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
SEPTEMBER 30, 1997 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 October 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
PAGE
PART I - FINANCIAL INFORMATION
Item 1 - Financial Statements................................................ 1
Consolidated Balance Sheets - September 30, 1997 and December 31, 1996....... 1
Consolidated Statements of Income - Three months and nine months ended
September 30, 1997 and 1996................................................. 2
Consolidated Statements of Stockholders' Equity - Nine months ended
September 30, 1997 and year ended December 31, 1996......................... 3
Consolidated Statements of Cash Flows - Nine months ended September 30, 1997
and 1996.................................................................... 4
Notes to Consolidated Financial Statements - September 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................................................... 12
Item 2 - Changes in Securities............................................... 12
Item 3 - Defaults Upon Senior Securities..................................... 12
Item 4 - Submission of Matters to a Vote of Security Holders................. 12
Item 5 - Other Information................................................... 13
Item 6 - Exhibits and Reports on Form 8-K.................................... 13
SIGNATURES................................................................... 14
EXHIBITS
Computation of per share earnings - Exhibit 11............................... 15
Financial Data Schedule - Exhibit 27......................................... 16
PART I - FINANCIAL INFORMATION
Item 1 - Financial Statements
FIRST FINANCIAL CORP. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
1997 1996
---- ----
ASSETS (UNAUDITED)
<S> <C> <C>
CASH AND DUE FROM BANKS ............................................ $ 2,696,059 $ 1,988,713
SECURITIES PURCHASED UNDER AGREEMENTS TO RESELL .................... 4,390,000 2,376,000
LOANS HELD FOR SALE ................................................ -- 160,000
SECURITIES:
Held-to-maturity (market value: $9,404,959 and $13,747,464) .... 9,404,168 13,780,519
Available-for sale (amortized cost: $28,873,536 and $28,354,439) 29,057,828 28,411,326
------------ ------------
Total investment securities ............................ 38,461,996 42,191,845
FEDERAL HOME LOAN BANK STOCK ....................................... 447,700 348,100
LOANS:
Commercial ..................................................... 5,323,567 5,074,679
Commercial real estate ......................................... 46,207,615 40,225,717
Residential real estate ........................................ 21,811,572 22,978,397
Home equity lines of credit .................................... 3,112,277 3,088,134
Consumer ....................................................... 1,067,622 1,236,216
------------ ------------
77,522,653 72,603,143
Less - Unearned discount ....................................... 70,569 66,716
Allowance for possible loan losses ............................. 1,816,695 1,942,457
------------ ------------
Net loans .............................................. 75,635,389 70,593,970
OTHER REAL ESTATE OWNED ............................................ 702,192 675,607
PREMISES AND EQUIPMENT, net ........................................ 2,436,574 1,645,280
OTHER ASSETS ....................................................... 1,446,855 1,433,485
------------ ------------
TOTAL ASSETS ....................................................... $126,216,765 $121,413,000
============= ============
LIABILITIES AND STOCKHOLDERS' EQUITY
DEPOSITS:
Demand .......................................................... $ 12,774,962 $ 11,270,046
Savings and money market accounts ............................... 22,009,408 22,749,700
Time deposits ................................................... 63,265,581 59,856,363
------------ ------------
Total deposits .......................................... 98,049,951 93,876,109
SECURITIES SOLD UNDER AGREEMENTS TO REPURCHASE ..................... 10,555,000 10,778,000
ACCRUED EXPENSES AND OTHER LIABILITIES ............................. 1,193,007 1,294,594
SENIOR DEBENTURE ................................................... 2,991,772 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 ............................................... 7,703,998 6,923,308
Unrealized gain on securities available-for-sale, net of taxes .. 110,576 34,132
------------ ------------
13,573,995 12,716,861
Less - Treasury stock, at cost, 66,800 shares ................... 146,960 146,960
------------ ------------
Total stockholders' equity ............................... 13,427,035 12,569,901
------------ ------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY ......................... $126,216,765 $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>
NINE MONTHS ENDED THREE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
----------------- ---------------------
1997 1996 1997 1996
---- ---- ---- ----
(UNAUDITED)
<S> <C> <C> <C> <C>
INTEREST INCOME:
Interest and fees on loans ............................. $5,468,231 $4,986,308 $1,855,252 $1,679,877
Interest on investment securities -
U.S. Government and agency obligations ........ 1,154,391 1,134,806 375,076 448,131
Collateralized mortgage obligations ........... 77,953 98,234 20,581 39,301
Mortgage backed securities .................... 578,640 32,198 181,441 32,198
Marketable equity securities and other ................. 25,989 13,410 9,860 5,930
Interest on cash equivalents ........................... 107,889 130,321 38,271 32,423
---------- ---------- ---------- ----------
Total interest income ......................... 7,413,093 6,395,277 2,480,481 2,237,860
---------- ---------- ---------- ----------
INTEREST EXPENSE:
Interest on deposits ................................... 2,861,917 2,794,146 974,224 960,119
Interest on repurchase agreements ...................... 488,416 23,150 163,154 23,150
Interest on debenture .................................. 201,926 194,918 70,137 68,571
---------- ---------- ---------- ----------
Total interest expense ......................... 3,552,259 3,012,214 1,207,515 1,051,840
---------- ---------- ---------- ----------
Net interest income ............................ 3,860,834 3,383,063 1,272,966 1,186,020
PROVISION FOR POSSIBLE LOAN LOSSES ......................... 200,000 280,000 50,000 105,000
---------- ---------- ---------- ----------
Net interest income after provision for possible
loan losses .............................................. 3,660,834 3,103,063 1,222,966 1,081,020
---------- ---------- ---------- ----------
NONINTEREST INCOME:
Service charges on deposits ............................ 236,719 227,815 76,335 77,832
Gain on sale of securities ............................. -- -- -- --
Gain on loan sales ..................................... 15,823 26,742 -- 10,769
Other ................................................... 83,626 88,918 22,955 25,859
---------- ---------- ---------- ----------
Total noninterest income ................... 336,168 343,475 99,290 114,460
---------- ---------- ---------- ----------
NONINTEREST EXPENSE:
Salaries and employee benefits ........................ 1,350,268 1,219,076 471,906 395,917
Occupancy expense ..................................... 280,439 273,868 95,332 86,386
Equipment expense ..................................... 156,485 155,230 57,066 52,164
Other real estate owned net losses, and expenses ...... 28,873 44,885 4,829 4,960
Computer services ..................................... 124,796 123,461 40,626 41,097
Deposit insurance assessments ......................... 8,250 1,000 3,380 500
Other operating expenses .............................. 527,370 525,364 173,162 177,822
---------- ---------- ---------- ----------
Total noninterest expense ................... 2,476,481 2,342,884 846,301 758,846
---------- ---------- ---------- ----------
Income before provision for income taxes .... 1,520,521 1,103,654 475,955 436,634
PROVISION FOR INCOME TAXES ................................. 550,645 374,912 172,742 154,486
---------- ---------- ---------- ----------
NET INCOME ................................................. $ 969,876 $ 728,742 $ 303,213 $ 282,148
========== ========== ========== ==========
Earnings per share ......................................... $ 0.77 $ 0.73 $ 0.24 $ 0.22
========== ========== ========== ==========
Dividends declared per share ............................... $ 0.15 $ 0.09 $ 0.05 $ 0.03
========== ========== ========== ==========
Weighted average common and common stock equivalent
shares outstanding .................................... 1,261,241 992,381 1,261,241 1,261,241
========== ========== ========== ==========
</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 ($.12 per share) ......... -- -- (134,007) -- -- (134,007)
Exercise of stock options and
related tax effect ............. 28,041 (41,744) -- -- -- (13,703)
Issuance of 550,000 shares of
common stock, net of offering
costs .......................... 550,000 3,973,124 -- -- -- 4,523,124
Change in net unrealized gain on
securities available-for-sale .. -- -- -- (40,779) -- (40,779)
------------ ------------ ----------- ------------ ------------ ------------
Balance, December 31, 1996 ......... 1,328,041 4,431,380 6,923,308 34,132 (146,960) 12,569,901
Net income ......................... -- -- 969,876 -- -- 969,876
Dividends declared ($.15 per
share) ......................... -- -- (189,186) -- -- (189,186)
Change in net unrealized gain
on securities available-for-sale -- -- -- 76,444 -- 76,444
------------ ------------ ----------- ------------ ------------ ------------
Balance, September 30, 1997 ........ $ 1,328,041 $ 4,431,380 $ 7,703,998 $ 110,576 $ (146,960) $ 13,427,035
============ ============ =========== ============ ============ ============
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,
-------------------------------
1997 1996
---- ----
(UNAUDITED)
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income ........................................................................ $ 969,876 $ 728,742
Adjustments to reconcile net income to net cash provided by
operating activities:
Provision for possible loan losses ................................................ 200,000 280,000
Depreciation and amortization ..................................................... 168,275 139,197
Accretion of discount on debenture ................................................ 151,598 148,993
Net (accretion) on investment securities held-to-maturity ......................... (8,750) (5,899)
Net (accretion) on investment securities available-for-sale ....................... (60,194) (100,864)
Gains on sale of OREO ............................................................. (2,017) (16,957)
Gain on sales of loans ............................................................ (15,823) (26,742)
Proceeds from sales of loans ...................................................... 557,480 890,652
Loans originated for sale ......................................................... (368,695) (821,250)
Net increase (decrease) in unearned discount ...................................... 3,853 (13,325)
Net (increase) in other assets ................................................... (13,370) (138,788)
Net increase in deferred loan fees ................................................ 38,291 11,230
Net (decrease) increase in accrued expenses and other liabilities ................. (244,959) 77,969
----------- -----------
Net cash provided by operating activities ..................................... 1,375,565 1,152,958
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of Federal Home Loan Bank stock ........................................... (99,600) --
Proceeds from maturities of investment securities
held-to-maturity ............................................................... 7,885,101 7,287,431
Proceeds from maturities of investment securities
available-for-sale ............................................................. 17,671,170 22,950,000
Purchase of investment securities held-to-maturity ................................. (3,500,000) (8,488,413)
Purchase of investment securities available-for-sale ............................... (18,130,071) (35,829,666)
Net increase in loans .............................................................. (5,612,579) (6,411,467)
Purchase of premises and equipment ................................................. (959,569) (11,002)
Sales of OREO ...................................................................... 304,448 763,091
----------- -----------
Net cash (used in) investing activities ....................................... (2,441,100) (19,740,026)
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net increase (decrease) in demand accounts ......................................... 1,504,916 (1,176,100)
Net (decrease) in savings and money market accounts ................................ (740,292) (1,100,026)
Net increase in time deposits ...................................................... 3,409,218 5,861,108
Net (decrease) increase in securities sold under agreements
to repurchase ................................................................. (223,000) 10,833,000
Net proceeds on issuance of common stock ........................................... -- 4,523,124
Exercise of stock options .......................................................... -- (13,703)
Dividends paid ..................................................................... (163,961) (58,333)
----------- -----------
Net cash provided by financing activities ..................................... 3,786,881 18,869,070
----------- -----------
NET INCREASE IN CASH AND CASH EQUIVALENTS ............................................. 2,721,346 282,002
CASH AND CASH EQUIVALENTS, BEGINNING OF
PERIOD ............................................................................ 4,364,713 2,901,249
----------- -----------
CASH AND CASH EQUIVALENTS, END OF PERIOD ............................................. $ 7,086,059 $ 3,183,251
=========== ===========
SUPPLEMENTAL DISCLOSURE OF CASH
FLOW INFORMATION:
Interest paid ...................................................................... $ 3,474,859 $ 2,758,856
=========== ===========
Income taxes paid .................................................................. $ 652,242 $ 245,750
=========== ===========
SUPPLEMENTAL DISCLOSURE OF NONCASH
TRANSACTIONS:
Transfer of loans to OREO .......................................................... $ 326,002 $ 151,600
=========== ===========
The accompanying notes are an integral part of these consolidated financial statements
</TABLE>
4
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE PERIOD ENDING SEPTEMBER 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 nine months
ended September 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) DIVIDEND DECLARATION
On August 12, 1997 the Company declared dividends of $63,062 or $.05 per
share to all common stockholders of record on September 15, 1997,
payable on October 2, 1997.
(3) 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.
The following table presents the earnings per share computations as
reported and pro forma for the three months and nine months ended
September 30,1997 and 1996.
<TABLE>
<CAPTION>
NINE MONTHS ENDED THREE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
------------- -------------
1997 1996 1997 1996
---- ---- ---- ----
<S> <C> <C> <C> <C>
Average shares outstanding ........... 1,261,241 978,549 1,261,241 1,261,241
Average dilutive option shares........ -- 13,832 -- --
---------- -------- ---------- ----------
Total average shares ............. 1,261,241 992,381 1,261,241 1,261,241
========== ======== ========== ==========
Net income ........................... $ 969,876 $728,742 $ 303,213 $ 282,148
========== ======== ========== ==========
As Reported:
Earnings per share .............. $ 0.77 $ 0.73 $ 0.24 $ 0.22
========== ======== ========== ==========
Pro Forma:
Basic earnings per share.......... $ 0.77 $ 0.74 $ 0.24 $ 0.22
========== ======== ========== ==========
Diluted earnings per share........ $ 0.77 $ 0.73 $ 0.24 $ 0.22
========== ======== ========== ==========
</TABLE>
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 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.
The Bank's products and services are delivered through it's four branch network
system. The Bank's main office and branch are located in Providence, Rhode
Island with branches in Cranston, Richmond and its newest branch in North
Kingstown.
On June 23, 1997, the Bank opened its Wal-Mart in-store branch located in 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 proposed
second branch in the Wal-Mart store in Warwick, Rhode Island.
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 increased $4,803,765, or 4.0% to $126,216,765 at September 30, 1997
compared to $121,413,000 at December 31, 1996. The loan portfolio increased
$4,919,510 or 6.8% from $72,603,143 at December 31, 1996 to $77,522,653 at
September 30, 1997. The loan growth was primarily funded from deposits which
increased $4,173,842 from $93,876,109 at December 31, 1996 to $98,049,951 at
September 30, 1997.
6
For the three months ended September 30, 1997, the Company reported net income
of $303,213 compared to net income of $282,148 for the three months ended
September 30, 1996. Fully diluted net income per share for the quarter ended
September 30, 1997, was $.24 as compared to $.22 per share for the same three
month period of the prior year. Net income for the nine months ended September
30, 1997, amounted to $969,876 compared to net income of $728,742 for the nine
months ended September 30, 1996. Fully diluted net income per share for the nine
months ended September 30, 1997, was $.77 compared to $.73 per share for the
nine months ended September 30, 1996.
The Company's improved earnings performance for the three months and nine months
ended September 30, 1997, as compared to the three months and nine months ended
September 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.
These favorable events more than offset the increase in overhead spending
associated with the opening and operation of the North Kingstown in-store branch
and the voice and data communication systems conversions.
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,
------------- ------------
1997 1996 1996
---- ---- ----
(Dollars in Thousands)
<S> <C> <C> <C>
Nonperforming loans ................................... $ 162 $ 358 $ 428
Other real estate owned ............................... $ 702 $ 876 $ 676
Total nonperforming assets ............................ $ 864 $1,234 $1,104
Loans 30-89 days delinquent ........................... $ 794 $ 815 $ 196
Nonperforming assets to total assets .................. 0.71% 1.08% 0.95%
Nonperforming loans to total loans .................... 0.22% 0.55% 0.64%
Net loan charge-offs to average loans
(not annualized) .................................. 0.21% 0.08% 0.19%
Allowance for possible loan losses to total loans ..... 1.72% 1.68% 1.78%
Allowance for possible loan losses
to nonperforming loans ............................. 777.04% 305.72% 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 possible loan losses.
7
<TABLE>
<CAPTION>
NINE MONTHS ENDED THREE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
------------- -------------
1997 1996 1997 1996
---- ---- ---- ----
<S> <C> <C> <C> <C>
Bank Reserve:
Balance at beginning of period ...................... $ 1,199,617 $ 861,693 $ 1,345,477 $ 988,345
Provision .................................... 200,000 280,000 50,000 105,000
Loan charge-offs .............................. (168,770) (63,064) (141,941) --
Recoveries .................................... 23,681 16,328 992 1,612
----------- ----------- ----------- -----------
Balance at end of period ............................. 1,254,528 1,094,957 1,254,528 1,094,957
----------- ----------- ----------- -----------
Acquired Reserve:
Balance at beginning of period ........................ 742,840 966,347 568,542 767,958
Loan charge-offs ...................................... (169,695) (205,289) -- --
Recoveries ............................................ (10,978) 4,995 (6,375) 1,905
----------- ----------- ----------- -----------
562,167 766,053 562,167 766,053
----------- ----------- ----------- -----------
Total Reserve ............................................ $ 1,816,695 $ 1,861,010 $ 1,816,695 $ 1,861,010
=========== =========== =========== ===========
</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.
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
September 30, 1997, the remaining balance of acquired loans was $4,632,455.
DEPOSITS AND OTHER BORROWINGS
Total deposits increased $4,173,842 during the nine months ended September 30,
1997, from $93,876,109 at December 31, 1996, to $98,049,951 at September 30,
1997. The increase in deposits at September 30, 1997 compared to December 31,
1996 took place during the quarter ended September 30, 1997 and was preponderant
in time deposits as a result of a one-year certificate of deposit promotion.
Securities sold under agreements to repurchase remained relatively flat at
September 30, 1997, compared to December 31, 1996, at $10,555,000.
8
RESULTS OF OPERATIONS
NET INTEREST INCOME
Net interest income (the difference between interest earned on loans and
investments and interest paid on deposits and other borrowings) increased to
$3,860,834 for the nine months ended September 30, 1997, compared to $3,383,063
for the nine months ended September 30, 1996. This increase was the result of an
increase in interest earning assets offset somewhat by a decrease in net
interest spreads.
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,
-----------------------------------------------------------------------
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 .................................... $ 74,969 $ 5,468 9.72 $ 67,384 $ 4,986 9.87%
Investment securities taxable - AFS ...... 26,544 1,284 6.45 15,112 697 6.15
Investment securities taxable - HTM ...... 12,136 531 5.83 13,592 570 5.59
Securities purchased under agreements to
resell ................................. 2,896 108 4.97 3,485 130 4.97
Federal Home Loan Bank Stock and other ... 540 22 5.43 348 12 4.60
-------- --------- ----- --------- -------
TOTAL INTEREST-EARNING ASSETS 117,085 7,413 8.44 99,921 6,395 8.53
--------- ----- ------- -----
NONINTEREST-EARNING ASSETS:
Cash and due from banks ................. 2,164 1,892
Premises and equipment .................. 2,040 1,761
Other real estate owned ................. 698 1,174
Allowance for possible loan losses ...... (1,954) (1,624)
Other assets ............................ 1,326 874
-------- ---------
TOTAL NONINTEREST-EARNING ASSETS ............ 4,274 4,077
-------- ---------
TOTAL ASSETS................................. $121,359 $ 103,998
======== =========
INTEREST - BEARING LIABILITIES:
Deposits:
Interest bearing demand and NOW
deposits...................... $ 3,196 47 1.96% $ 2,493 36 1.93%
Savings deposits ............... 17,924 352 2.62 19,558 390 2.66
Money market deposits .......... 1,427 26 2.43 1,651 30 2.42
Time deposits .................. 59,132 2,437 5.50 56,256 2,338 5.54
Securities sold under agreements to
repurchase ...................... 10,714 488 6.07 474 23 6.47
Senior debenture ....................... 2,936 202 9.17 2,890 195 9.00
--------- --------- ----- -------- ------ -------
TOTAL INTEREST-BEARING LIABILITIES .......... 95,329 3,552 4.97 83,322 3,012 4.82
--------- ----- -------- ------ -------
NONINTEREST-BEARING LIABILITIES:
Noninterest-bearing deposits ............ 11,924 10,358
Other liabilities ....................... 1,148 598
--------- --------
TOTAL NONINTEREST-BEARING LIABILITIES ....... 13,072 10,956
STOCKHOLDERS' EQUITY ........................ 12,958 9,720
--------- --------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY.. $ 121,359 $103,998
========= ========
NET INTEREST INCOME ........................ $ 3,861 $3,383
========= ======
NET INTEREST SPREAD ........................ 3.47% 3.71%
==== ====
NET INTEREST MARGIN ........................ 4.40% 4.51%
==== ====
</TABLE>
9
Total interest income for the three months ended September 30, 1997 was
$2,480,481, compared to $2,237,860 for the same three month period of the prior
year. This increase of $242,621 is primarily the result of a $11.1 million
increase in quarterly average interest-earning assets and an increase of .05% in
the quarterly yield on interest earning assets. Total interest income for the
nine months ended September 30, 1997, was $7,413,093, compared to $6,395,277 for
the nine months ended September 30, 1996. This increase of $1,017,816 or 15.9%
is primarily attributed to a $17.2 million or 17.2% increase in average
interest-earning assets to $117.1 million from $99.9 million offset by a .09%
decrease in yield on interest-earning assets. The decrease in yield is primarily
the result of a $9.9 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 September 30, 1997 was
$1,207,515, compared to $1,051,840 for the same period of the prior year. This
increase of $155,675 or 14.8% is primarily related to a $8.0 million increase in
quarterly average interest-bearing liabilities. During the three months ended
September 30, 1997, the quarterly average cost of funds approximated 5.07% as
compared to 4.82% for the same quarter of the prior year. The primary reason for
this .25% increase in quarterly cost of funds rates relates to the $9.3 million
quarterly average increase in securities sold under agreements to repurchase at
rates higher than the blended rate on average interest-bearing liabilities. For
the nine months ended September 30, 1997, total interest expense was $3,552,259
as compared to $3,012,214 for the same nine month period of 1996. This increase
of $540,045 or 17.9% is attributable to a $12.0 million increase in average
interest-bearing liabilities to $95.3 million for the nine months ended
September 30, 1997, compared to $83.3 million for the same nine month period of
the prior year.
PROVISION FOR POSSIBLE LOAN LOSSES
The provision for possible loan losses totaled $50,000 for the three months
ended September 30, 1997, compared to $105,000 during the same three month
period of the prior year. For the nine months ended September 30, 1997 and 1996,
the provision for possible loan losses amounted to $200,000 and $280,000,
respectively. The decrease in the provision for both the three months and nine
months ended September 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 loans 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 $15,170 to $99,290 from $114,460 during the
three months ended September 30, 1997, and September 30, 1996, respectively.
Total noninterest income decreased $7,307 to $336,168 from $343,475 for the nine
months ended September 30, 1997, compared to the nine months ended September 30,
1996, respectively. In both the three month and nine month comparative time
periods, the decrease in noninterest income is attributable to a decrease in
gains on loan sales.
NONINTEREST EXPENSE
Total noninterest expense amounted to $846,301 and $758,846 for the three months
ended September 30, 1997 and 1996, respectively. This increase of $87,455 or
11.5% is largely attributable to increases in salaries and benefits - $75,989;
occupancy expense - $8,946; and equipment expense - $4,902. The three months
ended September 30, 1997 represents the first full quarter of the expense
recognition for costs associated with the opening and operation of the North
Kingstown in-store branch along with the depreciation charges related to the
capital expenditures for the voice and data communication systems conversions.
10
For the nine months ended September 30, 1997, total noninterest expense
increased $133,597 or 5.7% to $2,476,481 from $2,342,884 for the nine months
ended September 30, 1996. Although other categories of noninterest expense
increased or decreased by relatively small amounts, salaries and employee
benefits increased $131,192 and are solely responsible for the overall increase
in noninterest expense. During the first nine months of 1997 the Bank hired an
additional commercial loan officer. The Bank also hired retail personnel to
staff the newly opened North Kingstown in-store branch in Wal-Mart. Further, the
January 1, 1997 adoption of a 401(K) Plan increased benefit costs by $25,494 for
the first nine months of 1997.
INCOME TAXES
Income taxes for the three months ended September 30, 1997, were $172,742 or
36.3% of pretax income, compared to $154,486 or 35.4% of pretax income for the
three months ended September 30, 1996. For the nine months ended September 30,
1997 and 1996, income taxes were $550,645 and $374,912, respectively, or 36.2%
and 34.0% 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 September
30, 1997:
REGULATORY
MINIMUM (2) ACTUAL
----------- ------
The Company (1)
Risk-based:
Tier 1 ................. 4.00% 17.13%
Totals ................. 8.00 18.38
Leverage ...................... 3.00 10.86
The Bank
Risk-based:
Tier 1.................. 4.00% 16.29%
Totals.................. 8.00 17.55
Leverage ...................... 3.00 10.53
(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.
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.
11
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 September 30, 1997, the Company's one year static gap position was a negative
$16,560,000 or 13.1% 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, 1997,
the Company had $36,143,887, or 28.6% 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 September 30, 1997, of which $2,352,000 was in the form of an
overnight Line of Credit.
YEAR 2000 COMPLIANCE
As the year 2000 approaches, a critical business issue has emerged regarding how
existing application software programs and operating systems can accommodate
this date value. As a result, the year 1999 could be the maximum date value
these systems will be able to accurately process. Management is working with its
systems and software vendors to assure that the Company is prepared for the year
2000. Management does not anticipate that the Company will incur significant
operating expenses or be required to invest heavily in computer system
improvements to be year 2000 compliant.
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.
12
ITEM 5 - OTHER INFORMATION
USE OF PROCEEDS
In 1996 a portion of the net proceeds of the Company's public offering of its
common stock pursuant to its registration statement on Form S-1, declared
effective May 13, 1996 have been used for the payment of minimum tax withholding
requirements on exercise of certain stock options and for general corporate
purposes. A majority of the net proceeds remain invested in U.S. government and
agency obligations.
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
13
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.
November 3, 1997 \s\ Patrick J. Shanahan, Jr.
- ----------------------------- ------------------------------------
Date Patrick J. Shanahan, Jr.
Chairman, President
and Chief Executive Officer
November 3, 1997 \s\ John A. Macomber
- ----------------------------- ------------------------------------
Date John A. Macomber
Vice President, Treasurer
and Chief Financial Officer
14
EXHIBIT 11
COMPUTATION OF PER SHARE EARNINGS
<TABLE>
<CAPTION>
NINE MONTHS ENDED THREE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
------------- -------------
1997 1996 1997 1996
---- ---- ---- ----
<S> <C> <C> <C> <C>
Average shares outstanding 1,261,241 978,549 1,261,241 1,261,241
Average dilutive option shares -- 13,832 -- --
--------- ------- --------- ---------
Total average shares 1,261,241 992,381 1,261,241 1,261,241
========= ======= ========= =========
Net income $ 969,876 $ 728,742 $ 303,213 $ 282,148
========== ========== ========== ==========
Earnings per share $ 0.77 $ 0.73 $ 0.24 $ 0.22
========== ========== ========== ==========
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 9
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> SEP-30-1997
<CASH> 2,696,059
<INT-BEARING-DEPOSITS> 0
<FED-FUNDS-SOLD> 4,390,000
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 29,057,828
<INVESTMENTS-CARRYING> 9,404,168
<INVESTMENTS-MARKET> 9,404,959
<LOANS> 77,452,084
<ALLOWANCE> 1,816,695
<TOTAL-ASSETS> 126,216,765
<DEPOSITS> 98,049,951
<SHORT-TERM> 10,555,000
<LIABILITIES-OTHER> 1,193,007
<LONG-TERM> 2,991,772
0
0
<COMMON> 1,328,041
<OTHER-SE> 12,098,994
<TOTAL-LIABILITIES-AND-EQUITY> 126,216,765
<INTEREST-LOAN> 1,855,252
<INTEREST-INVEST> 625,229
<INTEREST-OTHER> 0
<INTEREST-TOTAL> 2,480,481
<INTEREST-DEPOSIT> 974,224
<INTEREST-EXPENSE> 1,207,515
<INTEREST-INCOME-NET> 1,272,966
<LOAN-LOSSES> 50,000
<SECURITIES-GAINS> 0
<EXPENSE-OTHER> 846,301
<INCOME-PRETAX> 475,955
<INCOME-PRE-EXTRAORDINARY> 475,955
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 303,213
<EPS-PRIMARY> 0.24
<EPS-DILUTED> 0.24
<YIELD-ACTUAL> 4.36
<LOANS-NON> 108,432
<LOANS-PAST> 53,019
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 1,737,252
<ALLOWANCE-OPEN> 1,903,253
<CHARGE-OFFS> 141,941
<RECOVERIES> (5,383)
<ALLOWANCE-CLOSE> 1,816,695
<ALLOWANCE-DOMESTIC> 1,816,695
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
