<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 June 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
incorporation or organization) No.)
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 August 13, 1996, 986,321 shares of the registrant's common stock, no par
value, were outstanding.
This Form 10-QSB has 23 pages.
<PAGE>
Part I. FINANCIAL INFORMATION
Item 1. Financial Statements
FIRST SAVINGS FINANCIAL CORP. AND SUBSIDIARY
Consolidated Statements of Financial Condition
<TABLE>
<CAPTION>
June 30,
1996 December 31,
(unaudited) 1995
------------- ------------
<S> <C> <C>
Assets
Cash and due from banks $ 35,491 891,034
Interest-bearing deposits in other financial institutions 1,233,603 1,087,641
Investment securities:
Held to maturity (market value of $4,986,798 and
$8,529,543 at June 30, 1996 and December 31, 1995,
respectively) 5,003,219 8,507,472
Available for sale, at market value (cost of $16,679,558
and $15,717,228 at June 30, 1996 and December 31,
1995, respectively) 16,395,864 15,919,254
Mortgage-backed securities available for sale (cost of
$679,828 and $716,881 at June 30, 1996 and
December 31, 1995, respectively) 661,687 710,233
Loans receivable (net of allowance for loan losses of
$299,825 and $259,466 at June 30, 1996 and
December 31, 1995, respectively) (note 4) 31,514,086 30,223,497
Accrued interest receivable 488,838 508,883
Federal Home Loan Bank stock, at cost 412,800 412,800
Premises and equipment, net 109,629 116,555
Other assets 533,009 677,343
------------ ------------
Total assets $ 56,388,226 59,054,712
============ ============
Liabilities and Stockholders' Equity
Deposit accounts 45,862,218 47,231,789
Other liabilities 567,720 743,060
------------ ------------
Total liabilities 46,429,938 47,974,849
------------ ------------
ESOP stock subject to put option (note 5) 355,335 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 June 30, 1996 and December 31,
1995, respectively 5,193,331 5,659,804
Retained earning, substantially restricted 5,016,791 5,202,642
Net unrealized gains (losses) on securities (199,210) 128,978
Deferred stock awards (407,959) -
------------ ------------
Total stockholders' equity 9,602,953 10,991,424
------------ ------------
Commitments
Total liabilities and stockholders' equity $56,388,226 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 Six months ended
June 30, June 30,
1996 1995 1996 1995
------------- ---------- ----------- -----------
<S> <C> <C> <C> <C>
Interest income:
Loans receivable $ 596,314 633,024 1,191,999 1,267,826
Mortgage-backed securities 9,977 36,933 19,997 67,575
Investment securities 348,715 250,625 712,314 495,835
Interest-bearing balances in other banks 12,800 19,014 36,470 29,564
Stock in the Federal Home Loan Bank 7,440 7,481 14,882 14,861
------------- ---------- ----------- -----------
Total interest income 975,246 947,077 1,975,662 1,875,661
Interest expense on deposit accounts 621,804 640,476 1,251,244 1,223,590
------------- ---------- ----------- -----------
Net interest income 353,442 306,601 724,418 652,071
Provision for loan losses (note 4) - 15,000 7,500 75,000
------------- ---------- ----------- -----------
Net interest income after provision for loan losses 353,442 291,601 716,918 577,071
Noninterest income:
Net loss on sale of investment securities available for sale (26,352) - (26,352) -
Other 3,068 5,568 10,274 7,960
------------- ---------- ----------- -----------
Total noninterest income (23,284) 5,568 (16,078) 7,960
------------- ---------- ----------- -----------
Noninterest expense:
Compensation, payroll taxes, and fringe benefits 292,304 139,759 497,968 263,550
Occupancy and equipment 10,471 10,421 21,692 21,395
Federal and other insurance premiums 21,826 38,604 62,691 77,580
Data processing fees 13,120 13,751 28,915 28,958
Advertising 9,534 5,483 11,893 9,390
Professional fees 36,388 5,175 68,785 10,350
Other expenses 34,560 36,139 95,217 68,009
------------- ---------- ----------- -----------
Total noninterest expense 418,203 249,332 787,161 479,232
------------- ---------- ----------- -----------
Income (loss) before income taxes (88,045) 47,837 (86,321) 105,799
Income taxes (note 7) 19,600 - 45,800 -
------------- ---------- ----------- -----------
Net income (loss) (107,645) 47,837 (132,121) 105,799
Change in fair value of ESOP shares subject to put option (note 5) 43,240 - 53,730 -
------------- ---------- ----------- -----------
Net income (loss) available to common shareholders ($150,885) 47,837 (185,851) 105,799
============= ========== =========== ===========
Net loss available to common shareholders per share
(note 8) $(0.16) - (0.20) -
============= ========== =========== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
-3-
<PAGE>
FIRST SAVINGS FINANCIAL CORP. AND SUBSIDIARY
Consolidated Statement of Stockholders' Equity
Six months ended June 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 - (132,121) - - (132,121)
Common stock of ESOP 21,951 - - - 21,951
Change in fair value of ESOP shares
subject to put option - (53,730) - - (53,730)
Unamortized compensation, shares
issued to the management
recognition plan 422,027 - - (422,027) -
Amortization of compensation,
shares issued to the
management recognition plan - - - 14,068 14,068
Net unrealized losses on securities - - (328,188) - (328,188)
Dividend paid ($1.00 per common
share) (910,451) - - - (910,451)
------------ ------------ -------------- ----------- -------------
Balance at June 30, 1996 $ 5,193,331 5,016,791 (199,210) (407,959) 9,602,953
============ ============ ============== =========== =============
</TABLE>
See accompanying notes to consolidated financial statements.
-4-
<PAGE>
FIRST SAVINGS FINANCIAL CORP. AND SUBSIDIARY
Consolidated Statements of Cash Flows
(Unaudited)
<TABLE>
<CAPTION>
Six Months Ended
June 30,
1996 1995
------------ ------------
<S> <C> <C>
Cash flows from operating activities:
Net income (loss) $ (132,121) 105,799
Adjustments to reconcile net income (loss) to net cash provided by
operating activities:
Provision for loan losses 7,500 75,000
Amortization, net 11,950 (60,384)
Depreciation 7,942 8,319
Compensation expense on ESOP shares 235,117 -
Amortization of deferred stock awards 14,068 -
Net loss on sale of investment securities available for sale 26,352 -
Deferred loan origination fees (costs), net (8,650) 16,870
Deferred income taxes (5,300) -
Decrease (increase) in accrued interest receivable 20,045 (7,552)
Decrease (increase) in other assets 151,000 (128,883)
Decrease in other liabilities (7,640) (123,031)
------------ ------------
Net cash provided by (used in) operating activities 320,263 (113,862)
------------ ------------
Cash flows from investing activities:
Purchases of investment securities held to maturity (500,000) (4,500,000)
Proceeds from maturities and issuer calls of
investment securities held to maturity 4,000,000 4,000,000
Purchases of investment securities available for sale (3,980,357) -
Proceeds from sale of investment securities available for sale 2,456,809 -
Proceeds from maturities and issuer calls of investment securities
available for sale 500,000 -
Principal collected on mortgage-backed securities available for sale 35,347 138,774
Net decrease (increase) in loans receivable (1,260,605) 1,465,507
Purchases of premises and equipment (1,016) -
------------ ------------
Net cash provided by investing activities 1,250,178 1,104,281
------------ ------------
Cash flows from financing activities:
Dividends paid (910,451) -
Net decrease in deposits (1,369,571) (1,248,119)
------------ ------------
Net cash used in financing activities (2,280,022) (1,248,119)
------------ ------------
Net decrease in cash and cash equivalents (709,581) (257,700)
Cash and cash equivalents at beginning of period 1,978,675 1,634,894
------------ ------------
Cash and cash equivalents at end of period $ 1,269,094 1,377,194
============ ============
</TABLE>
5
<PAGE>
FIRST SAVINGS FINANCIAL CORP. AND SUBSIDIARY
Consolidated Statements of Cash Flows
(Unaudited)
<TABLE>
<CAPTION>
Six Months Ended
June 30,
1996 1995
------------- -------------
<S> <C> <C>
Cash paid during the period for:
Interest $ 1,276,769 1,249,484
============= =============
Income taxes $ 30,500 66,800
============= =============
Noncash investing and financing activities:
Shares issued to the management recognition plan $ 422,027 -
============= =============
</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
six month periods ended June 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 Option
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>
FIRST SAVINGS FINANCIAL CORP. AND SUBSIDIARY
Notes to the Consolidated Financial Statements
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 June 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 six months ended June 30, 1996 and 1995, respectively.
<TABLE>
<CAPTION>
Three months Six months
ended June 30, ended June 30,
-------------- --------------
1996 1995 1996 1995
---- ---- ---- ----
<S> <C> <C> <C> <C>
Balance at the beginning
of the period $ 299,825 214,466 259,466 214,466
Provision for loan losses - 15,000 7,500 75,000
Charge offs - - - (60,000)
Recoveries - 32,859 -
-------- ------- ------- -------
Net recoveries
(charge-offs) - - 32,859 (60,000)
-------- ------- ------- -------
Balance at the end of the
period $ 299,825 229,466 299,825 229,466
======= ======= ======= =======
</TABLE>
-8-
<PAGE>
FIRST SAVINGS FINANCIAL CORP. AND SUBSIDIARY
Notes to the Consolidated Financial Statements
(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 made a principal and interest payment of $379,182 on June 30,
1996, reducing the loan balance to $436,468 at June 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
$155,700 and $235,000 has been recognized for the three and six months
ended June 30, 1996, respectively, in connection with the release and
allocation of shares to participants on June 30, 1996. At June 30, 1996,
29,007 shares have been allocated to participants.
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 June 30, 1996. The fair value
of the unearned ESOP shares is $574,072 at June 30, 1996.
-9-
<PAGE>
FIRST SAVINGS FINANCIAL CORP. AND SUBSIDIARY
Notes to the Consolidated Financial Statements
(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 $14,068 for the three and six months ended June
30, 1996.
(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 six months ended June 30, 1995.
-10-
<PAGE>
FIRST SAVINGS FINANCIAL CORP. AND SUBSIDIARY
Notes to the Consolidated Financial Statements
(8) Loss per share
--------------
The Conversion discussed in note 2 was effective September 22, 1995.
Accordingly, there is no earnings per share calculation for the three or
six months ended June 30, 1995.
<TABLE>
<CAPTION>
Three months Six months
ended June 30, 1996 ended June 30, 1996
-------------------- ----------------------------
<S> <C> <C>
Net loss for the
period ended June
30, 1996 $ (107,645) (132,121)
Less: Change in
fair value of
ESOP shares subject
to put option 43,240 53,730
------- -------
Net loss available
to common
shareholders $ (150,885) (185,851)
======= =======
Weighted average number
of shares outstanding 931,537 909,370
======= =======
Loss per share $ (.16) (.20)
=== ===
</TABLE>
-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
12
<PAGE>
for financing of real estate and other types of loans, which in turn are
affected by the interest 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 Six Month Periods Ended June 30,
1996 and 1995
Summary
- -------
Net income (loss) for the six months ended June 30, 1996 was ($132,121) as
compared to $105,799 for the six months ended June 30, 1995. The decrease in
net income of $237,920 is due to a decrease in noninterest income of $24,038,
an increase in compensation expense of $234,418, an increase in other expense of
$27,208, an increase in professional fees of $58,435 and an increase in income
tax expense of $45,800. Offsetting these effects was an increase in net
interest income of $72,347 and a decrease in the provision for loan losses of
$67,500.
Net interest income
- -------------------
Net interest income for the six months ended June 30, 1996 was $724,418 an
increase of $72,347 or 11.09% when compared to net interest income of $652,071
for the six months ended June 30, 1995. The net yield on interest-earning
assets for the six months ended June 30, 1996 was 2.56% compared to 2.45% in
1995.
Total interest income increased to $1,975,662 for the six months ended June 30,
1996 from $1,875,661 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 six months ended June 30,
1996, the average balance of investment securities was $23,953,000 compared to
$18,082,500 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 six months
ended June 30, 1996 was 5.95% compared to 5.48% 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 $1,191,999 for the six months ended June 30, 1996 from
$1,267,826 for the same period in 1995. This decrease is primarily due to a
reduction in the average volume of loans of $1.6 million. The Company attributes
this change to an overall decrease in loan demand in its
13
<PAGE>
primary market area, a trend which could continue in the future. The average
rate earned on loans decreased to 7.78% for the six months ended June 30, 1996
from 7.86% for the same period in 1995.
Total interest expense increased $27,654 or 2.26% to $1,251,244 for the six
months ended June 30, 1996 from $1,223,590 for the comparable period in 1995.
This increase in interest expense was largely due to increases in the average
rates paid on certificates of deposit accounts. The average rate paid on
certificates of deposit accounts increased 35 basis points to 5.63% in 1996 from
5.28% in 1995. This increase was partially offset by a decrease in the average
volume of certificate of deposit accounts of $1.1 million. 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 six months ended June 30, 1996, First Savings recorded a provision
for loan losses of $7,500, compared to $75,000 for the same period in 1995.
During the six months ended June 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
.04% and .10% at June 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 the first quarter of 1996,
it was announced that due to federal trade regulations ATC may not close its
plant or another tobacco company may purchase and continue to operate the ATC
plant. No assurance can be given that future increases in the allowance as a
result of a change in the status of this plant closing will not be necessary.
The potential impact of the plant closing on the loan portfolio and the local
economy is not known as this time.
Noninterest income
- ------------------
Noninterest income decreased to ($16,078) for the six months ended June 30, 1996
from $7,960 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 $787,161 for the six months ended June 30, 1996
from $479,232 for the same period in 1995. The largest component of noninterest
expense for the six months ended June 30, 1996 and 1995 was compensation
expense, which totaled $497,698 in 1996, compared to $263,550 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. Professional fees increased
approximately $58,000 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.
14
<PAGE>
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, 29,007 shares were released on June
30,1996.
Income taxes
- ------------
Income tax expense for the six months ended June 30, 1996 was $45,800 as
compared to no income tax expense for the same period in 1995. The increase in
income taxes is 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 the merger/conversion
agreement during the first quarter of 1995. Such deductions resulted in an
effective tax rate of 0% for the six months ended June 30, 1995. Income tax
expense for 1996 was impacted by the nondeductibility of a significant portion
of the expense related to the ESOP. (See note 7 to the consolidated financial
statements.)
Comparison of the Results of Operations for the Three Month Periods Ended June
30, 1996 and 1995
Summary
- -------
Net income (loss) for the three months ended June 30, 1996 was ($107,645) as
compared to $47,837 for the three months ended June 30, 1995. The decrease in
net income of $155,482 is due to a decrease in noninterest income of $28,852, an
increase in compensation expense of $152,545, an increase in professional fees
of $31,213 and an increase in income tax expense of $19,600. Offsetting these
effects was an increase in net interest income of $46,841 and a decrease in the
provision for loan losses of $15,000.
Net interest income
- -------------------
Net interest income for the three months ended June 30, 1996 was $353,442 an
increase of $46,841 or 15.3% when compared to net interest income of $306,601
for the three months ended June 30, 1995. The net yield on interest-earning
assets for the three months ended June 30, 1996 was 2.54% compared to 2.32% in
1995.
Total interest income increased $28,169 for the three months ended June 30, 1996
compared to the three months ended June 30, 1995, principally due to an increase
in the average volume of investment securities of $4.9 million and an increase
in the average rate earned on investment securities of 51 basis points. Total
interest expense decreased $18,672 for the three months ended June 30, 1996 as
compared to the same period in 1995, due to a decrease in the average volume of
certificates of deposit accounts of $1.5 million.
15
<PAGE>
Provision for loan losses
- -------------------------
During the three months ended June 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 June 30, 1996 and 1995,
First Savings had no charge-offs and no recoveries
Noninterest income
- ------------------
Noninterest income decreased to ($23,284) for the three months ended June 30,
1996 from $5,568 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 $168,871 to $418,203 for the three months ended
June 30, 1996 from $249,332 for the same period in 1995. This increase was
mainly attributable to approximately $155,000 in compensation expense relating
to the fair value of the earned ESOP shares which were released and allocated to
participants on June 30,1996. Professional fees increased approximately $31,000
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.
Income taxes
- ------------
Income tax expense for the three months ended June 30, 1996 was $19,600 as
compared to no income tax expense for the same period in 1995. The increase in
income taxes is 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 the merger/conversion
agreement 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. (See note 7 to the consolidated financial statements.)
Comparison of Financial Condition at June 30, 1996 and December 31, 1995
Total assets decreased by $2.7 million or 4.5% from $59.1 million at December
31, 1995 to $56.4 million at June 30, 1996.
Loans receivable increased slightly from $30.2 million at December 31, 1995 to
$31.5 million at June 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 in its primary lending market.
Deposits decreased $1.4 million or 2.90% to $45.9 million at June 30, 1996 from
$47.2 million at December 31, 1995.
16
<PAGE>
Stockholders' equity decreased from $11.0 million at December 31, 1995 to $9.6
million at June 30, 1996, with the decrease due to a net unrealized loss on
securities of $199,210 at June 30, 1996 as compared to a net unrealized gain on
securities of $128,978 at December 31, 1995 and $132,121 in net loss for the six
months ended June 30, 1996. In May 1996, the Company declared and paid a
dividend of $1.00 per common share, which also contributed to the decrease in
stockholders' equity. Such dividend was paid from common stock as a return of
capital.
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 June 30, 1996.
Asset Quality
Asset quality of First Savings remained strong during the first six months of
1996 and throughout 1995, with nonperforming assets at .02% and .16% at June 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 $13,000 and $93,000 at June 30, 1996 and December 31,
1995, respectively. There was no real estate owned at June 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.
Regulatory Matters
Various proposals are currently being considered by committees of the United
States Congress concerning a possible merger of the FDIC's Savings Association
Insurance Fund ("SAIF") and the Bank Insurance Fund ("BIF"). One of the
principal issues under discussion is the amount of additional funds needed to
capitalize the SAIF prior to such merger. Substantially all of the proposals
under consideration contemplate a special assessment of 75 to 80 basis points to
be levied on SAIF-insured deposits. As a SAIF-insured institution, First
Savings may be subject to a special assessment on its deposits under the
proposals which have been published. Based upon the Bank's deposits as of June
30, 1996, the proposed one-time fee would range from $344,000 to $367,000.
Financial institutions such as First Savings which are members of the SAIF, are
required to pay higher deposit insurance premiums than financial institutions
which are members of the BIF (primarily commercial banks), because the BIF has
higher reserves than the SAIF and has been responsible for fewer troubled
institutions. The FDIC Board of Directors has recently approved a new risk-
based premium schedule that will reduce assessment rates for financial
institutions such as
17
<PAGE>
First Savings at current levels, and will increase the disparity between SAIF
and BIF assessments. In announcing this rule, the FDIC noted that the premium
differential may have adverse consequences for SAIF members, including reduced
earnings and an impaired ability to raise funds in the capital markets. This
premium differential could continue to exist for a long period of time. In
addition, SAIF members, such as First Savings, could be placed at a substantial
competitive disadvantage to BIF members with respect to pricing of loans and
deposits and the ability to achieve lower operating costs. Several alternatives
to mitigate the effect of the BIF/SAIF premium disparity have been suggested by
the federal banking regulators, by members of the United States Congress and by
industry groups.
A significant increase in SAIF insurance premiums or a significant one-time fee
to recapitalize the SAIF would likely have an adverse effect on the operating
expenses and results of operations of First Savings. Based upon the current
financial condition and capital level of First Savings, First Savings does not
expect the transitional risk-based assessment schedule will have a material
adverse effect upon its earnings. However, should a greater disparity develop
between deposit insurance premiums paid by members of the SAIF, such as First
Savings, and members of the BIF (e.g., most commercial banks), First Savings
would be in a competitive disadvantage due to it being required to pay
significantly higher premiums as a member of the SAIF.
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 June 30, 1996, as computed under North Carolina regulations, was
approximately 42%.
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.
18
<PAGE>
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
June 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 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
19
<PAGE>
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.
20
<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
(a) The Registrant's Annual Meeting of Shareholders was held on April 18, 1996.
(b) Not applicable
(c) 1. All the nominees for Director listed under the caption "Election of
Directors" in the Registrant's Proxy Statement dated March 25, 1996, were
duly elected Directors of the Registrant. Eighty-four percent of the
outstanding shares were voted. Of the 794,510 shares voted, each
director received at least 793,010 shares or 99.8% in favor.
2. The First Savings Financial Corp. Stock Option Plan as described under
the caption "Approval of the First Savings Financial Corp. Stock Option
Plan" in the Registrant's Proxy Statement dated March 25, 1996, was
approved by an affirmative vote of 620,908 shares or 97.9% of the shares
that voted, with 13,350 negative votes and 314,128 shares not voted.
3. The First Savings Bank of Rockingham County, Inc., SSB Management
Recognition Plan as described under the caption "Approval of the First
Savings Bank of Rockingham County, Inc., SSB Management Recognition Plan"
in the Registrant's Proxy Statement dated March 25,1996, was approved by
an affirmative vote of 621,908 shares or 98.0% of the shares that voted,
with 12,850 negative votes and 313,628 shares not voted.
4. The ratification of the selection of KPMG Peat Marwick LLP as
independent auditors for the Registrant as described under the caption
"Ratification of Selection of Independent Auditor" in the Registrant's
Proxy Statement dated March 25, 1996, was approved by an affirmative
vote of 794,510 shares or 100% of the shares that voted, with 0 negative
votes and 153,876 shares not voted.
Item 5. Other Information
Not applicable
21
<PAGE>
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibit
Exhibit (27) Financial Data Schedule
(b) Reports on Form 8-K
On December 15, 1995 the Registrant filed a Form 8-K under Item 5 to announce
the declaration of a dividend of $3.00 for each share of the Registrant's issued
and outstanding common stock on December 29, 1995 to shareholders of record on
December 22, 1995. A letter to shareholders dated December 14, 1995, was
included as an exhibit.
22
<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: August 13, 1996 By: /s/David S. Kemp
----------------------- ------------------------
David S. Kemp
(President)
Date: August 13, 1996 By: /s/Cynthia F. Teague
----------------------- ------------------------
Cynthia F. Teague
(Vice President and principal
financial officer)
-23-
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 9
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM FORM 10QSB
AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> JUN-30-1996
<CASH> 35,491
<INT-BEARING-DEPOSITS> 1,233,603
<FED-FUNDS-SOLD> 0
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 16,395,864
<INVESTMENTS-CARRYING> 5,003,219
<INVESTMENTS-MARKET> 4,986,798
<LOANS> 31,813,911
<ALLOWANCE> 299,825
<TOTAL-ASSETS> 56,388,226
<DEPOSITS> 45,862,218
<SHORT-TERM> 0
<LIABILITIES-OTHER> 567,720
<LONG-TERM> 0
0
0
<COMMON> 5,193,331
<OTHER-SE> 4,409,622
<TOTAL-LIABILITIES-AND-EQUITY> 56,388,226
<INTEREST-LOAN> 1,191,999
<INTEREST-INVEST> 732,311
<INTEREST-OTHER> 51,352
<INTEREST-TOTAL> 1,975,662
<INTEREST-DEPOSIT> 1,251,244
<INTEREST-EXPENSE> 0
<INTEREST-INCOME-NET> 724,418
<LOAN-LOSSES> 7,500
<SECURITIES-GAINS> (26,352)
<EXPENSE-OTHER> 787,161
<INCOME-PRETAX> (86,321)
<INCOME-PRE-EXTRAORDINARY> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (132,121)
<EPS-PRIMARY> (.20)
<EPS-DILUTED> 0
<YIELD-ACTUAL> 2.56
<LOANS-NON> 13,000
<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> 0
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 299,825
</TABLE>
