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 March 31, 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 l5(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 June 24, 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 - March 31, 1996 and December 31, 1995................................................1
Consolidated Statements of Income - Three months ended March 31, 1996 and 1995....................................2
Consolidated Statements of Stockholders' Equity - Three months ended
March 31, 1996 and year ended December 31, 1995..................................................................3
Consolidated Statements of Cash Flows - Three months ended March 31, 1996 and 1995................................4
Notes to Consolidated Financial Statements - March 31, 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.......................................................................................ll
Item 2 - Changes in Securities...................................................................................ll
Item 3 - Defaults Upon Senior Securities.........................................................................11
Item 4 - Submission of Matters to a Vote of Security Holders.....................................................11
Item 5 - Other Information.......................................................................................11
Item 6 - Exhibits and Reports on Form 8-K........................................................................12
SIGNATURES.......................................................................................................13
EXHIBITS
Computation of per share earnings - Exhibit 11.............................................................14
Financial Data Schedule - Exhibit 27.......................................................................15
</TABLE>
PART I - FINANCIAL INFORMATION
ITEM 1 - FINANCIAL STATEMENTS
FIRST FINANCIAL CORP. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
1996 1995
---- ----
ASSETS (Unaudited)
<S> <C> <C>
CASH AND DUE FROM BANKS $1,733,183 $1,866,249
----------- ------------
SECURITIES PURCHASED UNDER AGREEMENTS TO RESELL 3,609,000 1,035,000
----------- ------------
SECURITIES:
Held-to-maturity (market value: $11,321,190 and $14,566,501) 11,400,521 14,644,165
Available-for sale (amortized cost: $13,007,273 and $15,006,743) 13,081,620 15,131,595
----------- ------------
Total investment securities 24,482,141 29,775,760
----------- ------------
FEDERAL HOME LOAN BANK STOCK 348,100 348,100
----------- ------------
LOANS:
Commercial 3,764,709 3,549,458
Commercial real estate 34,940,114 32,412,836
Residential real estate 23,364,111 23,657,622
Home equity lines of credit 3,461,822 3,671,892
Consumer 1,556,063 1,496,933
----------- ------------
67,086,819 64,788,741
Less - Unearned discount 76,794 88,141
Allowance for possible loan losses 1,757,797 1,828,040
----------- ------------
Net loans 65,252,228 62,872,560
----------- ------------
OTHER REAL ESTATE OWNED 1,265,310 1,470,310
----------- ------------
PREMISES AND EQUIPMENT, net 1,781,502 1,816,893
----------- ------------
OTHER ASSETS 1,288,594 1,118,950
----------- ------------
TOTAL ASSETS $99,760,058 $100,303,822
=========== ============
LIABILITIES AND STOCKHOLDERS' EQUITY
DEPOSITS:
Demand $9,663,318 $12,483,433
Savings and money market accounts 23,914,312 24,191,981
Time deposits 55,262,373 52,915,128
----------- ------------
Total deposits 88,840,003 89,590,542
----------- ------------
ACCRUED EXPENSES AND OTHER LIABILITIES 672,452 677,059
----------- ------------
SENIOR DEBENTURE, net of Unamortized discount
of $93,274 and $155,368 2,906,726 2,844,632
----------- ------------
STOCKHOLDERS' EQUITY
Common Stock, $1 par value
Authorized- 5,000,000 shares
Issued- 750,000 shares 750,000 750,000
Surplus 500,000 500,000
Retained earnings 6,193,230 6,013,638
Unrealized gain on securities available-for-sale, net of taxes 44,607 74,911
----------- ------------
7,487,837 7,338,549
Less - Treasury stock, at cost, 66,800 shares 146,960 146,960
----------- ------------
Total stockholders' equity 7,340,877 7,191,589
----------- ------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $99,760,058 $100,303,822
=========== ============
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
1
FIRST FINANCIAL CORP. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
---------
1996 1995
---- ----
(UNAUDITED)
<S> <C> <C>
INTEREST INCOME:
Interest and fees on loans $1,621,750 $1,452,286
Interest on investment securities -
U.S. Government and agency obligations 332,363 319,015
Collateralized mortgage obligations 26,925 38,075
Marketable equity securities and other 1,638 300
Interest on cash equivalents 40,571 34,558
---------- ----------
Total interest income 2,023,247 1,844,234
---------- ----------
INTEREST EXPENSE:
Interest on deposits 908,131 766,868
Interest on debenture 62,094 45,741
---------- ----------
Total interest expense 970,225 812,609
---------- ----------
Net interest income 1,053,022 1,031,625
PROVISION FOR POSSIBLE LOAN LOSSES 70,000 105,000
---------- ----------
Net interest income after provision for possible loan losses 983,022 926,625
---------- ----------
NONINTEREST INCOME:
Service charges on deposits 75,165 67,184
Gain on loan sales -------- ---------
Other 36,656 42,343
---------- ----------
Total noninterest income 111,821 109,527
---------- ----------
NONINTEREST EXPENSE:
Salaries and employee benefits 419,933 389,925
Occupancy expense 99,416 83,036
Equipment expense 51,526 54,134
Other real estate owned (gains) losses, and expenses 28,089 (9,369)
Computer services 41,890 35,310
Deposit insurance assessments -------- 46,011
Other operating expenses 167,014 148,034
---------- ----------
Total noninterest expense 807,868 747,081
---------- ----------
Income before provision for income taxes 286,975 289,071
PROVISION FOR INCOME TAXES 86,887 100,448
---------- ----------
Net income $200,088 $188,623
========== ==========
Earnings per share $ 0.28 $ 0.26
========== ==========
Dividends paid per share $ 0.03 $ -------
========== ==========
Weighted average common and common stock equivalent shares outstanding 711,483 728,215
========== ==========
</TABLE>
The accompanying notes are an integral part of
these consolidated financial statements.
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 ----------- ----------- 200,088 ------------- ------------- 200,088
Dividends ($.03 per share) ----------- ----------- (20,496) ------------- ------------- (20,496)
Change in net unrealized gain (loss)
on securities available-for-sale ----------- ----------- -------------- (30,304) ------------- (30,304)
----------- ----------- -------------- ------------- ------------- ----------
Balance, March 31, 1996 $750,000 $500,000 $6,193,230 $44,607 $(146,960) $7,340,877
=========== =========== ============== ============= ============= ==========
</TABLE>
The accompanying notes are an integral part of
these consolidated financial statements.
3
FIRST FINANCIAL CORP. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 31,
----------------------------
1996 1995
---- ----
(UNAUDITED)
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $200,088 $188,623
Adjustments to reconcile net income to net cash provided by operating
activities:
Provision for possible loan losses 70,000 105,000
Depreciation and amortization 46,363 40,646
Losses (gains) on sale of OREO (8,384) (22,561)
Gain on sales of loans --------- ---------
Proceeds from sales of loans 219,683 905,305
Loans originated for sale (203,710) (826,250)
Net (accretion) amortization on investment securities held-to-maturity (1,057) 2,059
Net (accretion) on investment securities available-for-sale (16,161) (13,291)
Net (decrease) increase in unearned discount (11,347) 1,088
Net (increase) decrease in other assets (169,644) 45,823
Accretion of discount on debenture 62,094 45,741
Net (decrease) increase in deferred loan fees (5,630) (2,783)
Net increase (decrease) in accrued expenses and other liabilities 15,595 163,582
---------- ----------
Net cash provided by operating activities 197,890 632,982
---------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of Federal Home Loan Bank stock ---------- ---------
Proceeds from maturities of investment securities held-to-maturity 6,247,088 169,436
Proceeds from maturities of investment securities available-for-sale 5,900,000 6,600,000
Purchase of investment securities held-to-maturity (1,998,202) (1,644,895)
Purchase of investment securities available-for-sale (4,888,555) (5,486,446)
Net increase in loans (2,451,664) (1,134,866)
Purchase of premises and equipment (10,972) (27,488)
Sales of OREO 216,384 132,561
---------- ----------
Net cash provided by (used in) investing activities 3,014,079 (1,391,698)
---------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net (decrease) increase in demand accounts (2,820,115) (792,216)
Net (decrease) increase in savings and money market accounts (277,669) (2,527,923)
Net increase in time deposits 2,347,245 4,058,502
Dividends paid (20,496) -----------
---------- ----------
Net cash (used in) provided by financing activities (771,035) 738,363
---------- ----------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 2,440,934 (20,353)
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 2,901,249 4,807,584
---------- ----------
CASH AND CASH EQUIVALENTS, END OF PERIOD $5,342,183 $4,787,231
========== ==========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Interest paid $879,371 $723,267
========== ==========
Income taxes paid $82,750 $21,250
========== ==========
SUPPLEMENTAL DISCLOSURE OF NONCASH TRANSACTIONS:
Transfer of loans to OREO $3,000 $231,169
========== ==========
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
4
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE PERIOD ENDED MARCH 31, 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 ended March 31, 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 20, 1996 the Company declared dividends of $37,837 or $.03 per
share to all common stockholders of record on June 17, 1996. The
dividend is to be paid 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 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 decreased $543,764 or 0.5% from $100,303,822 at December 31, 1995
to $99,760,058 at March 31, 1996. The loan portfolio increased $2,298,078 or
3.6% from $64,788,741 at December 31, 1995 to $67,086,819 at March 31, 1996. The
loan growth was primarily funded from Securities and Cash and Cash Equivalents
which decreased $2,852,685 from $32,677,009 at December 31, 1995 to $29,824,324
at March 31, 1996. Total deposits decreased $750,539 from $89,590,542 at
December 31, 1995 to $88,840,003 at March 31, 1996.
For the three months ended March 31, 1996, the Company reported net income of
$200,088 compared to net income of $188,623 for the three months ended March 31,
1995, or an increase of 6.1%. Fully diluted net income per share for the quarter
ended March 31, 1996 was $.28, an increase of 7.7% from $.26 per share in the
first quarter of 1995.
The Company's improved earnings performance resulted from (i) increased loan
originations and (ii) improvement in asset quality reflected by decreases in
nonperforming loans, nonperforming assets, delinquent loans, net loan
charge-offs, and increases in the percentage of the allowance for possible loan
losses to total loans and to nonperforming loans.
6
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
THREE MONTHS ENDED YEAR ENDED
MARCH 31, DECEMBER 31,
--------- ------------
1996 1995 1995
---- ---- ----
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Nonperforming loans $ 515 $ 787 $ 536
Other real estate owned $1,265 $1,066 $1,470
Total nonperforming assets $1,780 $1,853 $2,006
Loans 30-89 days delinquent $ 250 $1,050 $ 266
Nonperforming assets to total assets 1.78% 1.97% 2.11%
Nonperforming loans to total loans 0.77% 1.33% 0.91%
Net loan charge-offs to average loans 0.08% 0.32% 1.01%
Allowance for possible loan losses to total loans 1.45% 1.35% 1.47%
Allowance for possible loan losses
to nonperforming loans 172.06% 89.15% 160.63%
</TABLE>
The following represents the activity in the allowance for possible loan losses
for the three months ended March 31, 1996:
<TABLE>
<CAPTION>
BANK ACQUIRED TOTAL
---- -------- -----
<S> <C> <C> <C>
Balance at December 31, 1995 $861,693 $966,347 $1,828,040
Provision for Possible loan losses 70,000 -------- 70,000
Charge-offs (47,130) (98,481) (145,611)
Recoveries 978 4,390 5,368
-------- -------- ----------
Balance at March 31, 1996 $885,541 $872,256 $1,757,797
======== ======== ==========
</TABLE>
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.
DEPOSITS
Total deposits decreased $750,539 during the three months ended March 31, 1996
from $89,590,542 at December 31, 1995, to $88,840,003 at March 31, 1996,
primarily due to approximately $1,900,000 of volatile state and municipal demand
deposits being withdrawn from the Company. At March 31, 1996 the Company held
state and municipal demand deposits of $387,212. Savings and money market
accounts remained relatively flat during the three months ended March 31, 1996,
while time deposits increased $2,347,255 during the same period.
7
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
$1,053,022 at March 31, 1996, compared to $1,031,625 for the first quarter of
1995. This increase was the result of an increase in interest earning assets
which was partially offset by a decrease 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>
THREE MONTHS ENDED MARCH 31,
----------------------------
1996 1995
---- ----
INTEREST AVERAGE INCREASE 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 $65,773 $1,621 9.86% $59,660 $1,452 9.74%
Investment securities taxable - AFS 12,169 191 6.28 12,536 164 5.23
Investment securities taxable - HTM 12,667 169 5.34 14,247 194 5.45
Securities purchased under agreement to
resell 3,260 41 5.03 2,661 34 5.11
Federal Home Loan Bank Stock 348 1 1.15 ------- ------- -----
------- ------ ---- ------- ------ ----
TOTAL INTEREST-EARNING ASSETS 94,217 2,023 8.59 89,104 1,844 8.28
------ ---- ------ ----
NONINTEREST-EARNING ASSETS:
Cash and due from banks 1,827 2,238
Premises and equipment 1,805 1,828
Other real estate owned 1,391 963
Allowance for possible loan losses (1,858) (2,282)
Other assets 1,021 789
------- -------
TOTAL NONINTEREST-EARNING ASSETS 4,186 3,536
------- -------
TOTAL ASSETS $98,403 $92,640
======= =======
INTEREST BEARING LIABILITIES:
Deposits:
Interest bearing demand and NOW
deposits $2,414 12 1.99 $2,963 16 2.16
Savings deposits 19,626 129 2.63 25,266 164 2.60
Money market deposits 1,754 10 2.28 2,521 17 2.70
Time deposits 52,890 757 5.73 40,913 570 5.57
Senior debenture 2,876 62 8.62 2,759 46 6.66
------- ------ ---- ------- ------ ----
TOTAL INTEREST-BEARING LIABILITIES 79,560 970 4.88 74,422 813 4.37
------ ---- ------ ----
NONINTEREST-BEARING LIABILITIES:
Noninterest-bearing deposits 10,943 11,073
Other liabilities 632 448
------- -------
TOTAL NONINTEREST-BEARING LIABILITIES 11,575 11,521
STOCKHOLDERS' EQUITY 7,268 6,697
------- -------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $98,403 $92,640
======= =======
NET INTEREST INCOME $1,053 $1,031
====== ======
NET INTEREST SPREAD 3.71% 3.91%
==== ====
NET INTEREST MARGIN 4.47% 4.63%
==== ====
</TABLE>
8
Total interest income for the three months ended March 31, 1996 was $2,023,247,
compared to $1,844,234 for the same period of the prior year. This increase of
$179,013, or 9.7%, was attributable primarily to a $5,113,000, or 5.7% increase
in average interest-earning assets, which included a $6,113,000, or 10.2%
increase in average loan balances. This increase in higher yielding average loan
balances, combined with an increase in investment securities' yields, resulted
in an overall increase of .31% in the yield on interest-earning assets. Yields
on investment securities increased primarily as a result of the relatively short
duration of the portfolio and the ability to reinvest or reprice in a rising
rate environment.
Total interest expense for the three months ended March 31, 1996 was $970,225,
compared to $812,609 for the same period of the prior year. This increase of
$157,616, or 19.4%, was due primarily to an increase of .51% in average cost of
funds, and a $5,138,000 increase in interest-bearing liabilities. The increase
in the average 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 $70,000 for the three months
ended March 31, 1996, as compared to $105,000 during the same period of the
prior year. The decrease in the provision reflects the improvement in the
Company's asset quality.
NONINTEREST INCOME
Total noninterest income totaled $111,821 for the three months ended March 31,
1996 as compared to $109,527 during the same period of the prior year. Service
charges on deposits increased $7,981 primarily due to increased volumes in
transaction accounts.
NONINTEREST EXPENSE
Total noninterest expense increased $60,787 or 8.1% to $807,868 from $747,081
during the three month period ended March 31, 1996 and March 31, 1995,
respectively.
Salaries and employee benefits increased $30,008 from $389,925 to $419,933. This
increase is primarily attributed to the adoption of a Supplemental Executive
Retirement Plan at the end of 1995 and the addition of a commercial loan officer
at the end of the first quarter of 1995. Occupancy expense increased $16,380
mainly due to abnormally high snow removal costs during the three months ended
March 31, 1996. Carrying and disposition costs associated with a larger OREO
portfolio accounts for the $37,458 increase in OREO expenses. Deposit insurance
premiums paid to the FDIC decreased $46,011 as a result of the reduction in
deposit assessments. Other operating expenses increased $18,980 due to increased
focus on marketing, advertising and public relations.
INCOME TAXES
Income taxes for the three months ended March 31, 1996 were 30.3% of pretax
income, compared to 34.7% for the comparable period of 1995. The lower effective
tax rate was the result of the reversal of excess federal tax reserves.
9
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 March 31,
1996:
<TABLE>
<CAPTION>
REGULATORY
MINIMUM (2) ACTUAL
----------- ------
<S> <C> <C>
The Company (1)
Risk-based:
Tier 1 4.00% 10.17%
Totals 8.00 11.42
Leverage 3.00 7.08
The Bank
Risk-based:
Tier 1 4.00% 14.97%
Totals 8.00 16.22
Leverage 3.00 10.46
</TABLE>
- -------------------
(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.
10
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 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 March 31, 1996, the
Company had $18,423,803, or 18.4% 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 $4,525,300 at March 31, 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.
ITEM 5 - OTHER INFORMATION
Not applicable.
11
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
12
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.
June 24, 1996 \s\ Patrick J. Shanahan, Jr.
- ------------- ----------------------------------------------
Date Patrick J. Shanahan, Jr.
President and Chief Executive Officer
June 24, 1996 \s\ John A. Macomber
- ------------- ----------------------------------------------
Date John A. Macomber
Vice President, Treasurer
and Chief Financial Officer
13
EXHIBITS
Computation of per share earnings - Exhibit 11
THREE MONTHS ENDED
MARCH 31,
---------
1996 1995
---- ----
Average shares outstanding 683,200 683,200
Average dilutive option shares 28,283 45,015
-------- --------
Total average shares 711,483 728,215
======== ========
Net income $200,088 $188,623
======== ========
Earnings per share $ 0.28 $ 0.26
======== ========
14
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<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> MAR-31-1996
<CASH> 1,733,183
<INT-BEARING-DEPOSITS> 0
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0
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<INCOME-PRETAX> 286,975
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<EPS-PRIMARY> 0.28
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<LOANS-NON> 498,084
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