<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 September 30, 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 November 6, 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
<TABLE>
<CAPTION>
PAGE
<S> <C>
PART I - FINANCIAL INFORMATION
Item 1 - Financial Statements.................................................................................. 1
Consolidated Balance Sheets - September 30, 2000 and December 31, 1999...................................... 1
Consolidated Statements of Income - Three months and nine months ended September 30, 2000 and 1999.......... 2
Consolidated Statements of Stockholders' Equity and Comprehensive Income - Nine months
ended September 30, 2000 and year ended December 31, 1999............................................... 3
Consolidated Statements of Cash Flows - Nine months ended September 30, 2000 and 1999....................... 4
Notes to Consolidated Financial Statements - September 30, 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>
September 30, December 31,
2000 1999
------------- --------------
ASSETS (Unaudited)
<S> <C> <C>
CASH AND DUE FROM BANKS.................................................. $ 2,827,061 $ 5,441,190
SECURITIES PURCHASED UNDER AGREEMENTS TO RESELL.......................... 6,430,429 3,802,865
LOANS HELD FOR SALE...................................................... 394,800 942,338
INVESTMENT SECURITIES:
Held-to-maturity (market value: $21,460,606 and $15,450,453)........... 21,639,309 15,691,004
Available-for sale (amortized cost: $32,483,555 and $21,167,567)....... 31,717,410 20,857,124
------------- --------------
Total investment securities........................................ 53,356,719 36,548,128
------------- --------------
FEDERAL HOME LOAN BANK STOCK............................................. 716,000 681,500
LOANS:
Commercial............................................................. 12,653,218 12,248,552
Commercial real estate................................................. 69,423,849 65,812,129
Residential real estate................................................ 13,578,970 13,084,006
Home equity lines of credit............................................ 2,548,527 3,051,265
Consumer............................................................... 923,811 766,383
------------- --------------
99,128,375 94,962,335
Less - Unearned discount............................................... 10,302 23,221
Allowance for loan losses.............................................. 1,796,233 1,556,405
------------- --------------
Net loans.......................................................... 97,321,840 93,382,709
------------- --------------
OTHER REAL ESTATE OWNED.................................................. 70,000 ---
PREMISES AND EQUIPMENT, net.............................................. 2,000,967 2,167,103
OTHER ASSETS............................................................. 3,140,591 1,815,822
------------- --------------
TOTAL ASSETS............................................................. $ 166,258,407 $ 144,781,655
============= ==============
LIABILITIES AND STOCKHOLDERS' EQUITY
DEPOSITS:
Demand................................................................. $ 19,267,204 $ 17,522,309
Savings and money market accounts...................................... 24,293,038 23,838,702
Time deposits.......................................................... 84,246,687 63,227,494
------------- --------------
Total deposits..................................................... 127,806,929 104,588,505
SECURITIES SOLD UNDER AGREEMENTS TO REPURCHASE........................... 9,535,174 9,411,111
FEDERAL HOME LOAN BANK ADVANCES.......................................... 10,931,715 13,610,400
ACCRUED EXPENSES AND OTHER LIABILITIES................................... 1,912,366 1,689,999
SENIOR DEBENTURE......................................................... --- ---
------------- --------------
TOTAL LIABILITIES........................................................ 150,186,184 129,300,015
------------- --------------
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..................................................... 11,527,573 10,504,194
Accumulated other comprehensive (loss) income......................... (459,686) (186,265)
------------- --------------
16,827,308 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.............................................. 16,072,223 15,481,640
------------- --------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY.............................. $ 166,258,407 $ 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>
Nine Months Ended Three Months Ended
September 30, September
--------------------------- --------------------------
2000 1999 2000 1999
---------- ---------- ---------- ----------
(Unaudited)
<S> <C> <C> <C> <C>
INTEREST INCOME:
Interest and fees on loans.................................. $7,213,639 $6,423,225 $2,479,866 $2,222,141
Interest and dividends on investment securities-
U.S. Government and agency obligations.................... 1,618,847 1,320,632 588,441 467,667
Collateralized mortgage obligations....................... 53,582 102,407 14,279 28,337
Mortgage-backed securities................................ 234,386 302,415 74,566 94,642
Other debt securities..................................... 501,806 ---- 207,016 ----
Marketable equity securities and other.................... 72,212 53,748 23,123 22,050
Interest on cash equivalents................................ 230,962 112,337 72,523 37,828
---------- ---------- ---------- ----------
Total interest income..................................... 9,925,434 8,314,764 3,459,814 2,872,665
---------- ---------- ---------- ----------
INTEREST EXPENSE:
Interest on deposits........................................ 3,921,748 2,798,458 1,395,927 940,818
Interest on repurchase agreements........................... 345,040 443,843 113,391 143,332
Interest on advances........................................ 597,058 365,661 195,710 150,197
Interest on debenture....................................... ---- 84,503 ---- ----
---------- ---------- ---------- ----------
Total interest expense.................................... 4,863,846 3,692,465 1,705,028 1,234,347
---------- ---------- ---------- ----------
Net interest income....................................... 5,061,588 4,622,299 1,754,786 1,638,318
PROVISION FOR LOAN LOSSES..................................... 175,000 200,000 50,000 75,000
---------- ---------- ---------- ----------
Net interest income after provision for loan losses....... 4,886,588 4,422,299 1,704,786 1,563,318
---------- ---------- ---------- ----------
NONINTEREST INCOME:
Service charges on deposits................................. 207,255 200,080 70,375 67,986
Gain on loan sales.......................................... 253,748 236,610 101,487 82,456
Other....................................................... 244,023 164,215 103,183 64,795
---------- ---------- ---------- ----------
Total noninterest income.................................. 705,026 600,000 275,045 215,237
---------- ---------- ---------- ----------
NONINTEREST EXPENSE:
Salaries and employee benefits.............................. 1,853,968 1,581,673 650,505 559,598
Occupancy expense........................................... 345,140 441,283 116,228 104,336
Equipment expense........................................... 196,350 224,769 65,494 77,512
Other real estate owned net (gains) losses and expenses..... (1,073) (211,028) 3,188 1,082
Computer services........................................... 188,092 193,567 64,534 68,931
Deposit insurance assessments............................... 17,296 8,887 6,453 2,910
Other operating expenses.................................... 729,544 671,935 248,778 265,180
---------- ---------- ---------- ----------
Total noninterest expense................................. 3,329,317 2,911,086 1,155,180 1,079,549
---------- ---------- ---------- ----------
Income before provision for income taxes.................. 2,262,297 2,112,118 824,651 699,006
PROVISION FOR INCOME TAXES.................................... 801,971 772,792 291,919 255,751
---------- ---------- ---------- ----------
NET INCOME.................................................... $1,460,326 $1,339,326 $ 532,732 $ 443,255
========== ========== ========== ==========
Earnings per share:
Basic..................................................... $ 1.20 $ 1.09 $ 0.44 $ 0.36
========== ========== ========== ==========
Diluted................................................... $ 1.20 $ 1.09 $ 0.44 $ 0.36
========== ========== ========== ==========
Weighted average common shares outstanding.................... 1,214,254 1,233,823 1,213,741 1,231,241
Diluted effect of common stock equivalents.................... ---- ---- ---- ----
---------- ---------- ---------- ----------
Weighted average common and common stock equivalent
shares outstanding.......................................... 1,214,254 1,233,823 1,213,741 1,231,241
========== ========== ========== ==========
</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'
stock Surplus Earnings (Loss) Income Stock Equity
---------- ---------- ----------- ------------- ---------- -------------
<S> <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
Other comprehensive income, net of tax:
Unrealized holding losses, net
of reclassification adjustment............ ---- ---- ---- (256,903) ---- (256,903)
Comprehensive income.......................
Dividends declared ($.36 per share)........ (444,597) (444,597)
Repurchase of 35,000 shares of
common stock.............................. (448,750) (448,750)
---------- ---------- ----------- ------------- ---------- -------------
Balance, December 31, 1999................. 1,328,041 4,431,380 10,504,194 (186,265) (595,710) 15,481,640
Net income................................. ---- ---- 1,460,326 ---- ---- 1,460,326
Other comprehensive income, net of tax:
Unrealized holding losses, net
of reclassification adjustment........... ---- ---- ---- (273,421) ---- (273,421)
Comprehensive income.......................
Dividends declared ($.36 per share)........ ---- ---- (436,947) ---- ---- (436,947)
Repurchase of 12,500 shares of
common stock............................. (159,375) (159,375)
---------- ---------- ----------- ------------- ---------- -------------
Balance, September 30, 2000................ $1,328,041 $4,431,380 $11,527,573 $ (459,686) $ (755,085) $ 16,072,223
========== ========== =========== ============= ========== =============
<CAPTION>
Comprehensive
Income
-------------
<S> <C>
Balance, December 31, 1998.................
Net income................................. $ 1,818,648
Other comprehensive income, net of tax:
Unrealized holding losses, net
of reclassification adjustment............ (256,903)
-------------
Comprehensive income....................... $ 1,561,745
=============
Dividends declared ($.36 per share)........
Repurchase of 35,000 shares of
common stock..............................
Balance, December 31, 1999.................
Net income................................. $ 1,460,326
Other comprehensive income, net of tax:
Unrealized holding losses, net
of reclassification adjustment........... (273,421)
-------------
Comprehensive income....................... $ 1,186,905
=============
Dividends declared ($.36 per share)........
Repurchase of 12,500 shares of
common stock.............................
Balance, September 30, 2000................
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements
3
<PAGE>
FIRST FINANCIAL CORP. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Nine Months Ended September 30,
--------------------------------
2000 1999
------------- --------------
(Unaudited)
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income.................................................................... $ 1,460,326 $ 1,339,326
Adjustments to reconcile net income to net cash provided by
operating activities:
Provision for loan losses................................................... 175,000 200,000
Depreciation and amortization............................................... 208,034 236,282
Writeoff of impaired long-lived asset....................................... ---------- 129,362
Amortization of discount on debenture....................................... ---------- 15,860
Net accretion on investment securities held-to-maturity..................... (8,524) (4,751)
Net accretion on investment securities available-for-sale................... (249,256) (294,930)
Gains on sale of OREO....................................................... (6,430) (219,118)
Gains on sales of loans..................................................... (253,748) (236,610)
Proceeds from sales of loans................................................ 5,760,812 4,255,701
Loans originated for sale................................................... (4,959,526) (4,819,805)
Net decrease in unearned discount........................................... (12,919) (32,898)
Net increase in other assets................................................ (1,142,488) (497,425)
Net (decrease) increase in deferred loan fees............................... (27,734) 16,289
Net increase in accrued expenses and other liabilities...................... 222,367 19,366
------------- -------------
Net cash provided by operating activities............................ 1,165,914 106,649
------------- -------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of Federal Home Loan Bank stock.................................... (34,500) (162,400)
Proceeds from maturities of investment securities held-to-maturity.......... 2,392,828 3,015,257
Proceeds from maturities of investment securities available-for-sale........ 197,788,918 251,642,803
Purchase of investment securities held-to-maturity.......................... (8,332,609) (5,483,082)
Purchase of investment securities available-for-sale........................ (208,855,650) (248,969,243)
Net increase in loans....................................................... (4,503,559) (6,201,691)
Purchase of premises and equipment.......................................... (41,898) (86,299)
Sales of OREO............................................................... 366,511 684,955
------------- -------------
Net cash used in investing activities................................ (21,219,959) (5,559,700)
------------- -------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net increase in demand accounts............................................. 1,744,895 5,380,841
Net increase in savings and money market accounts........................... 454,336 2,031,554
Net increase (decrease) in time deposits.................................... 21,019,193 (2,328,975)
Net increase (decrease) in repurchase agreements........................... 124,063 (2,816,181)
Net (decrease) increase in Federal Home Loan Bank advances.................. (2,678,685) 5,996,816
Repayment of senior debenture............................................... ---------- (2,708,777)
Purchase of common stock for treasury....................................... (159,375) (384,375)
Dividends paid.............................................................. (436,947) (333,785)
------------- -------------
Net cash provided by financing activities............................ 20,067,480 4,837,118
------------- -------------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS........................... 13,435 (615,933)
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD................................. 9,244,055 5,066,270
------------- -------------
CASH AND CASH EQUIVALENTS, END OF PERIOD....................................... $ 9,257,490 $ 4,450,337
============= =============
SUPPLEMENTAL DISCLOSURE OF CASH FLOW
INFORMATION:
Interest paid............................................................... $ 4,786,480 $ 3,688,797
============= =============
Income taxes paid........................................................... $ 1,125,000 $ 936,000
============= =============
SUPPLEMENTAL DISCLOSURE OF NONCASH
TRANSACTIONS:
Transfer of loans to OREO................................................... $ 430,081 $ ----------
============= ===============
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
4
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE PERIOD ENDED SEPTEMBER 30, 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 and nine months
ended September 30, 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 October 16, 2000 the Company declared dividends of $145,649 or $.12 per
share to all common stockholders of record on November 1, 2000, payable on
November 13, 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, as amended by SFAS No.
138, "Accounting for Certain Derivative Instruments and Certain Hedging
Activities", establishes accounting and reporting standards requiring that
every derivative instrument (including certain derivative instruments
embedded in other contracts) be recorded on 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 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. 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.
5
<PAGE>
(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).
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 segment 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 September 30, 2000
Net Interest Income $1,748,675 $ 547,791 $ (541,680) $1,754,786
Provision for Loan Losses 50,000 --- --- 50,000
Total Noninterest Income 275,045 --- --- 275,045
Total Noninterest Expense 1,131,180 24,000 --- 1,155,180
Net Income 541,680 532,732 (541,680) 532,732
Three Months Ended September 30, 1999
Net Interest Income $1,626,814 $ 463,005 $ (451,501) $1,638,318
Provision for Loan Losses 75,000 --- --- 75,000
Total Noninterest Income 215,237 --- --- 215,237
Total Noninterest Expense 1,055,549 24,000 --- 1,079,549
Net Income 451,501 443,255 (451,501) 443,255
Nine Months Ended September 30, 2000
Net Interest Income $5,043,356 $1,512,437 $(1,494,205) $5,061,588
Provision for Loan Losses 175,000 --- --- 175,000
Total Noninterest Income 705,026 --- --- 705,026
Total Noninterest Expense 3,257,317 72,000 --- 3,329,317
Net Income 1,494,205 1,460,326 (1,494,205) 1,460,326
Nine Months Ended September 30, 1999
Net Interest Income $4,638,134 $1,381,118 $(1,396,953) $4,622,299
Provision for Loan Losses 200,000 --- --- 200,000
Total Noninterest Income 600,905 --- --- 600,905
Total Noninterest Expense 2,841,086 70,000 --- 2,911,086
Net Income 1,396,953 1,339,326 (1,396,953) 1,339,326
</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, automated teller machine (ATM) cards and debit 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 non-performing
and other classified assets.
Summary
-------
For the three months ended September 30, 2000, the Company reported net income
of $532,732 compared to net income of $443,255 for the three months ended
September 30, 1999, or an increase of 20.2%. Basic and diluted net income per
share were $0.44 for the quarter ended September 30, 2000, compared to $0.36 per
share for the same three month period of the prior year. Net income for the nine
months ended September 30, 2000 amounted to $1,460,326 compared to net income of
$1,339,326 for the nine months ended September 30, 1999. Basic and diluted net
income per share for the nine months ended September 30, 2000 were $1.20
compared to $1.09 per share for the nine months ended September 30, 1999.
The third quarter ended September 30, 2000 was another record quarter for the
Company and was the first time that quarterly earnings exceeded $500,000.
Overall, this achievement was accomplished as a result of (i) exceptional
strength in asset quality, (ii) ability to control net interest spreads and
margins in a competitive interest rate environment (iii) balance sheet growth,
and (iv) continued success with SBA (Small Business Administration) loan
programs through origination, sale and servicing of the guaranteed portion of
SBA loans.
Total assets increased $21.5 million or 14.8% to $166.3 million at September 30,
2000, from $144.8 million at December 31, 1999. The loan portfolio, net of
unearned discount, increased $4.2 million or 4.4% to $99.1 million at September
30, 2000, from $94.9 million at December 31, 1999. Investment securities
increased $16.9 million to $53.4 million at September 30, 2000, from $36.5
million at December 31, 1999. The increase in the Company's total assets was
funded
7
<PAGE>
from retail deposits and, in particular, time deposits. Total deposits increased
$23.2 million to $127.8 million at September 30, 2000, from $104.6 million at
December 31, 1999, while time deposits increased $21.0 million to $84.2 million
at September 30, 2000, from $63.2 million at December 31, 1999. During February
2000, the Company successfully marketed a 14 month certificate of deposit
promotion through its branch network at a 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, substantially all of which
were 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 as of and for
the nine months and twelve months ended September 30, 1999 and December 31,
1999, respectively, 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
nine months ended year ended
September 30, December 31,
-------------------------- -----------------
2000 1999 1999
---- ----- -----
(Dollars in Thousands)
<S> <C> <C> <C>
Nonperforming loans................................. $ 158 $ 344 $ 181
Other real estate owned............................. $ 70 $ 47 $ -0-
Total nonperforming assets.......................... $ 228 $ 391 $ 181
Loans 30-89 days delinquent......................... $ 186 $ 75 $ 154
Nonperforming assets to total assets................ 0.14% 0.26% 0.12%
Nonperforming loans to total loans.................. 0.16% 0.37% 0.19%
Net loan (recoveries) charge-offs to average loans.. (0.07)% 0.01% 0.01%
Allowance for loan losses to total loans............ 1.81% 1.60% 1.64%
Allowance for loan losses
to nonperforming loans (multiple).................. 11.38X 4.31X 8.62X
</TABLE>
In May 1992, the Company issued a $3 million Senior Debenture to the Depositors
Economic Protection Corporation (DEPCO) in connection with its acquisition of
certain assets and the assumption of certain liabilities of Chariho-Exeter
Credit Union. Under the terms of the Senior Debenture, the Company was allowed
to charge net acquired loan losses in excess of the acquired loan loss reserve
against the outstanding Senior Debenture. On May 31, 1999, the Senior Debenture
matured. The Company repaid the Debenture in the amount of $2,708,777, which
represented the original face value of $3,000,000, less $291,223 in net acquired
loan losses in excess of the acquired loan loss reserve.
8
<PAGE>
The following represents the activity in the allowance for loan losses for the
three and nine months ended September 30, 2000 and 1999:
<TABLE>
<CAPTION>
Nine Months Ended Three Months Ended
September 30, September 30,
------------------------- -------------------------
2000 1999 2000 1999
---- ---- ---- ----
<S> <C> <C> <C> <C>
Bank Reserve:
Balance at beginning of period............................. $1,556,405 $1,287,058 $1,697,072 $1,393,652
Provision................................................ 175,000 200,000 50,000 75,000
Loan charge-offs......................................... (44,678) (53,633) (2,758) (6,781)
Recoveries............................................... 109,506 46,357 51,919 17,911
---------- ---------- ---------- ----------
Balance at end of period................................... 1796,233 1,479,782 1,796,233 1,479,782
---------- ---------- ---------- ----------
Acquired Reserve:
Balance at beginning of period ............................ --- --- --- ---
Loan charge-offs......................................... --- (266,482) --- ---
Recoveries............................................... --- 1,638 --- ---
Reclassification to senior debenture..................... --- 264,844 --- ---
---------- ---------- ---------- ----------
Balance at end of period................................... --- --- --- ---
---------- ---------- ---------- ----------
Total Reserve.............................................. $1,796,233 $1,479,782 $1,796,233 $1,479,782
========== ========== ========== ==========
</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 loan
losses, future adjustments may be necessary if economic conditions differ
substantially from the assumptions used in making the evaluation.
Deposits and Other Borrowings
-----------------------------
Total deposits increased $23.2 million or 22.2% to $127.8 million at September
30, 2000 from $104.6 million at December 31, 1999. During the nine months ended
September 30, 2000, demand deposits increased $1.7 million, savings and money
market accounts increased $0.5 million, and time deposits increased $21.0
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 remained virtually flat at $9.5
million at September 30, 2000 and December 31, 1999. Federal Home Loan Bank
advances declined $2.7 million to $10.9 million at September 30, 2000 from $13.6
million at December 31, 1999. During September 2000, a 10 year/1 year callable
advance for $2.5 million was called. The Company repaid the advance with excess
liquidity.
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) was $5,061,588
for the nine months ended September 30, 2000, compared to $4,622,299 for the
nine months ended September 30, 1999. This increase was the result of an
increase in interest-earning assets, offset somewhat by a decline in net
interest 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.
9
<PAGE>
<TABLE>
<CAPTION>
Nine Months Ended September 30,
------------------------------------------------------------------------------
2000 1999
------------------------------------- -----------------------------------
Interest Average Interest Average
Average Income/ Yield/ Average Income/ Yield/
Balance Expense Rate Balance Expense Rate
------- ------- ---- -------- ------- ----
<S> <C> <C> <C> <C> <C> <C>
Interest - earning assets:
Loans..................................... $ 99,406,207 $7,213,639 9.68% $ 90,874,046 $6,423,225 9.42%
Investment securities - AFS............... 30,078,017 1,497,657 6.64% 29,477,563 1,179,815 5.34%
Investment securities - HTM............... 21,091,095 944,088 5.97% 13,949,265 575,671 5.50%
Securities purchased under agreements to
resell............................. 6,161,779 230,962 5.00% 3,772,509 112,336 3.97%
Federal Home Loan Bank Stock and other.... 810,155 39,088 6.43% 509,291 23,717 6.21%
------------ ---------- ------ ------------ ---------- ------
Total interest-earning assets............... 157,547,253 9,925,434 8.40% 138,582,674 8,314,764 8.00%
---------- ------ ---------- ------
Noninterest-earning assets:
Cash and due from banks................... 2,884,584 2,455,368
Premises and equipment.................... 2,093,572 2,316,530
Other real estate owned................... 122,845 295,549
Allowance for loan losses................. (1,663,524) (1,317,545)
Other assets.............................. 2,163,231 1,347,378
------------ ------------
Total noninterest-earning assets............ 5,600,708 5,097,280
------------ ------------
Total assets................................ $163,147,961 $143,679,954
============ ============
Interest - bearing liabilities:
Deposits:
Interest bearing demand and NOW
deposits.............................. $ 3,138,119 $ 34,508 1.47% $ 3,370,488 $ 37,032 1.46%
Savings deposits...................... 17,469,233 282,390 2.16% 18,164,147 290,654 2.13%
Money market deposits................. 1,390,738 21,625 2.07% 1,708,890 26,234 2.05%
Time deposits......................... 82,584,747 3,583,225 5.79% 65,451,593 2,444,538 4.98%
Securities sold under agreements to
repurchase............................ 9,087,353 345,040 5.06% 11,779,565 443,843 5.02%
Federal Home Loan Bank Advances.......... 13,427,761 597,058 5.93% 8,431,741 365,661 5.78%
Senior debenture......................... 0.00 0.00 0.00% 1,610,164 84,503 7.00%
------------ ---------- ------ ------------ ---------- ------
Total interest-bearing liabilities.......... 127,097,951 4,863,846 5.10% 110,516,588 3,692,465 4.45%
---------- ------ ---------- ------
Noninterest-bearing liabilities:
Noninterest-bearing deposits.............. 19,204,794 17,055,731
Other liabilities......................... 1,315,190 1,275,887
------------ ------------
Total noninterest-bearing liabilities....... 20,519,984 18,331,618
Stockholders' equity........................ 15,530,026 14,831,748
------------ ------------
Total liabilities and stockholders' equity.. $163,147,961 $143,679,954
============ ============
Net interest income......................... $5,061,588 $4,622,299
========== ==========
Net interest spread......................... 3.30% 3.55%
====== ======
Net interest margin......................... 4.28% 4.45%
====== ======
</TABLE>
10
<PAGE>
Total interest income for the three months ended September 30, 2000 was
$3,459,814, compared to $2,872,665 for the same three month period of the prior
year. This increase of $587,149 or 20.4% was primarily the result of a $19.9
million increase in quarterly average interest-earning assets to $160.7 million
for the third quarter of 2000 from $140.8 million for the third quarter of 1999.
During the third quarter of 2000, the loan portfolio represented 62.7% of total
quarterly average interest-earning assets compared to 65.9% during the third
quarter of 1999. Nonetheless, a higher interest rate environment coupled with
repricing opportunities within the loan and investment portfolios pushed the
yield on interest-earning assets to 8.61% for the three months ended September
30, 2000, compared to 8.16% during the same three month period of the prior
year. Total interest expense increased $470,681 to $1,705,028 for the three
months ended September 30, 2000, compared to $1,234,347 for the same three month
period of 1999. This increase reflected the growth of quarterly average
interest-bearing liabilities of $17.9 million to $128.5 million in the third
quarter of 2000 from $110.6 million in the third quarter of 1999. The
preponderance of this growth occurred within the higher cost time deposits
which, coupled with a higher interest rate environment, accounted for the
increase in the Company's cost of funds to 5.31% in the third quarter of 2000,
third quarter. Overall, the Company's quarterly net interest spread decreased to
3.30% from 3.71% and its quarterly margin also declined to 4.36% from 4.67%.
However, this spread and margin compression was anticipated when the Company ran
a certificate of deposit promotion to partially leverage the Company's capital
position and presumably increase market share. Effectively, net interest income
increased $116,468 or 7.1% during the third quarter of 2000, compared to the
third quarter of 1999.
Total interest income for the nine months ended September 30, 2000 was
$9,925,434, compared to $8,314,764 for the nine months ended September 30, 1999.
This increase of $1,610,670 or 19.4% was largely the result of an $19.0 million
increase in average interest-earning assets, of which $8.5 million took place in
the loan portfolio and the remaining $10.5 million of growth occurred within the
investment portfolio. Of the increase in total interest income, approximately
$1,073,000 was related to balance sheet growth (volume). A rising interest rate
environment boosted the yield on interest-earning assets to 8.40% for the first
nine months of 2000, compared to 8.00% for the first nine months of 1999. This
yield improvement added nearly $538,000 to the increase in interest income. The
total interest expense increased $1,171,381 or 31.7% to $4,863,846 for the nine
months ended September 30, 2000 from $3,692,465 for the nine months ended
September 30, 1999. Total average interest-bearing liabilities increased $16.6
million to $127.1 million from $110.5 million. All of this increase occurred
within higher cost time deposits which funded interest-earning asset growth.
This volume related increase accounted for nearly $760,000 of the increase in
interest expense. The Company's cost of funds increased to 5.10% for the nine
months ended September 30, 2000 from 4.45% for the same nine month period of the
prior year. This increase in cost of funds was due in part to a rising interest
rate environment, along with a change in the composition mix of interest-bearing
liabilities. This increase in funding costs added approximately $411,000 to the
increase in interest expense. Overall, net interest income increased $439,289 to
$5,061,588 from $4,622,299. Changes in volume (balance sheet growth) contributed
nearly $313,000 to this increase, while changes in rates added approximately
$126,000. Net interest spread declined 25 basis points to 3.30% from 3.55%,
while net interest margin decreased 17 basis points to 4.28% for the first nine
months of 2000 from 4.45% for last year's first nine months.
Provision for Loan Losses
-------------------------
The provision for loan losses totaled $50,000 for the three months ended
September 30, 2000 and $75,000 for the three months ended September 30, 1999.
For the nine months ended September 30, 2000 and 1999, the provision for loan
losses amounted to $175,000 and $200,000, respectively. With solid asset quality
and a net recovery (as opposed to the net charge-off) position, a slightly lower
provision for loan losses was considered appropriate for the first nine months
of 2000, despite the growth in total loans outstanding. This is consistent with
management's systematic assessment of the adequacy of its loan loss reserves
(See "Asset Quality").
Noninterest Income
------------------
Total noninterest income increased $59,808 to $275,045 for the three months
ended September 30, 2000, from $215,237 for the three months ended September 30,
1999. For the nine months ended September 30, 2000 and 1999, noninterest income
increased $104,121 to $705,026 from $600,905. For both the three month and nine
month reporting period, the increases were attributable to an increase in gains
on the sale of the guaranteed portion of Small Business Administration
11
<PAGE>
("SBA") loans plus SBA loan servicing fees, fee income from the residential
mortgage program and ATM surcharge income.
Noninterest Expense
-------------------
Total noninterest expense amounted to $1,155,180 and $1,079,549 for the three
months ended September 30, 2000 and 1999, respectively. For the nine months
ended September 30, 2000 and 1999, noninterest expense was $3,329,317 and
$2,911,086 respectively. For both the three month and nine month periods ended
September 30, 2000, the increases in overhead costs are primarily the result of
(i) higher salaries and wages associated with filling additional staff
positions, and across-the-board pay increases, (ii) higher benefit costs, and
(iii) increases in legal and professional fees.
Income Taxes
------------
Income taxes for the three months ended September 30, 2000, were $291,919 or
35.4% of pretax income, compared to $255,751 or 36.6% of pretax income for the
three months ended September 30, 1999. For the nine months ended September 30,
2000 and 1999, income taxes were $801,971 and $772,792, respectively, or 35.4%
and 36.6% of pretax income, respectively. 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, interest income on
U.S. Treasury obligations and certain government agency debt securities. The
lower effective tax rates in 2000 were primarily due to proportionately more
income excluded for state income tax purposes.
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, 2000:
Regulatory
Minimum (1) Actual
----------- ------
The Company
Risk-based:
Tier 1.......... 4.00% 15.01%
Totals.......... 8.00 16.26
Leverage......... 3.00 9.90
The Bank
Risk-based:
Tier 1.......... 4.00% 14.48%
Totals.......... 8.00 15.73
Leverage.......... 3.00 9.60
(1) The 3% regulatory minimum leverage ratio applies only to certain highly-
rated banks. Other institutions are subject to higher requirements.
12
<PAGE>
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 September 30, 2000, the Company's one year static gap position was a negative
$36.3 million or 21.8% 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 Aearnings-at-risk' and equity-at-risk'. At
September 30, 2000, the Company's earnings-at-risk under a "200 basis point
interest rate shock test measured a negative 3.6% in a worst case scenario.
Under a similar test, the Company's equity-at-risk measured a negative 16.2% of
market value of equity at September 30, 2000. At September 30, 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 from the available-for-sale portfolio. These sources fund
the Bank's lending and investment activities.
At September 30, 2000, cash and due from banks, securities purchased under
agreements to resell, and short-term investments (unpledged and maturing within
one year) amounted to $20.0 million, or 12.0% 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 $31.5 million, which could assist the Company in meeting its liquidity
needs and funding its asset mix. At September 30, 2000, the Company held state
and municipal demand deposits of $.8 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.
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.
November 6, 2000 /s/ Patrick J. Shanahan, Jr.
--------------------- ----------------------------
Date Patrick J. Shanahan, Jr.
Chairman, President and Chief Executive Officer
November 6, 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
<TABLE>
<CAPTION>
Nine Months Ended Three Months Ended
September 30, September 30,
---------------------- ----------------------
2000 1999 2000 1999
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Weighted average common shares outstanding 1,214,254 1,233,823 1,213,741 1,231,241
Weighted average equivalent shares --- --- --- ---
---------- --------- ---------- ---------
Weighted average common and common stock
equivalent shares outstanding 1,214,254 1,233,823 1,213,741 1,231,241
========== ========= ========== =========
Net income $1,460,326 $1,339,326 $ 532,732 $ 443,255
========== ========== ========== ==========
Earnings per share:
Basic $ 1.20 $ 1.09 $ 0.44 $ 0.36
========== ========== ========== ==========
Diluted $ 1.20 $ 1.09 $ 0.44 $ 0.36
========== ========== ========== ==========
</TABLE>
16
