrued expenses and other liabilities (76,633) 33,870
---------- ----------
Net cash provided by operating activities 90,781 766,169
---------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of Federal Home Loan Bank stock ---------- ----------
Proceeds from maturities of investment securities held-to-maturity 6,974,314 1,059,860
Proceeds from maturities of investment securities available-for-sale 13,400,000 12,100,000
Purchase of investment securities held-to-maturity (6,793,569) (2,532,890)
Purchase of investment securities available-for-sale (16,567,868) (8,515,233)
Net increase in loans (3,200,269) (3,417,462)
Purchase of premises and equipment (11,002) (37,358)
Sales of OREO 370,189 399,669
---------- ----------
Net cash used in investing activities (5,828,205) (943,414)
---------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net (decrease) increase in demand accounts (1,124,637) (505,838)
Net (decrease) increase in savings and money market accounts (198,713) (5,878,071)
Net increase in time deposits 4,130,105 7,284,401
Net proceeds on issuance of common stock 4,646,235 ----------
Exercise of stock options (13,703) ----------
Dividends paid (20,496) (37,576)
---------- ----------
Net cash provided by financing activities 7,418,791 862,916
---------- ----------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 1,681,367 685,671
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 2,901,249 4,807,584
---------- ----------
CASH AND CASH EQUIVALENTS, END OF PERIOD $4,582,616 $5,493,255
========== ==========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Interest paid $1,802,001 $1,682,577
========== ==========
Income taxes paid $ 164,250 $ 186,250
========== ==========
SUPPLEMENTAL DISCLOSURE OF NONCASH TRANSACTIONS:
Transfer of loans to OREO $ 70,000 $719,760
========== ==========
The accompanying notes are an integral part of these consolidated financial statements.
</TABLE>
4
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AS OF AND FOR THE THREE MONTHS AND SIX MONTHS
ENDED JUNE 30, 1996
(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 six months ended June 30, 1996 are not
necessarily indicative of the results that may be expected for the year ending
December 31, 1996 or any other interim period.
These statements should be read in conjunction with the consolidated financial
statements, notes and other information included in the Company's Registration
Statement on Form S-1 (File No. 333-1654), as amended, declared effective by the
Securities and Exchange Commission on May 13, 1996 (see Note 2 below).
(2) PUBLIC OFFERING
On May 13, 1996, the Securities and Exchange Commission simultaneously declared
effective the Company's Registration Statement on Form S-1 filed under the
Securities Act of 1933, as amended and its Registration Statement on Form 8-A
filed under the Securities Exchange Act of 1934, as amended. The Registration
Statement related to the public offering of 550,000 shares of Common Stock. On
May 13, 1996 the Company entered into an Underwriting Agreement with Sandler
O'Neill & Partners, L.P. (Underwriter) to purchase from the Company the shares
of the Common Stock at the public offering price of $9.75 per share, less an
underwriting discount of $.58 per share. On May 17, 1996, the Company received
from the Underwriter the net proceeds of the public offering in the amount of
$5,043,500 exclusive of approximately $450,000 in expenses incurred in
connection with the offering, while the number of common shares outstanding
increased to 1,261,241 shares; including 28,041 shares issued in connection with
the exercise of certain stock options.
(3) DIVIDEND DECLARATION
On May 2O, 1996 the Company declared dividends of $37,837 or $.03 per share to
all common stockholders of record on June 17, 1996, payable on July 2, 1996.
5
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 consumer financial products and services designed
to satisfy the deposit and loan needs of its retail customers. The Bank's retail
products include interest-bearing and noninterest-bearing checking accounts,
money market accounts, passbook and statement savings, 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, and
automated teller machine (ATM) cards and services. Loan products include
commercial, commercial mortgage, residential mortgage, construction, home equity
and a variety of consumer loans.
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 and the
Senior Debenture. The Company's net income is also affected by its level of
non-interest income, including fees and service charges, as well as by its
non-interest expenses, such as salary and employee benefits, provisions to the
allowance for possible loan losses, occupancy costs and, when necessary,
expenses related to OREO and to the administration of non-performing and other
classified assets.
SUMMARY
Total assets increased $7,834,122 or 7.8% to $108,137,944 at June 30, 1996, from
$100,303,822 at December 31, 1995. This asset growth was due in large part to
the issuance of 550,000 additional shares of common stock and the resultant
increase in Stockholders' Equity from the net proceeds of the public offering of
$4,646,235. The net proceeds of the public offering were used primarily to fund
a $4,608,158 increase in Securities and Cash and Cash Equivalents which grew to
$37,285,167 at June 30, 1996 from $29,775,760 at December 31, 1995. The growth
in total assets was also assisted by an increase in total deposits of
$2,806,755. The increase in deposits was used primarily to fund the growth of
the loan portfolio which increased $2,861,854 or 4.4% to $67,650,595 at June 30,
1996, from $64,788,741 at December 31, 1995.
6
For the three months ended June 30, 1996, the Company reported net income of
$246,506 compared to net income of $19,717 for the three months ended June 30,
1995. Fully diluted net income per share for the quarter ended June 30, 1996 was
$.25, as compared to $.03 per share for the same three month period of the prior
year. Net income for the six months ended June 30, 1996 amounted to $446,594
compared to net income of $208,340 for the six months ended June 30, 1995.
Fully diluted net income per share for the six months ended June 30, 1996 was
$.52, an increase of 79.3% from $.29 per share for the six months ended June 30,
1995.
The Company's improved earnings performance for the three months and six months
ended June 30, 1996 as compared to the three months and six months ended June
30, 1995 resulted from (i) an increase in interest earning assets funded from
the net proceeds of the public offering, along with an increase in deposits (ii)
increased loan originations (iii) an improvement in net interest margin and (iv)
improvement in asset quality and attendant reduction in the provision for
possible loan losses.
FINANCIAL CONDITION
ASSET QUALITY
The following table sets forth information regarding non-performing 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 are exclusive
of the acquired loans and acquired allowance for possible loan losses associated
with the 1992 acquisition of certain assets and the assumption of certain
liabilities of the former Chariho-Exeter Credit Union:
<TABLE>
<CAPTION>
AS OF AND FOR THE AS OF AND FOR THE
SIX MONTHS ENDED YEAR ENDED
JUNE 30, DECEMBER 31,
-------- ------------
1996 1995 1995
---- ---- ----
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Nonperforming loans $ 311 $ 410 $ 536
Other real estate owned $ 1,182 $ 1,276 $1,470
Total nonperforming assets $ 1,493 $1,686 $2,006
Loans 30-89 days delinquent $ 833 $ 564 $ 266
Nonperforming assets to total assets 1.45% 1.93% 2.11%
Nonperforming loans to total loans 0.50% 0.77% 0.91%
Net loan charge-offs to average loans
(not annualized) 0.07% 0.85% 1.01%
Allowance for possible loan losses to total loans 1.59% 1.35% 1.47%
Allowance for possible loan losses
to nonperforming loans 318.05% 175.76% 160.63%
</TABLE>
7
In 1992, the Bank acquired certain assets and assumed certain deposit
liabilities of the former Chariho-Exeter Credit Union ("Chariho"). The Bank and
the State of Rhode Island Depositors Economic Protection Corporation ("DEPCO")
established a reserve for possible loan losses of $3,850,000 for loans acquired.
This reserve is available only for loans of Chariho existing as of the
acquisition date. The following analysis summarizes activity for both the
acquired reserve and the Bank's reserve for possible loan losses.
<TABLE>
<CAPTION>
SIX MONTHS ENDED THREE MONTHS ENDED
JUNE 30, JUNE 30,
-------- --------
1996 1995 1996 1995
---- ---- ---- ----
<S> <C> <C> <C> <C>
Bank Reserve:
Balance at beginning of period $861,693 $764,106 $885,540 $701,272
Provision 175,000 465,000 105,000 360,000
Loan charge-offs (63,064) (547,683) (15,934) (374,787)
Recoveries 14,716 39,305 13,739 34,243
---------- ---------- ---------- ----------
Balance at end of period 988,345 720,728 988,345 720,728
---------- ---------- ---------- ----------
Acquired Reserve:
Balance at beginning of period 966,347 1,493,201 872,257 1,413,109
Loan charge-offs (205,289) (228,670) (106,808) (147,650)
Recoveries 6,900 3,290 2,509 2,362
---------- ---------- ---------- ----------
767,958 1,267,821 767,958 1,267,821
---------- ---------- ---------- ----------
Total Reserve $1,756,303 $1,988,549 $1,756,303 $1,988,549
========== ========== ========== ==========
</TABLE>
As set forth in the Chariho Acquisition Agreement, the remaining balance, if
any, in the acquired reserve at May 1, 1999, less an amount equal to l% of the
remaining acquired loans, must be refunded to DEPCO. Conversely, in the event
the reserve is inadequate, additional loan charge-offs will reduce the amount
owed on the debenture issued to DEPCO in connection with the acquisition. At
June 30, 1996, the remaining balance of acquired loans was $5,541,803.
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
possible loan losses, future adjustments may be necessary if economic conditions
differ substantially from the assumptions used in making the evaluation.
At June 30, 1996, loans 30-89 days delinquent amounted to $833,000 as compared
to $564,000 at June 30, 1995 and $266,000 at December 31, 1995. The Company
believes that loans 30-89 days delinquent at December 31, 1995 were unusually
low and that the level of loans 30-89 days delinquent at June 30, 1996 is
typical of a $68 million loan portfolio.
DEPOSITS
Total deposits increased $2,806,755 during the six months ended June 30, 1996
from $89,590,542 at December 31, 1995, to $92,397,297 at June 30, 1996, despite
the withdrawal of approximately $1,900,000 of volatile state demand deposits. At
June 30, 1996, the Company held state and municipal demand deposits of $493,677.
Savings and money market accounts remained relatively flat during the six months
ended June 30, 1996, while time deposits increased $4,130,105 during the same
period.
8
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) increased to
$2,197,043 for the six months ended June 30, 1996, compared to $2,002,740 for
the six months ended June 30, 1995. This increase was the result of an increase
in interest earning assets along with a slight increase in net interest margin.
The table below shows the average balance sheet, the interest earned and paid on
interest earning assets and interest-bearing liabilities, and the resulting net
interest spread and margin for the periods presented.
<TABLE>
<CAPTION>
SIX MONTHS ENDED JUNE 30,
-------------------------
1996 1995
---- ----
INTEREST AVERAGE INTEREST AVERAGE
AVERAGE INCOME/ YIELD/ AVERAGE INCOME/ YIELD/
BALANCE EXPENSE RATE BALANCE EXPENSE RATE
------- ------- ---- ------- ------- ----
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
INTEREST - EARNING ASSETS:
Loans $ 66,622 $ 3,306 9.92% $59,813 $2,900 9.70%
Investment securities taxable - AFS 13,102 409 6.24 12,464 338 5.42
Investment securities taxable - HTM 12,818 337 5.26 14,670 415 5.66
Securities purchased under agreement to
resell 3,939 98 4.98 2,339 61 5.22
Federal Home Loan Bank Stock 348 7 4.02 ------- -------- -------
-------- ------- ---- ------- ------ ----
TOTAL INTEREST-EARNING ASSETS 96,829 4,157 8.59 89,286 3,714 8.32
------- ---- -------- -------
NONINTEREST-EARNING ASSETS:
Cash and due from banks 1,896 2,229
Premises and equipment 1,784 1,817
Other real estate owned 1,301 1,111
Allowance for possible loan losses (1,837) (2,152)
Other assets 1,079 1,018
-------- -------
TOTAL NONINTEREST-EARNING ASSETS 4,223 4,023
-------- -------
TOTAL ASSETS $101,052 $93,309
======== =======
INTEREST - BEARING LIABILITIES:
Deposits:
Interest bearing demand and NOW
deposits $2,467 24 1.95% $2,792 31 2.22
Savings deposits 19,660 261 2.66 24,041 313 2.60
Money market deposits 1,666 20 2.40 2,416 32 2.65
Time deposits 54,635 1,529 5.60 42,864 1,228 5.73
Senior debenture 2,878 126 8.76 2,791 107 7.67
-------- ------- ---- ------- ------ ----
TOTAL INTEREST-BEARING LIABILITIES 81,306 1,960 4.82 74,904 1,711 4.57
------- ---- ------ ----
NONINTEREST-BEARING LIABILITIES:
Noninterest-bearing deposits 10,695 11,096
Other liabilities 584 517
-------- -------
TOTAL NONINTEREST-BEARING LIABILITIES 11,279 11,613
STOCKHOLDERS' EQUITY 8,467 6,792
-------- -------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $101,052 $93,309
======== =======
NET INTEREST INCOME $ 2,197 $2,003
======= ======
NET INTEREST SPREAD 3.77% 3.75%
==== ====
NET INTEREST MARGIN 4.54% 4.49%
==== ====
</TABLE>
9
Total interest income for the three months ended June 30, 1996 was $2,134,170,
compared to $1,869,792 for the same three month period of the prior year. This
increase of $264,378 is primarily the result of a $9,973,000 increase in
quarterly average interest-earning assets and an increase of .23% in the
quarterly yield on interest-earning assets. During the three months ended June
30, 1996 the Company satisfactorily resolved a non-accruing loan and recorded
nearly $47,000 in cash basis interest income. This transaction accounted for
approximately .20% to the increase in quarterly yield on interest-earning
assets. Total interest income for the six months ended June 30, 1996 was
$4,157,417, compared to $3,714,026 for the six months ended June 30, 1995. This
increase of $443,391 or 10.7%, is primarily attributed to a $7.5 million
increase in average interest-earning assets to $96.8 million from $89.3 million
and a .27% increase in yield on interest-earning assets. The increase in yield
is the result of the non-accruing loan resolution mentioned above (.10%) and a
shift in the interest-earning asset mix to higher yielding loans. For the six
months ended June 30, 1996 the average balance of outstanding loans approximated
68.8% of average interest-earning assets as compared to 67.0% for the six months
ended June 30, 1995.
Total interest expense for the three months ended June 30, 1996 was $990,149,
compared to $898,677 for the same period of the prior year. This increase of
$91,472 or 10.2% is solely related to a $7,666,000 increase in quarterly average
interest-bearing liabilities. During the three months ended June 30, 1996, the
quarterly average cost of funds approximated 4.76% as compared to 4.77% for the
same quarter of the prior year. For the six months ended June 30, 1996 total
interest expense was $1,960,374 as compared to $1,711,286 for the same six month
period of 1995. This increase of $249,088 or 14.6% is attributable to $6.4
million increase in average interest-bearing liabilities to $81.3 million for
the six months ended June 30, 1996, compared to $74.9 million for the same six
month period of the prior year. The increase in interest expense is also the
result of an increase of .25% in average cost of funds. The increase in cost of
funds is primarily attributable to: (i) the shifting of existing core savings
deposits into higher yielding time deposits; and (ii) the gathering of new
deposits into higher yielding time deposits.
PROVISION FOR POSSIBLE LOAN LOSSES
The provision for possible loan losses totaled $105,000 for the three months
ended June 30, 1996 compared to $360,000 during the same three month period of
the prior year. For the six months ended June 30, 1996 and 1995, the provision
for possible loan losses amounted to $175,000 and $465,000, respectively. The
decrease in the provision for both the three months and six months ended June
30, 1996 as compared to the same periods of the prior year is the result of
improvement is asset quality reflected by decreases in nonperforming loans,
nonperforming assets, net loan charge-offs, and increases in the percentage of
the allowance for possible loan losses to total loans and to nonperforming
loans.
NONINTEREST INCOME
Total noninterest income decreased $50,868 or 30.3% to $117,194 from $168,062
during the three months ended June 30, 1996 and June 30, 1995, respectively.
Total noninterest income decreased $48,574 to $229,015 from $277,589 for the six
months ended June 30, 1996 compared to the six months ended June 30, 1995,
respectively. The decrease for both the three month and six month periods is
attributable to a $63,000 decrease in gain on loan sales.
10
NONINTEREST EXPENSE
Total noninterest expense amounted to $776,170 and $773,262 for the three months
ended June 30, 1996 and 1995, respectively. Of these amounts, deposit insurance
assessments amounted to $500 for the three months ended June 30, 1996 compared
to $46,011 for the three months ended June 30, 1995. This decrease is the result
of a reduction in insurance premium assessments imposed by the Federal Deposit
Insurance Corporation. Also, other operating expenses increased $46,158 to
$180,528 for the three months ended June 30, 1996 from $134,370 for the three
months ended June 30, 1995. This increase is primarily the result of increased
spending on advertising, public relations and legal and professional costs.
For the six months ended June 30, 1996, total noninterest expense increased
$63,695 or 4.2% to $1,584,038 from $1,520,343 for the same six month period in
1995. This increase is largely attributed to a decrease of $91,522 in FDIC
deposit insurance assessments, offset by: (i) a $36,841 increase in salaries and
benefits primarily attributed to the adoption of a Supplemental Executive
Retirement Plan at the end of 1995, (ii) a $21,037 increase in occupancy expense
principally due to higher maintenance costs, (iii) a $27,012 increase in net
costs for carrying and disposing of foreclosed properties, (iv) an $11,732
increase in computer servicing fees, and (v) a $65,138 increase in other
operating expenses, most notably for advertising, public relations, and legal
and professional fees associated with a publicly traded company.
INCOME TAXES
Income taxes for the three months ended June 30, 1996 were 35.1% of pretax
income, compared to a tax benefit of 233.3% of pretax income for the three
months ended June 30, 1995. The distortion in effective rates was the result of
the reversal of $12,000 in excess tax reserves during the second quarter of
1995. For the six months ended June 30, 1996 and 1995, the effective tax rates
are 33.0% and 29.4%, respectively. The same $12,000 reversal of excess tax
reserves in 1995 accounts for the reduction.
11
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 June 30,
1996:
REGULATORY
MINIMUM (2) ACTUAL
----------- ------
The Company (1)
Risk-based:
Tier 1 4.00% 16.51%
Totals 8.00 17.76
Leverage 3.00 10.95
The Bank
Risk-based:
Tier 1 4.00% 15.15%
Totals 8.00 16.40
Leverage 3.00 10.30
- ----------
(1) The regulatory capital guidelines with respect to bank holding companies are
not applicable unless the bank holding company has either consolidated assets in
excess of $150 million or either: (i) engages in any bank activity involving
significant leverage; or (ii) has a significant amount of outstanding debt that
is held by the general public. Otherwise, the Federal Reserve Board applies its
capital adequacy requirements on a "bank only" basis.
(2) 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 March 31, 1996, the most recent date for which this information is available,
the Company's one year static gap position was a negative $9,226,000 or 9.2% of
total assets.
LIQUIDITY
Deposits and borrowings are the principal sources of funds for use in investing,
lending and for general business purposes. Loan and investment amortization and
prepayments provide additional significant cash flows. At June 30, 1996, the
Company had $22,814,086, or 21.1% of assets in cash and cash equivalents and
investments classified available-for-sale. The Bank is a member of the Federal
Home Loan Bank of Boston, and as such has access to an unused borrowing capacity
of $4,177,200 at June 30, 1996.
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
The Company held its 1996 Annual Meeting of Stockholders on April 3, 1996. The
meeting was held for the purpose of: (i) fixing the maximum number of Directors
at thirteen (13), (ii) to elect Raymond F. Bernardo, Joseph A. Keough, and Dr.
Peter L. Mathieu, Jr. Directors of the Company for three years, term expiring at
the Annual Meeting of 1999 and (iii) to select Arthur Andersen LLP as auditors
for the Company for the year 1996.
13
At the time of the 1996 Annual Meeting there were 750,000 shares of common stock
issued and 683,200 shares outstanding. Shares voted either in person or by proxy
totaled 509,680 shares. The results of the votes cast were as follows:
FOR AGAINST ABSTENTION
--- ------- ----------
(i) Fixing the maximum number of Directors
at thirteen 508,580 1,000 100
(ii) To elect Directors of the Company for
three years:
Raymond F. Bernardo 507,580 1,000 100
Joseph A. Keough 507,580 1,000 100
Dr. Peter L. Mathieu, Jr. 507,580 1,000 100
(iii) To select Arthur Andersen LLP
as auditors for the Company for 1996 507,880 1,700 100
In addition, upon completion of the Annual Meeting the Directors' Terms continue
as follows:
NAME TERM TO EXPIRE IN:
---- ------------------
William A. Carroll 1997
William P. Shields 1997
Joseph V. Mega 1998
Patrick J. Shanahan, Jr. 1998
ITEM 5 - OTHER INFORMATION
At a special meeting of the Board of Directors of the Company held on June 24,
1996, the Board unanimously voted that Artin H. Coloian, Esq. and Dr. John
Nazarian serve as directors of the Company until the 1997 Annual Meeting of
First Financial Corp. Mr. Coloian is Executive Assistant to the Mayor of
Providence, Rhode Island. Dr. Nazarian is President of Rhode Island College.
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.
August 6, 1996 /s/ Patrick J. Shanahan. Jr.
- ---------------------------------- -------------------------------------
Date Patrick J. Shanahan, Jr.
President and Chief Executive Officer
August 6, 1996 /s/ John A. Macomber
- ---------------------------------- -------------------------------------
Date John A. Macomber
Vice President, Treasurer
and Chief Financial Officer
15
EXHIBIT 11 - COMPUTATION OF PER SHARE EARNINGS
SIX MONTHS ENDED THREE MONTHS ENDED
JUNE 30, JUNE 30,
-------- --------
1996 1995 1996 1995
---- ---- ---- ----
Average shares outstanding 835,650 683,200 988,101 683,200
Average dilutive option shares 20,824 45,508 13,364 45,261
-------- -------- -------- -------
Total average shares 856,474 728,708 1,001,465 728,461
======== ======== ======== =======
Net income $446,594 $208,340 $246,506 $19,717
======== ======== ======== =======
Earnings per share $ 0.52 $ 0.29 $ 0.25 $ 0.03
======== ======== ======== =======
16
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<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> JUN-30-1996
<CASH> 1,981,616
<INT-BEARING-DEPOSITS> 0
<FED-FUNDS-SOLD> 2,601,000
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 18,685,220
<INVESTMENTS-CARRYING> 14,471,081
<INVESTMENTS-MARKET> 14,343,539
<LOANS> 67,575,044
<ALLOWANCE> 1,756,303
<TOTAL-ASSETS> 108,137,944
<DEPOSITS> 92,397,297
<SHORT-TERM> 0
<LIABILITIES-OTHER> 722,640
<LONG-TERM> 2,870,629
0
0
<COMMON> 1,328,041
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<INTEREST-DEPOSIT> 925,896
<INTEREST-EXPENSE> 990,149
<INTEREST-INCOME-NET> 1,144,021
<LOAN-LOSSES> 105,000
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<EXPENSE-OTHER> 776,170
<INCOME-PRETAX> 380,045
<INCOME-PRE-EXTRAORDINARY> 380,045
<EXTRAORDINARY> 0
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<NET-INCOME> 246,506
<EPS-PRIMARY> 0.25
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<LOANS-NON> 310,751
<LOANS-PAST> 0
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<LOANS-PROBLEM> 1,589,943
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