<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 MARCH 31, 1998
[ ] 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 Year,
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:
Common stock outstanding: 942,646 shares at May 5, 1998
Transitional Small Business Disclosure Format (check one)
YES NO X
----- -----
<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 - March 31, 1998 and December 31, 1997.
Consolidated Statements of Earnings - For the three months ended March 31,
1998 and 1997.
Consolidated Statements of Comprehensive Earnings - For the three months
ended March 31, 1998 and 1997.
Consolidated Statements of Cash Flows - For the three months ended March
31, 1998 and 1997.
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations.
2
<PAGE> 3
FIRST FINANCIAL CORPORATION
CONSOLIDATED BALANCE SHEETS
MARCH 31, 1998 AND DECEMBER 31, 1997
(UNAUDITED)
<TABLE>
<CAPTION>
March 31 December 31,
1998 1997
--------- ---------
(In Thousands)
<S> <C> <C>
Assets
Loans $ 150,625 146,769
Less: Allowance for loan losses 1,772 1,704
--------- ---------
Net loans 148,853 145,065
Securities:
Securities available-for-sale, at market (amortized cost
$39,849,000 and $39,613,000, respectively) 40,275 40,015
Loans held for sale 4,314 2,606
Federal funds sold 13,475 9,300
--------- ---------
Total earning assets 206,917 196,986
Cash and due from banks 7,257 6,100
Bank premises and equipment, net of accumulated depreciation 6,800 6,752
Accrued interest receivable 1,857 1,873
Other real estate 59 2
Other assets 1,124 779
--------- ---------
$ 224,014 212,492
========= =========
Liabilities and Stockholders' Equity
Deposits $ 204,576 193,260
Short-term borrowings -- 600
Accrued interest payable 1,163 1,096
Other liabilities 405 246
Advances from Federal Home Loan Bank 929 942
Long-term debt 385 386
--------- ---------
Total liabilities 207,458 196,530
--------- ---------
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 1,080,572 and 1,079,572 shares at March 31, 1998 and
December 31, 1997 2,701 2,699
Additional paid-in capital 4,028 4,021
Retained earnings 10,820 10,250
Net unrealized gains (losses) on available-for-sale securities, net
of applicable income taxes of $162,000 and $152,000, respectively 264 249
Less cost of 137,926 shares of treasury stock (1,257) (1,257)
--------- ---------
Total stockholders' equity 16,556 15,962
--------- ---------
$ 224,014 212,492
========= =========
</TABLE>
See accompanying notes to consolidated financial statements (unaudited).
3
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FIRST FINANCIAL CORPORATION
CONSOLIDATED STATEMENTS OF EARNINGS
THREE MONTHS ENDED MARCH 31, 1998 AND 1997
(UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended
March 31,
--------------------------
1998 1997
---- ----
(Dollars In Thousands
Except Per Share Amount)
<S> <C> <C>
Interest income:
Interest and fees on loans $3,663 3,127
Interest and dividends on securities:
Taxable securities 439 505
Exempt from Federal income taxes 161 132
Interest on loans held for sale 47 32
Interest on federal funds sold 111 69
------ ------
Total interest income 4,421 3,865
------ ------
Interest expense:
Interest on deposits 2,058 1,758
Interest on short term borrowings 8 15
Interest on advances from Federal Home Loan Bank 17 18
Interest on long-term debt 7 7
------ ------
Total interest expense 2,090 1,798
------ ------
Net interest income 2,331 2,067
Provision for loan losses 120 60
------ ------
Net interest income after provision for loan losses 2,211 2,007
------ ------
Non-interest income:
Service charges on deposit accounts 257 229
Other fees and commissions 67 60
Other income 231 170
------ ------
555 459
------ ------
Non-interest expense:
Salaries and employee benefits 1,126 905
Occupancy expenses, net 104 77
Furniture and equipment expense 151 126
Other operating expenses 482 435
Loss on sale of securities -- 5
Data processing fees 59 52
------ ------
1,922 1,600
------ ------
Earnings before income taxes 844 866
Income taxes 274 291
------ ------
$ 570 575
====== ======
Basic earnings per common share $ .60 .62
====== ======
Diluted earnings per common share $ .59 .60
====== ======
Dividends per share $ -- --
====== ======
</TABLE>
See accompanying notes to consolidated financial statements (unaudited).
4
<PAGE> 5
FIRST FINANCIAL CORPORATION
CONSOLIDATED STATEMENTS OF COMPREHENSIVE EARNINGS
THREE MONTHS ENDED MARCH 31, 1998 AND 1997
(UNAUDITED)
<TABLE>
<CAPTION>
1998 1997
---- ----
(In Thousands)
<S> <C> <C>
Net earnings $ 570 575
---------- ---------
Other comprehensive earnings, net of tax:
Unrealized gains (losses) on available-for-sale
securities arising during period, net of taxes
of $9,000 and $97,000, respectively 15 (165)
Reclassification adjustment for gains included
in net earnings, net of taxes of $2,000 -- 3
---------- ---------
Other comprehensive earnings (loss) 15 (162)
---------- ---------
Comprehensive earnings $ 585 413
========== =========
</TABLE>
See accompanying notes to consolidated financial statements (unaudited).
5
<PAGE> 6
FIRST FINANCIAL CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
THREE MONTHS ENDED MARCH 31, 1998 AND 1997
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
(UNAUDITED)
<TABLE>
<CAPTION>
1998 1997
---- ----
(In Thousands)
<S> <C> <C>
Cash flows from operating activities:
Interest received $ 4,433 3,773
Fees and commissions received 324 289
Interest paid (2,023) (1,794)
Originations of loans held for sale (17,005) (7,056)
Proceeds from loan sales 15,528 7,738
Cash paid to suppliers and employees (1,987) (1,695)
Income taxes paid (274) (55)
---------- ----------
Net cash (used by) provided by operating
activities (1,004) 1,200
---------- ----------
Cash flows from investing activities:
Loans made to customers, net of repayments (3,908) (6,389)
Proceeds from sales of available-for-sale securities -- 1,246
Proceeds from maturities of available-for-sale securities 340 1,528
Proceeds from calls of available-for-sale securities 2,309 --
Purchase of available-for-sale securities (2,880) (3,043)
Purchase of premise and equipment (179) (115)
Increase in other real estate (57) --
---------- -----------
Net cash used in investing activities (4,375) (6,773)
---------- ----------
Cash flows from financing activities:
Net increase in time deposits 7,380 1,703
Net increase in non-interest bearing, savings, and NOW
deposit accounts 3,936 4,934
Repayment of short-term borrowings (600) --
Repayment of long-term debt (1) (1)
Repayment of Federal Home Loan Bank advances (13) (13)
Issuance of common stock 9 --
---------- ----------
Net cash provided by financing activities 10,711 6,623
---------- ----------
Net increase in cash and cash equivalents 5,332 1,050
Cash and cash equivalents at beginning of period 15,400 9,137
---------- ----------
Cash and cash equivalents at end of period $ 20,732 10,187
========== ==========
</TABLE>
See accompanying notes to consolidated financial statements (unaudited).
6
<PAGE> 7
FIRST FINANCIAL CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS, CONTINUED
THREE MONTHS ENDED MARCH 31, 1998 AND 1997
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
(UNAUDITED)
<TABLE>
<CAPTION>
1998 1997
---- ----
(In Thousands)
<S> <C> <C>
Reconciliation of net earnings to net cash provided by
operating activities:
Net earnings $ 570 575
Adjustments to reconcile net earnings to net cash
provided by operating activities:
Depreciation and amortization 127 93
Provision for loan losses 120 60
Loss on sale of available-for-sale securities -- 5
Increase (decrease) in loans held for sale (1,708) 512
Increase in other assets, net (355) (198)
Decrease (increase) in interest receivable 16 (80)
Increase in interest payable 67 4
Increase in other liabilities 159 229
------- -------
Total adjustments (1,574) 625
------- -------
Net cash (used) provided by operating activities $(1,004) 1,200
======= =======
Supplemental Schedule of Noncash Activities:
Unrealized gain (loss) in values of securities available-
for-sale, net of income tax expense of $9,000 and
benefit of $99,000, respectively for the quarters ended
March 31, 1998 and 1997, respectively $ 15 (162)
======= =======
</TABLE>
See accompanying notes to consolidated financial statements (unaudited).
7
<PAGE> 8
FIRST FINANCIAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
BASIS OF PRESENTATION
The unaudited consolidated financial statements include the accounts of First
Financial Corporation (Company) and its wholly-owned subsidiary, First Bank
and Trust (First Bank).
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 March 31, 1998 and December 31, 1997, and the results of operations for
the three months ended March 31, 1998 and 1997, and comprehensive earnings for
the three months ended March 31, 1998 and 1997 and cash flows for the three
months ended March 31, 1998 and 1997. 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 1997 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>
Three Months Ended
March 31,
-------------------------
1998 1997
---- ----
(In Thousands)
<S> <C> <C>
Balance, January 1, 1998 and 1997, respectively $ 1,704 1,541
Add (deduct):
Losses charged to allowance (68) (26)
Recoveries credited to allowance 16 10
Provision for loan losses 120 60
--------- --------
Balance, March 31, 1998 and 1997, respectively $ 1,772 1,585
========= ========
</TABLE>
8
<PAGE> 9
FIRST FINANCIAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
EARNINGS PER SHARE
In 1997, Statement of Financial Accounting Standards ("SFAS") 128 "Earnings Per
Share" established uniform standards for computing and presenting earnings per
share. SFAS 128 replaces the presentation of primary earnings per share with the
presentation of basic earnings per share and diluted earnings per share. The
computation of basic earnings per share is based on the weighted average number
of common shares outstanding during the period. The computation of diluted
earnings per share for the Company begins with the basic earnings per share plus
the effect of common shares contingently issuable from stock options.
The following is a summary of components comprising basic and diluted earnings
per share (EPS) for the three months ended March 31, 1998 and 1997:
<TABLE>
<CAPTION>
(In Thousands, except share amounts) 1998 1997
---- ----
<S> <C> <C>
Basic EPS Computation:
Numerator - income available to common
shareholders $ 570 575
----------- -----------
Denominator - weighted average number of
common shares outstanding 942,187 930,988
----------- -----------
Basic earnings per common share $ .60 .62
=========== ===========
Diluted EPS Computation:
Numerator $ 570 575
----------- -----------
Denominator:
Weighted average number of common shares
outstanding 942,187 930,988
Dilutive effect of stock options 21,856 21,512
----------- -----------
964,043 952,500
----------- -----------
Diluted earnings per common share $ .59 .60
=========== ===========
</TABLE>
Management is not aware of any current recommendations by the regulatory
authorities which, if implemented, would have a material effect on the Company's
liquidity, capital resources or operations.
9
<PAGE> 10
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 1997 Annual Report to
stockholders for a complete discussion of factors that impact liquidity, capital
and the results of operations.
Management's discussion and analysis may include forward-looking
statements. Many factors affect First Financial Corporation's (the "Company")
financial condition and profitability, including changes in economic conditions,
the volatility of interest rates, political events and competition from other
providers of financial services. Because these factors are unpredictable and
beyond the Company's control, earnings may fluctuate from period to period. The
purpose of this discussion and analysis is to provide Form 10-QSB readers with
information relevant to understanding and assessing the financial condition and
results of operations of the Company.
LIQUIDITY AND INTEREST RATE SENSITIVITY MANAGEMENT
The concept of liquidity involves the ability of the Registrant 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. 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 $10.9 million of securities
scheduled to mature or reprice in the next twelve months.
A secondary source of liquidity is the Bank's loan portfolio. At March
31, 1998 first mortgage loans of approximately $24.4 million and other loans of
approximately $71.4 million either will become due or will be subject to rate
adjustments within twelve months from the respective date. Continued emphasis is
placed on structuring adjustable rate loans.
10
<PAGE> 11
FIRST FINANCIAL CORPORATION
FORM 10-QSB, CONTINUED
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
LIQUIDITY AND INTEREST RATE SENSITIVITY MANAGEMENT, CONTINUED
As for liabilities, certificates of deposit of $100,000 or greater of
approximately $29.7 million will become due during the next twelve months. The
Bank's deposit base increased approximately $11.3 million during the quarter
ended March 31, 1998.
The Company also has the ability to meet its liquidity needs through
advances from the Federal Home Loan Bank. At March 31, 1998, the Bank had
$929,000 of these advances.
As of March 31, 1998, the Bank's asset sensitivity was 13.5% (the excess
of earning assets over interest sensitive liabilities divided by total assets at
March 31, 1998). 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
20.9% at March 31, 1998 and 19.5% at December 31, 1997.
CAPITAL RESOURCES
A primary source of capital is internal growth through retained
earnings. The ratio of stockholders' equity to total assets was 7.4% at March
31, 1998 and 7.5% at December 31, 1997. Total assets increased 5.4% during the
three months ended March 31, 1998. Cash dividends of $.25 per share were
declared during the year ended December 31, 1997. Cash dividends will be
declared in 1998 only in the discretion of the Board of Directors to the extent
of available profits.
Effective June 6, 1996, the Company established a Dividend Reinvestment
Plan. The Plan offers eligible shareholders the opportunity to purchase
additional shares of common stock, upon the Company's declaration of dividends.
There were 7,850 shares issued under the Plan during 1997. 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 branch described below.
The FDIC, which is the subsidiary's primary federal regulator, has
specific 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.
11
<PAGE> 12
FIRST FINANCIAL CORPORATION
FORM 10-QSB, CONTINUED
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
The following schedule details the Company's risk-based capital at March
31, 1998 (excluding the effect of the adoption of SFAS No. 115):
<TABLE>
<CAPTION>
In Thousands
--------------------
(except percentages)
<S> <C>
Tier I capital:
Stockholders' equity $ 16,292
Tier II capital:
Allowable allowance for loan losses limited to 1.25%
of risk-weighted assets 1,772
-----------
Total risk-based capital $ 18,064
===========
Risk-weighted assets $ 162,114
===========
Risk-based capital ratios:
Tier I capital ratio 10.05%
===========
Total risk-based capital ratio 11.14%
===========
</TABLE>
The Company is required to maintain a total risk-based capital to risk
weighted asset ratio of 8% and a Tier I capital to risk weighted asset ratio of
4%. At March 31, 1998 and December 31, 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 March 31, 1998 was 7.54%.
Management intends 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, possible additional capital stock issues, possible
preferred stock offerings, and other avenues will maintain a capital position
consistent with sound banking principles and at the same time reward
stockholders with significant earnings per share.
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 enhances
flexibility in the expansion of First Bank's business and enables the Bank to be
more responsive to its customers' broadening and changing financial needs. In
particular, the holding company structure provides greater flexibility in
raising additional capital for First Bank. Greater flexibility in raising
capital is necessary in order to insure that the growth of the Bank's capital
will keep pace with its asset growth.
12
<PAGE> 13
FIRST FINANCIAL CORPORATION
FORM 10-QSB, CONTINUED
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
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 some
liquidity in the shares. All shares of common stock have been retroactively
adjusted for a two-for-one stock split approved on April 18, 1996. During the
quarter ended March 31, 1998, the Company issued 1,000 shares of its voting
common stock in connection with the exercise of options and no shares were
redeemed. No shares of the Company's common voting stock were redeemed for the
year ending December 31, 1997. Privately negotiated trades may involve the
Company, its directors and officers and, accordingly, 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 December 31, 1997, 79,400 shares of
the options had been granted at $10 per share (4,176 shares have been exercised
at March 31, 1998); 2,000 shares of the options had been granted at $12 per
share (600 shares have been exercised at March 31, 1998), 4,000 shares of the
options had been granted at $13 per share (no shares have been exercised as of
March 31, 1998), 29,792 shares of the options were granted at $15 per share (622
shares have been exercised as of March 31, 1998), 528 shares of the options were
granted at $19 per share (no shares have been exercised as of March 31, 1998)
and 13,000 shares of the options were granted at $22.50 per share (100 shares
have been exercised as of March 31, 1998). The options are granted at the
estimated market price of the stock at the date the option was granted. At March
31, 1998 there were 123,222 shares granted but not exercised. The options are
generally exercisable ratably over a ten year period from the date granted. At
March 31, 1998 options to purchase 30,280 common shares were available for grant
in future years.
At present, the net book value of premises and equipment is 41.1% 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, 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 41.4%. Investment in fixed assets can have a
detrimental impact on profits, particularly in the short term.
RESULTS OF OPERATIONS
Net earnings were $570,000 for the three months ended March 31, 1998 as
compared to $575,000 for the same period in 1997. Basic earnings per share
decreased from $.62 in 1997 to $.60 for the same period in 1998. Diluted
earnings per share decreased from $.60 in 1997 to $.59 for the same period in
1998.
As in most financial institutions, a major element in analyzing the
statement of earnings is net interest income, i.e., the excess of interest
earned over interest paid. This is particularly true with the volatility in
interest rates encountered in recent years.
13
<PAGE> 14
FIRST FINANCIAL CORPORATION
FORM 10-QSB, CONTINUED
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
The Company's interest income, excluding tax equivalent adjustments,
increased by $556,000 or 14.4% during the three months ended March 31, 1998 and
increased $415,000 or 12.0% for the same period in 1997. The increases were
primarily attributable to higher volumes of earning assets. The ratio of average
earning assets to total average assets was 91.4% for the quarter ended March 31,
1998 and 93.1% for the year ended December 31, 1997.
Interest expense increased by $292,000 for the three months ended March
31, 1998 or 16.2% compared to $233,000 or 14.9% for the same period in 1997. The
increases in 1998 and 1997 can be attributable largely to an increase in volume.
The foregoing increases in interest income and interest expenses
resulted in an increase in net interest income of $264,000 or 12.8% during the
first three months of 1998 and $182,000 or 9.7% in the comparable period of
1997.
Since assets are more sensitive to movements in rates this should favor
the income statement. Should loan demand not increase, and competition, intent
on increasing market share, drive interest expenses up, the net interest margin
can be expected to decline.
Effective January 1, 1995, the Company adopted on a prospective
basis Statement of Financial Accounting Standards ("SFAS") No. 114, "Accounting
by Creditors for Impairment of a Loan" and SFAS No. 118, "Accounting by
Creditors for Impairment of a Loan - Income Recognition and Disclosures". These
pronouncements apply to impaired loans except for large groups of
smaller-balance homogeneous loans that are collectively evaluated for impairment
including credit card, residential mortgage, and consumer installment loans.
A loan is impaired when it is probable that the Company will be
unable to collect the scheduled payments of principal and interest due under the
contractual terms of the loan agreement. Impaired loans are measured at the
present value of expected future cash flows discounted at the loan's effective
interest rate, at the loan's observable market price, or the fair value of the
collateral if the loan is collateral dependent. If the measure of the impaired
loan is less than the recorded investment in the loan, the Company shall
recognize an impairment by creating a valuation allowance with a corresponding
charge to the provision for loan losses or by adjusting an existing valuation
allowance for the impaired loan with a corresponding charge or credit to the
provision for loan losses.
The Company's first mortgage single family residential, consumer
and credit card loans which total approximately $51,847,000, $24,237,000 and
$928,000, respectively at March 31, 1998, are divided into various groups of
smaller-balance homogeneous loans that are collectively evaluated for impairment
and thus are not subject to the provisions of SFAS Nos. 114 and 118.
Substantially all other loans of the Company are evaluated for impairment under
the provisions of SFAS Nos. 114 and 118.
14
<PAGE> 15
FIRST FINANCIAL CORPORATION
FORM 10-QSB, CONTINUED
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
The Company considers all loans on nonaccrual status to be
impaired. Loans are placed on nonaccrual status when doubt as to timely
collection of principal or interest exists, or when principal or interest is
past due 90 days or more unless such loans are well-secured and in the process
of collection. Delays or shortfalls in loan payments are evaluated with various
other factors to determine if a loan is impaired. Generally, delinquencies under
90 days are considered insignificant unless certain other factors are present
which indicate impairment is probable. The decision to place a loan on
nonaccrual status is also based on an evaluation of the borrower's financial
condition, collateral, liquidation value, and other factors that affect the
borrower's ability to pay.
Generally, at the time a loan is placed on nonaccrual status, all
interest accrued on the loan in the current fiscal year is reversed from income,
and all interest accrued and uncollected from the prior year is charged off
against the allowance for loan losses. Thereafter, interest on nonaccrual loans
is recognized as interest income only to the extent that cash is received and
future collection of principal is not in doubt. If the collectibility of
outstanding principal is doubtful, such interest received is applied as a
reduction of principal. A nonaccrual loan may be restored to accruing status
when principal and interest are no longer past due and unpaid and future
collection of principal and interest on a timely basis is not in doubt. At March
31, 1998 and 1997 impaired loans which had been placed on non-accrual status
totaled $171,000 and $88,000, respectively. Had interest been accrued on these
loans, net earnings would have increased by approximately $6,000 and $1,000 for
the three months ended March 31, 1998 and 1997, respectively.
Loans not on nonaccrual status are classified as impaired in
certain cases where there is inadequate protection by the current net worth and
financial capacity of the borrower or of the collateral pledged, if any. In
those cases, such loans have a well-defined weakness or weaknesses that
jeopardize the liquidation of the debt, and if such deficiencies are not
corrected, there is a probability that the Company will sustain some loss. In
such cases, interest income continues to accrue as long as the loan does not
meet the Company's criteria for nonaccrual status.
The Company's charge-off policy for impaired loans is similar to
its charge-off policy for all loans in that loans are charged-off in the month
when they are considered uncollectible.
Impaired loans and related allowance for loan loss amounts at March 31,
1998 and December 31, 1997 were as follows:
<TABLE>
<CAPTION>
1998 1997
---------------------------- ----------------------------
Allowance Allowance
Recorded for Recorded for
Investment Loan Loss Investment Loan Loss
---------- --------- ---------- ---------
<S> <C> <C> <C> <C>
Impaired loans with allowance for
loan loss $ 1,515,795 303,159 715,000 143,000
Impaired loans with no allowance
for loan loss -- -- -- --
----------- ---------- ---------- -----------
$ 1,515,795 303,159 715,000 143,000
=========== ========== ========== ===========
</TABLE>
15
<PAGE> 16
FIRST FINANCIAL CORPORATION
FORM 10-QSB, CONTINUED
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
The allowance for loan loss related to impaired loans were
measured based upon the estimated fair value of related collateral.
The average recorded investment in impaired loans for the three
months ended March 31, 1998 and 1997 was approximately $1,115,000 and $487,000,
respectively. The related amount of interest income recognized on the accrual
method for the period that such loans were impaired was $33,000 and $12,000 for
the three months ended March 31, 1998 and 1997, respectively. There was no
interest income recognized on the cash method for the period that such loans
were impaired.
The following schedule details selected information as to
non-performing loans of the Company at March 31, 1998:
<TABLE>
<CAPTION>
Past Due
90 Days Non-Accrual
------- -----------
(In Thousands)
<S> <C> <C>
Real estate loans $ 214 103
Installment loans 49 38
Commercial 56 63
------- ----------
$ 319 204
======= ==========
Renegotiated loans $ -- --
======== ==========
</TABLE>
At March 31, 1998, loans, which include the above, totaling $2,919,000
were included in the Company's internal classified loan list. Of these loans
$563,000 are consumer and $2,356,000 are commercial loans. The collateral values
securing these loans total approximately $4,961,000 ($999,000 related to
consumer loans and $3,962,000 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 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 March 31,
1998 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 increased $96,000 or 20.9% exclusive of any
securities gains during the three months ended March 31, 1998 and increased
$60,000 or 15.0% for the same period in 1997. There were no security gains for
the three months ended March 31, 1998 and 1997. The primary increase in
non-interest income resulted from increased service charges on deposit accounts
and an increase in income generated from sales of mortgage loans. Mortgage loan
income (included in other income) for the three month period ended March 31,
1998 was $231,000 as compared to $170,000 for the period
16
<PAGE> 17
FIRST FINANCIAL CORPORATION
FORM 10-QSB, CONTINUED
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
ending March 31, 1997. The increase of $61,000 or 35.9% resulted from 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. Additionally, other fees and commissions increased $7,000 or
11.7%.
Non-interest expense excluding securities transactions increased
$322,000 or 20.1% during the first three months of 1998 and $212,000 or 15.3%
during the same period in 1997. The increases in 1998 and 1997 were attributable
to increases in salaries and employee benefits which is due to increased number
of employees and increases in annual compensation, an increase in the number of
locations and computer hardware and software upgrades.
There was no security loss in the available-for-sale category for the
three months ended March 31, 1998 as compared to a $5,000 security loss during
the three months ended March 31, 1997.
Management is not aware of any known trends, events or uncertainties
that will have or are 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 impacts on
non-interest expenses as goods and services are purchased, although this has not
had a significant effect on net earnings. If the inflation rate stays flat or
increases slightly, the impact on profits is not expected to be significant.
17
<PAGE> 18
PART II. OTHER INFORMATION
Item 1. LEGAL PROCEEDINGS
None
Item 2. CHANGE IN SECURITIES AND USE OF PROCEEDS
(a) Not applicable.
(b) Not applicable.
(c) The Registrant issued 1,000 shares of its $2.50 par value
common stock pursuant to exercised options and no shares of
such common stock pursuant to its Dividend Reinvestment Plan.
Item 3. DEFAULTS UPON SENIOR SECURITIES
(a) None.
(b) None.
Item 4. (a) - (d) No meeting of or action by security holders occurred
during the period covered by this report.
Item 5. OTHER INFORMATION
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 March 31, 1998
(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 March
31, 1998.
(b) No reports on Form 8-K have been filed during the quarter for
which this report is filed.
18
<PAGE> 19
SIGNATURES
Pursuant to 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 CORPORATION
----------------------------------
(Registrant)
DATE: May 13, 1998 /s/ David Major
------------------------ -----------------------------------
David Major
Chairman, President and Chief
Executive Officer
DATE: May 13, 1998 /s/ Sally P. Kimble
----------------------- ----------------------------------
Sally P. Kimble
Treasurer, Chief Financial Officer
and Chief Accounting Officer
19
<TABLE> <S> <C>
<ARTICLE> 9
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
FINANCIAL STATEMENTS OF FIRST FINANCIAL CORPORATION ENDED MARCH 31, 1998 AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> MAR-31-1998
<CASH> 7,257
<INT-BEARING-DEPOSITS> 0
<FED-FUNDS-SOLD> 13,475
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 40,275
<INVESTMENTS-CARRYING> 0
<INVESTMENTS-MARKET> 0
<LOANS> 150,625
<ALLOWANCE> 1,772
<TOTAL-ASSETS> 224,014
<DEPOSITS> 204,576
<SHORT-TERM> 0
<LIABILITIES-OTHER> 1,568
<LONG-TERM> 1,314
0
0
<COMMON> 2,701
<OTHER-SE> 13,855
<TOTAL-LIABILITIES-AND-EQUITY> 224,014
<INTEREST-LOAN> 3,710
<INTEREST-INVEST> 600
<INTEREST-OTHER> 111
<INTEREST-TOTAL> 4,421
<INTEREST-DEPOSIT> 2,058
<INTEREST-EXPENSE> 2,090
<INTEREST-INCOME-NET> 2,331
<LOAN-LOSSES> 120
<SECURITIES-GAINS> 0
<EXPENSE-OTHER> 1,922
<INCOME-PRETAX> 844
<INCOME-PRE-EXTRAORDINARY> 844
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 570
<EPS-PRIMARY> .60
<EPS-DILUTED> .59
<YIELD-ACTUAL> 0
<LOANS-NON> 204
<LOANS-PAST> 319
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 2,919
<ALLOWANCE-OPEN> 1,704
<CHARGE-OFFS> 68
<RECOVERIES> 16
<ALLOWANCE-CLOSE> 1,772
<ALLOWANCE-DOMESTIC> 1,772
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
