<PAGE> 1
U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
MARK ONE
[ X ] QUARTERLY REPORT UNDER SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED JUNE 30, 1997
OR
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d)
OF THE EXCHANGE ACT
For the Transition Period From to
--------------- -------------
Commission File Number 33-426222
FIRST FINANCIAL CORPORATION
(Exact Name of Small Business Issuer As Specified in its Charter)
Tennessee 62-1474162
------------------------------ ---------------------------
(State or Other Jurisdiction of (IRS Employer Identification
Incorporation or Organization) Number)
1691 N. Mt. Juliet Road, Mount Juliet, TN 37122
-----------------------------------------------
(Address of Principal Executive Offices)
(615) 754-2265
--------------
(Issuer's Telephone Number)
Not Applicable
---------------------------------------------------
Former Name, Former Address and Former Fiscal Years,
If Changed Since Last Report
Check whether the Issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act during the past 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.
YES X NO
------- --------
State the number of shares outstanding of each of the issuer's classes of
common equity as of the latest practicable date: 931,388 .
----------------
Transitional Small Business Disclosure Format (check one).
YES NO X
------- ---------
This filing contains 17 pages
----
The Exhibit Index appears at sequential pages number 15 and 16
-----------
1
<PAGE> 2
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
The unaudited consolidated financial statements of the small business issuer and
its wholly-owned subsidiary are as follows:
Consolidated Balance Sheets - June 30, 1997 and December 31, 1996.
Consolidated Statements of Earnings - For the three months and six months
ended June 30, 1997 and 1996.
Consolidated Statements of Cash Flows - For the six months ended June 30,
1997 and 1996.
2
<PAGE> 3
FIRST FINANCIAL CORPORATION
CONSOLIDATED BALANCE SHEETS
JUNE 30, 1997 AND DECEMBER 31, 1996
(UNAUDITED)
<TABLE>
<CAPTION>
June 30, December 31,
1997 1996
--------- ------------
(In Thousands)
Assets
<S> <C> <C>
Loans $ 139,361 124,312
Less: Allowance for loan losses (1,646) (1,541)
--------- --------
Net loans 137,715 122,771
Securities available-for-sale, at market (amortized cost
$39,479,000 and $42,427,000, respectively) 39,544 42,473
Loans held for sale 1,589 1,723
Federal funds sold 4,425 3,725
--------- --------
Total earning assets 183,273 170,692
Cash and due from banks 8,330 5,412
Bank premises and equipment, net of accumulated depreciation 6,074 5,457
Accrued interest receivable 1,817 1,638
Other real estate 2 2
Other assets 922 772
--------- --------
$ 200,418 183,973
========= ========
Liabilities and Stockholders' Equity
Deposits $ 182,439 167,445
Advances from Federal Home Loan Bank 968 993
Short-term borrowings 800 800
Accrued interest payable 1,006 882
Other liabilities 402 289
Long-term debt 389 391
--------- --------
Total liabilities 186,004 170,800
--------- --------
Stockholders' equity:
Preferred stock, no par value, authorized 5,000,000 shares,
no shares issued -- --
Common stock, $2.50 par value; authorized 5,000,000 shares,
issued 1,069,314 and 1,068,914 shares, respectively 2,673 2,672
Additional paid-in capital 3,854 3,850
Retained earnings 9,104 7,879
Net unrealized gains on available-for-sale securities, net of
applicable income taxes 40 29
Less cost of 137,926 shares of treasury stock (1,257) (1,257)
--------- --------
Total stockholders' equity 14,414 13,173
--------- --------
$ 200,418 183,973
========= ========
</TABLE>
See accompanying notes to consolidated financial statements (unaudited).
3
<PAGE> 4
FIRST FINANCIAL CORPORATION
CONSOLIDATED STATEMENTS OF EARNINGS
THREE MONTHS AND SIX MONTHS ENDED JUNE 30, 1997 AND 1996
(UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
-------------------- --------------------
1997 1996 1997 1996
-------- ------- -------- -------
(Dollars in Thousands, Except Per Share Amounts)
<S> <C> <C> <C> <C>
Interest income:
Interest and fees on loans $ 3,390 2,906 $ 6,517 5,688
Interest and dividends on securities:
Taxable securities 478 508 983 1,032
Exempt from Federal income taxes 136 106 268 209
Interest on loans held for sale 34 33 66 60
Interest on federal funds sold 50 33 119 44
Interest on interest-bearing deposits in other banks -- 2 -- 5
-------- ------- -------- -------
Total interest income 4,088 3,588 7,953 7,038
-------- ------- -------- -------
Interest expense:
Interest on deposits 1,847 1,568 3,605 3,080
Interest on short term borrowings 16 18 31 37
Interest on advances from Federal Home Loan Bank 18 22 36 46
Interest on Federal funds purchased -- 2 -- 5
Interest on long-term debt 7 7 14 14
-------- ------- -------- -------
Total interest expense 1,888 1,617 3,686 3,182
-------- ------- -------- -------
Net interest income 2,200 1,971 4,267 3,856
Provision for loan losses 80 80 140 160
-------- ------- -------- -------
Net interest income after provision for
loan losses 2,120 1,891 4,127 3,696
-------- ------- -------- -------
Non-interest income:
Service charges on deposit accounts 265 210 494 397
Other fees and commissions 63 50 123 100
Other income 217 178 387 340
Gain on sale of securities -- 1 -- 7
-------- ------- -------- -------
545 439 1,004 844
-------- ------- -------- -------
Non-interest expenses:
Salaries and employee benefits 926 842 1,831 1,610
Occupancy expenses, net 83 68 160 143
Furniture and equipment expense 130 113 256 233
Other operating expenses 496 460 983 880
Loss on sale of securities 43 -- 48 --
-------- ------- -------- -------
1,678 1,483 3,278 2,866
-------- ------- -------- -------
Earnings before income taxes 987 847 1,853 1,674
Income taxes 337 291 628 575
-------- ------- -------- -------
Net earnings $ 650 556 $ 1,225 1,099
======== ======= ======== =======
Weighted average number of shares and common
equivalent shares outstanding 949,575 936,696 949,450 936,643
======== ======= ======== =======
Net earnings per common and common equivalent share .68 .59 1.29 1.17
======== ======= ======== =======
Dividends per share $ -- -- -- --
======== ======= ======== =======
</TABLE>
See accompanying notes to consolidated financial statements (unaudited).
4
<PAGE> 5
FIRST FINANCIAL CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
SIX MONTHS ENDED JUNE 30, 1997 AND 1996
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
(UNAUDITED)
<TABLE>
<CAPTION>
1997 1996
-------- -------
(In Thousands)
<S> <C> <C>
Cash flows from operating activities:
Interest received $ 7,709 6,854
Fees and commissions received 617 536
Interest paid (3,562) (3,119)
Originations of loans held for sale (18,118) (17,085)
Proceeds from loan sales 18,639 17,862
Cash paid to suppliers and employees (3,051) (2,742)
Income taxes paid (675) (628)
-------- -------
Net cash provided by operating activities 1,559 1,678
-------- -------
Cash flows from investing activities:
Loans made to customers, net of repayments (15,084) (15,407)
Proceeds from sales of available-for-sale securities 4,402 6,365
Proceeds from maturities of available-for-sale securities 2,144 2,895
Purchase of available-for-sale securities (3,547) (7,453)
Decrease in interest bearing deposits in other banks -- 98
Purchase of premise and equipment (828) (296)
Proceeds from sale of other real estate -- 82
Increase in other real estate -- (3)
-------- -------
Net cash used in investing activities (12,913) (13,719)
-------- -------
Cash flows from financing activities:
Net increase in time deposits 4,743 7,985
Net increase in non-interest bearing, savings and NOW
deposit accounts 10,251 3,944
Repayment of short-term borrowings -- (100)
Repayment of advances from Federal Home Loan Bank (25) (93)
Repayment of long-term debt (2) (2)
Issuance of common stock 5 11
-------- -------
Net cash provided by financing activities 14,972 11,745
-------- -------
Net increase (decrease) in cash and cash equivalents 3,618 (296)
Cash and cash equivalents at beginning of period 9,137 5,633
-------- -------
Cash and cash equivalents at end of period $ 12,755 5,337
======== =======
</TABLE>
See accompanying notes to consolidated financial statements (unaudited).
5
<PAGE> 6
FIRST FINANCIAL CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS, CONTINUED
SIX MONTHS ENDED JUNE 30, 1997 AND 1996
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
(UNAUDITED)
<TABLE>
<CAPTION>
1997 1996
------- ------
(In Thousands)
<S> <C> <C>
Reconciliation of net earnings to net cash provided by
operating activities:
Net earnings $ 1,225 1,099
Adjustments to reconcile net earnings to net cash
provided by operating activities:
Depreciation and amortization 146 168
Provision for loan losses 140 160
Loss (gain) on sale of available-for-sale securities 48 (7)
Decrease in loans held for sale 134 476
Increase in interest receivable (179) (190)
Increase in other assets, net (167) (112)
Increase in other liabilities 88 21
Increase in interest payable 124 63
------- ------
Total adjustments 334 579
------- ------
Net cash provided by operating activities $ 1,559 1,678
======= ======
Supplemental schedule of non-cash activities: (In Thousands)
Unrealized gain (loss) in value of securities available-for
sale, net of tax expense of $8 in 1997 and income
tax benefits of $351 in 1996 $ 11 (574)
======= ======
</TABLE>
See accompanying notes to consolidated financial statements (unaudited).
6
<PAGE> 7
FIRST FINANCIAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
BASIS OF PRESENTATION
The unaudited consolidated financial statements include the accounts of First
Financial Corporation and its wholly-owned subsidiary, First Bank and Trust.
The accompanying consolidated financial statements have been prepared, without
audit, pursuant to the rules and regulations of the Securities and Exchange
Commission. Certain information and footnote disclosures normally included in
financial statements prepared in accordance with generally accepted accounting
principles have been condensed or omitted pursuant to such rules and
regulations.
In the opinion of management, the statements contain all adjustments and
disclosures necessary to summarize fairly the financial position of the Company
as of June 30, 1997 and December 31, 1996, and the results of operations for the
three months and six months ended June 30, 1997 and 1996 and changes in cash
flows for the six months ended June 30, 1997 and 1996, respectively. All
significant intercompany transactions have been eliminated. The interim
consolidated financial statements should be read in conjunction with the notes
to the consolidated financial statements presented in the Company's 1996 Annual
Report to stockholders. The results for interim periods are not necessarily
indicative of results to be expected for the complete fiscal year.
ALLOWANCE FOR LOAN LOSSES
Transactions in the allowance for loan losses were as follows:
<TABLE>
<CAPTION>
Six Months Ended
June 30,
-------------------
1997 1996
------- ------
(In Thousands)
<S> <C> <C>
Balance, January 1, 1997 and 1996, respectively $ 1,541 1,246
Add (deduct):
Losses charged to allowance (49) (40)
Recoveries credited to allowance 14 16
Provision for loan losses 140 160
------- ------
Balance, June 30, 1997 and 1996, respectively $ 1,646 1,382
======= ======
</TABLE>
EARNINGS PER SHARE
The computation of earnings per common share and common equivalent share is
based upon the weighted average number of common shares outstanding during the
period plus the effect of common shares contingently issuable from stock
options. On April 18, 1996, the stockholders approved a two-for-one stock split
effective for shareholders of record on May 1, 1996. The weighted average number
of shares outstanding used in the computation of earnings per share and
dividends per share has been retroactively adjusted to reflect the stock split.
7
<PAGE> 8
FIRST FINANCIAL CORPORATION
FORM 10-QSB, CONTINUED
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
The purpose of this discussion is to provide insight into the
financial condition and results of operations of the Registrant and its
subsidiary. This discussion should be read in conjunction with the consolidated
financial statements. Reference should also be made to the Company's 1996 Annual
Report to stockholders for a complete discussion of factors that impact
liquidity, capital and the results of operations.
LIQUIDITY AND INTEREST RATE SENSITIVITY MANAGEMENT
The concept of liquidity involves the ability of the Company and
its subsidiary to meet future cash flow requirements, particularly those of
customers who are either withdrawing funds from their accounts or borrowing to
meet their credit needs.
Proper asset/liability management is necessary to maintain
stability in the balance of interest-sensitive assets to interest-sensitive
liabilities in order to provide a stable growth in net interest margins.
Earnings on interest-sensitive assets such as loans tied to the prime rate of
interest and federal funds sold, may vary considerably from fixed rate assets
such as long-term investment securities and fixed rate loans. Interest-sensitive
liabilities such as large certificates of deposit and money market certificates,
generally require higher costs than fixed rate instruments such as passbook
savings.
Banks, in general, must maintain large cash balances to meet
day-to-day cash flow requirements as well as maintaining required reserves for
regulatory agencies. The cash balances maintained are the primary source of
liquidity. Federal funds sold, which are basically overnight or short-term loans
to other banks that increase the other bank's required reserves, are also a
major source of liquidity.
The Company's investment portfolio consists of earning assets that
provide interest income. For those securities classified as held-to-maturity,
the Company has the ability and intent to hold these securities to maturity or
on a long-term basis. Securities classified as available-for-sale include
securities intended to be used as a part of the Company's asset/liability
strategy and/or securities that may be sold in response to changes in interest
rate, prepayment risk, the need or desire to increase capital and similar
economic factors. The Company has approximately $7.4 million of securities
scheduled to mature or reprice in the next twelve months.
8
<PAGE> 9
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION, CONTINUED
A secondary source of liquidity is the Bank's loan portfolio. At
June 30, 1997 first mortgage loans of approximately $18 million and other loans
of approximately $68 million either will become due or will be subject to rate
adjustments within twelve months from the respective date. Continued emphasis
will be placed on structuring adjustable rate loans.
As for liabilities, certificates of deposit of $100,000 or greater
of approximately $26 million will become due or subject to repricing during the
next twelve months. The Bank's deposit base increased approximately $15 million
during the six months ended June 30, 1997.
The Company also has the ability to meet its liquidity needs
through advances from the Federal Home Loan Bank. At June 30, 1997 the Bank had
$968,000 of these advances and has a total line of credit with the FHLB of
$9,000,000. In addition, the subsidiary has a line of credit with other banks
totaling $14,000,000 which can be used to purchase Federal funds. The Company
also has a $5,000,000 line of credit which currently has an outstanding balance
of $800,000.
As of June 30, 1997, the Bank's liability sensitivity was 2.5%,
excess of interest sensitive liabilities over earning assets divided by total
assets at the one year threshold. Management estimates an increase or decrease
in interest rates of 1% would have an immaterial impact on earnings.
It is anticipated that with present maturities, the anticipated
growth in deposit base, and the efforts of management in its asset/liability
management program, liquidity will not pose a problem in the foreseeable future.
At the present time, there are no known trends or any known commitments,
demands, events or uncertainties that will result in or that are reasonably
likely to result in the Company's liquidity changing in any material way.
Liquidity was 18.8% at June 30, 1997 and 22.9% at December 31, 1996.
CAPITAL RESOURCES
A primary source of capital is internal growth through retained
earnings. The ratio of stockholders' equity to total assets was 7.2% at June 30,
1997 and December 31, 1996. Total assets increased 8.9% during the six months
ended June 30, 1997. Cash dividends of $.20 per share were paid during the year
ended December 31, 1996. No cash dividends were paid during the first six months
of 1997 or 1996. Cash dividends will be paid or increased in the remainder of
1997 over 1996 only in the discretion of the Board of Directors to the extent
profits increase. No material changes in the mix or cost of capital is
anticipated in the foreseeable future.
At the present time there are no material commitments for capital
expenditures other than the planned branch described below.
The FDIC, which is the subsidiary's primary Federal regulator, has
specified new guidelines for purposes of evaluating a bank's capital adequacy.
Under these guidelines, a credit risk is assigned to various categories of
assets and commitments ranging from 0% to 100% based on the risk associated with
the asset or commitment.
9
<PAGE> 10
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION, CONTINUED
CAPITAL RESOURCES, CONTINUED
The following schedule details the Company's risk-based capital at
June 30, 1997 (excluding the effect of the adoption of SFAS No. 115):
<TABLE>
<CAPTION>
In Thousands
------------
(except percentages)
<S> <C>
Tier I capital:
Stockholders' equity $ 14,374
Tier II capital:
Allowable allowance for loan losses 1,646
--------------
Total capital $ 16,020
==============
Risk-weighted assets $ 143,173
==============
Risk-based capital ratios:
Tier I capital ratio 10.03%
==============
Tier II capital ratio 11.19%
==============
</TABLE>
The Company is required to maintain a Tier II capital to risk
weighted asset ratio of 8% and a Tier I capital to risk weighted asset ratio of
4%. At June 30, 1997, the Company and its subsidiary bank were in compliance
with these requirements.
In addition, the Company and its subsidiary are required to
maintain a leverage ratio (defined as equity divided by the most recent quarter
average total assets) of 4%. The leverage ratio at June 30, 1997 was 7.45%.
Management continues to implement its plan to maximize the
leverage position of the Company consistent with safe and sound business
practices and the current regulatory environment. Past decisions by management
have committed the Company to a path of growth to achieve the strategic goals of
maximum leverage. Management is cognizant of the pressures of this philosophy
but believes various combinations of retained earnings, additional capital stock
issues, preferred stock offerings, and other avenues will enable the Company to
maintain a capital position consistent with sound banking principles and at the
same time reward stockholders with significant profits.
Effective January 1, 1992, the Company acquired 100% of the common
stock of First Bank and, accordingly, became a one bank holding company. The
Board of Directors and management believe that the holding company structure
will permit greater flexibility in the expansion of First Bank's present
business and will assist the Bank in being more responsive to its customers'
broadening and changing financial needs. In particular, the holding company
structure was adopted to provide greater flexibility in raising additional
capital for First Bank. Greater flexibility in raising capital is an important
component in seeking to assure that the growth of the Bank's capital will keep
pace with its asset growth.
10
<PAGE> 11
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION, CONTINUED
CAPITAL RESOURCES, CONTINUED
There is no established trading market for the Company's stock.
From time to time the Company may acquire shares of its stock to provide
liquidity in the shares. All shares of common stock have been retroactively
adjusted for the two-for-one stock split approved on April 18, 1996. During the
six months ended June 30, 1997, the Company issued 400 shares of its common
voting stock in connection with the exercise of stock options and no shares were
redeemed. No shares of the Company's voting common stock were redeemed for the
year ending December 31, 1996. Transactions involving the Company, its directors
and officers may not be reliable indicators of value.
In April, 1993, the stockholders approved a stock option plan
whereby 159,000 shares of the Company's stock is available for issuance to
directors, officers and employees of the Company. At June 30, 1997, 79,400
shares had been granted at $10 per share (1,320 shares have been exercised at
June 30, 1997), 2,000 shares had been granted at $12 per share (600 shares have
been exercised at June 30, 1997), 4,000 shares were granted at $13 per share,
(no shares have been exercised as of June 30, 1997), 29,792 shares were granted
at $15 per share (170 shares have been exercised at June 30, 1997) and 528
shares were granted at $19 per share (no shares have been exercised as of June
30, 1997). The options are granted at the estimated market price of the stock at
the date the option was granted. At June 30, 1997 there were 113,630 shares
granted but not exercised. The options are generally exercisable ratably over a
ten year period from the date granted. At June 30, 1997 options to purchase
43,280 common shares were available for grant in future years.
At present, the net book value of premises and equipment is 42.1%
of the Company's capital. The subsidiary bank now has a significant presence in
the Wilson County market with offices in Mt. Juliet, Tennessee, Hermitage,
Tennessee and Lebanon, Tennessee. The bank also has a new branch bank facility
in Smyrna, Rutherford County, Tennessee which opened in the fourth quarter of
1996. The Company is also in the process of constructing a new branch bank
facility in Donelson, Davidson County, Tennessee. Management believes that
expansion into these different markets diversifies its risk and provides
increased opportunity for generating growth and profits. At present the ratio of
fixed assets to capital at the subsidiary bank level is 40.0%. Investment in
fixed assets can have a detrimental impact on profits, particularly in the short
term.
RESULTS OF OPERATIONS
Net earnings were $1,225,000 for the six months ended June 30,
1997 as compared to $1,099,000 for the same period in 1996. Earnings per share
increased from $1.17 in 1996 to $1.29 for the same period in 1997.
As in most financial institutions, a major element in analyzing
the statement of earnings is net interest income, which is the excess of
interest earned over interest paid. This is particularly true with the
volatility in interest rates encountered in recent years.
11
<PAGE> 12
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION, CONTINUED
RESULTS OF OPERATIONS, CONTINUED
The Company's interest income, excluding tax equivalent
adjustments, increased by $915,000 or 13% during the six months ended June 30,
1997 and $1,378,000 or 24.3% for the same period in 1996. Interest income for
the quarter ended June 30, 1997 increased $500,000 or 13.9% over the quarter
ended June 30, 1996 and $223,000 or 5.8% over the first quarter of 1997. The
increases were primarily attributable to higher volumes of earning assets. The
ratio of average earning assets to total average assets was 94.7% for the six
months ended June 30, 1997 and 93.2% for the year ended December 31, 1996.
Interest expense increased by $504,000 the six months ended June
30, 1997 or 15.8% compared to an increase of $528,000 or 19.9% for the same
period in 1996. Interest expense for the quarter ended June 30, 1997 increased
$271,000 or 16.8% as compared to the quarter ended June 30, 1996 and increased
$90,000 or 5% over the first quarter of 1997. The increases in 1997 and 1996 can
be attributable largely to an increase in volume.
The foregoing resulted in an increase in net interest income of
$411,000 or 10.7% during the first six months of 1997 and $850,000 or 28.3% in
the comparable period of 1996. Net interest income for the quarter ended June
30, 1997 increased $229,000 or 11.6% as compared to $373,000 or 23.3% for the
comparable period of 1996.
Since assets are more sensitive to movements in rates this should
favor the income statement. Should loan demand not increase, the competition,
intent on increasing market share, could drive interest expenses up and the
Company's net interest margin will decline.
The provision for loan losses was $140,000 for the first six
months of 1997 compared to $160,000 for the same period in 1996. The provision
for loan losses is based on past loan experience and other factors which, in
management's judgment, deserve current recognition in estimating possible loan
losses. Such other factors considered by management include growth and
composition of the loan portfolio, review of specific loan problems, the
relationship of the allowance for loan losses to outstanding loans, adverse
situations that may affect the borrower's ability to repay, the estimated value
of any underlying collateral and current economic conditions that may affect the
borrower's ability to repay. Management has in place a system designed to
identify and monitor problem loans on a timely basis.
12
<PAGE> 13
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION, CONTINUED
RESULTS OF OPERATIONS, CONTINUED
The following schedule details selected information as to
non-performing loans of the Company at June 30, 1997:
<TABLE>
<CAPTION>
Past Due
90 Days Non-Accrual
------- -----------
(In Thousands)
<S> <C> <C>
Real estate loans $ 84 288
Installment loans 72 --
Commercial 144 11
---- ---
$300 299
==== ===
Renegotiated loans $237 --
==== ===
</TABLE>
At June 30, 1997, loans which include the above, totaling
$2,326,323 were included in the Company's internal classified loan list. Of
these loans $855,391 are consumer and $1,470,932 are commercial loans. The
collateral values securing these loans are estimated at approximately
$4,578,000, ($1,618,000 related to consumer loans and $2,960,000 related to
commercial loans). Such loans are listed as classified when information obtained
about possible credit problems of the borrower has prompted management to
question the ability of the borrower to comply with the agreed repayment terms
of the loan agreement. The loan classifications do not represent or result from
trends or uncertainties which management expects will materially impact future
operating results, liquidity or capital resources.
There were no material amounts of other interest-bearing assets
(interest-bearing deposits with other banks, municipal bonds, etc.) at June 30,
1997 which would be required to be disclosed as past due, non-accrual,
restructured or potential problem loans, if such interest-bearing assets were
loans.
Non-interest income, excluding securities transactions, increased
$167,000 or 20% during the six months ended June 30, 1997 and increased $152,000
or 22.2% for the same period in 1996. The increase for the quarter ended June
30, 1997 was $107,000 or 24.4% as compared to the comparable quarter in 1996 and
an increase of $86,000 or 18.7% as compared to the three months ended March 31,
1997. The primary increase in non-interest income consists of an increase in
income generated from sales of mortgage loans. Mortgage loan income (included in
other income) for the six month period ended June 30, 1997, was $387,000 as
compared to $331,000 for the period ending June 30, 1996. The increase of
$56,000 or 16.9% has been caused by the increase in the refinancing of mortgage
loans as compared to the same period in last year and the increase in housing
development in the subsidiary bank's service area. Other increases in 1997 and
1996 resulted from increased service charges on deposits, primarily for demand
deposit and NOW accounts. These increases in service charges were the result of
additional volume combined with modest price increases to offset a portion of
the interest costs of NOW accounts and the increased costs of processing the
demand deposit accounts. Commissions and service charges are monitored
continually to insure maximum return based on costs and competition.
13
<PAGE> 14
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION, CONTINUED
RESULTS OF OPERATIONS, CONTINUED
There was a $48,000 security loss in the available-for-sale
category for the six months ended June 30, 1997 as compared to a $7,000 security
gain in 1996.
Non-interest expense, excluding securities transactions, increased
$364,000 or 12.7% during the first six months of 1997 and $398,000 or 16.1%
during the same period in 1996. The increase for the quarter ended June 30, 1997
was $152,000 or 10.2% as compared to the quarter ended June 30, 1996 and $40,000
or 2.5% as compared to the three months ended March 31, 1997. The increases in
1997 and 1996 were primarily attributable to increases in salaries and employee
benefits which is due to increased number of employees and increases in annual
compensation.
Management is not aware of any known trends, events or
uncertainties that will have or reasonably likely to have a material effect on
the Company's liquidity, capital resources or operations of the Company. The
Company is not aware of any current recommendations, which, if they were to be
implemented, would have a material effect on liquidity, capital resources or
operations other than as discussed in the capital resources section of this
plan.
IMPACT OF INFLATION
The primary impact which inflation has on the results of the
Company's operations is evidenced by its effects on interest rates. Interest
rates tend to reflect, in part, the financial market's expectations of the level
of inflation and, therefore, will generally rise or fall as the level of
expected inflation fluctuates. To the extent interest rates paid on deposits and
other sources of funds rise or fall at a faster rate than the interest income
earned on funds, loans or investments, net interest income will vary. Inflation
also affects non-interest expenses as goods and services are purchased, although
this has not appeared to have a significant effect on net earnings. If the
inflation rate stays flat or increases slightly, the effect on profits will not
likely be significant.
14
<PAGE> 15
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
None
ITEM 2. CHANGES IN SECURITIES
(a) None
(b) None
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
(a) None
(b) None
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
(a) The Corporation's Annual Meeting of Shareholders was held on April 17,
1997. Matters submitted to, and approved by shareholders are listed
below, as is a tabulation of voting Broker nonvoties totaled zero (o)
shares.
(b) The following persons nominated as Directors were elected:
<TABLE>
<CAPTION>
Name For Withheld
---- --- --------
<S> <C> <C>
Harold G. Bone 597,676 0
Robert L. Callis 597,676 0
Morris D. Ferguson 597,676 0
Arthur P. Gardner 597,676 0
David Major 597,676 0
M. Dale McCulloch 597,676 0
Dan E. Midgett 597,676 0
Monty Mires 597,676 0
James S. Short 597,676 0
Harold W. Sutton 597,676 0
</TABLE>
(c) The election by the Board of Directors of Maggart and Associates, P.C.,
as the Corporation's independent accountants and auditors for the year
ending December 31, 1997 was ratified by the following vote:
For Against Abstain
--- ------- -------
597,676 0 0
(d) None
15
<PAGE> 16
PART II. OTHER INFORMATION, CONTINUED
ITEM 5. OTHER INFORMATION
(a) None
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibit 27 Financial Data Schedule (for SEC use only) - This schedule
contains summary financial information extracted from the financial
statements of the Company at June 30, 1997 (unaudited) and is qualified
in its entirety by reference to such financial statements as set forth
in the Company's quarterly report on Form 10-QSB for the period ending
June 30, 1997.
(b) No reports on Form 8-K have been filed during the quarter for which
this report is filed.
16
<PAGE> 17
SIGNATURES
In accordance with the requirements of the Exchange Act, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
FIRST FINANCIAL CORPORATION
---------------------------
(Registrant)
DATE: 8/11/97 /s/ David Major
------- -----------------------------------------------
David Major
Chairman, President and Chief Executive Officer
DATE: 8/11/97 /s/ Sally Kimble
------- -----------------------------------------------
Sally Kimble
Treasurer, Chief Financial Officer, and
Chief Accounting Officer
17
<TABLE> <S> <C>
<ARTICLE> 9
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> JUN-30-1997
<CASH> 8,515
<INT-BEARING-DEPOSITS> 0
<FED-FUNDS-SOLD> 4,425
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 39,544
<INVESTMENTS-CARRYING> 0
<INVESTMENTS-MARKET> 0
<LOANS> 139,176
<ALLOWANCE> 1,646
<TOTAL-ASSETS> 200,418
<DEPOSITS> 182,439
<SHORT-TERM> 800
<LIABILITIES-OTHER> 1,408
<LONG-TERM> 1,357
0
0
<COMMON> 2,673
<OTHER-SE> 11,741
<TOTAL-LIABILITIES-AND-EQUITY> 200,418
<INTEREST-LOAN> 6,517
<INTEREST-INVEST> 1,251
<INTEREST-OTHER> 185
<INTEREST-TOTAL> 7,953
<INTEREST-DEPOSIT> 3,605
<INTEREST-EXPENSE> 3,686
<INTEREST-INCOME-NET> 4,267
<LOAN-LOSSES> 140
<SECURITIES-GAINS> (48)
<EXPENSE-OTHER> 3,230
<INCOME-PRETAX> 1,853
<INCOME-PRE-EXTRAORDINARY> 1,853
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,225
<EPS-PRIMARY> 1.29
<EPS-DILUTED> 1.29
<YIELD-ACTUAL> 0
<LOANS-NON> 299
<LOANS-PAST> 300
<LOANS-TROUBLED> 237
<LOANS-PROBLEM> 2,326
<ALLOWANCE-OPEN> 1,541
<CHARGE-OFFS> 49
<RECOVERIES> 14
<ALLOWANCE-CLOSE> 1,646
<ALLOWANCE-DOMESTIC> 1,646
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
