<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC
------
FORM 10-Q
QUARTERLY REPORT UNDER SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For Quarter Ended September 30, 1999 Commission File Number 0-27098
FIRST SAVINGS BANCORP, INC.
(Exact name of registrant as specified in its charter)
North Carolina 56-1842701
-------------- ----------
(State of jurisdiction of (I.R.S. Employer
incorporation or organization) Identification number)
205 SE Broad Street, Southern Pines, North Carolina 28387
- --------------------------------------------------- -----
(Address of principal executive offices) (Zip Code)
(910) 692-6222
--------------
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 12 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.
Yes [X] No [ ]
As of October 31, 1999 there were 3,457,087 shares of the issuer's common stock
issued and outstanding.
<PAGE>
FIRST SAVINGS BANCORP, INC.
TABLE OF CONTENTS
PART I FINANCIAL INFORMATION Page Number
- ----------------------------
Item 1. Financial Statements
Consolidated Statements of Financial Condition 3
Consolidated Statements of Income 4
Consolidated Statements of Cash Flow 5
Notes to Consolidate Financial Statements 6
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 7-9
PART II OTHER INFORMATION
- -------------------------
Item 5. Other Information 9-10
SIGNATURES 11
<PAGE>
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION (unaudited)
<TABLE>
<CAPTION>
September 30, June 30,
------------------------
1999 1999
------------------------
($ in thousands)
ASSETS
<S> <C> <C>
Cash and due from banks $ 5,990 $ 3,753
Interest earning deposits with banks 60 3,085
Investment securities available for sale at fair value 63,572 54,846
Investment securities held to maturity at amortized
cost (fair values - $34,600 at September 30, 1999;
$36,154 at June 30, 1999) 35,704 36,708
Loans receivable (net of allowance for loan losses of
$596 at September 30, and June 30, 1999) 211,784 208,678
Accrued interest receivable 1,753 1,730
Premises and equipment 2,334 2,340
Stock in the Federal Home Loan Bank of Atlanta,
at cost 1,929 1,929
Prepaid expenses and other assets 580 164
-------------------------
TOTAL $323,706 $313,233
=========================
LIABILITIES AND SHAREHOLDERS' EQUITY
LIABILITIES:
Deposits 228,447 226,651
Borrowed funds 25,000 20,000
Accrued expenses and other liabilities 6,719 2,354
-------------------------
Total liabilities 260,166 249,005
-------------------------
SHAREHOLDERS' EQUITY:
Preferred stock, no par value, 5,000,000 shares,
authorized, none issued and outstanding
Common stock, no par value, 20,000,000 shares
authorized, 3,467,798 shares issued and outstanding
at September 30, 1999; 3,503,763 at June 30, 1999 32,605 33,018
Unearned compensation related to ESOP note payable (16)
Retained earnings 31,531 31,605
Accumulated other comprehensive income (loss) (596) (379)
-------------------------
Total shareholders' equity 63,540 64,228
-------------------------
TOTAL $323,706 $313,233
=========================
</TABLE>
See notes to consolidated financial statements
<PAGE>
FIRST SAVING BANCORP, INC.
- --------------------------------------------------------------------------------
CONSOLIDATED STATEMENTS OF INCOME (unaudited)
Three Months Ended
September 30,
------------------------
1999 1998
------------------------
($ in thousands except per share data)
INTEREST AND DIVIDEND INCOME:
Interest on loans receivable $ 4,124 $ 4,224
Interest on mortgage-backed securities 565 173
Interest on investment securities 883 1,121
Dividends on investment securities 36 36
Other 45 25
------------------------
Total interest income 5,653 5,579
------------------------
INTEREST EXPENSE:
Interest on deposits 2,520 2,520
Interest on borrowings 217 190
------------------------
Total interest expense 2,737 2,710
------------------------
Net interest income 2,916 2,869
Provision for loan losses
Net interest income after provision for
loan losses 2,916 2,869
------------------------
NONINTEREST INCOME:
Fees and service charges 149 156
Income from real estate operations 2 2
Rent on safe deposit boxes 4 2
Other, net 14 1
------------------------
Total noninterest income, net 169 161
------------------------
GENERAL AND ADMINISTRATIVE EXPENSES:
Compensation and fringe benefits 537 563
Occupancy and building 80 62
Federal insurance premiums 33 33
Computer services 116 89
Other 232 237
------------------------
Total general and administrative expenses 998 984
------------------------
INCOME BEFORE INCOME TAXES 2,087 2,046
INCOME TAXES 734 752
------------------------
NET INCOME $ 1,353 $ 1,294
========================
NET INCOME PER COMMON SHARE:
Basic $ 0.39 $ 0.35
========================
Diluted $ 0.37 $ 0.32
========================
WEIGHTED AVERAGE SHARES OUTSTANDING
Basic 3,494,102 3,718,420
========================
Diluted 3,698,576 4,018,718
========================
See notes to consolidated financial statements.
4
<PAGE>
FIRST SAVING BANCORP, INC.
- --------------------------------------------------------------------------------
CONSOLIDATED STATEMENTS OF CASH FLOWS (unaudited)
Three Months Ended
September 30,
------------------------
($ in thousands) 1999 1998
------------------------
OPERATING ACTIVITIES:
Net income $ 1,353 $ 1,294
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation of premises and equipment 38 26
Issuance of ESOP shares 32 83
Net amortization on investments 86 47
Loan origination fees and costs deferred, net
of current amortization 12 11
Changes in:
Other assets (304) (115)
Other liabilities 4,376 315
------------------------
Net cash provided by operating activities 5,593 1,661
------------------------
INVESTING ACTIVITIES:
Purchase of available for sale investment
securities (11,120) (2,000)
Proceeds from maturities and calls of:
Available for sale investment securities 2,000 11,000
Held to maturity investment securities 984 331
Loan originations net of repayments and net fees (3,118) (1,614)
Purchase of premises and equipment (32) (188)
------------------------
Net cash provided by (used in) investing
activities (11,286) 7,529
------------------------
FINANCING ACTIVITIES:
Net increase in deposits 1,796 682
Net increase (decrease) in borrowed funds 5,000 (10,000)
Net proceeds from exercise of stock options 100 18
Repurchases of common stock (1,065) (223)
Cash dividends paid (926) (924)
------------------------
Net cash provided by (used in) financing
activities 4,905 (10,447)
------------------------
INCREASE IN CASH AND DUE FROM BANKS (788) (1,257)
CASH AND DUE FROM BANKS, BEGINNING OF PERIOD 6,838 7,816
------------------------
CASH AND DUE FROM BANKS, END OF PERIOD $ 6,050 $ 6,559
========================
SUPPLEMENTAL DISCLOSURES:
- -------------------------
Cash paid for:
Interest on deposits $ 2,539 $ 2,528
Interest on borrowed funds 201 216
Income taxes 785 10
See notes to consolidated financial statements.
<PAGE>
FIRST SAVING BANCORP, INC.
- --------------------------------------------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. Basis of Presentation: The accompanying consolidated financial statements
----------------------
include the accounts of First Savings Bancorp, Inc. and its wholly-owned
subsidiary, First Savings Bank of Moore County, Inc., SSB (the "Bank"),
together referred to as "First Savings". All significant intercompany
balances and transactions have been eliminated in consolidation.
2. Accounting Policies: The significant accounting policies followed by First
--------------------
Savings for interim financial reporting are consistent with the accounting
policies followed for annual financial reporting. 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 or
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 (none
of which were other than normal accruals) necessary for a fair presentation
of the financial position and results of operations for the periods
presented have been included. The results of operations for the three month
period ended September 30, 1999 is not necessarily indicative of the results
of operations that may be expected for the year ending June 30, 2000. For
further information, refer to the consolidated financial statements and
footnotes thereto included in the annual report on Form 10-K for the year
ended June 30, 1999.
3. Earnings Per Common Share: Effective July 1, 1997, First Savings Bank has
--------------------------
implemented Statement of Financial Accounting Standards ("SFAS") No. 128,
"Earnings per Share". This Statement simplifies the standards for computing
earnings per share previously found in Accounting Principles Board ("APB")
Opinion No. 15, Earnings per Share ("EPS"), and makes them comparable to
international EPS standards. It replaces the presentation of primary EPS
with the presentation of basic EPS. It also requires dual presentation of
basic and diluted EPS on the face of the income statement for all entities
with complex capital structures and requires a reconciliation of the
numerator and the denominator of the basic EPS computation to the numerator
and denominator of the diluted EPS computation. Basic EPS excludes dilution
and is computed by dividing income available to common shareholders by the
weighted-average number of common shares outstanding for the period.
Diluted EPS reflects the potential dilution that could occur if securities
or other contracts to issue common stock or resulted in the issuance of
common stock that then shared in the earnings of the entity. Diluted EPS is
computed similarly to fully diluted EPS pursuant to APB Opinion No. 15.
Basic and diluted earnings per share have been computed based upon net
income as presented in the accompanying statements of operation divided by
the weighted average number of common shares outstanding or assumed to be
outstanding as summarized below.
Three Months Ended
September 30,
------------------------
Weighted average number of common 1999 1998
------------------------
shares used in basic EPS 3,494,102 3,718,420
Effect of dilutive stock options 204,474 300,298
------------------------
Weighted average number of common
shares and dilutive potential common
shares used in diluted EPS 3,698,576 4,018,718
========================
4. Stock Repurchase Plan: On September 12, 1996 First Savings' Board of
----------------------
Directors adopted the First Savings Bancorp, Inc. Stock Repurchase Plan.
Pursuant to the Plan, First Savings may repurchase shares of its outstanding
common stock in the open market or in privately negotiated transactions in
accordance with regulatory requirements.
7
<PAGE>
FIRST SAVING BANCORP, INC.
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MANAGEMENT'S DISCUSSION AND ANALYSIS
General
First Savings Bancorp, Inc., a North Carolina holding company ("First Savings"),
was formed on November 1, 1995 to become the parent holding company of First
Savings Bank of Moore County, Inc., SSB (the "Bank"), a North Carolina chartered
stock savings bank. First Savings engages in no substantial business activities
other than the activities related to ownership of the Bank.
The Bank is primarily engaged in the business of attracting deposits from the
general public and using those funds to originate mortgage loans for the
purchase or construction of one-to-four family homes. To a lesser extent, the
Bank also originates multi-family residential mortgage loans, nonresidential
real estate loans, loans secured by deposits, home equity lines of credit,
installment loans and credit card loans. As a savings bank, the Bank's deposit
accounts are insured up to applicable limits by the Savings Association
Insurance Fund ("SAIF") of the Federal Deposit Insurance Corporation ("FDIC").
The Bank conducts its operations through its main office in Southern Pines,
North Carolina and 5 branch offices located in Moore County.
Financial Condition
First Savings had total assets of $323.7 million at September 30, 1999 compared
to $313.2 million at June 30, 1999. The growth was primarily attributable to
increases in investment securities and net loans. Net loans increased from
$208.7 million at June 30, 1999 to $211.8 million at September 30, 1999. This
was partially due to a slow down in secondary loan originations and an increase
in loans held in first Savings' loan portfolio. Investment securities available
for sale increased from $54.8 million at June 30, 1999 to $63.6 million at
September 30, 1999.
Deposits increased to $228.4 million at September 30, 1999 from $226.7 million
at June 30, 1999, and shareholders' equity decreased from $64.2 million at June
30, 1999 from $63.9 million at September 30, 1999 as a result of stock
repurchases and a decline in the fair value of investments held for sale.
Liquidity
Maintaining adequate liquidity while managing interest rate risk is the primary
goal of First Savings' asset and liability management strategy. Liquidity is
the ability to fund the needs of the Bank's borrowers and depositors, pay
operating expenses, and meet regulatory liquidity requirements. Maturing
investments, loan and mortgage-backed security principal repayments, deposits
and income from operations are the main sources of liquidity. The Bank's
primary uses of liquidity are to fund loans and to make investments.
As of September 30, 1999, liquid assets (cash and cash equivalents, and
marketable investment securities, less pledged investments) were approximately
$102.605 million, which represents 44.9% of deposits. As a North Carolina
chartered savings bank, First Savings is required to maintain liquid assets
equal to at least 10.0% of its total assets. At September 30, 1999, this
liquidity ratio, based on North Carolina regulations, was 31.7% Management
considers current liquidity levels to be adequate to meet First Savings'
foreseeable needs.
At September 30, 1999, outstanding mortgage loan commitments and available home
equity line of credit balances were $26.3 million, available credit card line of
credit balances were $3.8 million and the undisbursed portion of construction
loans was $10.1 million. Funding for these commitments is expected to be
provided from deposits, loan and mortgage-backed securities principal
repayments, maturing investments and income generated from operations.
8
<PAGE>
FIRST SAVING BANCORP, INC.
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MANAGEMENT'S DISCUSSION AND ANALYSIS
Regulatory Capital Requirements
Federal banking regulations require that bank holding companies and their bank
subsidiaries meet various regulatory capital requirements administered by the
federal banking agencies. Failure to meet minimum capital requirements can
initiate certain mandatory, and possibly additional discretionary actions by
regulators that, if undertaken, could have a direct material effect on First
Savings' financial statements. Under capital adequacy guidelines and the
regulatory framework for prompt corrective action, First Savings must meet
specific capital guidelines that involve quantitative measures of First Savings
assets, liabilities, and certain off-balance-sheet items as calculated under
regulatory accounting practices. First Savings' capital amounts and
classification are also subject to qualitative judgements by the regulators
about components, risk weightings, and other factors.
Quantitative measures established by regulation to ensure capital adequacy
require First Savings to maintain minimum amounts and ratios of total and Tier 1
capital to risk-weighted assets, and of Tier 1 capital to average assets.
As of December 31, 1997, the most recent notification from the FDIC categorized
the Bank as well capitalized under the regulatory framework for prompt
corrective action. To be categorized as well capitalized, the Bank must
maintain minimum total risk-based, Tier 1 risk-based, and Tier 1 leverage ratios
as set forth in the table. There are no conditions or events since that
notification that management believes have changed the category.
Actual capital amounts and ratios for First Savings and the Bank
are presented in the table below:
<TABLE>
<CAPTION>
To Be Well
Capitalized Under
For Capital Prompt Corrective
Actual Adequacy Purposes Action Provisions
Amount Ratio Amount Ratio Amount Ratio
----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
As of September 30, 1999
Total Capital (to Risk
Weighted Assets:
Consolidated $63,540 39.74% $12,790 (greater than or equal to)8.0% n/a n/a
First Savings Bank of
Moore Co., Inc., SSB $60,438 37.76% $12,804 (greater than or equal to)8.0% $16,005 (greater than or equal to)10.0%
Tier 1 Capital (to Risk
Weighted Assets):
Consolidated $62,944 39.37% $ 6,395 (greater than or equal to)4.0% n/a n/a
First Savings Bank of
Moore Co., Inc., SSB $59,842 37.39% $ 6,402 (greater than or equal to)4.0% $ 9,603 (greater than or equal to)6.0%
Tier 1 Capital
(to Average Assets):
Consolidated $62,944 19.76% $12,743 (greater than or equal to)4.0% n/a n/a
First Savings Bank of
Moore Co., Inc., SSB $59,842 18.74% $12,771 (greater than or equal to)4.0% $15,964 (greater than or equal to)5.0%
</TABLE>
In addition to federal regulatory requirements, the Bank is subject to a North
Carolina savings bank capital requirement of at least 5% of total assets. At
September 30, 1999, the Bank's capital ratio under the North Carolina
requirements was 18.99%.
At September 30, 1999, First Savings and the Bank exceeded all capital
requirements.
8
<PAGE>
FIRST SAVING BANCORP, INC.
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MANAGEMENT'S DISCUSSION AND ANALYSIS
Comparison of Operating Results for the Three Months Ended Sept.30, 1999 and
1998
Net income for the three months ended September 30, 1999 was $1,353,000,
compared to $1,294,000 for the same period in 1998. Basic and diluted earnings
per share for the three months ended September 30, 1999 was $0.39 and $0.37,
respectively, compared to $0.35 and $0.32, respectively, for the same period
of the prior year. The increase in earnings was primarily due to increases in
the net interest margin. Growth in earnings per share was attributable to an
increase in net income and fewer average shares outstanding.
General and administrative expenses increased slightly from $984,000 for the
quarter ended September 30, 1998 to $998,000 for the quarter ended September
30, 1999. As a result of tax exempt securities, income tax expense decreased
as a percentage of pretax income.
OTHER INFORMATION
Year 2000 Compliance
The "Year 2000" issue confronting First Savings and its suppliers, customers,
customers' suppliers and competitors centers on the inability of computer
systems to recognize the Year 2000. Many existing computer programs and
systems were originally programmed with six digit dates that provided only two
digits to identify the calendar year in the date field, without considering
the upcoming change in the century. With the impending new millennium, these
programs and computers will recognize "00" as the year 1900 rather than the
year 2000. Like most financial service providers, First Savings and its
operations may be significantly affected by the Year 2000 issue due to its
dependence on computer generated financial information. Software, hardware,
and equipment both within and outside First Savings' direct control and with
whom First Savings electronically or operationally interfaces (e.g. third
party vendors providing data processing, information system management,
maintenance of computer systems, and credit bureau information) are likely to
be affected. Furthermore, if computer systems are not adequately changed to
identify the Year 2000, many computer applications could fail or create
erroneous results. As a result, many calculations which rely on date field
information, such as interest, payment of due dates and other operating
functions, could generate results which are significantly misstated, and First
Savings could experience a temporary inability to process transactions,
prepare statements or engage in similar normal business activities. In
addition, under certain circumstances, failure to adequately address the Year
2000 issue could adversely affect the viability of First Savings' suppliers
and creditors and the creditworthiness of its borrowers. Thus, if not
adequately addressed, the Year 2000 matter could result in a significant
adverse impact on products, services and the competitive condition of First
Savings.
Financial institution regulators have recently increased their focus upon Year
2000 compliance issues, issuing guidance concerning the responsibilities of
senior management and directors. The Federal Financial Institutions
Examination Council ("FFIEC") has issued several interagency statements on
Year 2000 Project Management Awareness. These statements require financial
institutions to, among other things, examine the Year 2000 implications of
reliance on vendors, data exchange and potential impact on customers,
suppliers and borrowers. These statements also require each federally
regulated financial institution to survey its exposure, measure its risk and
prepare a plan in order to solve the Year 2000 issue. In addition, the federal
banking regulators have issued safety and soundness guidelines to be followed
by insured depository institutions, such as the Bank, to assure resolution of
any Year 2000 problems. The federal banking agencies have asserted that Year
2000
9
<PAGE>
FIRST SAVINGS BANCORP, INC.
- --------------------------------------------------------------------------------
OTHER INFORMATION
testing and certification is a key safety and soundness issue in conjunction
with regulatory exams, and thus an institution's failure to address
appropriately the Year 2000 issue could result in supervisory action,
including such enforcement actions as the reduction of the institution's
supervisory ratings, the denial of applications for approval of a merger or
acquisition, or the imposition of civil money penalties.
In order to address the Year 2000 issue and to minimize its potential adverse
impact, management is engaged in a process to identify areas that will be
affected by the Year 2000, assess their potential impact on operations,
monitor the progress of third party software vendors in addressing the matter,
test changes provided by these vendors, and develop contingency plans for any
critical systems which are not effectively reprogrammed. The plan is divided
into the five phases: (1) awareness, (2) assessment, (3) renovations, (4)
validation, and (5) implementation.
First Savings has completed the five phases of the plan. First Savings
outsources its item processing operations to a service provider. First
Savings' Year 2000 compliance is being closely coordinated with that of the
service provider.
First Savings does not currently expect that the cost of its Year 2000
compliance program will be material to its financial condition or results of
operations, and expects that it will satisfy such compliance program without
material disruption of its operations. In the event that First Savings'
significant suppliers do not successfully and timely achieve Year 2000
compliance, First Savings' business, results of operations or financial
condition could be adversely affected.
10
<PAGE>
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 SAVINGS BANCORP, INC.
/s/ John F. Burns
------------------- -------------------------------------------
Date John F. Burns
President
/s/ Timothy S. Maples
------------------- -------------------------------------------
Date Timothy S. Maples
Sr. Vice President/ Chief Financial Officer
11
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 9
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JUN-30-2000
<PERIOD-START> JUL-01-1999
<PERIOD-END> SEP-30-1999
<CASH> 5,990
<INT-BEARING-DEPOSITS> 60
<FED-FUNDS-SOLD> 0
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 63,572
<INVESTMENTS-CARRYING> 35,704
<INVESTMENTS-MARKET> 34,600
<LOANS> 212,380
<ALLOWANCE> 596
<TOTAL-ASSETS> 323,706
<DEPOSITS> 224,447
<SHORT-TERM> 10,000
<LIABILITIES-OTHER> 6,719
<LONG-TERM> 15,000
0
0
<COMMON> 32,605
<OTHER-SE> 30,935
<TOTAL-LIABILITIES-AND-EQUITY> 323,706
<INTEREST-LOAN> 4,124
<INTEREST-INVEST> 1,484
<INTEREST-OTHER> 45
<INTEREST-TOTAL> 5,653
<INTEREST-DEPOSIT> 2,520
<INTEREST-EXPENSE> 2,737
<INTEREST-INCOME-NET> 2,916
<LOAN-LOSSES> 0
<SECURITIES-GAINS> 0
<EXPENSE-OTHER> 998
<INCOME-PRETAX> 2,087
<INCOME-PRE-EXTRAORDINARY> 2,087
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,353
<EPS-BASIC> 0.39
<EPS-DILUTED> 0.37
<YIELD-ACTUAL> 3.76
<LOANS-NON> 317
<LOANS-PAST> 0
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 596
<CHARGE-OFFS> 0
<RECOVERIES> 0
<ALLOWANCE-CLOSE> 596
<ALLOWANCE-DOMESTIC> 193
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 403
</TABLE>
