<PAGE>
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, 2000 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 such filing
requirements for the past 90 days. X Yes _____ No
------
At May 3, 2000, there were 1,328,041 shares of the Company's $1.00 par value
stock issued, with 1,213,741 shares outstanding.
<PAGE>
FIRST FINANCIAL CORP.
INDEX
PART I - FINANCIAL INFORMATION
<TABLE>
<CAPTION>
PAGE
<S> <C>
Item 1 - Financial Statements.................................................................................. 1
Consolidated Balance Sheets - March 31, 2000 and December 31, 1999........................................ 1
Consolidated Statements of Income - Three months ended March 31, 2000 and 1999............................ 2
Consolidated Statements of Stockholders' Equity and Comprehensive Income- Three
months ended March 31, 2000 and year ended December 31, 1999......................................... 3
Consolidated Statements of Cash Flows - Three months ended March 31, 2000 and 1999........................ 4
Notes to Consolidated Financial Statements - March 31, 2000............................................... 5
Item 2 - Management's Discussion and Analysis of Financial Condition and
Results of Operations..................................................................................... 7
PART II - OTHER INFORMATION
Item 1 - Legal Proceedings..................................................................................... 14
Item 2 - Changes in Securities................................................................................. 14
Item 3 - Defaults Upon Senior Securities....................................................................... 14
Item 4 - Submission of Matters to a Vote of Security Holders................................................... 14
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>
<PAGE>
PART I - FINANCIAL INFORMATION
Item 1 - Financial Statements
FIRST FINANCIAL CORP. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
March 31, December 31,
2000 1999
------------ -----------
ASSETS (Unaudited)
<S> <C> <C>
CASH AND DUE FROM BANKS.............................................. $ 3,591,422 $ 5,441,190
SECURITIES PURCHASED UNDER AGREEMENTS TO RESELL...................... 3,798,604 3,802,865
LOANS HELD FOR SALE.................................................. 2,263,005 942,338
INVESTMENT SECURITIES:
Held-to-maturity (market value: $21,804,632 and $15,450,453)Y....... 22,073,145 15,691,004
Available-for-sale (amortized cost: $37,516,665 and $21,167,567).... 36,959,247 20,857,124
------------ ------------
Total investment securities........................................ 59,032,392 36,548,128
------------ ------------
FEDERAL HOME LOAN BANK STOCK......................................... 681,500 681,500
LOANS:
Commercial.......................................................... 13,510,096 12,248,552
Commercial real estate.............................................. 67,616,652 65,812,129
Residential real estate............................................. 12,874,142 13,084,006
Home equity lines of credit......................................... 2,936,971 3,051,265
Consumer............................................................ 765,903 766,383
------------ ------------
97,703,764 94,962,335
Less - Unearned discount............................................ 18,109 23,221
Allowance for loan losses........................................... 1,615,727 1,556,405
------------ ------------
Net loans.......................................................... 96,069,928 93,382,709
------------ ------------
OTHER REAL ESTATE OWNED.............................................. 100,000 ----
PREMISES AND EQUIPMENT, net.......................................... 2,124,642 2,167,103
OTHER ASSETS......................................................... 2,508,283 1,815,822
------------ ------------
TOTAL ASSETS......................................................... $170,169,776 $144,781,655
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
DEPOSITS:
Demand.............................................................. $ 21,005,483 $ 17,522,309
Savings and money market accounts................................... 21,967,915 23,838,702
Time deposits....................................................... 86,495,854 63,227,494
------------ ------------
Total deposits................................................... 129,469,252 104,588,505
SECURITIES SOLD UNDER AGREEMENTS TO REPURCHASE....................... 9,457,410 9,411,111
FEDERAL HOME LOAN BANK ADVANCES...................................... 13,546,542 13,610,400
ACCRUED EXPENSES AND OTHER LIABILITIES............................... 2,219,402 1,689,999
SENIOR DEBENTURE..................................................... ------ ------
------------ ------------
TOTAL LIABILITIES.................................................... 154,692,606 129,300,015
------------ ------------
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................................................... 10,807,285 10,504,194
Accumulated other comprehensive (loss) income....................... (334,451) (186,265)
------------ ------------
16,232,255 16,077,350
Less - Treasury stock, at cost, 114,300 shares in 2000; 101,800
shares in 1999.................................................... 755,085 595,710
------------ ------------
TOTAL STOCKHOLDERS' EQUITY........................................... 15,477,170 15,481,640
------------ ------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY........................... $170,169,776 $144,781,655
============ ============
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
1
<PAGE>
FIRST FINANCIAL CORP. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
Three Months Ended
March 31,
------------------------
2000 1999
---------- ----------
(Unaudited)
INTEREST INCOME:
<S> <C> <C>
Interest and fees on loans...................................... $2,325,210 $2,078,577
Interest and dividends on investment securities-
U.S. Government and agency obligations..................... 455,024 418,015
Collateralized mortgage obligations........................ 21,856 39,038
Mortgage-backed securities.................................... 82,590 111,175
Other debt securities......................................... 90,418 -----
Marketable equity securities and other........................ 25,768 19,587
Interest on cash equivalents.................................... 107,516 36,589
---------- ----------
Total interest income....................................... 3,108,382 2,702,981
---------- ----------
INTEREST EXPENSE:
Interest on deposits............................................ 1,170,151 931,791
Interest on repurchase agreements............................... 119,828 150,808
Interest on advances............................................ 201,467 99,666
Interest on debenture........................................... ----- 50,700
---------- ----------
Total interest expense....................................... 1,491,446 1,232,965
---------- ----------
Net interest income.......................................... 1,616,936 1,470,016
PROVISION FOR LOAN LOSSES........................................ 50,000 75,000
---------- ----------
Net interest income after provision for
loan losses................................................. 1,566,936 1,395,016
NONINTEREST INCOME:
Service charges on deposits..................................... 67,429 67,071
Gain on loan sales.............................................. 56,306 100,202
Other........................................................... 75,545 50,564
---------- ----------
Total noninterest income..................................... 199,280 217,837
---------- ----------
NONINTEREST EXPENSE:
Salaries and employee benefits................................. 587,365 506,343
Occupancy expense.............................................. 119,399 105,690
Equipment expense.............................................. 66,170 72,382
Other real estate owned net losses and expenses................ 166 14,571
Computer services.............................................. 63,383 59,208
Deposit insurance assessments.................................. 5,584 3,000
Other operating expenses....................................... 229,260 201,660
---------- ----------
Total noninterest expense.................................... 1,071,327 962,854
---------- ----------
Income before provision for income taxes..................... 694,889 649,999
PROVISION FOR INCOME TAXES....................................... 246,149 242,540
---------- ----------
NET INCOME....................................................... $ 448,740 $ 407,459
========== ==========
Earnings per share:
Basic........................................................ $ 0.37 $ 0.33
========== ==========
Diluted...................................................... $ 0.37 $ 0.33
========== ==========
Weighted average common shares outstanding....................... 1,215,297 1,239,074
Weighted average equivalent shares............................... --------- ---------
---------- ----------
Weighted average common and common stock equivalent
shares outstanding............................................. 1,215,297 1,239,074
========== ==========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
2
<PAGE>
FIRST FINANCIAL CORP. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
AND COMPREHENSIVE INCOME
<TABLE>
<CAPTION>
Accumulated
Other Total
Common Retained Comprehensive Treasury Stockholders' Comprehensive
Stock Surplus Earnings (Loss) Income Stock Equity Income
---------- --------- ---------- ------------- ---------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance, December 31, 1998.............. $1,328,041 $4,431,380 $ 9,130,143 $ 70,638 $(146,960) $14,813,242
Net income.............................. ---------- ---------- 1,818,648 --------- --------- 1,818,648 $1,818,648
Other comprehensive income,
net of tax:
Unrealized holding losses, net
of reclassification adjustment....... ---------- ---------- ---------- (256,903) --------- (256,903) (256,903)
----------
Comprehensive income.................... $1,561,745
==========
Dividends declared ($.36 per
share) .............................. (444,597) (444,597)
Repurchase of 35,000 shares of
common stock......................... (448,750) (448,750)
---------- ---------- ---------- --------- --------- -----------
Balance, December 31, 1999.............. 1,328,041 4,431,380 10,504,194 (186,265) (595,710) 15,481,640
Net income.............................. ---------- ---------- 448,740 --------- --------- 448,740 $ 448,740
Other comprehensive income,
net of tax:
Unrealized holding losses, net
of reclassification adjustment...... ---------- --------- ---------- (148,186) --------- (148,186) (148,186)
----------
Comprehensive income.................... $ 300,554
==========
Dividends declared ($.12 per
share).............................. ---------- --------- (145,649) --------- --------- (145,649)
(159,375)
-----------
Repurchase of 12,500 shares
of common stock........................ (159,375) $15,477,170
---------- --------- ----------- --------- --------- ===========
Balance, March 31, 2000................. $1,328,041 $4,431,380 $10,807,285 $(334,451) $(755,085)
========== ========== =========== ========= =========
</TABLE>
The accompanying notes are an integral part of these consolidated
statements
<PAGE>
FIRST FINANCIAL CORP. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Three Months Ended March 31,
-------------------------------
2000 1999
------------ ------------
(Unaudited)
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income................................................................... $ 448,740 $ 407,459
Adjustments to reconcile net income to net cash (used in) provided by
operating activities:
Provision for loan losses................................................... 50,000 75,000
Depreciation and amortization............................................... 69,682 73,464
Losses on sale of OREO...................................................... --- 3,334
Gains on sales of loans..................................................... (56,306) (100,202)
Proceeds from sales of loans................................................ 1,328,234 1,205,770
Loans originated for sale................................................... (2,592,595) (777,425)
Net accretion on investment securities held-to-maturity..................... (2,597) (1,836)
Net accretion on investment securities available-for-sale................... (80,585) (83,251)
Net decrease in unearned discount........................................... (5,112) (13,073)
Net increase in other assets................................................ (692,461) (158,972)
Amortization of discount on debenture....................................... --- 9,517
Net (decrease) increase in deferred loan fees............................... (5,290) 7,159
Net increase in accrued expenses and other liabilities...................... 628,192 325,342
------------ ------------
Net cash (used in) provided by operating activities....................... (910,098) 972,286
------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from maturities of investment securities held-to-maturity............ 370,222 1,818,492
Proceeds from maturities of investment securities available-for-sale.......... 66,045,772 80,620,467
Purchase of investment securities held-to-maturity............................ (6,749,766) (1,488,394)
Purchase of investment securities available-for-sale.......................... (82,314,285) (78,832,729)
Net increase in loans......................................................... (2,826,817) (3,277,105)
Purchase of premises and equipment............................................ (27,221) (47,972)
Sales of OREO................................................................. --- 96,666
------------ ------------
Net cash used in investing activities..................................... (25,502,095) (1,110,575)
------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net increase (decrease) in demand accounts.................................... 3,483,174 (378,830)
Net (decrease) increase in savings and money market accounts.................. (1,870,787) 1,324,746
Net increase (decrease) in time deposits...................................... 23,268,360 (1,952,477)
Net increase (decrease) in repurchase agreements.............................. 46,299 (216,155)
Net (decrease) increase in Federal Home Loan Bank advances.................... (63,858) 1,900,204
Purchase of common stock for treasury......................................... (159,375) (384,375)
Dividends paid................................................................ (145,649) (112,162)
------------ ------------
Net cash provided by financing activities................................. 24,558,164 180,951
------------ ------------
NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS........................... (1,854,029) 42,662
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD................................. 9,244,055 5,066,270
------------ ------------
CASH AND CASH EQUIVALENTS, END OF PERIOD....................................... $ 7,390,026 $ 5,108,932
============ ============
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Interest paid................................................................. $ 1,357,218 $ 1,224,271
============ ============
Income taxes paid............................................................. $ 145,000 $ 313,000
============ ============
SUPPLEMENTAL DISCLOSURE OF NONCASH TRANSACTIONS:
Transfer of loans to OREO..................................................... $ 100,000 $ ---
============ ============
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
4
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE PERIOD ENDED MARCH 31, 2000
(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,
2000, are not necessarily indicative of the results that may be expected
for the year ending December 31, 2000, 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, 1999, filed with the Securities
and Exchange Commission.
(2) DIVIDEND DECLARATION
On April 10, 2000, the Company declared dividends of $145,649 or $.12 per
share to all common stockholders of record on May 1, 2000, payable on May
15, 2000.
(3) RECENT DEVELOPMENTS
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards (SFAS) No. 133, "Accounting for Derivative
Instruments and Hedging Activities". This statement establishes accounting
and reporting standards requiring that every derivative instrument
(including certain derivative instruments embedded in other contracts) be
recorded in the balance sheet as either an asset or liability measured at
its fair value. This statement requires that changes in the derivative's
fair value be recognized currently in income unless specific hedge
accounting criteria are met. Special accounting for qualifying hedges
allows a derivative's gains and losses to offset related results on the
hedged item in the statement of income and requires that a company must
formally document, designate and assess the effectiveness of transactions
that receive hedge accounting. SFAS No. 133, as amended by SFAS No. 137,
"Deferral of the Effective Date of FASB Statement No. 133", is effective
for fiscal years beginning after June 15, 2000. A company may also
implement the statement as of the beginning of any fiscal quarter after
issuance (that is, financial quarters beginning June 16, 1998 and
thereafter). SFAS No. 133 cannot be applied retroactively. SFAS No. 133
must be applied to (a) derivative instruments and (b) certain derivative
instruments embedded in hybrid contracts that were issued, acquired or
substantively modified after December 31, 1997 (and, at the Company's
election, before January 1, 1998). The Company has not yet quantified the
impact of adopting SFAS No. 133 on its consolidated financial statements
and has not determined the timing or method of its adoption of the
statement. However, the Company does not expect that the adoption of this
statement will have a material impact on its financial position or results
of operations.
(4) BUSINESS SEGMENTS
The Company's community banking business segment consists of commercial and
retail banking. The community banking business segment is managed as a
single strategic unit which derives its revenue from a wide range of
banking services, including investing and lending activities and acceptance
of demand, savings and time deposits. There is no major customer and the
Company operates within a single geographic area (southeastern New
England).
5
<PAGE>
Nonreportable operating segments of the Company's operations which do not
have similar characteristics to the community banking operations and do not
meet the quantitative thresholds requiring disclosure, are included in the
Other category in the disclosure of business segments below. These
nonreportable segments include the Parent Company.
The accounting policies used in the disclosure of business segments for
these interim financial statements are the same as those used in the
December 31, 1999 Annual Report and Form 10-K. The consolidation
adjustments reflect certain eliminations of intersegment revenue.
Reportable specific information and reconciliation to consolidated
financial information is as follows:
<TABLE>
<CAPTION>
Community Other Adjustments
Banking Other and Eliminations Consolidated
<S> <C> <C> <C> <C>
Three Months Ended March 31, 2000
Net Interest Income $1,610,878 $ 465,029 $ (458,971) $1,616,936
Provision for Loan Losses 50,000 --- --- 50,000
Total Noninterest Income 199,280 --- --- 199,280
Total Noninterest Expense 1,047,327 24,000 --- 1,071,327
Net Income 458,971 448,740 (458,971) 448,740
Three Months Ended March 31, 1999
Net Interest Income $1,482,151 $ 419,999 $ (432,134) $1,470,016
Provision for Loan Losses 75,000 --- --- 75,000
Total Noninterest Income 217,837 --- --- 217,837
Total Noninterest Expense 938,854 24,000 --- 962,854
Net Income 432,134 407,459 (432,134) 407,459
</TABLE>
6
<PAGE>
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 commercial and consumer financial products and
services designed to satisfy the deposit and loan needs of its customers. The
Bank's deposit 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 North Kingstown, 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 Federal Home Loan Bank advances. 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 loan losses,
occupancy costs and, when necessary, expenses related to other real estate owned
acquired through foreclosure (OREO) and to the administration of nonperforming
and other classified assets.
Summary
- -------
For the three months ended March 31, 2000, the Company reported net income of
$448,740 compared to net income of $407,459 for the three months ended March 31,
1999, or an increase of 10.1%. Basic and diluted net income per share were $.37
for the quarter ended March 31, 2000, based on 1,215,297 weighted average common
and common stock equivalent shares outstanding, compared to $.33 per share in
the first quarter of 1999, based on 1,239,074 weighted average common and common
stock equivalent shares outstanding.
The first quarter ended March 31, 2000 was the strongest first quarter in the
Company's history. Overall, this achievement was accomplished as a result of (i)
relatively stable net interest spreads and margins in a rising interest rate
environment, (ii) balance sheet growth and, (iii) continued strength in asset
quality.
Total assets increased $25.4 million or 17.5% to $170.2 at March 31, 2000, from
$144.8 million at December 31, 1999. The loan portfolio, net of unearned
discount, increased $2.8 million or 3.0% to $97.7 million at March 31, 2000,
from $94.9 million at December 31, 1999. Total investment securities increased
$22.5 million or 61.6% to $59.0 million at March 31, 2000, from $36.5 million at
December 31, 1999. Funding for the loan portfolio and investment portfolio
growth came from retail deposits and, in particular, time deposits. Total
deposits increased $24.9 million to $129.5 million at March 31, 2000 from $104.6
million at December 31, 1999, while time deposits increased $23.3 million to
$86.5 million at March 31, 2000 from $63.2 million at December 31, 1999. During
the three months ended March 31, 2000, the Company successfully marketed a 14
month certificate of deposit promotion through its branch network at a
7
<PAGE>
slightly above market rate of 6.77% (7.00% annual percentage yield). This
promotion raised over $23 million in new deposits and opened over 1,000 new
deposit accounts, all of which was from the local community. The purpose of this
retail deposit growth activity was to increase the Company's customer base;
strengthen the Company's presence in the community; leverage the Company's
strong capital position and; solidify the Company's ability to fund future loan
portfolio growth. The Company invested the proceeds in government agency and
corporate debt obligations.
Financial Condition
Asset Quality
- -------------
The following table sets forth information regarding nonperforming 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 for the three
months ended March 31, 1999 are exclusive of the acquired loans and acquired
allowance for 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,
--------------------- ------------------
2000 1999 1999
-------- -------- ------------------
(Dollars in Thousands)
<S> <C> <C> <C>
Nonperforming loans................................. $ 193 $ 78 $ 181
Other real estate owned............................. $ 100 $ 413 $ -0-
Total nonperforming assets.......................... $ 293 $ 491 $ 181
Loans 30-89 days delinquent......................... $ 676 $ 231 $ 154
Nonperforming assets to total assets................ 0.17% 0.34% 0.12%
Nonperforming loans to total loans.................. 0.30% 0.09% 0.19%
Net loan (recoveries) charge-offs to average loans (0.01)% 0.05% 0.01%
Allowance for loan losses to total loans............ 1.65% 1.50% 1.64%
Allowance for loan losses
to nonperforming loans (multiple).................. 8.36X 16.94X 8.62X
</TABLE>
The following represents the activity in the allowance for loan losses for the
three months ended March 31, 2000 and 1999:
Three Months Ended
March 31,
-----------------------
2000 1999
---------- ----------
Company Allowance:
Balance at beginning of period................ $1,556,405 $1,287,058
Provision................................... 50,000 75,000
Loan charge-offs............................ (1,440) (46,852)
Recoveries.................................. 10,762 3,168
---------- ----------
Balance at end of period...................... 1,615,727 1,318,374
---------- ----------
Acquired Allowance:
Balance at beginning of period................ --- ---
Loan charge-offs............................ --- ---
Recoveries.................................. --- 1,483
Reclassification to senior debenture........ --- (1,483)
---------- ----------
Balance at end of period...................... --- ---
---------- ----------
Total Allowance................................. $1,615,727 $1,318,374
========== ==========
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 loan
losses, future adjustments may be necessary if economic
8
<PAGE>
conditions differ substantially from the assumptions used in making the
evaluation.
Deposits and Other Borrowings
- -----------------------------
Total deposits increased $24.9 million or 23.8% to $129.5 million at March 31,
2000 from $104.6 million at December 31, 1999. During the three months ended
March 31, 2000, demand deposits increased $3.5 million, savings and money market
accounts decreased $1.9 million, and time deposits increased $23.3 million. The
previously mentioned promotional activity and market acceptance of new deposit
product offerings accounted for the positive deposit growth. Also contributing
to the deposit activity were customers seeking banking relationships as an
alternative to the merger and acquisition activity of area financial
institutions.
Securities sold under agreements to repurchase and Federal Home Loan Bank
advances remained virtually flat at $23.0 million at March 31, 2000 and December
31, 1999.
9
<PAGE>
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
$1,616,936 for the three months ended March 31, 2000, compared to $1,470,016 for
the first quarter of 1999. This increase was the result of an increase in
interest-earning assets, offset somewhat by a slight decline in net interest
spreads and margins.
The following table sets forth certain information relating to the Company=s
average balance sheet and reflects the average yield on assets and average cost
of liabilities for the periods indicated. Such yields and costs are derived by
dividing income or expense by the average balance of assets or liabilities.
Average balances are derived from daily balances. Loans are net of unearned
discount. Non-accrual loans are included in the average balances used in
calculating this table.
<TABLE>
<CAPTION>
Three Months Ended March 31,
--------------------------------------------------------------------------------
2000 1999
----------------------------------------- ------------------------------------
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..................................... $ 97,251,579 $ 2,325,210 9.56% $ 89,378,320 $ 2,078,577 9.30%
Investment securities - AFS............... 27,026,500 415,534 6.15 30,165,980 404,434 5.36
Investment securities - HTM............... 17,539,809 248,066 5.66 13,148,653 175,629 5.34
Securities purchased under agreements to
resell................................. 9,142,565 107,515 4.70 3,749,121 36,589 3.90
Federal Home Loan Bank Stock and other 761,772 12,057 4.22 559,287 7,752 5.54
------------ ------------ ------ ------------ ------------ ------
Total interest-earning assets............... 151,722,225 3,108,382 8.19 137,001,361 2,702,981 7.89
------------ ------ ------------ ------
Noninterest-earning assets:
Cash and due from banks.................... 3,456,438 2,293,341
Premises and equipment................... 2,153,863 2,407,191
Other real estate owned.................. 26,374 448,682
Allowance for loan losses................ (1,589,816) (1,287,900)
Other assets............................. 1,971,359 1,297,641
------------ ------------
Total noninterest-earning assets............ 6,018,218 5,158,955
------------ ------------
Total assets................................ $157,740,443 $142,160,316
============ ============
Interest - bearing liabilities:
Deposits:
Interest bearing demand and NOW
deposits............................. $ 3,285,048 $ 11,992 1.46 $ 3,411,554 $ 12,340 1.45
Savings deposits...................... 17,484,865 92,527 2.12 17,481,734 91,145 2.09
Money market deposits................. 1,398,056 6,758 1.93 1,455,090 7,132 1.96
Time deposits......................... 77,557,703 1,058,874 5.46 65,959,543 821,174 4.98
Securities sold under agreements to
repurchase............................. 9,430,886 119,828 5.08 12,126,200 150,808 4.97
Federal Home Loan Bank advances......... 13,571,818 201,467 5.94 7,177,688 99,666 5.55
Senior debenture........................ --- --- --- 3,016,080 50,700 6.72
------------ ------------ ------ ------------ ------------ ------
Total interest-bearing liabilities.......... 122,728,376 1,491,446 4.86 110,627,889 1,232,965 4.46
------------ ------ ------------ ------
Noninterest-bearing liabilities:
Noninterest-bearing deposits............. 18,140,751 15,697,353
Other liabilities........................ 1,526,569 1,248,518
------------ ------------
Total noninterest-bearing liabilities....... 19,667,320 16,945,871
Stockholders' equity........................ 15,344,747 14,586,556
------------ ------------
Total liabilities and stockholders' equity.. $157,740,443 $142,160,316
============ ============
Net interest income......................... $ 1,616,936 $ 1,470,016
============ ============
Interest spread............................. 3.33% 3.43%
====== ======
Net interest margin......................... 4.26% 4.29%
====== ======
</TABLE>
10
<PAGE>
Interest income increased $405,401 or 15.0% to $3,108,382 for the three months
ended March 31, 2000 from $2,702,981 for the three months ended March 31, 1999.
This increase was attributable to a $14.7 million increase in average interest-
earning assets along with a 30 basis point increase in earning asset yield to
8.19% from 7.89%. Within earning assets, average loans increased $7.9 million or
8.8%, while average investments increased $6.8 million. During the first quarter
of 2000, average loans represented 64.1% of total average interest-earning
assets compared to 65.2% during the first quarter of 1999. In terms of
rate/volume, a rising rate environment accounted for the increase in earning
asset yield and contributed nearly $136,000 to the increase in interest income.
Balance sheet growth, especially within interest-earning assets, added
approximately $269,000 to the increase in interest income.
Total interest expense amounted to $1,491,446 in the first quarter of 2000
compared to $1,232,965 in the first quarter of 1999, or an increase of $258,481
or 21.0%. Average interest-bearing deposits grew $11.4 million, with the
preponderance of growth occurring within higher cost time deposits. A rising
interest rate environment along with above-market rates offered during the
deposit gathering promotion, drove up the Company's cost of funds 40 basis
points to 4.86% from 4.46%, and accounted for nearly $90,000 of the increase in
total interest expense. The increase in total average interest-bearing
liabilities contributed approximately $168,000 to the increase in total interest
expense.
Net interest income rose $146,920 or 10.0% during the first quarter of 2000
compared to the comparable quarter of the prior year to $1,616,936 from
$1,470,016. The primary reasons for this increase were the $14.7 million
increase in average interest-earning assets, offset by a 10 basis point decline
in net interest spreads. However, due to a $2.4 million increase in average
noninterest-bearing deposits and a $.8 million increase in average stockholders'
equity, net interest margins only declined 3 basis points to 4.26% from 4.29%,
despite the rising interest rate environment.
Provision for Loan Losses
- -------------------------
The provision for loan losses totaled $50,000 for the three months ended March
31, 2000, compared to $75,000 during the same three month period of the prior
year. During the quarter, the Company experienced net recoveries of $9,322,
compared to last year's comparable first quarter in which it incurred net
charge-offs of $43,684. At March 31, 2000 and 1999, the allowance for loan
losses as a percent of total loans amounted to 1.65% and 1.50%, respectively.
Noninterest Income
- ------------------
Total noninterest income equaled $199,280 for the three months ended March 31,
2000, compared to $217,837 during the same period of the prior year. Gains on
the sale of the guaranteed portion of Small Business Administration (ASBA@)
loans of $56,306 during the first quarter of 2000 compared to $100,202 during
the first quarter of 1999 account for the decrease in total noninterest income.
Noninterest Expense
- -------------------
Noninterest expense increased $108,473 or 11.3% to $1,071,327 from $962,854.
Salaries and benefits increased $81,022 or 16.0% primarily as a result of three
additional full time equivalent (FTE) positions to 48 FTE in 2000 vs. 45 FTE in
1999 and across the board pay increases and higher benefit costs. Other
operating costs are up approximately $27,600, or 13.7% mainly due to increases
in discretionary spending categories.
Income Taxes
- ------------
Income taxes for the three months ended March 31,2000 and 1999, were 35.4% and
37.3%, respectively, of pretax income. The Company's combined federal and state
(net of federal benefit) statutory income tax rate is 39.9%. The Company's
effective combined federal and state tax rate was lower than the statutory rate
primarily due to the exclusion, from state taxable income of interest income on
U.S. Treasury obligations and certain government agency debt securities.
11
<PAGE>
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 Company and the
Bank.
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,
2000:
Regulatory
Minimum (1) Actual
----------- -------
The Company
Risk-based:
Tier 1........... 4.00% 14.37%
Totals........... 8.00 15.62
Leverage.......... 3.00 10.00
The Bank
Risk-based:
Tier 1........... 4.00% 13.80%
Totals........... 8.00 15.05
Leverage.......... 3.00 9.61
(1) 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.
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, 2000, the Company's one year static gap position was a negative
$15,409,000 or 9.1% of total assets. By using simulation modeling techniques,
the Company is able to measure its interest rate risk exposure as determined by
the impact of sudden movements in interest rates on net interest income and
equity. This exposure is termed `earnings-at-risk' and `equity-at-risk'. At
March 31, 2000, the Company's earnings-at-risk under a +/-200 basis point
interest rate shock test measured a negative 3.8% in a worst case scenario.
Under a similar test, the Company's equity-at-risk measured a negative 14.0% of
market value of equity at March 31, 2000. At March 31, 2000, the Company's
earnings-at-risk and equity-at-risk fell well within tolerance levels
established by internal policy.
Liquidity
- ---------
Liquidity is defined as the ability to meet current and future financial
obligations of a short-term nature. The Company further defines liquidity as the
ability to respond to the needs of depositors and borrowers and to earning
enhancement opportunities in a changing marketplace. Primary sources of
liquidity consist of deposit inflows, loan repayments, securities sold under
agreements to repurchase, FHLB advances, maturity of investment securities and
sales of securities
12
<PAGE>
from the available-for-sale portfolio. These sources fund the Bank's lending and
investment activities.
At March 31, 2000, cash and due from banks, securities purchased under
agreements to resell, and short-term investments (unpledged and maturing within
one year) amounted to $20.4 million, or 11.98% of total assets. Management is
responsible for establishing and monitoring liquidity targets as well as
strategies and tactics to meet these targets. Through membership in the Federal
Home Loan Bank of Boston (FHLB), the Company has an unused borrowing capacity of
nearly $29.0 million, which could assist the Company in meeting its liquidity
needs and funding its asset mix. At March 31, 2000, the Company held state and
municipal demand deposits of $3.0 million which it considered highly volatile.
Nonetheless, the Company believes that there are no adverse trends in the
Company's liquidity or capital reserves, and the Company believes that it
maintains adequate liquidity to meet its commitments.
Year 2000 Compliance
- ---------------------
The efficient operation of the Company's business is highly dependent on its
computer software programs and operating systems. Virtually all of these
programs and systems are furnished, supported and maintained by correspondent
institutions, computer service and system providers, and software vendors.
In confronting the Year 2000 problem, the Company's Board of Directors played a
very active role in the Year 2000 compliance effort. The Board approved the Year
2000 plan and received monthly status reports from members of the project team.
The FDIC also played a very active role and visited the Company on several
occasions to examine the Company's progress.
The Company faced potential risks to its and the Bank's operations. As stated
above, the Company purchases substantially all of its software from third
parties who faced the same Year 2000 challenge as the Company. In addition, the
Company relies almost exclusively on other companies for the functioning of its
automated system. Thus, the Company's operations could be adversely affected if
the operations of these third parties were adversely affected by the Year 2000
problem. Most importantly, the Company faced risks that all banking
institutions, whether large or small, also faced. Included among these risks is
the risk that the Year 2000 date change would result in the inability to process
and underwrite loan applications, to credit deposits and withdrawals from
customer accounts, to credit loan payments or track delinquencies, to properly
reconcile and record daily activity or to engage in similar normal banking
activities. Additionally, if those commercial loan customers of the Bank whose
operations depend heavily on computers and computer software experience Year
2000 compliance problems and suffer adverse effects with respect to their own
operations, their ability to meet their obligations to the Bank could be
adversely affected. This could force the Bank to increase its provision for loan
losses or take more aggressive collection actions, potentially impacting the
Company's earnings.
At January 1, 2000, the Company did not encounter any Year 2000 date change
difficulties. All systems and operations continued to function without
interruption. The Company is not aware of any Year 2000 difficulties encountered
by any of its borrowers. Nonetheless, the Company continues to closely monitor
the Year 2000 issue as critical dates emerge throughout the year.
13
<PAGE>
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
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
<PAGE>
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.
May 3, 2000 /s/ Patrick J. Shanahan, Jr.
- ------------------------ ----------------------------
Date Patrick J. Shanahan, Jr.
Chairman, President and Chief Executive Officer
May 3, 2000 /s/ John A. Macomber
- ------------------------ --------------------
Date John A. Macomber
Vice President, Treasurer and
Chief Financial Officer
15
<PAGE>
Exhibit 11 - Computation of per share earnings
Three Months Ended
March 31,
--------------------------
2000 1999
---- ----
Weighted average common shares outstanding 1,215,297 1,239,074
Dilutive effect of common stock equivalents -- --
----------- ----------
Weighted average common and common stock
equivalent shares outstanding 1,215,297 1,239,074
=========== ==========
Net income $ 448,740 $ 407,459
=========== ==========
Earnings per share:
Basic $ 0.37 $ 0.33
=========== ==========
Diluted $ 0.37 $ 0.33
=========== ==========
16
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 9
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> MAR-31-2000
<PERIOD-START> JAN-01-2000
<PERIOD-END> MAR-31-2000
<CASH> 3,591,422
<INT-BEARING-DEPOSITS> 0
<FED-FUNDS-SOLD> 3,798,604
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 36,959,247
<INVESTMENTS-CARRYING> 22,073,145
<INVESTMENTS-MARKET> 21,804,632
<LOANS> 97,685,655
<ALLOWANCE> 1,615,727
<TOTAL-ASSETS> 170,169,776
<DEPOSITS> 129,469,252
<SHORT-TERM> 9,457,410
<LIABILITIES-OTHER> 2,219,402
<LONG-TERM> 13,546,542
0
0
<COMMON> 1,328,041
<OTHER-SE> 14,149,129
<TOTAL-LIABILITIES-AND-EQUITY> 170,169,776
<INTEREST-LOAN> 2,325,210
<INTEREST-INVEST> 783,172
<INTEREST-OTHER> 0
<INTEREST-TOTAL> 3,108,382
<INTEREST-DEPOSIT> 1,170,151
<INTEREST-EXPENSE> 1,491,446
<INTEREST-INCOME-NET> 1,616,963
<LOAN-LOSSES> 50,000
<SECURITIES-GAINS> 0
<EXPENSE-OTHER> 1,071,327
<INCOME-PRETAX> 694,889
<INCOME-PRE-EXTRAORDINARY> 448,740
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 448,740
<EPS-BASIC> 0.37
<EPS-DILUTED> 0.37
<YIELD-ACTUAL> 4.26
<LOANS-NON> 193,000
<LOANS-PAST> 0
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 2,912,872
<ALLOWANCE-OPEN> 1,556,405
<CHARGE-OFFS> 1,440
<RECOVERIES> 10,762
<ALLOWANCE-CLOSE> 1,615,727
<ALLOWANCE-DOMESTIC> 1,615,727
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
