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, 1997 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.
X Yes No
- -------- -------
At July 31, 1997, 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>
<CAPTION>
PAGE
<S> <C>
PART I - FINANCIAL INFORMATION
Item 1 - Financial Statements ......................................................... 1
Consolidated Balance Sheets - June 30, 1997 and December 31, 1996 .................... 1
Consolidated Statements of Income - Three months and six months ended June 30, 1997 and
1996 ............................................................................. 2
Consolidated Statements of Stockholders' Equity - Six months ended
June 30, 1997 and year ended December 31, 1996 ................................... 3
Consolidated Statements of Cash Flows - Six months ended June 30, 1997 and 1996 ....... 4
Notes to Consolidated Financial Statements - June 30, 1997 ............................ 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,
1997 1996
---- ----
(UNAUDITED)
<S> <C> <C>
ASSETS
CASH AND DUE FROM BANKS ............................................ $ 3,575,697 $ 1,988,713
SECURITIES PURCHASED UNDER AGREEMENTS TO RESELL .................... 1,478,000 2,376,000
LOANS HELD FOR SALE ................................................ -- 160,000
SECURITIES:
Held-to-maturity (market value: $11,642,824 and $13,747,464) ... 11,664,939 13,780,519
Available-for sale (amortized cost: $25,847,636 and $28,354,439) 25,940,510 28,411,326
------------ ------------
Total investment securities ............................ 37,605,449 42,191,845
FEDERAL HOME LOAN BANK STOCK ....................................... 447,700 348,100
LOANS:
Commercial ..................................................... 6,007,343 5,074,679
Commercial real estate ......................................... 43,716,764 40,225,717
Residential real estate ........................................ 22,187,439 22,978,397
Home equity lines of credit .................................... 2,979,470 3,088,134
Consumer ....................................................... 1,002,461 1,236,216
------------ ------------
75,893,477 72,603,143
Less - Unearned discount ....................................... 64,127 66,716
Allowance for possible loan losses ............................. 1,914,019 1,942,457
------------ ------------
Net loans .............................................. 73,915,331 70,593,970
OTHER REAL ESTATE OWNED ............................................ 537,190 675,607
PREMISES AND EQUIPMENT, net ........................................ 2,191,110 1,645,280
OTHER ASSETS ....................................................... 1,696,184 1,433,485
------------ ------------
TOTAL ASSETS ....................................................... $121,446,661 $121,413,000
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
DEPOSITS:
Demand .......................................................... $ 11,371,160 $ 11,270,046
Savings and money market accounts ............................... 23,051,726 22,749,700
Time deposits ................................................... 59,040,517 59,856,363
------------ ------------
Total deposits .......................................... 93,463,403 93,876,109
SECURITIES SOLD UNDER AGREEMENTS TO REPURCHASE ..................... 10,778,000 10,778,000
ACCRUED EXPENSES AND OTHER LIABILITIES ............................. 1,151,592 1,294,594
SENIOR DEBENTURE ................................................... 2,921,635 2,894,396
------------ ------------
STOCKHOLDERS' EQUITY:
Common Stock, $1 par value
Authorized - 5,000,000 shares
Issued - 1,328,041 shares .................................. 1,328,041 1,328,041
Surplus ......................................................... 4,431,380 4,431,380
Retained earnings ............................................... 7,463,846 6,923,308
Unrealized gain on securities available-for-sale, net of taxes .. 55,724 34,132
------------ ------------
13,278,991 12,716,861
Less - Treasury stock, at cost, 66,800 shares ................... 146,960 146,960
------------ ------------
Total stockholders' equity ............................... 13,132,031 12,569,901
------------ ------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY ......................... $121,446,661 $121,413,000
============ ============
</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>
SIX MONTHS ENDED THREE MONTHS ENDED
JUNE 30, JUNE 30,
---------------------- -----------------------
(UNAUDITED)
1997 1996 1997 1996
---- ---- ---- ----
<S> <C> <C> <C> <C>
INTEREST INCOME:
Interest and fees on loans ............................. $3,612,979 $3,306,431 $1,843,020 $1,684,681
Interest on investment securities -
U.S. Government and agency obligations ........ 779,315 686,675 382,426 354,312
Collateralized mortgage obligations ........... 57,372 58,933 26,328 32,008
Mortgage backed securities .................... 397,199 -- 194,645 --
Marketable equity securities and other ................. 16,129 7,480 9,984 5,842
Interest on cash equivalents ........................... 69,618 97,898 38,810 57,327
---------- ---------- ---------- ----------
Total interest income ......................... 4,932,612 4,157,417 2,495,213 2,134,170
---------- ---------- ---------- ----------
INTEREST EXPENSE:
Interest on deposits ................................... 1,887,693 1,834,027 949,143 925,896
Interest on repurchase agreements ...................... 325,262 -- 165,500 --
Interest on debenture .................................. 131,789 126,347 66,743 64,253
---------- ---------- ---------- ----------
Total interest expense ......................... 2,344,744 1,960,374 1,181,386 990,149
---------- ---------- ---------- ----------
Net interest income ............................ 2,587,868 2,197,043 1,313,827 1,144,021
PROVISION FOR POSSIBLE LOAN LOSSES ......................... 150,000 175,000 75,000 105,000
---------- ---------- ---------- ----------
Net interest income after provision for possible
loan losses .................................. 2,437,868 2,022,043 1,238,827 1,039,021
---------- ---------- ---------- ----------
NONINTEREST INCOME:
Service charges on deposits ............................ 160,384 149,983 77,329 74,818
Gain on sale of securities ............................. -- -- -- --
Gain on loan sales ..................................... 15,823 15,973 15,823 15,973
Other .................................................. 60,671 63,059 20,328 26,403
---------- ---------- ---------- ----------
Total noninterest income ................... 236,878 229,015 113,480 117,194
---------- ---------- ---------- ----------
NONINTEREST EXPENSE:
Salaries and employee benefits ........................ 878,362 823,159 450,242 403,226
Occupancy expense ..................................... 185,107 187,482 96,633 88,066
Equipment expense ..................................... 99,419 103,066 49,226 51,540
Other real estate owned net losses, and expenses ...... 24,044 39,925 6,924 11,836
Computer services ..................................... 84,170 82,364 42,956 40,474
Deposit insurance assessments ......................... 4,870 500 2,435 500
Other operating expenses .............................. 354,208 347,542 177,138 180,528
---------- ---------- ---------- ----------
Total noninterest expense ................... 1,630,180 1,584,038 825,554 776,170
---------- ---------- ---------- ----------
Income before provision for income taxes .... 1,044,566 667,020 526,753 380,045
PROVISION FOR INCOME TAXES ................................. 377,903 220,426 190,457 133,539
---------- ---------- ---------- ----------
NET INCOME ................................................. $ 666,663 $ 446,594 $ 336,296 $ 246,506
========== ========== ========== ==========
Earnings per share ......................................... $ 0.53 $ 0.52 $ 0.27 $ 0.25
========== ========== ========== ==========
Dividends declared per share ............................... $ 0.10 $ 0.06 $ 0.05 $ 0.03
========== ========== ========== ==========
Weighted average common and common stock equivalent
Shares outstanding .................................... 1,261,241 856,474 1,261,241 1,001,465
========== ========== ========== ==========
</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 ON SECURITIES TOTAL
COMMON RETAINED AVAILABLE FOR SALE, TREASURY STOCKHOLDERS'
STOCK SURPLUS EARNINGS NET OF TAXES STOCK EQUITY
----- ------- -------- ------------ ----- ------
<S> <C> <C> <C> <C> <C> <C>
Balance, December 31, 1995 ......... $ 750,000 $ 500,000 $6,013,638 $ 74,911 $ (146,960) $ 7,191,589
Net income ......................... -- -- 1,043,677 -- -- 1,043,677
Dividends ($.12 per share) ......... -- -- (134,007) -- -- (134,007)
Exercise of stock options and
related tax effect ............. 28,041 (41,744) -- -- -- (13,703)
Issuance of 550,000 shares of
common stock, net of offering
costs .......................... 550,000 3,973,124 -- -- -- 4,523,124
Change in net unrealized gain on
securities available-for-sale .. -- -- -- (40,779) -- (40,779)
---------- ---------- ---------- ---------- ----------- -----------
Balance, December 31, 1996 ......... 1,328,041 4,431,380 6,923,308 34,132 (146,960) 12,569,901
Net income ......................... -- -- 666,663 -- -- 666,663
Dividends declared ($.10 per
share) ......................... -- -- (126,125) -- -- (126,125)
Change in net unrealized gain
on securities available-for-sale -- -- -- 21,592 -- 21,592
---------- ---------- ---------- ---------- ----------- -----------
Balance, June 30, 1997 ............. $1,328,041 $4,431,380 $7,463,846 $ 55,724 $ (146,960) $13,132,031
========== ========== ========== ========== =========== ===========
</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>
SIX MONTHS ENDED JUNE 30,
-------------------------
1997 1996
---- ----
(UNAUDITED)
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income ................................................ $ 666,663 $ 446,594
Adjustments to reconcile net income to net cash provided by
operating activities:
Provision for possible loan losses ........................ 150,000 175,000
Depreciation and amortization ............................. 106,594 92,882
Accretion of discount on debenture ........................ 100,736 126,347
Net (accretion) on investment securities held-to-maturity . (6,265) (2,794)
Net (accretion) on investment securities available-for-sale (42,559) (45,214)
Gains on sale of OREO ..................................... (2,017) (11,689)
Gain on sales of loans .................................... (15,823) (15,973)
Proceeds from sales of loans .............................. 399,908 338,139
Loans originated for sale ................................. (224,085) (765,147)
Net (decrease) in unearned discount ....................... (2,589) (12,590)
Net (increase) in other assets ........................... (262,699) (153,077)
Net increase (decrease) in deferred loan fees ............. 31,199 (5,064)
Net (decrease) in accrued expenses and other liabilities .. (256,120) (76,633)
------------ ------------
Net cash provided by operating activities ............. 642,943 90,781
------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of Federal Home Loan Bank stock ................... (99,600) --
Proceeds from maturities of investment securities
held-to-maturity ....................................... 4,121,845 6,974,314
Proceeds from maturities of investment securities
available-for-sale ..................................... 14,931,609 13,400,000
Purchase of investment securities held-to-maturity ......... (2,000,000) (6,793,569)
Purchase of investment securities available-for-sale ....... (12,382,247) (16,567,868)
Net increase in loans ...................................... (3,660,971) (3,200,269)
Purchase of premises and equipment ......................... (652,424) (11,002)
Sales of OREO .............................................. 301,434 370,189
------------ ------------
Net cash provided by (used in) investing activities ... 559,646 (5,828,205)
------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net increase (decrease) in demand accounts ................. 101,114 (1,124,637)
Net increase (decrease) in savings and money market accounts 302,026 (198,713)
Net (decrease) increase in time deposits ................... (815,846) 4,130,105
Net proceeds on issuance of common stock ................... -- 4,646,235
Exercise of stock options .................................. -- (13,703)
Dividends paid ............................................. (100,899) (20,496)
------------ ------------
Net cash (used in) provided by financing activities ........... (513,605) 7,418,791
------------ ------------
NET INCREASE IN CASH AND CASH EQUIVALENTS ..................... 688,984 1,681,367
CASH AND CASH EQUIVALENTS, BEGINNING OF
PERIOD .................................................... 4,364,713 2,901,249
------------ ------------
CASH AND CASH EQUIVALENTS, END
OF PERIOD ................................................ $ 5,053,697 $ 4,582,616
============ ============
SUPPLEMENTAL DISCLOSURE OF CASH
FLOW INFORMATION:
Interest paid .............................................. $ 2,286,495 $ 1,802,001
============ ============
Income taxes paid .......................................... $ 515,687 $ 164,250
============ ============
SUPPLEMENTAL DISCLOSURE OF NONCASH
TRANSACTIONS:
Transfer of loans to OREO .................................. $ 161,000 $ 70,000
============ ============
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
4
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE PERIOD ENDING JUNE 30, 1997
(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 six months ended June 30, 1997 are not necessarily indicative of
the results that may be expected for the year ending December 31, 1997 or any
other interim period.
For further information refer to the consolidated financial statements, notes
and other information included in the Company's annual report and Form 10-K for
the period ended December 31, 1996, filed with the Securities and Exchange
Commission.
(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 May 19, 1997 the Company declared dividends of $63,062 or $.05 per share to
all common stockholders of record on June 16, 1997, payable on July 2, 1997.
(4) RECENT DEVELOPMENTS
In March 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards (SFAS) No. 128, "Earnings per Share". SFAS No.
128 standardized the calculation of earnings per share with International
Accounting Standard No. 33. SFAS No. 128 is effective for both interim and
annual periods ending after December 15, 1997. Early application is prohibited,
although footnote disclosure of pro forma earnings per share amounts computed
under SFAS No. 128 is permitted.
5
The following table presents the earnings per share computations as reported and
pro forma for the three months and six months ended June 30,1997 and 1996.
<TABLE>
<CAPTION>
SIX MONTHS ENDED THREE MONTHS ENDED
JUNE 30, JUNE 30,
------------------------ -------------------------
1997 1996 1997 1996
---- ---- ---- ----
<S> <C> <C> <C> <C>
Average shares outstanding ................... 1,261,241 835,650 1,261,241 988,101
Average dilutive option shares ............... -- 20,824 -- 13,364
---------- -------- ---------- ----------
Total average shares .................... 1,261,241 856,474 1,261,241 1,001,465
========== ======== ========== ==========
Net income ................................... $ 666,663 $446,594 $ 336,296 $ 246,506
========== ======== ========== ==========
As Reported:
Earnings per share ...................... $0.53 $0.52 $0.27 $0.25
========== ======== ========== ==========
Pro Forma:
Basic earnings per share ................. $0.53 $0.53 $0.27 $0.25
========== ======== ========== ==========
Diluted earnings per share ............... $0.53 $0.52 $0.27 $0.25
========== ======== ========== ==========
</TABLE>
In January 1997, the Bank entered into a definitive agreement with Wal-Mart
Stores, Inc. of Bentonville, Arkansas, pursuant to which the Bank agreed to open
de novo branch offices in two Wal-Mart Stores located in Rhode Island.
On June 23, 1997, the Bank opened the first Wal-Mart in-store branch located at
1031 Ten Rod Road, North Kingstown, Rhode Island. The branch is a full-service
retail branch offering all of the retail products offered at the Bank's three
other branch offices, including checking and savings accounts, consumer loans,
and mortgages. The branch is open seven days a week and includes a full service
automated teller machine (ATM). The Company is currently discussing with
Wal-Mart the opening of the second branch in the Wal-Mart store in Warwick,
Rhode Island.
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 accounts, club accounts,
and short-term and long-term certificates of deposit. The Bank also offers
customary check collection services, wire transfers, safe deposit box rentals,
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.
6
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 noninterest income, including fees and
service charges, as well as by its noninterest expenses, such as salary and
employee benefits, provisions to the allowance for 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 remained virtually flat at $121,446,661 at June 30, 1997 compared
to $121,413,000 at December 31, 1996. The loan portfolio increased $3,290,334 or
4.5% from $72,603,143 at December 31, 1996 to $75,893,477 at June 30, 1997. The
loan growth was primarily funded from Securities and Cash and Cash Equivalents
which decreased $3,897,412 from $46,556,558 at December 31,1996 to $42,191,845
at June 30, 1997. Total deposits decreased $412,706 from $93,876,109 at December
31, 1996 to $93,463,403 at June 30, 1997.
For the three months ended June 30, 1997, the Company reported net income of
$336,296 compared to net income of $246,506 for the three months ended June 30,
1996. Fully diluted net income per share for the quarter ended June 30, 1997,
was $.27 as compared to $.25 per share for the same three month period of the
prior year. Net income for the six months ended June 30, 1997, amounted to
$666,663 compared to net income of $446,594 for the six months ended June 30,
1996. Fully diluted net income per share for the six months ended June 30, 1997,
was $.53 compared to $.52 per share for the six months ended June 30, 1996.
The Company's improved earnings performance for the three months and six months
ended June 30, 1997, as compared to the three months and six months ended June
30, 1996, resulted from (i) an increase in earning assets funded by the net
proceeds of the Company's public offering; the use of repurchase agreements and;
an increase in deposits (ii) increased loan originations and (iii) improvement
in asset quality and attendant reduction in the provision for possible loan
losses.
7
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,
---------------------------- -----------------
1997 1996 1996
---- ---- ----
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Nonperforming loans ................................... $ 339 $ 311 $ 428
Other real estate owned ............................... $ 537 $ 1,182 $ 676
Total nonperforming assets ............................ $ 876 $ 1,493 $ 1,104
Loans 30-89 days delinquent ........................... $ 405 $ 833 $ 196
Nonperforming assets to total assets .................. 0.75% 1.45% 0.95%
Nonperforming loans to total loans .................... 0.48% 0.50% 0.64%
Net loan charge-offs to average loans ................. 0.01% 0.07% 0.19%
Allowance for possible loan losses to total loans ..... 1.89% 1.59% 1.78%
Allowance for possible loan losses
to nonperforming loans ............................. 397.04% 318.05% 280.35%
</TABLE>
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,
------------------------- -------------------------
1997 1996 1997 1996
---- ---- ---- ----
<S> <C> <C> <C> <C>
Balance at beginning of period....... $1,199,617 $ 861,693 $1,267,506 $ 885,540
Provision..................... 150,000 175,000 75,000 105,000
Loan charge-offs............... (26,829) (63,064) (9,699) (15,934)
Recoveries..................... 22,689 14,716 12,670 13 ,739
---------- ---------- ---------- ----------
Balance at end of period.............. 1,345,477 988,345 1,345,477 988,345
---------- ---------- ---------- ----------
Acquired Reserve:
Balance at beginning of period......... 742,840 966,347 712,202 872,257
Loan charge-offs....................... (169,695) (205,289) (141,041) (106,808)
Recoveries............................. (4,603) 6,900 (2,619) 2,509
---------- ---------- ---------- ----------
568,542 767,958 568,542 767,958
---------- ---------- ---------- ----------
Total Reserve............................. $1,914,019 $1,756,303 $1,914,019 $1,756,303
========== ========== ========== ==========
</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 1% 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, 1997, the remaining balance of acquired loans was $4,813,282.
8
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 AND OTHER BORROWINGS
Total deposits decreased $412,706 during the six months ended June 30, 1997,
from $93,876,109 at December 31, 1996, to $93,463,403 at June 30, 1997. Demand,
savings and money market accounts increased $403,140 during the six months ended
June 30, 1997, while time deposits decreased $815,846 during the same period.
Securities sold under agreements to repurchase remained unchanged at June 30,
1997, compared to December 31, 1996, at $10,778,000.
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
$2,587,868 for the six months ended June 30, 1997, compared to $2,197,043 for
the six months ended June 30, 1996. This increase was the result of an increase
in interest earning assets offset somewhat by a decrease in net interest
spreads.
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>
SIX MONTHS ENDED JUNE 30,
-------------------------------------------------------------------------
1997 1996
------------------------------------ ------------------------------
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 ..................................... $74,249 $3,613 9.73% $66,622 $ 3,306 9.92%
Investment securities taxable - AFS........ 26,810 865 6.45 13,102 409 6.24
Investment securities taxable - HTM........ 12,597 371 5.89 12,818 337 5.26
Securities purchased under agreements to
resell........................... 2,828 70 4.95 3,939 98 4.98
Federal Home Loan Bank Stock and other .... 540 14 5.19 348 7 4.02
-------- ------ ---- -------- ------- ----
TOTAL INTEREST-EARNING ASSETS ................ 117,024 4,933 8.43 96,829 4,157 8.59
------ ---- ------- ----
NONINTEREST-EARNING ASSETS:
Cash and due from banks................... 2,047 1,896
Premises and equipment.................... 1,868 1,784
Other real estate owned................... 731 1,301
Allowance for possible loan losses........ (1,982) (1,837)
Other assets.............................. 1,038 1,079
-------- --------
TOTAL NONINTEREST-EARNING ASSETS.............. 3,702 4,223
-------- --------
TOTAL ASSETS.................................. $120,726 $101,052
======== ========
INTEREST - BEARING LIABILITIES:
Deposits:
Interest bearing demand and NOW
deposits....................... $ 3,144 30 1.91% $ 2,467 24 1.95%
Savings deposits................. 18,093 237 2.62 19,660 261 2.66
Money market deposits............ 1,447 17 2.35 1,666 20 2.40
Time deposits................................. 58,905 1,604 5.45 54,635 1,529 5.60
Securities sold under agreements to
repurchase........................ 10,778 325 6.03 -- -- --
Senior debenture......................... 2,932 132 9.00 2,878 126 8.76
-------- ------ ---- -------- ------- ----
TOTAL INTEREST-BEARING LIABILITIES............ 95,299 2,345 4.92 81,306 1,960 4.82
------ ---- ------- ----
NONINTEREST-BEARING LIABILITIES:
Noninterest-bearing deposits............. 11,807 10,695
Other liabilities........................ 825 584
-------- --------
Total noninterest-bearing liabilities........ 12,632 11,279
Stockholders' equity......................... 12,795 8,467
-------- --------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY... $120,726 $101,052
======== ========
NET INTEREST INCOME.......................... $ 2,588 $ 2,197
======== ========
NET INTEREST SPREAD.......................... 3.51% 3.77%
==== ====
NET INTEREST MARGIN.......................... 4.42% 4.54%
==== ====
</TABLE>
10
Total interest income for the three months ended June 30, 1997 was $2,495,213,
compared to $2,134,170 for the same three month period of the prior year. This
increase of $361,043 is primarily the result of a $17,550,000 increase in
quarterly average interest-earning assets offset by a decrease of .06% 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 quarterly yield on interest-earning assets. Total
interest income for the six months ended June 30, 1997, was $4,932,612, compared
to $4,157,417 for the six months ended June 30, 1996. This increase of $775,195
or 18.6% is primarily attributed to a $20.2 million or 20.9% increase in average
interest-earning assets to $117.0 million from $96.8 million offset by a .16%
decrease in yield on interest-earning assets. The decrease in yield is primarily
the result of a $13.5 million increase in investment securities at yields lower
than the blended yield on average interest-earning assets.
Total interest expense for the three months ended June 30, 1997 was $1,181,386,
compared to $990,149 for the same period of the prior year. This increase of
$191,237 or 19.3% is solely related to a $12.0 million increase in quarterly
average interest-bearing liabilities. During the three months ended June 30,
1997, the quarterly average cost of funds approximated 4.97% as compared to
4.76% for the same quarter of the prior year. The primary reason for this .21%
increase in quarterly cost of funds rates relates to the $10.8 million increase
in securities sold under agreements to repurchase at rates higher than the
blended rate on average interest-bearing liabilities. For the six months ended
June 30, 1997, total interest expense was $2,344,744 as compared to $1,960,374
for the same six month period of 1996. This increase of $384,370 or 19.6% is
attributable to $14.0 million increase in average interest-bearing liabilities
to $95.3 million for the six months ended June 30, 1997, compared to $81.3
million for the same six month period of the prior year.
PROVISION FOR POSSIBLE LOAN LOSSES
The provision for possible loan losses totaled $75,000 for the three months
ended June 30, 1997, compared to $105,000 during the same three month period of
the prior year. For the six months ended June 30, 1997 and 1996, the provision
for possible loan losses amounted to $150,000 and $175,000, respectively. The
decrease in the provision for both the three months and six months ended June
30, 1997, as compared to the same periods of the prior year is the result of
improvement in asset quality reflected by decreases in 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 $3,714 or 3.2% to $113,480 from $117,194
during the three months ended June 30, 1997, and June 30, 1996, respectively.
Total noninterest income increased $7,863 to $236,878 from $229,015 for the six
months ended June 30, 1997, compared to the six months ended June 30, 1996,
respectively.
NONINTEREST EXPENSE
Total noninterest expense amounted to $825,554 and $776,170 for the three months
ended June 30, 1997 and 1996, respectively. This increase of $49,384 or 6.4%
primarily relates to a $47,016 increase in salaries and employee benefits
attributable to an increase in staff levels (46 full-time equivalent employees
at June 30, 1997 compared to 42 at June 30, 1996) and the adoption of a
qualified savings incentive plan under Internal Revenue Code Section 401(K),
effective January 1, 1997.
11
For the six months ended June 30, 1997, total noninterest expense increased
$46,142 or 2.9% to $1,630,180 from $1,584,038 for the six months ended June 30,
1996. Although other categories of noninterest expense increased or decreased by
relatively small amounts, salaries and employee benefits increased $55,203 and
are solely responsible for the overall increase in noninterest expense. During
the first six months of 1997 the Bank hired an additional commercial loan
officer. The Bank also hired retail personnel to staff the newly opened Wal-Mart
in-store branch. Further, the January 1, 1997 adoption of a 401(K) Plan
increased benefit costs by $17,576 for the first six months of 1997.
INCOME TAXES
Income taxes for the three months ended June 30, 1997, were $190,457 or 36.2% of
pretax income, compared to $133,539 or 35.1% of pretax income for the three
months ended June 30, 1996. For the six months ended June 30, 1997 and 1996,
income taxes were $377,903 and $220,426, respectively, or 36.2% and 33.0% of
pretax income, respectively. The higher effective tax rates in 1997 are
primarily due to proportionately less Bank income sheltered from state income
taxes.
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,
1997:
REGULATORY
MINIMUM (2) ACTUAL
----------- ------
The Company (1)
Risk-based:
Tier 1 ................. 4.00% 16.38%
Totals ................. 8.00 17.63
Leverage ........................ 3.00 10.84
The Bank
Risk-based:
Tier 1................... 4.00% 15.27%
Totals................... 8.00 16.52
Leverage......................... 3.00 10.42
(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 adequacyrequirements 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.
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.
12
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, 1997, the most recent date for which this information is available,
the Company's one year static gap position was a negative $12,654,000 or 10.5%
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, 1997, the
Company had $30,994,207, or 25.5% 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 $8,954,000 at June 30, 1997, of which $2,352,000 was in the form of an
overnight Line of Credit.
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 1997 Annual Meeting of Stockholders on May 14, 1997. The
meeting was held for the purpose of: (i) electing Artin Coloian, Esq., John
Nazarian, Ph.D., and William P. Shields, Directors of the Company for three
years, term expiring at the Annual Meeting in the year 2000 and (ii) ratifying
the selection of Arthur Andersen LLP as independent public accountants for the
Company for the year 1997.
13
At the time of the 1997 Annual Meeting there were 1,261,241 shares entitled to
vote. Shares voted either in person or by proxy totaled 991,045 shares. The
results of the votes cast were as follows:
FOR AGAINST ABSTENTION
--- ------- ----------
(i) To elect Directors of the Company
for three years:
Artin Coloian, Esq. 990,345 700
John Nazarian, Ph.D. 990,095 950
William P. Shields 990,345 700
(ii) To select Arthur Andersen LLP
as independent public accountants
for the Company for 1997 988,695 400 1,950
In addition, upon completion of the Annual Meeting the Directors' Terms continue
as follows:
NAME TERM TO EXPIRE IN:
---- ------------------
Joseph V. Mega 1998
Patrick J. Shanahan, Jr. 1998
Raymond F. Bernardo 1999
Joseph A. Keough, Esq. 1999
Peter L. Mathieu, Jr., M.D. 1999
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.
August 13, 1997 \s\ Patrick J. Shanahan, Jr.
- --------------------------- -----------------------------------------------
Date Patrick J. Shanahan, Jr.
Chairman, President and Chief Executive Officer
August 13, 1997 \s\ John A. Macomber
- --------------------------- -----------------------------------------------
Date John A. Macomber
Vice President, Treasurer
and Chief Financial Officer
15
EXHIBIT 11 - COMPUTATION OF PER SHARE EARNINGS
<TABLE>
<CAPTION>
SIX MONTHS ENDED THREE MONTHS ENDED
JUNE 30, JUNE 30,
-------- --------
1997 1996 1997 1996
---- ---- ---- ----
<S> <C> <C> <C> <C>
Average shares outstanding 1,261,241 835,650 1,261,241 988,101
Average dilutive option shares --- 20,824 --- 13,364
--------- -------- --------- ---------
Total average shares 1,261,241 856,474 1,261,241 1,001,465
========= ======== ========= =========
Net income $ 666,663 $446,594 $ 336,296 $ 246,506
========= ======== ========= =========
Earnings per share $ 0.53 $ 0.52 $ 0.27 $ 0.25
========= ======== ========= =========
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 9
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> JUN-30-1997
<CASH> 3,575,697
<INT-BEARING-DEPOSITS> 0
<FED-FUNDS-SOLD> 1,478,000
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 25,940,510
<INVESTMENTS-CARRYING> 11,664,939
<INVESTMENTS-MARKET> 11,642,824
<LOANS> 75,829,350
<ALLOWANCE> 1,914,019
<TOTAL-ASSETS> 121,446,661
<DEPOSITS> 93,463,403
<SHORT-TERM> 10,778,000
<LIABILITIES-OTHER> 1,151,592
<LONG-TERM> 2,921,635
0
0
<COMMON> 1,328,041
<OTHER-SE> 11,803,990
<TOTAL-LIABILITIES-AND-EQUITY> 121,446,661
<INTEREST-LOAN> 1,843,020
<INTEREST-INVEST> 652,193
<INTEREST-OTHER> 0
<INTEREST-TOTAL> 2,495,213
<INTEREST-DEPOSIT> 949,143
<INTEREST-EXPENSE> 1,181,386
<INTEREST-INCOME-NET> 1,313,827
<LOAN-LOSSES> 75,000
<SECURITIES-GAINS> 0
<EXPENSE-OTHER> 825,554
<INCOME-PRETAX> 526,753
<INCOME-PRE-EXTRAORDINARY> 526,753
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 336,296
<EPS-PRIMARY> 0.27
<EPS-DILUTED> 0.27
<YIELD-ACTUAL> 4.49
<LOANS-NON> 338,876
<LOANS-PAST> 0
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 1,773,529
<ALLOWANCE-OPEN> 1,979,708
<CHARGE-OFFS> 150,740
<RECOVERIES> 10,051
<ALLOWANCE-CLOSE> 1,914,019
<ALLOWANCE-DOMESTIC> 1,914,019
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
