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 Commission file number 0-27878
September 30, 1996
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. X Yes No
--- ---
At October 31, 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 - September 30, 1996 and December 31, 1995 1
Consolidated Statements of Income - Three months and nine months
ended September 30, 1996 and 1995 2
Consolidated Statements of Stockholders' Equity - Nine months ended
September 30, 1996 and year ended December 31, 1995 3
Consolidated Statements of Cash Flows - Nine months ended September 30, 1996 and 1995 4
Notes to Consolidated Financial Statements - September 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>
SEPTEMBER 30, DECEMBER 31,
1996 1995
---- ----
ASSETS (UNAUDITED)
<S> <C> <C>
CASH AND DUE FROM BANKS $2,099,251 $1,866,249
------------ ------------
SECURITIES PURCHASED UNDER AGREEMENTS TO RESELL 1,084,000 1,035,000
------------ ------------
LOANS HELD FOR SALE ------- -------
------------ ------------
SECURITIES:
Held-to-maturity (market value: $15,763,474 and $14,566,501) 15,856,597 14,644,165
Available-for-sale (amortized cost: $27,981,724 and $15,006,743) 27,963,090 15,131,595
------------ ------------
Total investment securities 43,819,687 29,775,760
------------ ------------
FEDERAL HOME LOAN BANK STOCK 348,100 348,100
------------ ------------
LOANS:
Commercial 4,206,651 3,549,458
Commercial real estate 39,202,851 32,412,836
Residential real estate 22,572,630 23,657,622
Home equity lines of credit 3,412,249 3,671,892
Consumer 1,353,307 1,496,933
------------ ------------
70,747,688 64,788,741
Less - unearned discount 74,816 88,141
Allowance for possible loan losses 1,861,010 1,828,040
------------ ------------
Net loans 68,811,862 62,872,560
------------ ------------
OTHER REAL ESTATE OWNED 875,776 1,470,310
------------ ------------
PREMISES AND EQUIPMENT, net 1,688,698 1,816,893
------------ ------------
OTHER ASSETS 1,315,131 1,118,950
------------ ------------
TOTAL ASSETS $120,042,505 $100,303,822
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
DEPOSITS:
Demand $11,307,333 $12,483,433
Savings and money market accounts 23,091,955 24,191,981
Time deposits 58,776,236 52,915,128
------------ ------------
Total deposits 93,175,524 89,590,542
------------ ------------
SECURITIES SOLD UNDER AGREEMENTS TO REPURCHASE 10,833,000 --------
------------ ------------
ACCRUED EXPENSES AND OTHER LIABILITIES 847,290 677,059
------------ ------------
SENIOR DEBENTURE 2,939,200 2,844,632
------------ ------------
STOCKHOLDERS' EQUITY:
Common Stock, $ 1 par value
Authorized - 5,000,000 shares
Issued - 1,328,041 shares and 750,000 shares 1,328,041 750,000
Surplus 4,431,380 500,000
Retained earnings 6,646,210 6,013,638
Unrealized (loss) gain on securities available-for-sale, net of taxes (11,180) 74,911
------------ ------------
12,394,451 7,338,549
Less - Treasury stock, at cost, 66,800 shares 146,960 146,960
------------ ------------
Total stockholders' equity 12,247,491 7,191,589
------------ ------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $120,042,505 $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>
NINE MONTHS ENDED THREE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
------------ ------------
1996 1995 1996 1995
---- ---- ---- ----
(UNAUDITED)
<S> <C> <C> <C> <C>
INTEREST INCOME:
Interest and fees on loans $4,986,308 $4,433,167 $1,679,877 $1,532,686
Interest on investment securities -
U.S. Government and agency obligations 1,134,806 1,027,393 448,131 358,476
Collateralized mortgage obligations 98,234 121,633 39,301 39,073
Mortgage backed securities 32,198 ------ 32,198 ------
Marketable equity securities and other 13,410 960 5,930 330
Interest on cash equivalents 130,321 117,363 32,423 55,925
---------- ---------- ----------- -----------
Total interest income 6,395,277 5,700,516 2,237,860 1,986,490
---------- ---------- ----------- -----------
INTEREST EXPENSE:
Interest on deposits 2,794,146 2,508,899 960,119 904,538
Interest on repurchase agreements 23,150 ------ 23,150 ------
Interest on debenture 194,918 174,143 68,571 67,218
---------- ---------- ----------- -----------
Total interest expense 3,012,214 2,683,042 1,051,840 971,756
---------- ---------- ----------- -----------
Net interest income 3,383,063 3,017,474 1,186,020 1,014,734
PROVISION FOR POSSIBLE LOAN LOSSES 280,000 570,000 105,000 105,000
---------- ---------- ----------- -----------
Net interest income after provision for possible
loan losses 3,103,063 2,447,474 1,081,020 909,734
---------- ---------- ----------- -----------
NONINTEREST INCOME:
Service charges on deposits 227,815 214,170 77,832 74,153
Gain on loan sales 26,742 79,055 10,769 ------
Other 88,918 77,197 25,859 18,680
---------- ---------- ----------- -----------
Total noninterest income 343,475 370,422 114,460 92,833
---------- ---------- ----------- -----------
NONINTEREST EXPENSE:
Salaries and employee benefits 1,219,076 1,179,648 395,917 393,330
Occupancy expense 273,868 254,033 86,386 87,588
Equipment expense 155,230 155,366 52,164 45,757
Other real estate owned (gains) losses, and expenses 44,885 106,371 4,960 93,458
Computer services 123,461 108,210 41,097 37,578
Deposit insurance assessments (refund) 1,000 86,817 500 (5,205)
Other operating expenses 525,364 424,430 177,822 142,026
---------- ---------- ----------- -----------
Total noninterest expense 2,342,884 2,314,875 758,846 794,532
---------- ---------- ----------- -----------
Income before provision for income taxes 1,103,654 503,021 436,634 208,035
PROVISION FOR INCOME TAXES 374,912 159,790 154,486 73,144
---------- ---------- ----------- -----------
Net income $728,742 $343,231 $282,148 $134,891
========== ========== =========== ===========
Earnings per share $ 0.73 $ 0.47 $ 0.22 $ 0.19
========== ========== =========== ===========
Dividends declared per share $ 0.09 $ 0.055 $ 0.03 $ -----
========== ========== =========== ===========
Weighted average common and common stock
equivalent shares outstanding 992,381 728,623 1,261,241 728,453
========== ========== =========== ===========
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
(LOSS) GAIN
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) $6,559,160
Net income -------- -------- 517,777 --------- --------- 517,777
Dividends declared ($.11 per share) -------- -------- (75,152) --------- --------- (75,152)
Change in net unrealized (loss) gain
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 -------- -------- 728,742 --------- --------- 728,742
Dividends declared ($.09 per share) -------- -------- (96,170) --------- --------- (96,170)
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 3,973,124 ---------- --------- --------- 4,523,124
Change in net unrealized (loss) gain
on securities available-for-sale -------- -------- ---------- (86,091) --------- (86,091)
---------- ---------- ---------- --------- --------- -----------
Balance, September 30, 1996 $1,328,041 $4,431,380 $6,646,210 $(11,180) $(146,960) $12,247,491
========== ========== ========== ========= ========= ===========
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>
NINE MONTHS ENDED SEPTEMBER 30
------------------------------
1996 1995
---- ----
(UNAUDITED)
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $728,742 $343,231
Adjustments to reconcile net income to net cash provided by operating
activities:
Provision for possible loan losses 280,000 570,000
Depreciation and amortization 139,197 125,625
Accretion of discount on debenture 148,993 142,893
Net (accretion) amortization on investment securities held-to-maturity (5,899) 3,807
Net (accretion) on investment securities available-for-sale (100,864) (53,618)
(Gains) losses on sale of OREO (16,957) 62,377
Gain on sales of loans (26,742) (79,055)
Proceeds from sales of loans 890,652 1,002,982
Loans originated for sale (821,250) (908,515)
Net (decrease) increase in unearned discount (13,325) 10,738
Net (increase) in other assets (138,788) (106,937)
Net increase in deferred loan fees 11,230 30,957
Net increase in accrued expenses and other liabilities 77,969 20,860
---------- ----------
Net cash provided by operating activities 1,152,958 1,165,345
---------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of Federal Home Loan Bank stock ---------- ----------
Proceeds from maturities of investment securities held-to-maturity 7,287,431 5,301,764
Proceeds from maturities of investment securities available-for-sale 22,950,000 17,645,000
Purchase of investment securities held-to-maturity (8,488,413) (6,054,726)
Purchase of investment securities available-for-sale (35,829,666) (18,726,324)
Net (increase) in loans (6,411,467) (5,263,718)
Purchase of premises and equipment (11,002) (76,789)
Sales of OREO 763,091 470,402
---------- ----------
Net cash used in investing activities (19,740,026) (6,704,391)
---------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net (decrease) in demand accounts (1,176,100) (513,555)
Net (decrease) in savings and money market accounts (1,100,026) (7,346,019)
Net increase in time deposits 5,861,108 13,012,758
Net increase in securities sold under agreements to repurchase 10,833,000 ----------
Net proceeds on issuance of common stock 4,523,124 ----------
Exercise of stock options (13,703) ----------
Dividends paid (58,333) (37,576)
---------- ----------
Net cash provided by financing activities 18,869,070 5,115,608
---------- ----------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 282,002 (423,438)
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 2,901,249 4,807,584
---------- ----------
CASH AND CASH EQUIVALENTS, END OF PERIOD $3,183,251 $4,384,146
========== ==========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Interest paid $2,758,856 $2,614,442
========== ==========
Income taxes paid $ 245,750 $218,933
========== ==========
SUPPLEMENTAL DISCLOSURE OF NONCASH TRANSACTIONS:
Transfer of loans to OREO $151,600 $809,748
======== ========
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 NINE MONTHS
ENDED SEPTEMBER 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 nine months ended September 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 $520,376 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 August 19, 1996 the Company declared dividends of $37,837 or $.03 per share
to all common stockholders of record on September 16, 1996, payable on October
1, 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, securities
sold under agreements to repurchase 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 $19,738,683 or 19.7% to $120,042,505 at September 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 $4,523,124. The Company leveraged to some extent, the net proceeds
of the public offering through the execution of securities sold under agreements
to repurchase in the amount of $10,833,000. The motivation behind this
transaction was to leverage the Company's capital position with the intent to
ultimately increase the Company's return on Stockholders' Equity. The net
proceeds of the public offering and subsequent increase in Securities Sold Under
Agreements to Repurchase were used primarily to fund a $14,325,929 increase in
Securities, Cash and Cash Equivalents which grew to $47,002,938 at September 30,
1996 from $32,677,009 at December 31, 1995. The growth in total assets was also
assisted by an increase in total deposits of $3,584,982. The increase in
deposits was used to fund the growth of the loan portfolio which increased
$5,958,947 or 9.2% to $70,747,688 at September 30, 1996, from $64,788,741 at
December 31, 1995.
6
For the three months ended September 30, 1996, the Company reported net income
of $282,148 compared to net income of $134,891 for the three months ended
September 30, 1995. Fully diluted net income per share for the quarter ended
September 30, 1996 was $.22, as compared to $.19 per share for the same three
month period of the prior year. Net income for the nine months ended September
30, 1996 amounted to $728,742 compared to net income of $343,231 for the nine
months ended September 30, 1995.
Fully diluted net income per share for the nine months ended September 30, 1996
was $.73, an increase of 55.3% from $.47 per share for the nine months ended
September 30, 1995.
The Company's improved earnings performance for the three months and nine months
ended September 30, 1996 as compared to the three months and nine months ended
September 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.
The $10,833,000 increase in Securities Sold Under Agreements to Repurchase and
related increase in the Company's securities portfolio specifically, Mortgage
Backed Securities, took place in the latter part of September 1996 and,
threfore, had an insignificant impact on the Company's results of operations for
the three months and nine months ended September 30, 1996.
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
NINE MONTHS ENDED YEAR ENDED
SEPTEMBER 30, DECEMBER 31,
------------- ------------
1996 1995 1995
---- ---- ----
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Nonperforming loans $ 358 $ 686 $ 536
Other real estate owned $ 876 $1,222 $1,470
Total nonperforming assets $ 1,234 $1,908 $2,006
Loans 30-89 days delinquent $ 815 $ 485 $ 266
Nonperforming assets to total assets 1.08% 2.07% 2.11%
Nonperforming loans to total loans 0.55% 1.24% 0.91%
Net loan charge-offs to average loans
(not annualized) 0.08% 1.01% 1.01%
Allowance for possible loan losses to total loans 1.68% 1.43% 1.47%
Allowance for possible loan losses
to nonperforming loans 305.72% 116.04% 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>
NINE MONTHS ENDED THREE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
------------- -------------
1996 1995 1996 1995
---- ---- ---- ----
<S> <C> <C> <C> <C>
Bank Reserve:
Balance at beginning of period $861,693 $764,106 $988,345 $720,728
Provision 280,000 570,000 105,000 105,000
Loan charge-offs (63,064) (586,231) ------- (38,548)
Recoveries 16,328 48,436 1,612 9,131
---------- ---------- ---------- ----------
Balance at end of period 1,094,957 796,311 1,094,957 796,311
---------- ---------- ---------- ----------
Acquired Reserve:
Balance at beginning of period 966,347 1,493,201 767,958 1,267,821
Loan charge-offs (205,289) (228,670) -------- -------
Recoveries 4,995 1,673 (1,905) (1,617)
---------- ---------- ---------- ----------
766,053 1,266,204 766,053 1,266,204
---------- ---------- ---------- ----------
Total Reserve $1,861,010 $2,062,515 $1,861,010 $2,062,515
========== ========== ========== ==========
</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
September 30, 1996, the remaining balance of acquired loans was $5,395,532.
The Company continually assesses its delinquency position, 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 September 30, 1996, loans 30-89 days delinquent amounted to $814,971 as
compared to $485,447 at September 30, 1995 and $266,488 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 September 30,
1996 is typical of a $71 million loan portfolio.
DEPOSITS AND SECURITIES SOLD UNDER AGREEMENTS TO REPURCHASE
Total deposits increased $3,584,982 during the nine months ended September 30,
1996 from $89,590,542 at December 31, 1995, to $93,175,524 at September 30,
1996, despite the withdrawal of approximately $1,900,000 of volatile state
demand deposits. At September 30, 1996, the Company held state and municipal
demand deposits of $1,114,933. Savings and money market accounts decreased
$1,100,026 during the nine months ended September 30, 1996, while time deposits
increased $5,861,108 during the same period.
8
During September 1996 the Company executed $10,833,000 in Securities Sold Under
Agreements to Repurchase. At September 30, 1996, these Agreements range in
maturity from 30 days to 3 years with a weighted average life of 1.2 years and a
weighted average stated rate of 5.92%. The proceeds from these Agreements were
used to purchase mortgage backed securities.
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
$3,383,063 for the nine months ended September 30, 1996, compared to $3,017,474
for the nine months ended September 30, 1995. This increase was the result of an
increase in interest earning assets along with an increase in net interest
margin.
9
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>
NINE MONTHS ENDED SEPTEMBER 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 $67,384 $4,986 9.87% $60,417 $4,433 9.78%
Investment securities taxable - AFS 15,112 697 6.15 13,058 526 5.37
Investment securities taxable - HTM 13,592 570 5.59 14,274 624 5.83
Securities purchased under agreement to
resell 3,485 130 4.97 2,953 118 5.33
Federal Home Loan Bank Stock 348 12 4.60 ----- ----- -----
------- ------ ---- ------- ------ -----
TOTAL INTEREST-EARNING ASSETS 99,921 6,395 8.53 90,702 5,701 8.38
NONINTEREST-EARNING ASSETS:
Cash and due from banks 1,892 2,169
Premises and equipment 1,761 1,810
Other real estate owned 1,174 1,153
Allowance for possible loan losses (1,624) (2,109)
Other assets 874 862
------- -------
TOTAL NONINTEREST-EARNING ASSETS 4,077 3,885
------- ------
TOTAL ASSETS $103,998 $94,587
======== =======
INTEREST - BEARING LIABILITIES:
Deposits:
Interest bearing demand and NOW
deposits $2,493 36 1.93% $2,734 44 2.15
Savings deposits 19,558 390 2.66 22,955 450 2.61
Money market deposits 1,651 30 2.42 2,236 44 2.62
Time deposits 56,256 2,338 5.54 43,834 1,970 5.99
Securities sold under agreements to
repurchase 474 23 6.47 ----- ----- -----
Senior debenture 2,890 195 9.00 2,806 175 8.31
------- ----- ------ ------ ----- ----
TOTAL INTEREST-BEARING LIABILITIES 83,322 3,012 4.82 74,565 2,683 4.80
----- ------ ----- ----
NONINTEREST-BEARING LIABILITIES:
Noninterest-bearing deposits 10,358 12,676
Other liabilities 598 466
------- ------
TOTAL NONINTEREST-BEARING LIABILITIES 10,956 13,142
STOCKHOLDERS' EQUITY 9,720 6,880
------- ------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $103,998 $94,587
======== =======
NET INTEREST INCOME $3,383 $3,018
====== ======
NET INTEREST SPREAD 3.71% 3.58%
==== ====
NET INTEREST MARGIN 4.51% 4.44%
==== ====
</TABLE>
Total interest income for the three months ended September 30, 1996 was
$2,237,860, compared to $1,986,490 for the same three month period of the prior
year. This increase of $251,370 is primarily the result of a $12,571,000
increase in quarterly average interest-earning assets. The quarterly yield on
interest-earning assets declined .09%. Total interest income for the nine months
ended September 30, 1996 was $6,395,277, compared to $5,700,516 for the nine
months ended September 30, 1995. This increase of $694,761 or 12.2%, is
primarily attributed to a $9.2 million increase in average interest-earning
assets to $99.9 million from $90.7 million and a .15% increase in yield on
interest-earning assets. The increase in yield is primarily the result of a
shift in the interest-earning asset mix to higher yielding loans. Of the $9.2
million increase in average
10
interest-earning assets, nearly $7.0 million took place in loans. For the nine
months ended September 30, 1996, the average balance of outstanding loans
approximated 67.4% of average interest-earning assets as compared to 66.6% for
the nine months ended September 30, 1995.
Total interest expense for the three months ended September 30, 1996 was
$1,051,840, compared to $971,756 for the same period of the prior year. This
increase of $80,084 or 8.2% is related to a $13,467,000 increase in quarterly
average interest-bearing liabilities, offset somewhat by a .44% decline in
quarterly average cost of funds primarily attributed to a general decline in the
short-term interest rate environment. For the nine months ended September 30,
1996 total interest expense was $3,012,214 as compared to $2,683,042 for the
same nine month period of 1995. This increase of $329,172 or 12.3% is solely
attributable to $8.8 million increase in average interest-bearing liabilities to
$83.3 million for the nine months ended September 30, 1996, compared to $74.6
million for the same nine month period of the prior year.
PROVISION FOR POSSIBLE LOAN LOSSES
The provision for possible loan losses totaled $105,000 for the three months
ended September 30, 1996 and 1995. For the nine months ended September 30, 1996
and 1995, the provision for possible loan losses amounted to $280,000 and
$570,000, respectively. The decrease in the provision for the nine months ended
September 30, 1996 as compared to the same period 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 increased $21,627 or 23.3% to $114,460 from $92,833
during the three months ended September 30, 1996 and 1995, respectively. Total
noninterest income decreased $26,947 to $343,475 from $370,422 for the nine
months ended September 30, 1996 compared to the nine months ended September 30,
1995, respectively. The decrease for the nine month period is attributable to a
$52,313 decrease in gain on loan sales.
NONINTEREST EXPENSE
Total noninterest expense amounted to $758,846 and $794,532 for the three months
ended September 30, 1996 and 1995, respectively. Of these amounts, deposit
insurance assessments amounted to $500 for the three months ended September 30,
l996 compared to a refund of $5,205 for the three months ended September 30,
1995. The refund is the result of a reduction in insurance premium assessments
imposed by the Federal Deposit Insurance Corporation. Also, carrying and
disposition costs associated with the Company's portfolio of foreclosed
properties decreased to $4,960 for the three months ended September 30, 1996,
compared to $93,458 for the same three month period of 1995. This decrease was
primarily the result of a decrease in foreclosed properties. Other operating
expenses increased $35,796 to $177,822 for the three months ended September 30,
1996 from $142,026 for the three months ended September 30, 1995. This increase
is primarily the result of increased spending on advertising, public relations
and legal and professional costs.
11
For the nine months ended September 30, 1996, total noninterest expense
increased $28,009 or 1.2% to $2,342,884 from $2,314,875 for the same nine month
period in 1995. This increase is largely attributed to a decrease of $85,817 in
FDIC deposit insurance assessments and a decrease of $61,486 in net costs for
carrying and disposing of foreclosed properties offset by: (i) a $39,428
increase in salaries and benefits primarily attributed to the adoption of a
Supplemental Executive Retirement Plan at the end of 1995, (ii) a $19,835
increase in occupancy expense principally due to higher maintenance costs, (iii)
a $15,251 increase in computer servicing fees, and (iv) a $100,934 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 September 30, 1996 were 35.4% of pretax
income, compared to 35.2% of pretax income for the three months ended September
30, 1995. For the nine months ended September 30, 1996 and 1995, the effective
tax rates are 34.0% and 31.8%, respectively. The distortion in effective rates
was the result of the reversal of $12,000 in excess tax reserves during the
second quarter of 1995.
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, 1996:
REGULATORY
MINIMUM (2) ACTUAL
----------- ------
The Company (1)
Risk-based:
Tier 1 4.00% 15.59%
Totals 8.00 16.84
Leverage 3.00 9.96
The Bank
Risk-based:
Tier 1 4.00% 14.38%
Totals 8.00 15.63
Leverage 3.00 9.47
- -----------
(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 June 30, 1996, the most recent date for which this information is available,
the Company's one year static gap position was a negative $7,810,000 or 7.2% 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 September 30, 1996,
the Company had $31,146,341, or 25.9% 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 $6,962,O00 at September 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
Not applicable.
13
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.
October 31, 1996 /s/ Patrick J. Shanahan, Jr.
- ---------------------------------- -------------------------------------
Date Patrick J. Shanahan, Jr.
President and Chief Executive Officer
October 31, 1996 /s/ John A. Macomber
- ---------------------------------- -------------------------------------
Date John A. Macomber
Vice President, Treasurer
and Chief Financial Officer
15
EXHIBIT 11 - COMPUTATION OF PER SHARE EARNINGS
NINE MONTHS ENDED THREE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
----------------- ------------------
1996 1995 1996 1995
---- ---- ---- ----
Average shares outstanding 978,549 683,200 1,261,241 683,200
Average dilutive option shares 13,832 45,423 ------- 45,253
-------- -------- -------- -------
Total average shares 992,381 728,623 1,261,241 728,453
======== ======== ======== =======
Net income $728,742 $343,231 $282,148 $134,891
======== ======== ======== =======
Earnings per share $ 0.73 $ 0.47 $ 0.22 $ 0.19
======== ======== ======== =======
16
<TABLE> <S> <C>
<ARTICLE> 9
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> SEP-30-1996
<CASH> 2,099,251
<INT-BEARING-DEPOSITS> 0
<FED-FUNDS-SOLD> 1,084,000
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 27,963,090
<INVESTMENTS-CARRYING> 15,856,597
<INVESTMENTS-MARKET> 15,763,474
<LOANS> 70,672,872
<ALLOWANCE> 1,861,010
<TOTAL-ASSETS> 120,042,505
<DEPOSITS> 93,175,524
<SHORT-TERM> 10,833,000
<LIABILITIES-OTHER> 847,290
<LONG-TERM> 2,939,200
0
0
<COMMON> 1,328,041
<OTHER-SE> 10,919,450
<TOTAL-LIABILITIES-AND-EQUITY> 120,042,505
<INTEREST-LOAN> 1,679,877
<INTEREST-INVEST> 557,983
<INTEREST-OTHER> 0
<INTEREST-TOTAL> 2,237,860
<INTEREST-DEPOSIT> 960,119
<INTEREST-EXPENSE> 1,051,840
<INTEREST-INCOME-NET> 1,186,020
<LOAN-LOSSES> 105,000
<SECURITIES-GAINS> 0
<EXPENSE-OTHER> 758,846
<INCOME-PRETAX> 436,634
<INCOME-PRE-EXTRAORDINARY> 436,634
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 282,148
<EPS-PRIMARY> 0.22
<EPS-DILUTED> 0.22
<YIELD-ACTUAL> 4.45
<LOANS-NON> 358,152
<LOANS-PAST> 0
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 1,598,579
<ALLOWANCE-OPEN> 1,756,303
<CHARGE-OFFS> 0
<RECOVERIES> (293)
<ALLOWANCE-CLOSE> 1,861,010
<ALLOWANCE-DOMESTIC> 1,861,010
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
