<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the Quarterly Period Ended September 30, 1996
or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from _____________________ to _____________________
Commission file number 026730
------------
First Savings Financial Corp.
-----------------------------
(Exact name of registrant as specified in its charter)
North Carolina 561928110
-------------- ---------
(State or other juristiction of (I.R.S. Employer Identification No.)
incorporation or organization)
501 South Main Street, Reidsville, North Carolina 27320
--------------------------------------------------------
(Address of principal executive offices) (Zip Code)
(910) 342-4251
--------------------------------------------------------
(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 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No
--- ---
APPLICABLE ONLY TO CORPORATE ISSUERS:
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
As of November 13, 1996, 986,321 shares of the registrant's common stock, no
par value, were outstanding.
This Form 10-QSB has 21 pages.
<PAGE>
Part I. FINANCIAL INFORMATION
Item 1. Financial Statements
<TABLE>
<CAPTION>
FIRST SAVINGS FINANCIAL CORP. AND SUBSIDIARY
Consolidated Statements of Financial Condition
September 30,
1996 December 31,
(unaudited) 1995
----------- ------------
<S> <C> <C>
Assets
Cash and due from banks 254,898 891,034
Interest-bearing deposits in other financial institutions 1,417,967 1,087,641
Investment securities:
Held to maturity (market value of $2,984,060 and
$8,529,543 at September 30, 1996 and December 31, 1995,
respectively) 3,001,690 8,507,472
Available for sale, at market value (cost of $16,673,605
and $15,717,228 at September 30,1996 and December 31,
1995, respectively) 16,436,037 15,919,254
Mortgage-backed securities available for sale (cost of
$608,391 and $716,881 at September 30, 1996 and
December 31, 1995, respectively) 601,939 710,233
Loans receivable (net of allowance for loan losses of
$299,825 and $259,466 at September 30, 1996 and
December 31, 1995, respectively) (note 4) 32,512,188 30,223,497
Accrued interest receivable 442,979 508,883
Federal Home Loan Bank stock, at cost 412,800 412,800
Premises and equipment, net 105,657 116,555
Other assets 663,555 677,343
------------- -------------
Total assets 55,849,710 59,054,712
============= =============
Liabilities and Stockholders' Equity
Deposit accounts 45,297,772 47,231,789
Other liabilities 1,012,683 743,060
------------- -------------
Total liabilities 46,310,455 47,974,849
------------- -------------
ESOP stock subject to put option (note 5) 354,845 88,439
------------- -------------
Stockholders' equity (notes 2 and 6):
Preferred stock, no par value, 5,000,000 shares
authorized; none outstanding - -
Common stock, no par value, 20,000,000 shares
authorized; 986,321 and 948,386 shares issued
and outstanding at September 30, 1996 and December 31,
1995, respectively 4,958,557 5,659,804
Retained earnings, substantially restricted 4,773,763 5,202,642
Net unrealized gains (losses) on securities (161,053) 128,978
Deferred stock awards (386,857) -
------------- -------------
Total stockholders' equity 9,184,410 10,991,424
------------- -------------
Commitments
Total liabilities and stockholders' equity 55,849,710 59,054,712
============= =============
</TABLE>
See accompanying notes to consolidated financial statements.
-2-
<PAGE>
FIRST SAVINGS FINANCIAL CORP. AND SUBSIDIARY
Consolidated Statements of Income (Loss)
(Unaudited)
<TABLE>
<CAPTION>
Three months ended Nine months ended
September 30, September 30,
1996 1995 1996 1995
----------- --------- ---------- ----------
<S> <C> <C> <C> <C>
Interest income:
Loans receivable $ 604,967 620,222 1,796,966 1,888,048
Mortgage-backed securities 9,495 21,043 29,492 88,618
Investment securities 307,976 259,235 1,020,290 755,069
Interest-bearing balances in other banks 17,421 44,630 53,891 74,194
Stock in the Federal Home Loan Bank 7,482 7,522 22,364 22,384
----------- --------- ---------- ----------
Total interest income 947,341 952,652 2,923,003 2,828,313
Interest expense on deposit accounts 604,684 689,396 1,855,928 1,912,985
----------- --------- ---------- ----------
Net interest income 342,657 263,256 1,067,075 915,328
Provision for loan losses (note 4) - 15,000 7,500 90,000
----------- --------- ---------- ----------
Net interest income after provision for loan losses 342,657 248,256 1,059,575 825,328
Noninterest income:
Net loss on investment securities available for sale - - (26,352) -
Other 3,301 4,008 13,575 11,968
----------- --------- ---------- ----------
Total noninterest income 3,301 4,008 (12,777) 11,968
Noninterest expense:
Compensation, payroll taxes, and fringe benefits 259,929 145,682 757,897 409,232
Occupancy and equipment 12,287 12,429 33,979 33,824
Federal and other insurance premiums 349,993 38,278 412,684 115,858
Data processing fees 12,662 13,599 41,577 42,557
Advertising 3,618 3,589 15,511 12,979
Professional fees 26,177 8,175 94,962 18,525
Other expenses 48,610 46,712 143,827 114,722
----------- --------- ---------- ----------
Total noninterest expense 713,276 268,464 1,500,437 747,697
----------- --------- ---------- ----------
Income (loss) before income taxes (367,318) (16,200) (453,639) 89,599
Income tax benefit (note 7) (124,200) - (78,400) -
----------- --------- ---------- ----------
Net income (loss) (243,118) (16,200) (375,239) 89,599
Change in fair value of ESOP shares subject to put option (note 5) 90 - (53,640) -
----------- --------- ---------- ----------
Net income (loss) available to common shareholders $ (243,028) (16,200) (428,879) 89,599
=========== ========= ========== ==========
Net loss available to common shareholders per share
(note 8) $ (0.26) (0.01) (0.47) (0.01)
=========== ========= ========== ==========
</TABLE>
See accompanying notes to consolidated financial statements.
-3-
<PAGE>
FIRST SAVINGS FINANCIAL CORP. AND SUBSIDIARY
Consolidated Statement of Stockholders' Equity
Nine months ended September 30, 1996
(Unaudited)
<TABLE>
<CAPTION>
Net unrealized Deferred Total
Common Retained gains (losses) Stock Stockholders'
Stock Income on securities Awards Equity
--------------- --------------- ----------------- ------------- -----------------
<S> <C> <C> <C> <C> <C>
Balance at December 31, 1995 $5,659,804 5,202,642 128,978 - 10,991,424
Net loss - (375,239) - - (375,239)
Common stock of ESOP 21,992 - - - 21,992
Change in fair value of ESOP shares
subject to put option - (53,640) - - (53,640)
Deferred stock awards 422,027 - - (422,027) -
Amortization of deferred
stock awards - - - 35,170 35,170
Net unrealized losses on securities - - (290,031) - (290,031)
Dividend paid ($1.00 per common
share) (910,451) - - - (910,451)
Dividend paid ($.25 per common
share) (234,815) - - - (234,815)
--------------- --------------- ----------------- ------------- -----------------
Balance at September 30, 1996 $4,958,557 4,773,763 (161,053) (386,857) 9,184,410
=============== =============== ================= ============= =================
</TABLE>
See accompanying notes to consolidated financial statements.
-4-
<PAGE>
FIRST SAVINGS FINANCIAL CORP. AND SUBSIDIARY
Consolidated Statements of Cash Flows
(Unaudited)
<TABLE>
<CAPTION>
Nine Months Ended
September 30,
1996 1995
------------- -------------
<S> <C> <C>
Cash flows from operating activities:
Net income (loss) $ (375,239) 89,599
Adjustments to reconcile net income (loss) to net cash provided by
operating activities:
Provision for loan losses 7,500 90,000
Amortization, net 2,134 (73,750)
Depreciation 11,914 3,545
Compensation expense on ESOP shares 234,758 -
Amortization expense on deferred stock awards 35,170 -
Net loss on securities available for sale 26,352 -
Deferred loan origination fees (costs), net (8,650) 20,495
Deferred income taxes (126,500) -
Increase (decrease) in accrued interest receivable 65,904 (12,796)
Increase (decrease) in other assets 121,956 (181,649)
Increase in other liabilities 437,323 17,678
------------- -------------
Net cash provided by (used in) operating activities 432,622 (46,878)
------------- -------------
Cash flows from investing activities:
Purchases of investment securities held to maturity (500,000) (6,500,000)
Proceeds from maturities and issuer calls of
investment securities held to maturity 6,000,000 5,500,000
Purchases of investment securities available for sale (3,980,357) -
Proceeds from sale of investment securities available for sale 2,464,532 -
Proceeds from maturities and issuer calls of investment securities
available for sale 500,000 -
Principal collected on mortgage-backed securities available for sale 106,243 145,581
Net decrease (increase) in loans receivable (2,248,551) 2,652,401
Purchases of premises and equipment (1,016) -
------------- -------------
Net cash provided by investing activities 2,340,851 1,797,982
------------- -------------
Cash flows from financing activities:
Dividends paid (1,145,266) -
Net decrease in deposits (1,934,017) (2,302,379)
Proceeds from issuance or no par common stock - 8,974,132
Purchase of common stock for ESOP - (758,700)
------------- -------------
Net cash provided by (used in) financing activities (3,079,283) 5,913,053
------------- -------------
Net increase (decrease) in cash and cash equivalents (305,810) 7,664,157
Cash and cash equivalents at beginning of period 1,978,675 1,634,894
------------- -------------
Cash and cash equivalents at end of period $ 1,672,865 9,299,051
============= =============
</TABLE>
5
<PAGE>
FIRST SAVINGS FINANCIAL CORP. AND SUBSIDIARY
Consolidated Statements of Cash Flows
(Unaudited)
<TABLE>
<CAPTION>
Nine Months Ended
September 30,
1996 1995
------------- -------------
<S> <C> <C>
Cash paid during the period for:
Interest $ 1,092,169 $ 1,924,596
============= =============
Income taxes 32,200 96,600
============= =============
</TABLE>
See accompanying notes to consolidated financial statements.
6
<PAGE>
FIRST SAVINGS FINANCIAL CORP. AND SUBSIDIARY
Notes to the Consolidated Financial Statements
(1) Basis of Presentation
---------------------
The consolidated financial statements include the accounts of First Savings
Financial Corp. and its wholly-owned subsidiary, First Savings Bank of
Rockingham County, Inc., SSB ("First Savings") and its wholly-owned
subsidiary, First Service Corporation of Reidsville (collectively
referred to as "the Company"). On April 3, 1995, First Service
Corporation of Reidsville was dissolved. All intercompany transactions
and balances are eliminated in consolidation.
The preparation of the consolidated financial statements in conformity with
generally accepted accounting principles requires management to make
estimates and assumptions that affect reported amounts of assets and
liabilities at the date of the financial statements, as well as the
amounts of income and expenses during the reporting period. Actual
results could differ from those estimates.
All adjustments considered necessary for a fair presentation of the results
for the interim periods presented have been included (such adjustments
are normal and recurring in nature). Operating results for the three and
nine month periods ended September 30, 1996, are not necessarily
indicative of the results that may be expected for the year ending
December 31, 1996.
(2) Formation of First Savings Financial Corp.
------------------------------------------
In April, 1995, First Savings adopted a Plan of Holding Company Conversion
whereby First Savings would convert from mutual to stock form, and
concurrently become a wholly-owned subsidiary of First Savings Financial
Corp., a newly formed holding company.
On September 22, 1995, First Savings completed its conversion from a North
Carolina-chartered mutual savings bank to a North Carolina-chartered
stock savings bank and First Savings Financial Corp. issued and sold
948,386 shares of common stock (no par value) at $10 per share (the
"Conversion"). Total proceeds of $9,483,860 were reduced by Conversion
expenses of $509,728. First Savings Financial Corp. retained 50% of the
net Conversion proceeds after deducting the proceeds of the loan to the
First Savings Bank of Rockingham County, Inc., SSB Employee Stock
Ownership Plan ("the ESOP") and paid the balance to First Savings in
exchange for the common stock of First Savings issued in the Conversion.
At the time of the Conversion, First Savings established a liquidation
account in an amount equal to its net worth at June 30, 1995. The
liquidation account will be maintained for the benefit of eligible
deposit account holders who continue to maintain their deposit accounts
in First Savings after the Conversion. Only in the event of a complete
liquidation will each eligible deposit account holder be entitled to
receive a liquidating distribution in the amount of the then current
adjusted subaccount balance for the deposit
-7-
<PAGE>
accounts then held before any liquidation distribution may be made with
respect to common stock. Dividends paid by First Savings subsequent to
the Conversion cannot be paid from this liquidation account.
First Savings may not declare or pay a cash dividend on or repurchase any
of its common stock if its net worth would thereby be reduced below
either the aggregate amount then required for the liquidation account or
the minimum regulatory requirement imposed by federal and state
regulations.
In addition, for a period of five years after the Conversion, First Savings
will be required, under existing North Carolina regulations, to obtain
prior written approval of the N.C. Administrator of Savings Institutions
("the Administrator") before it can declare and pay a cash dividend on
its capital stock in an amount in excess of one-half of the greater of
(i) its net income for the most recent fiscal year, or (ii) the average
of its net income after dividends for the most recent fiscal year and not
more than two of the immediately preceding fiscal years, if applicable.
As a result of this limitation, First Savings cannot pay a dividend in
excess of approximately $140,000 without the approval of the
Administrator.
The Company also has authorized 5,000,000 shares of no par value preferred
stock, none of which was issued and outstanding at September 30, 1996.
(3) Cash and Cash Equivalents
-------------------------
For purposes of reporting cash flows, cash and cash equivalents include
cash and due from banks and interest-bearing balances in other financial
institutions. Generally, cash and cash equivalents are considered to have
maturities of three months or less.
(4) Allowance for Loan Losses
-------------------------
The following summarizes the activity in the allowance for loan losses for
the three and nine months ended September 30, 1996 and 1995,
respectively.
<TABLE>
<CAPTION>
Three months Nine months
ended September 30, ended September 30,
--------------------- ---------------------
1996 1995 1996 1995
---------- --------- -------- --------
<S> <C> <C> <C> <C>
Balance at the beginning
of the period $299,825 239,466 259,466 214,466
Provision for loan losses - 15,000 7,500 90,000
Charge offs - - - (60,000)
Recoveries - - 32,859 -
-------- ------- ------- -------
Net recoveries
(charge-offs) - 32,859 (60,000)
-------- ------- ------- -------
- ---------------------------
Balance at the end of the
period $299,825 244,466 299,825 244,466
======== ======= ======= =======
</TABLE>
-8-
<PAGE>
(5) Employee Stock Ownership Plan ("ESOP")
-------------------------------------
First Savings has an ESOP which purchased 75,870 shares or 8% of the common
stock issued in the Conversion. Contributions to the ESOP are made by
First Savings on a discretionary basis, and are allocated among ESOP
participants on the basis of relative compensation in the year of
allocation. Benefits will vest in full upon five years of service with
credit given for years of service prior to the Conversion.
The ESOP has been funded by a loan from First Savings Financial Corp. in
the amount of $758,700. The loan is secured by the shares of stock
purchased by the ESOP and is not guaranteed by First Savings. Principal
and interest payments on this loan are funded primarily from
discretionary contributions by First Savings. Dividends, if any, paid on
shares held by the ESOP may also be used to reduce the loan. The number
of ESOP shares released and allocated to participants each year is
determined by a formula based on current year principal and interest
payments made on the ESOP loan and total future payments to be made.
The Company has made a principal and interest payments totaling $379,181 in
1996, reducing the loan balance to $446,770 at September 30, 1996.
The Company paid a dividend of $3.00 per common share in December 1995 and
a dividend of $1.00 per common share in May 1996. The dividends of
$227,610 and $75,870, respectively, paid on the shares held by the ESOP
were used to reduce the loan and are not considered dividends for
consolidated reporting purposes. Compensation expense of
approximately $235,000 has been recognized for the nine months ended
September 30, 1996 in connection with the release and allocation of
shares to participants on June 30, 1996. At September 30, 1996, 28,808
shares have been released and allocated to participants and 6,447 shares
are committed to be released in September 1997.
The common stock held by the ESOP has a "put option" feature since the
common stock of the Company is not "publicly traded" as defined. The "put
option" feature permits the participants to sell their common shares
obtained from the ESOP to the Company at the current fair market value
during the option periods. Accordingly, the common stock of the ESOP and
related amount of unearned ESOP shares are recorded outside stockholders'
equity. An adjustment has been recorded to retained earnings to reflect
the earned ESOP shares at fair value as of September 30, 1996. The fair
value of the unearned ESOP shares is $574,562 at September 30, 1996.
-9-
<PAGE>
(6) Stock Option and Management Recognition Plans
---------------------------------------------
The Board of Directors of the Company has adopted a Stock Option Plan for
employees and directors which was approved by the stockholders at the
annual meeting on April 18, 1996. Under the terms of the plan, 94,838
shares of the Company's common stock were granted to employees and
directors on April 19, 1996. Such options have an option exercise price
of $11.125, which was the fair market value of the common stock on April
19, 1996. Such stock options have a term of 10 years and a vesting
schedule which provides that 20% of the options granted will vest on the
first anniversary of the effective date of the establishment of the Stock
Option Plan and 20% will vest on each subsequent anniversary date, so
that the options will be completely vested at the end of the five years
after the date of the grant.
The Board of Directors of the Company has also approved a Management
Recognition Plan (the "MRP") for directors and employees. The MRP was
approved by the stockholders at the annual meeting on April 18, 1996.
Under the terms of the plan, 37,935 shares of common stock were awarded
to directors and employees as of April 19, 1996. The shares awarded
pursuant to the MRP have a vesting schedule which provides that 20% of
the shares awarded will automatically vest on the first anniversary of
the effective date of the establishment of the MRP and 20% will vest on
each subsequent anniversary date, so the shares will be completely vested
at the end of five years after the date of award. Compensation expense
related to the MRP was $21,102 and $35,170 for the three and nine months
ended September 30, 1996, respectively.
(7) Income Taxes
------------
During 1993, First Savings adopted a Plan of Stock Conversion whereby First
Savings would convert from mutual to stock form, and concurrently become
a wholly-owned subsidiary of First Citizens BancShares, Inc.
("BancShares") pursuant to an acquisition agreement by and between First
Savings and BancShares (the "Acquisition Agreement"). That transaction
was not consummated because of changes in the Federal regulations and
state policies which strictly limited the circumstances under which such
transactions would be permitted.
During the years ended December 31, 1994 and 1993, First Savings incurred
expenses totaling $85,997 and $72,031, respectively, related to the
Acquisition Agreement which amounts were nondeductible for income tax
purposes. On March 31, 1995, the Acquisition Agreement expired and such
expenses became deductible for income tax purposes. As a result, taxable
income was reduced to such a level that no income tax provision was
necessary for the three and nine months ended September 30, 1995.
-10-
<PAGE>
(8) Loss per share
--------------
The Conversion discussed in note 2 was effective September 22, 1995.
Accordingly, the loss per share for the three and nine months ended
September 30, 1995 is comprised of net loss for the post-conversion
period.
<TABLE>
<CAPTION>
Three months ended Nine months ended
September 30, 1996 September 30, 1996
------------------- ------------------
<S> <C> <C>
Net loss for the period ended September 30, 1996. $(243,118) (375,239)
Less: Change in fair value of ESOP shares subject
to put option 90 (53,640)
------- -------
Net loss available to common shareholders $(249,028) (428,879)
======= =======
Weighted average number of shares outstanding 939,529 919,357
======= =======
Loss per share $ (.26) (.47)
== ==
Three months ended Nine months ended
September 30, 1996 September 30, 1996
------------------- ------------------
<S> <C> <C>
Net loss for the period from September
22, 1995 to September 30, 1995 $ (2,534) (2,534)
====== ======
Weighted average number of shares outstanding 872,516 872,516
======= =======
Loss per share $ (.01) (.01)
== ==
</TABLE>
(9) Dividends
---------
The Company declared and paid a $1.00 per common share dividend in May
1996, totaling $910,451 and declared a $.25 per common share dividend in
August 1996, totaling $234,815, which was paid in September 1996. Such
dividends were paid from common stock as a return of capital.
-11-
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
General
First Savings Financial Corp. was incorporated under North Carolina law in April
1995 for the purpose of acquiring and holding all of the outstanding capital
stock of First Savings Bank of Rockingham County, Inc., SSB ("First Savings") to
be issued in connection with the conversion of First Savings from mutual to
stock ownership.
On September 22, 1995, First Savings completed its conversion from a North
Carolina-chartered mutual savings bank to a North Carolina-chartered stock
savings bank (the "Conversion") and First Savings Financial Corp. issued and
sold 948,386 shares of common stock (no par value) to certain depositors of
First Savings. Total proceeds of $9,483,860 were reduced by Conversion expenses
of $509,728. First Savings Financial Corp. retained 50% of the net Conversion
proceeds after deducting the proceeds of the loan to the First Savings Bank of
Rockingham County, Inc., SSB Employee Stock Ownership Plan (the "ESOP") and paid
the balance to First Savings in exchange for all of the common stock of First
Savings issued in the Conversion.
First Savings Financial Corp. does not have any significant assets other than
the shares of First Savings' capital stock acquired in the Conversion, the loan
receivable held with respect to its loan to the ESOP and its portion of the net
proceeds from the Conversion, and does not have any significant liabilities.
Cash flows to First Savings Financial Corp. are dependent upon earnings from the
investment of its portion of net proceeds from the Conversion and any dividends
received from First Savings. Presently, there are no agreements or
understandings for expansion of First Savings Financial Corp.'s operations.
First Savings is primarily engaged in soliciting deposit accounts from the
general public, making mortgage loans to finance the acquisition and
construction of residential dwellings and making limited types of consumer
loans. First Savings' results of operations depend primarily on net interest
income, which is the difference between interest income from interest-earning
assets and interest expense on interest-bearing liabilities. First Savings'
operations are also affected by noninterest income, such as miscellaneous income
from loans, gains and losses from the sale of investment and mortgage-backed
securities and other sources of income. First Savings' principal operating
expenses, aside from interest expense, consist of compensation and employee
benefits, federal deposit insurance premiums, office occupancy costs, and other
general and administrative expenses.
The operations of First Savings and depository institutions in general are
significantly influenced by general economic conditions and by related monetary,
fiscal and other policies of depository institution regulatory agencies,
including the Federal Reserve, the Federal Deposit Insurance Corporation (the
"FDIC") and the North Carolina Administrator of Savings Institutions (the
"Administrator"). Deposit flows and costs of funds are influenced by interest
rates on competing investments and general market rates of interest. Lending
activities are affected by the demand for financing of real estate and other
types of loans, which in turn are affected by the interest
12
<PAGE>
rates at which such financing may be offered and other factors affecting local
demand and availability of funds.
First Savings Financial Corp. and First Savings conduct their business through
their office at 501 South Main Street, Reidsville, North Carolina. First
Savings' primary market area is Rockingham County in North Carolina.
First Savings Financial Corp. and First Savings are collectively referred to as
"the Company".
Comparison of the Results of Operations for the Nine Month Periods Ended
September 30, 1996 and 1995
Summary
- -------
Net income (loss) for the nine months ended September 30, 1996 was ($375,239) as
compared to $89,599 for the nine months ended September 30, 1995. The decrease
in net income of $464,838 is due to a decrease in noninterest income of $24,745,
an increase in compensation expense of $348,665, an increase in federal and
other insurance premiums of $296,826, and an increase in professional fees of
$76,437. Offsetting these effects was an increase in net interest income of
$151,747, a decrease in the provision for loan losses of $82,500 and an income
tax benefit of $78,400.
Net interest income
- -------------------
Net interest income for the nine months ended September 30, 1996 was $1,067,075
an increase of $151,747 or 16.58% when compared to net interest income of
$915,328 for the nine months ended September 30, 1995. The net yield on
interest-earning assets for the nine months ended September 30, 1996 was 2.54%
compared to 2.29% in 1995.
Total interest income increased to $2,923,003 for the nine months ended
September 30, 1996 from $2,828,313 for the comparable period in 1995. The
increase in interest income is principally due to an increase in both the
average volume and the average rate earned on investment securities. For the
nine months ended September 30, 1996, the average balance of investment
securities was $22,696,000 compared to $18,089,000 for the same period in 1995.
This increase was due to the Company investing net conversion proceeds in
investment securities in the fourth quarter of 1995. The average rate earned on
investment securities for the nine months ended September 30, 1996 was 5.99%
compared to 5.57% for the same period in 1995. This increase is attributable to
the Company maintaining an investment portfolio with relatively short
maturities, which benefited the Company as interest rates increased during 1996.
The increase in investment interest income was partially offset by a decrease in
loan interest income to $1,796,966 for the nine months ended September 30, 1996
from $1,888,048 for the same period in 1995. This decrease is primarily due to a
reduction in the average rate earned on loans of 23 basis points from 7.92% for
the nine months ended September 30, 1995 to 7.69% for the nine months ended
September 30, 1996. The average volume of loans decreased $624,000
13
<PAGE>
during the same period. The Company attributes this change to an overall lack of
loan demand in its primary market area, a trend which could continue in the
future.
Total interest expense decreased $57,057 or 2.98% to $1,855,928 for the nine
months ended September 30, 1996 from $1,912,985 for the comparable period in
1995. This decrease in interest expense is due to a decrease in the average
volume of certificate of deposit accounts of $1.5 million. This decrease was
partially offset by an increase in the average rates paid on certificates of
deposit accounts. The average rate paid on certificates of deposit accounts
increased 14 basis points to 5.63% in 1996 from 5.49% in 1995. Both the
increase in the average rate and the decrease in the average volume is primarily
due to competitive pressures in the marketplace.
Provision for loan losses
- -------------------------
During the nine months ended September 30, 1996, First Savings recorded a
provision for loan losses of $7,500, compared to $90,000 for the same period in
1995. During the nine months ended September 30, 1995, First Savings had a
$60,000 charge-off and no recoveries as compared to no charge-offs and a $32,859
recovery during the same period in 1996. The 1996 recovery related to the 1995
charge-off. Nonperforming loans, which consists of loans not accruing interest
and accruing loans 90 days or more past due, as a percentage of total loans were
.07% and .38% at September 30, 1996 and 1995, respectively. First Savings was
increasing its provision for loan losses during the first quarter of 1995 mainly
due to management's recognition of the increased credit risk in the loan
portfolio as a result of the anticipated closing of the American Tobacco Company
("ATC") plant in Reidsville in 1996. However, during 1996, it was announced
that, due to federal trade regulations, ATC may not close the Reidsville plant
or another tobacco company may purchase and continue to operate that plant. No
assurance can be given that future increases in the allowance will not be
necessary as a result of another change in the status of this plant's ongoing
operation. The possible impact of the plant's potential closing, or other
change in status, on First Savings' loan portfolio and the local economy is not
known at this time.
Noninterest income
- ------------------
Noninterest income decreased to ($12,777) for the nine months ended September
30, 1996 from $11,968 for the same period in 1995. The decrease is due to a
$26,352 net loss on the sale of investment securities available for sale.
Noninterest expense
- -------------------
Noninterest expense increased to $1,500,437 for the nine months ended September
30, 1996 from $747,697 for the same period in 1995. The largest component of
noninterest expense for the nine months ended September 30, 1996 and 1995 was
compensation expense, which totaled $757,897 in 1996, compared to $409,232 in
1995. This increase was mainly attributable to approximately $235,000 in
compensation expense relating to the fair value of the earned ESOP shares which
were released and allocated to participants on June 30,1996. The Company also
had approximately $85,000 increase in compensation expense associated with the
directors' deferred compensation plans due to a plan amendment and some
accelerated expense due to the death of one director.
14
<PAGE>
Noninterest expense also included a one time cost of approximately $316,000
pertaining to a special assessment by the FDIC on all Savings Association
Insurance Fund ("SAIF") insured financial institutions to recapitalize the SAIF.
Federal and other insurance premiums increased $296,826 to $412,684 as a result
of this special assessment.
Professional fees increased approximately $76,000 due to increased legal and
accounting fees, resulting from increased reporting and filing requirements
associated with a stock institution as compared to a mutual institution.
As noted above, the increase in compensation expense in 1996 was principally
related to the ESOP shares released and allocated to participants on June
30,1996. Of the 75,870 total ESOP shares, 28,808 shares were released and
allocated on June 30,1996. At September 30, 1996, 6,447 shares are committed to
be released in September 1997. The fair value of the pro-rata number of those
shares earned during the nine months ended September 30, 1996, 159 shares, has
been expensed in the nine months ended September 30, 1996. The remaining 6,288
shares committed to be released in September 1997, with a fair value of
approximately $76,500 at September 30, 1996, will be expensed over the last
three months of 1996 and the first nine months of 1997.
Income taxes
- ------------
Income tax benefit for the nine months ended September 30, 1996 was $78,400 as
compared to no income tax benefit or expense for the same period in 1995. There
was no income tax expense in 1995 primarily due to the permitted deduction of
approximately $132,000 during the first quarter of 1995 of all merger/conversion
expenses incurred during 1994 and 1993 due to the termination of a
merger/conversion agreement with Bancshares during the first quarter of 1995.
Income tax expense for 1996 was impacted by the nondeductibility of a
significant portion of the expense related to the ESOP during the first six
months. (See note 7 to the consolidated financial statements.) This was
somewhat offset by the payment of the SAIF assessment in the third quarter of
1996, resulting in an income tax benefit for the nine months ended September 30,
1996.
Comparison of the Results of Operations for the Three Month Periods Ended
September 30, 1996 and 1995
Summary
- -------
Net loss for the three months ended September 30, 1996 was $243,118 as compared
to $16,200 for the three months ended September 30, 1995. The decrease in net
income of $226,918 is due to an increase in compensation expense of $114,247 and
an increase in federal and other insurance premiums of $311,715. Offsetting
these effects was an increase in net interest income of $79,401, a decrease in
the provision for loan losses of $15,000 and an income tax benefit of $124,200.
15
<PAGE>
Net interest income
- -------------------
Net interest income for the three months ended September 30, 1996 was $342,657
an increase of $79,401 or 30.16% when compared to net interest income of
$263,256 for the three months ended September 30, 1995. The net yield on
interest-earning assets for the three months ended September 30, 1996 was 2.50%
compared to 1.96% in 1995.
Total interest income decreased $5,311 for the three months ended September 30,
1996 compared to the three months ended September 30, 1995, principally due to a
decrease in the average rate earned on loans of 50 basis points. Total
interest expense decreased $84,712 for the three months ended September 30, 1996
as compared to the same period in 1995, due to a decrease in the average volume
of certificates of deposit accounts of $2.1 million.
Provision for loan losses
- -------------------------
During the three months ended September 30, 1996, First Savings did not record a
provision for loan losses compared to a $15,000 provision for loan losses for
the same period in 1995. During the three months ended September 30, 1996 and
1995, First Savings had no charge-offs and no recoveries.
Noninterest expense
- -------------------
Noninterest expense increased $444,812 to $713,276 for the three months ended
September 30, 1996 from $268,464 for the same period in 1995. This increase was
mainly attributable to a one time cost of approximately $316,000 pertaining to a
special assessment by the FDIC on all SAIF insured financial institutions to
recapitalize the SAIF. The Company also had approximately $85,000 increase in
compensation expense associated with the directors' deferred compensation plans
due to a plan amendment and some accelerated expense due to the death of one
director.
Income taxes
- ------------
Income tax benefit for the three months ended September 30, 1996 was $124,200 as
compared to no income tax expense for the same period in 1995. There was no
income tax expense or benefit in 1995 due to the permitted deduction of
approximately $132,000 during the first quarter of 1995 of all merger/conversion
expenses incurred during 1994 and 1993 due to the termination of the
merger/conversion agreement with Bancshares during the first quarter of 1995.
Comparison of Financial Condition at September 30, 1996 and December 31, 1995
Total assets decreased by $3.2 million or 5.4% from $59.1 million at December
31, 1995 to $55.8 million at September 30, 1996.
Loans receivable increased slightly from $30.2 million at December 31, 1995 to
$32.5 million at September 30, 1996. First Savings' ability to expand its
lending base and the size of its loan portfolio continues to be constrained by
the lack of strong loan demand and competitive pressures in its primary lending
market.
16
<PAGE>
Deposits decreased $1.9 million or 4.09% to $45.3 million at September 30, 1996
from $47.2 million at December 31, 1995.
Stockholders' equity decreased from $11.0 million at December 31, 1995 to $9.1
million at September 30, 1996, with the decrease due to a net unrealized loss on
securities of $161,053 at September 30, 1996 as compared to a net unrealized
gain on securities of $128,978 at December 31, 1995 and $375,239 in net loss for
the nine months ended September 30, 1996. In May 1996, the Company declared and
paid a dividend of $1.00 per common share and in August the Company declared a
dividend of $.25 per common share, which was paid in September 1996. Such
dividends were paid from common stock as a return of capital and also
contributed to the decrease in stockholders' equity.
The common stock held by the ESOP has a "put option" feature since the common
stock of the Company is not publicly traded as defined in the ESOP. The "put
option" feature permits the participants to sell their common shares obtained
from the ESOP to the Company at the current fair market value during the option
periods. Accordingly, the common stock of the ESOP and the related amount of
unearned ESOP shares are recorded outside stockholders' equity. An adjustment
has been recorded to retained earnings to reflect the earned ESOP shares at fair
value as of September 30, 1996.
Asset Quality
Asset quality of First Savings remained strong during the first nine months of
1996 and throughout 1995, with nonperforming assets at .07% and .16% at
September 30, 1996 and December 31, 1995, respectively, of total assets.
Nonperforming assets, which consists of loans not accruing interest and accruing
loans 90 days or more past due, were $24,000 and $93,000 at September 30, 1996
and December 31, 1995, respectively. There was no real estate owned at
September 30, 1996 or December 31, 1995.
Management is currently unaware of any significant potential problem loans or
any other concentrations of credit risk which exist in the portfolio. At
September 30, 1996 and December 31, 1995, there were no loans considered
impaired under Statement of Financial Accounting Standards No. 114, "Accounting
by Creditors for Impairment of a Loan".
Regulatory Matters
As noted above, on September 30, 1996, there was a one time special assessment
by the FDIC on all SAIF insured financial institutions to recapitalize the SAIF.
The SAIF recapitalization legislation has been contemplated for several months
and will reduce future FDIC deposit insurance premiums. Such premiums will be
reduced from 23 cents per $100 of deposits to 6.4 cents per $100 deposits
beginning in January 1997. This would reduce the Company's deposit insurance
premiums to approximately $29,000 annually at current deposit levels as compared
to approximately $112,000 paid in the year ended December 31, 1995.
17
<PAGE>
Management is not presently aware of any current recommendation to the Company
by regulatory authorities which, if they were to be implemented, would have a
material effect on the Company's liquidity, capital resources or operations.
Liquidity
First Savings' primary sources of internally generated funds are principal
repayments and payoffs of loans receivable, cash flow generated from operations,
repayments from mortgage-backed securities, maturing investments and increases
in deposits. External sources of funds include the ability to access advances
from the Federal Home Loan Bank of Atlanta.
As a North Carolina-chartered savings bank, First Savings must maintain liquid
assets equal to at least 10% of total assets. The computation of liquidity
under North Carolina regulations allows the inclusion of mortgage-backed
securities and investments with a readily marketable value, including
investments with maturities in excess of five years. First Savings' liquidity
ratio at September 30, 1996, as computed under North Carolina regulations, was
approximately 40%.
Impact of Inflation and Changing Prices
The consolidated financial statements and accompanying footnotes have been
prepared in accordance with generally accepted accounting principles, which
require the measurement of financial position and operating results in terms of
historical dollars without consideration for changes in the relative purchasing
power of money over time due to inflation. The assets and liabilities of the
Company are primarily monetary in nature and changes in interest rates have a
greater impact on the Company's performance than do the effect of inflation.
Capital Resources
As a North Carolina-chartered savings bank, First Savings is subject to the
capital requirements of the FDIC and the Administrator. The FDIC requires
state-chartered savings banks, including First Savings, to have a minimum
leverage ratio of Tier I capital (principally consisting of common shareholders'
equity, noncumulative perpetual preferred stock, and a limited amount of
cumulative perpetual preferred stock, less certain intangible assets) to total
assets of at least 3%; provided, however, that all institutions, other than
those (i) receiving the highest rating during the examination process and (ii)
not anticipating or experiencing any significant growth, are required to
maintain a ratio of 1% or 2% above the stated minimum. The FDIC also requires
First Savings to have a ratio of total capital to risk-weighted assets of at
least 8%, of which at least 4% must be comprised of Tier I capital. The
Administrator requires a net worth equal to at least 5% of total assets. At
September 30, 1996, First Savings was in compliance with the capital
requirements of both the FDIC and the Administrator.
Current Accounting Issues
In March 1995, the FASB issued Statement of Financial Accounting Standards No.
121, "Accounting for Impairment of Long-Lived Assets and for Long-Lived Assets
to be Disposed Of," ("SFAS No. 121") which establishes accounting standards for
the impairment of long-lived assets, certain identifiable intangibles, and
goodwill related to those assets to be held and used
18
<PAGE>
and for those to be disposed of. This statement requires that long-lived assets
and certain intangibles be reviewed for impairment whenever events or changes in
circumstances indicate that the carrying value may not be recoverable. Adoption
of SFAS No. 121 is required for fiscal years beginning after December 15, 1995.
The Company adopted this statement on January 1, 1996 without any impact on its
consolidated financial statements.
In May 1995, the FASB issued Statement of Financial Accounting Standards No.
122, "Accounting for Mortgage Servicing Rights, an amendment of FASB Statement
No. 65"("SFAS No. 121"). The statement amends FASB Statement No. 65 to require
that the rights to service mortgage loans for others, however those servicing
rights are acquired, be recognized as separate assets, eliminating the
previously existing accounting distinction between servicing rights acquired
through purchase transactions and those acquired through loan originations.
SFAS No. 122 is required to be adopted and applied prospectively for fiscal
years beginning after December 15, 1995 to transactions involving the sale or
securitization of mortgage loans with servicing rights retained. The Company
adopted this statement on January 1, 1996 without any impact on its consolidated
financial statements.
In October 1995, the FASB issued Statement of Financial Accounting Standards
No. 123, "Accounting for Stock-Based Compensation" ("SFAS No. 123"). SFAS No.
123 defines a fair value based method of accounting for an employee stock option
or similar equity instrument. However, it also allows an entity to continue to
measure compensation cost for those plans using the intrinsic value based method
of accounting prescribed by Accounting Principles Board Opinion No. 25,
"Accounting for Stock Issued to Employees" ("APB Opinion No. 25"). Entities
electing to remain with the accounting in APB Opinion No. 25 must make pro forma
disclosures of net income and, if presented, earnings per share, as if the fair
value based method of accounting defined in SFAS No. 123 had been applied. The
accounting requirements of SFAS No. 123 are effective for transactions entered
into in fiscal years that begin after December 15, 1995, though they may be
adopted on issuance. The Company will adopt this statement in 1996 and will
utilize the accounting in APB Opinion No. 25 and make proforma disclosures as
prescribed under SFAS No. 123 in its year-end financial statements.
In August 1996, the FASB issued Statement of Financial Accounting Standards No.
125, "Accounting for Transfers and Servicing of Financial Assets and
Extinguishments of Liabilities" ("SFAS No. 125"). SFAS No. 125 provides
accounting and reporting standards for transfers and servicing of financial
assets and extinguishments of liabilities using a financial-components approach
that focuses on control of the asset or liability. It requires that an entity
recognize only assets it controls and liabilities it has incurred and should
derecognize assets only when control has been surrendered and derecognize
liabilities only when they have been extinguished. SFAS No. 125 if effective for
transfers and servicing of financial assets and extinguishments of liabilities
occurring after December 31, 1996, and is to be applied prospectively. The
Company plans to adopt this statement on January 1, 1997 without any impact on
its consolidated financial statements.
19
<PAGE>
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
None.
Item 2. Changes in Securities
Not applicable.
Item 3. Defaults upon Senior Securities
Not applicable.
Item 4. Submission of Matters to a Vote of Security Holders
There has been no submission of matters to a vote of shareholders during the
quarter ended September 30, 1996.
Item 5. Other Information
Not applicable.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibit (27) Financial Data Schedule
(b) Reports on Form 8-K
None.
20
<PAGE>
SIGNATURES
----------
Under the requirements of the Securities Exchange Act of 1934, the registrant
has duly caused this report to be signed on its behalf by the undersigned
thereunto duly authorized.
FIRST SAVINGS FINANCIAL CORP.
-----------------------------
(Registrant)
Date: November 13, 1996 By: /s/David S. Kemp
----------------- ------------------------
David S. Kemp
(President)
Date: November 13, 1996 By: /s/Cynthia F. Teague
----------------- ------------------------
Cynthia F. Teague
(Vice President and principal
financial officer)
-21-
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 9
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> SEP-30-1996
<CASH> 254,898
<INT-BEARING-DEPOSITS> 1,417,967
<FED-FUNDS-SOLD> 0
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 16,436,037
<INVESTMENTS-CARRYING> 3,001,690
<INVESTMENTS-MARKET> 2,984,060
<LOANS> 32,812,013
<ALLOWANCE> 299,825
<TOTAL-ASSETS> 55,849,710
<DEPOSITS> 45,297,772
<SHORT-TERM> 0
<LIABILITIES-OTHER> 1,012,683
<LONG-TERM> 0
0
0
<COMMON> 4,958,557
<OTHER-SE> 4,225,853
<TOTAL-LIABILITIES-AND-EQUITY> 55,849,710
<INTEREST-LOAN> 1,796,966
<INTEREST-INVEST> 1,020,290
<INTEREST-OTHER> 105,747
<INTEREST-TOTAL> 2,923,003
<INTEREST-DEPOSIT> 1,855,928
<INTEREST-EXPENSE> 0
<INTEREST-INCOME-NET> 1,067,075
<LOAN-LOSSES> 7,500
<SECURITIES-GAINS> (26,352)
<EXPENSE-OTHER> 1,500,437
<INCOME-PRETAX> (453,639)
<INCOME-PRE-EXTRAORDINARY> (453,639)
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (375,239)
<EPS-PRIMARY> (.47)
<EPS-DILUTED> (.47)
<YIELD-ACTUAL> 2.54
<LOANS-NON> 23,791
<LOANS-PAST> 0
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 259,466
<CHARGE-OFFS> 0
<RECOVERIES> 32,859
<ALLOWANCE-CLOSE> 299,825
<ALLOWANCE-DOMESTIC> 299,825
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 299,825
</TABLE>
