<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, 1997
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 August 11, 1997, 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
FIRST SAVINGS FINANCIAL CORP. AND SUBSIDIARY
Consolidated Statements of Financial Condition
<TABLE>
<CAPTION>
June 30, December 31,
1997 1996
-------------- -------------
(unaudited)
<S> <C> <C>
Assets
Cash and due from banks $ 92,504 255,891
Interest-bearing deposits in other financial institutions 670,292 561,269
Investment securities:
Held to maturity (market value of $485,060 and $988,195
at June 30, 1997 and December 31, 1996, respectively 500,308 1,000,351
Available for sale, at market value (cost of $13,051,366 and
$16,673,527 at June 30, 1997 and December 31, 1996, respectively) 12,910,490 16,557,015
Mortgage-backed securities available for sale (cost of $598,535
and $605,164 at June 30, 1997 and December 31, 1996, respectively) 591,420 599,346
Loans receivable (net of allowance for loan losses of $357,825 and
$299,825 at June 30, 1997 and December 31, 1996, respectively) (note 3) 32,299,846 32,789,901
Accrued interest receivable 317,680 385,494
Federal Home Loan Bank stock, at cost 412,800 412,800
Premises and equipment, net 95,505 101,584
Other assets 739,092 563,314
-------------- -------------
Total assets $ 48,629,937 53,226,965
============== =============
Liabilities and Stockholders' Equity
Deposit accounts, including $6,410,000 and $6,781,000,
respectively of time deposits for $100,000 or more $ 38,836,853 43,066,580
Other liabilities 772,142 763,525
-------------- -------------
Total liabilities 39,608,995 43,830,105
-------------- -------------
ESOP stock subject to put option (note 4) 350,842 382,400
-------------- -------------
Stockholders' equity (notes 5 and 7):
Preferred stock, no par value, 5,000,000 shares authorized;
none outstanding - -
Common stock, no par value, 20,000,000 shares authorized;
986,321 shares issued and outstanding at June 30, 1997
and December 31, 1996 4,731,111 4,727,234
Retained earnings, substantially restricted 4,360,215 4,733,711
Net unrealized losses on securities (97,675) (80,730)
Deferred stock awards (323,551) (365,755)
-------------- -------------
Total stockholders' equity 8,670,100 9,014,460
-------------- -------------
Commitments
Total liabilities and stockholders' equity $ 48,629,937 53,226,965
============== =============
</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,
1997 1996 1997 1996
------------- ------------- ------------ -------------
<S> <C> <C> <C> <C>
Interest income:
Loans receivable $ 628,831 596,314 1,241,200 1,191,999
Mortgage-backed securities 8,288 9,977 16,611 19,997
Investment securities 204,062 348,715 452,305 712,314
Interest-bearing balances in other banks 10,315 12,800 16,652 36,470
Stock in the Federal Home Loan Bank 7,461 7,440 14,841 14,882
------------- ------------- ------------ -------------
Total interest income 858,957 975,246 1,741,609 1,975,662
Interest expense on deposit accounts 498,020 621,804 1,020,504 1,251,244
------------- ------------- ------------ -------------
Net interest income 360,937 353,442 721,105 724,418
Provision for loan losses (note 3) - - 58,000 7,500
------------- ------------- ------------ -------------
Net interest income after provision for loan losses 360,937 353,442 663,105 716,918
------------- ------------- ------------ -------------
Noninterest income (loss):
Net loss on investment securities available for sale (2,883) (26,352) (16,942) (26,352)
Other 4,686 3,068 69,291 10,274
------------- ------------- ------------ -------------
Total noninterest income 1,803 (23,284) 52,349 (16,078)
------------- ------------- ------------ -------------
Noninterest expense:
Compensation, payroll taxes, and fringe benefits 192,240 292,304 388,810 497,968
Occupancy and equipment 9,513 10,471 20,207 21,692
Federal and other insurance premiums 8,568 21,826 22,908 62,691
Data processing fees 13,727 13,120 28,572 28,915
Advertising 2,746 9,534 4,831 11,893
Professional fees 76,343 36,388 124,081 68,785
Other expenses 50,415 34,560 93,359 95,217
------------- ------------- ------------ -------------
Total noninterest expense 353,552 418,203 682,768 787,161
------------- ------------- ------------ -------------
Income before income taxes 9,188 (88,045) 32,686 (86,321)
Income tax (note 7) 5,300 19,600 8,700 45,800
------------- ------------- ------------ -------------
Net income (loss) 3,888 (107,645) 23,986 (132,121)
Change in fair value of ESOP shares subject to put option (note 5) (3,714) 43,240 (72,148) 53,730
------------- ------------- ------------ -------------
Net income (loss) available to common shareholders $ 7,602 (150,885) 96,134 (185,851)
============= ============= ============ =============
Net income (loss) available to common shareholders
per share (note 8) $ 0.01 (0.16) 0.10 (0.20)
============= ============= ============ =============
</TABLE>
See accompanying notes to consolidated financial statements.
3
<PAGE>
FIRST SAVINGS FINANCIAL CORP. AND SUBSIDIARY
Consolidated Statements of Stockholders' Equity
Six months ended June 30, 1997 and 1996
(Unaudited)
<TABLE>
<CAPTION>
Net unrealized Deferred Total
Common Retained losses on Stock Stockholders'
Stock Income securities Awards Equity
---------------- -------------- ----------------- -------------- ----------------
<S> <C> <C> <C> <C> <C>
Balance at December 31, 1996 $ 4,727,234 4,733,711 (80,730) (365,755) 9,014,460
Net income - 23,986 - - 23,986
Common stock of ESOP 3,877 - - - 3,877
Change in fair value of ESOP shares
subject to put option - 72,148 - - 72,148
Amortization of deferred
stock awards - - - 42,204 42,204
Net unrealized losses on securities - - (16,945) - (16,945)
Dividend paid ($.25 per common share) - (469,630) - - (469,630)
---------------- -------------- ----------------- -------------- ----------------
Balance at June 30, 1997 $ 4,731,111 4,360,215 (97,675) (323,551) 8,670,100
================ ============== ================= ============== ================
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)
Deferred stock awards 422,027 - - (422,027) -
Amortization of deferred stock awards - - - 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,
1997 1996
------------- -------------
<S> <C> <C>
Cash flows from operating activities:
Net income (loss) $ 23,986 (132,121)
Adjustments to reconcile net income (loss) to net cash provided by
operating activities:
Provision for loan losses 58,000 7,500
Amortization, net 16,839 11,950
Depreciation 7,760 7,942
Compensation expense on ESOP shares 44,467 235,117
Amortization expense on deferred stock awards 42,204 14,068
Net loss on sale of investment securities available for sale 16,942 26,352
Deferred loan origination costs, net (10,402) (8,650)
Deferred income taxes (43,700) (5,300)
Decrease in accrued interest receivable 67,814 20,045
Decrease (increase) in other assets (123,350) 151,000
Increase (decrease) in other liabilities 8,617 (7,640)
------------- ------------
Net cash provided by operating activities 109,177 320,263
------------- ------------
Cash flows from investing activities:
Purchases of investment securities held to maturity - (500,000)
Proceeds from maturities and issuer calls of investment
securities held to maturity 500,000 4,000,000
Purchases of investment securities available for sale - (3,980,357)
Proceeds from sale of investment securities available for sale 3,583,058 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 4,531 35,347
Net decrease (increase) in loans receivable 449,908 (1,260,605)
Purchases of premises and equipment (1,681) (1,016)
------------- ------------
Net cash provided by investing activities 4,535,816 1,250,178
------------- ------------
Cash flows from financing activities:
Dividends paid (469,630) (910,451)
Net decrease in deposits (4,229,727) (1,369,571)
------------- ------------
Net cash used in financing activities (4,699,357) (2,280,022)
------------- ------------
Net decrease in cash and cash equivalents (54,364) (709,581)
Cash and cash equivalents at beginning of period 817,160 1,978,675
------------- ------------
Cash and cash equivalents at end of period $ 762,796 1,269,094
============= ============
</TABLE>
5
<PAGE>
FIRST SAVINGS FINANCIAL CORP. AND SUBSIDIARY
Consolidated Statements of Cash Flows
(Unaudited)
<TABLE>
<CAPTION>
Six Months Ended
June 30,
1997 1996
------------- ------------
<S> <C> <C>
Cash paid during the period for:
Interest $ 1,025,752 1,276,769
============= ============
Income taxes $ 60,000 30,500
============= ============
</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") (collectively referred to
as "the Company"). 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, 1997, are not necessarily indicative of
the results that may be expected for the year ending December 31, 1997.
(2) 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.
(3) Allowance for Loan Losses
-------------------------
The following summarizes the activity in the allowance for loan losses for
the three and six months ended June 30, 1997 and 1996, respectively.
<TABLE>
<CAPTION>
Three months ended June 30, Six months ended June 30,
--------------------------- -------------------------
1997 1996 1997 1996
---- ---- ---- ----
<S> <C> <C> <C> <C>
Balance at the
beginning of the period $ 357,825 299,825 299,825 259,466
Provision for loan
losses - - 58,000 7,500
Charge-offs - - - -
Recoveries - - - 32,859
-------- ------- -------- -------
Net recoveries - - - 32,859
-------- ------- -------- -------
Balance at the end of
the period $357,825 299,825 357,825 299,825
======== ======= ======== =======
</TABLE>
7
<PAGE>
FIRST SAVINGS FINANCIAL CORP. AND SUBSIDIARY
Notes to the Consolidated Financial Statements
(4) 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 $76,700 on June 30,
1997 reducing the loan balance to $403,605 at June 30, 1997.
The Company records compensation expense for shares released to employees as
a result of contributions by the Company or dividends paid on unreleased
shares in the ESOP equal to the fair value of the shares. The Company
recorded ESOP related compensation expense of approximately $27,000 and
$44,000 for the three and six months ended June 30, 1997, respectively in
connection with the release and allocation of shares to participants on
June 30, 1997. At June 30, 1997, 34,651 shares have been released and
allocated to participants, 41,219 shares are unreleased and 1,724 shares
are committed to be released in September 1997. The remaining 1,724 shares
committed to be released in September 1997, with a fair value of
approximately $17,500 at June 30, 1997, will be expensed over the third
quarter of 1997.
The Company has decided to terminate the ESOP effective September 1, 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 June 30, 1997. The fair value
of the unearned ESOP shares is $417,342 at June 30, 1997.
8
<PAGE>
FIRST SAVINGS FINANCIAL CORP. AND SUBSIDIARY
Notes to the Consolidated Financial Statements
(5) 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.
Under the terms of the proposed merger discussed in footnote 9, all vested
and nonvested options will be cancelled.
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 $42,204 for the three and six months ended June 30,
1997, respectively.
Under the terms of the proposed merger discussed in footnote 9, the unvested
shares will become vested and the MRP will be terminated.
(6) Defined Benefit Pension Plan
----------------------------
The Company decided to terminate its defined benefit pension plan effective
April 15, 1997. Any excess assets remaining upon plan termination, after
payment of participant liabilities, will be allocated to the eligible
participants.
<TABLE>
<CAPTION>
(7) Income (Loss) per share
-----------------------
Three months ended Three months ended
June 30, 1997 June 30, 1996
-------------- -------------
<S> <C> <C>
Net income (loss) for the period ended. $ 3,888 (107,645)
Change in fair value of ESOP shares subject to put option (3,714) 43,240
-------- --------
Net income (loss) available to common shareholders $ 7,602 (150,885)
======== ========
Weighted average number of shares outstanding 945,102 931,537
======== =======
Income (loss) per share $ 0.01 (0.16)
==== ====
</TABLE>
9
<PAGE>
FIRST SAVINGS FINANCIAL CORP. AND SUBSIDIARY
Notes to the Consolidated Financial Statements
<TABLE>
<CAPTION>
Six months ended Six months ended
June 30, 1997 June 30, 1996
-------------- -------------
<S> <C> <C>
Net income (loss) for the period ended $ 23,986 (132,121)
Change in fair value of ESOP shares subject to put option 72,148 53,730
-------- --------
Net income (loss) available to common shareholders $ 96,134 (185,851)
======== ========
Weighted average number of shares outstanding 942,181 909,370
======== ========
Income (loss) per share $ 0.10 (0.20)
==== ====
</TABLE>
(8) Dividends
---------
The Company paid a $.25 per share dividend in March 1997, totaling $234,815
and a $.25 per share dividend in May 1997, totaling $234,815. In May
1996, the Company declared and paid a $1.00 per share dividend totaling
$910,451 from common stock as a return of capital.
At the time of First Savings' Conversion from a North Carolina-chartered
mutual savings bank to a North Carolina-chartered stock savings bank
("the Conversion"), First Savings established a liquidation account in an
amount equal to its net worth at June 30, 1995. The liquidation account
is 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 accounts then held before any liquidation
distribution may be made with respect to common stock. Dividends paid by
First Savings to the Company cannot reduce the net worth of First Savings
below this liquidation account.
First Savings may not declare or pay a cash dividend if its net worth would
be reduced below the minimum regulatory capital 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
without the approval of the Administrator.
10
<PAGE>
FIRST SAVINGS FINANCIAL CORP. AND SUBSIDIARY
Notes to the Consolidated Financial Statements
(9) Proposed Merger
---------------
The Company received an acquisition proposal to merge with and into First
Citizens BancShares, Inc. ("BancShares") and entered into a definitive
agreement with BancShares on April 2, 1997. BancShares is a bank holding
company headquartered in Raleigh, North Carolina with assets of
approximately $8 billion at June 30, 1997. Under the terms of the
proposal, each outstanding share of the Company would be converted into
the right to receive $10.75 in cash. The merger is expected to be
finalized in the fall of 1997 and is subject to a number of conditions,
including approval by regulatory authorities and the stockholders of the
Company.
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 and the
loan receivable held with respect to its loan to the ESOP, and does not have any
significant liabilities. Cash flows to First Savings Financial Corp. are
dependent upon any dividends received from First Savings. Presently, there are
no agreements or plans 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 fee
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 rates at which such
financing may be offered and other factors affecting local demand and
availability of funds.
12
<PAGE>
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,
1997 and 1996
Summary
- -------
Net income (loss) for the six months ended June 30, 1997 was $23,986 as compared
to ($132,121) for the six months ended June 30, 1996. The increase in net
income of $156,107 is due to an increase in noninterest income of $68,427, a
decrease in compensation expense of $109,158, a decrease in federal and other
insurance premiums of $39,783, and a decrease in income tax expense of $37,100.
Offsetting these effects was an increase in the provision for loan losses of
$50,500, and an increase in professional fees of $55,296.
Net interest income
- -------------------
Net interest income for the six months ended June 30, 1997 was $721,105, a
decrease of $3,313 or 0.5% when compared to net interest income of $724,418 for
the six months ended June 30, 1996. The net yield on interest-earning assets
for the six months ended June 30, 1997 was 2.95% compared to 2.56% in 1996.
Total interest income decreased to $1,741,609 for the six months ended June 30,
1997 from $1,975,662 for the comparable period in 1996. The decrease in
interest income is principally due to an decrease in the average volume of
investment securities. For the six months ended June 30, 1997, the average
balance of investment securities was $14,745,000 compared to $23,953,000 for the
same period in 1996. This decrease is due to the Company using proceeds from
maturities and sales of investment securities to fund loan growth, dividend
payments and daily operations during 1996 and 1997. This decrease was partially
offset by an increase in the average rate earned on investment securities to
6.14% for the six months ended June 30, 1997 compared to 5.95% for the same
period in 1996. 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 and the Company selling its
lower yielding investments in 1996 and 1997.
The decrease in investment interest income was partially offset by an increase
in loan interest income to $1,241,200 for the six months ended June 30, 1997
from $1,191,999 for the same period in 1996. This increase is primarily due to
an increase in the average volume of loans of $1.9 million. The average rate
earned on loans decreased 16 basis points to 7.62% for the six months ended June
30, 1997 as compared to 7.78% for the same period in 1996. The Company
attributes this change to a decrease in rates on mortgage loans during the
second quarter of 1997 and an overall lack of loan demand in its primary market
area, a trend which could continue in the future.
13
<PAGE>
Total interest expense decreased $230,740 or 18.4% to $1,020,504 for the six
months ended June 30, 1997 from $1,251,244 for the comparable period in 1996.
This decrease in interest expense is due to a decrease in the average volume of
certificate of deposit accounts of $5.9 million. The decrease in average volume
is primarily due to competitive pressures in the marketplace. The average rate
paid on certificates of deposit accounts decreased 26 basis points to 5.37% in
1996 from 5.63% in 1996.
Provision for loan losses
- -------------------------
During the six months ended June 30, 1997, First Savings recorded a provision
for loan losses of $58,000, compared to $7,500 for the same period in 1996.
During the six months ended June 30, 1997, First Savings had no charge-offs and
no recoveries as compared to no charge-offs and a $32,859 recovery during the
same period in 1996. The increase in the provision for loan losses is due to an
increase in nonperforming loans during the first quarter of 1997. Nonperforming
loans decreased in the second quarter of 1997 due to one nonperforming loan
being paid in full. Nonperforming loans, which consists of loans not accruing
interest, as a percentage of total loans were .45%, 1.18% and .05% at June 30,
1997, March 31, 1997 and December 31, 1996, respectively.
Noninterest income
- ------------------
Noninterest income (loss) increased to $52,349 for the six months ended June 30,
1997 from ($16,078) for the same period in 1996. The increase is primarily due
to a $58,000 increase in the cash surrender value of the Company's life
insurance policies on directors. This increase was partially offset by a
reduction in the net loss on the sale of investment securities available for
sale from $26,352 for the six months ended June 30, 1996 to $16,942 for the same
period in 1997.
Noninterest expense
- -------------------
Noninterest expense decreased to $682,768 for the six months ended June 30, 1997
from $787,161 for the same period in 1996. Compensation expense decreased
$109,158 mainly due to a decrease in ESOP related compensation expense.
Compensation expense of approximately $44,000 was recognized for the six months
ended June 30, 1997 in connection with the release and allocation of 5,843
shares to participants in the ESOP plan as compared to compensation expense of
$235,000 and the release allocation of 28,808 shares for the same period in
1996. Federal and other insurance premiums decreased $39,783 due to the lower
assessment rate for insurance of deposits by the Savings Association Insurance
Fund following its recapitalization in the fourth quarter of 1996. These
decreases were partially offset by an increase in professional fees of
approximately $55,296 mainly due to professional fees incurred in connection
with the proposed merger.
Income taxes
- ------------
Income tax expense for the six months ended June 30, 1997 was $8,700 as compared
to $45,800 for the same period in 1996. The effective income tax rate of 26.6%
for the six months ended June 30, 1997 is due to the $58,000 increase in cash
surrender value being nontaxable. Income tax expense for 1996 was impacted by
the nondeductibility of a significant portion of the expense related to the
ESOP. The portion of the expense related to the additional principal payment on
14
<PAGE>
the ESOP loan in June 1996 from the proceeds received on the ESOP shares from
the December 1995 dividend is nondeductible for tax purposes.
Comparison of the Results of Operations for the Three Month Periods Ended June
30, 1997 and 1996
Summary
- -------
Net income (loss) for the three months ended June 30, 1997 was $3,888 as
compared to ($107,645) for the three months ended June 30, 1996. The increase
in net income of $111,533 is due to an increase in noninterest income of
$25,087, a decrease in compensation expense of $100,064, a decrease in federal
and other insurance premiums of $13,258, and a decrease in income tax expense of
$14,300. Offsetting these effects was an increase in professional fees of
$39,955.
Net interest income
- -------------------
Net interest income for the three months ended June 30, 1997 was $360,937, an
increase of $7,495 or 2.12% when compared to net interest income of $353,442 for
the three months ended June 30, 1996. The net yield on interest-earning assets
for the three months ended June 30, 1997 was 3.04% compared to 2.54% in 1996.
Total interest income decreased $116,289 for the three months ended June 30,
1997 compared to the three months ended June 30, 1996, principally due to a
decrease in the average volume of investment securities of $9.3 million. Total
interest expense decreased $123,784 for the three months ended June 30, 1997
compared to the three months ended June 30, 1996, principally due to a decrease
in the average volume of certificate of deposit accounts of $6.5 million.
Provision for loan losses
- -------------------------
During the three months ended June 30, 1997 and 1996, First Savings did not
record a provision for loan losses. During the three months ended June 30, 1997
and 1996, First Savings had no charge-offs and no recoveries. Nonperforming
loans decreased from $396,000 at March 31, 1997 to $151,000 at June 30, 1997.
Noninterest income
- ------------------
Noninterest income (loss) increased to $1,803 for the three months ended June
30, 1997 from ($23,284) for the same period in 1996. The increase is due to a
net loss of $2,883 on the sale of investment securities available for sale for
the three months ended June 30, 1997 as compared to a net loss of $26,352 for
the same period in 1996.
Noninterest expense
- -------------------
Noninterest expense decreased $64,651 to $353,552 for the three months ended
June 30, 1997 from $418,203 for the same period in 1996. This decrease was
mainly attributable to a decrease of approximately $100,000 in compensation
expense relating to the fair value of the earned ESOP shares during the periods.
On June 30, 1997, 5,843 shares were released and allocated compared
15
<PAGE>
with 28,808 on June 30, 1996. Federal and other insurance premiums decreased
$13,258 due to the lower assessment rate for insurance of deposits by the
Savings Association Insurance Fund following its recapitalization in the fourth
quarter of 1996. These decreases were partially offset by an increase in
professional fees of approximately $39,955 mainly due to professional fees
incurred in connection with the proposed merger.
Income taxes
- ------------
Income tax expense for the three months ended June 30, 1997 was $5,300 as
compared to $19,600 for the same period in 1996. Income tax expense for 1996
was impacted by the nondeductibility of a significant portion of the expense
related to the ESOP. The portion of the expense related to the additional
principal payment on the ESOP loan in June 1996 from the proceeds received on
the ESOP shares from the December 1995 dividend is nondeductible for tax
purposes.
Comparison of Financial Condition at June 30, 1997 and December 31, 1996
Total assets decreased by $4.6 million or 8.6% from $53.2 million at December
31, 1996 to $48.6 million at June 30, 1997.
Loans receivable decreased slightly from $32.8 million at December 31, 1996 to
$32.3 million at June 30, 1997. 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.
Deposits decreased $4.2 million or 9.8% to $38.8 million at June 30, 1997 from
$43.0 million at December 31, 1996. The decrease is primarily due to the
competitive pressures in the marketplace for deposits.
Stockholders' equity decreased from $9.0 million at December 31, 1996 to $8.7
million at June 30, 1997, with the decrease due to an increase in the net
unrealized loss on securities of $17,000 and dividends paid of $.25 per share or
$469,630. This was partially offset by net income of $23,986 and a decrease in
the fair value of the earned ESOP shares of $72,148.
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
of $72,148 has been recorded to retained earnings to reflect the decrease in the
fair value of the earned ESOP shares as of June 30, 1997.
The Company has decided to terminate the ESOP effective September 1, 1997.
16
<PAGE>
Asset Quality
Nonperforming assets, which consists of loans not accruing interest, were
$151,000 and $26,000 at June 30, 1997 and December 31, 1996, respectively. The
increase in nonperforming assets is mainly due to five loans to one individual
totaling approximately $110,000. The Company does not anticipate a loss on
these loans. There was no real estate owned at June 30, 1997 or December 31,
1996.
Management is currently unaware of any significant potential problem loans
except as noted above or any other concentrations of credit risk which exist in
the portfolio. At June 30, 1997 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
- ------------------
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 June 30, 1997, as computed under North Carolina regulations, was
approximately 31%.
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.
17
<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 First
Savings to maintain minimum ratios of Tier I capital to total risk-weighted
assets and total capital to risk-weighted assets of 4% and 8%, respectively. To
be "well capitalized," the FDIC requires ratios of Tier I capital to total risk-
weighted assets and total capital to risk-weighted assets of 6% and 10%,
respectively. Tier I capital consists of total stockholders' equity calculated
in accordance with generally accepted accounting principles less intangible
assets, and total capital is comprised of Tier I capital plus certain
adjustments, the only one of which is applicable to First Savings is the
allowance for loan losses. Risk-weighted assets reflect First Savings' on- and
off-balance sheet exposures after such exposures have been adjusted for their
relative risk levels using formulas set forth in FDIC regulations. First
Savings is also subject to a leverage capital requirement, which calls for a
minimum ratio of Tier I capital (as defined above) to quarterly average total
assets of 3%, and a ratio of 5% to be "well capitalized." The Administrator
requires a net worth equal to at least 5% of assets. At June 30, 1997, First
Savings was in compliance with all of the aforementioned capital requirements.
Current Accounting Issues
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 is 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 adopted this statement on January 1, 1997 without any impact on its
consolidated financial statements.
In February 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 128 ("SFAS No. 128"), "Earnings per Share."
SFAS No. 128 establishes standards of computing and presenting earnings per
share (EPS) and applies to entities with publicly held common stock or potential
common stock. This Statement simplifies the standards for computing earnings
per share previously found in APB Opinion No. 15, Earnings Per Share, and makes
them comparable to international EPS standards. It replaces the presentation of
primary EPS with a presentation of basic EPS. It also requires dual
presentation of basic and diluted EPS on the face of the income statement for
all entities with complex capital structures and requires a reconciliation of
the numerator and denominator of the basic EPS computation to the numerator and
denominator of the diluted EPS computation. SFAS No. 128 is effective for
financial statements issued for periods ending after December 15, 1997 and
requires restatement of all prior-period EPS data presented. The Company plans
to adopt SFAS No. 128 in 1997 without any significant impact on its consolidated
financial statements.
18
<PAGE>
In February 1997, the Financial Accounting Standards Board issued Statement of
Accounting Financial Standards No. 129 ("SFAS No. 129"), "Disclosure of
Information about Capital Structure." SFAS No. 129 establishes standards for
disclosing information about an entity's capital structure and is applicable to
all entities. It contains no change in disclosure requirements for entities
that were previously subject to the requirements of Accounting Principles Board
("APB") Opinion No. 10, "Omnibus Opinion - 1966," APB Opinion No. 15, "Earnings
per Share," and SFAS No. 47, "Disclosure of Long-Term Obligations." SFAS is
effective for financial statements for periods ending after December 15, 1997.
The Corporation plans to adopt SFAS No. 129 in 1997 without any significant
impact on its consolidated financial statements.
In June 1997, the Financial Accounting Standards Board issued Statement of
Accounting Financial Standards No. 130 ("SFAS No. 130"), "Reporting
Comprehensive Income." SFAS No. 130 establishes standards for reporting and
display of comprehensive income and its components (revenues, expenses, gains,
and losses) in a full set of general-purpose financial statements. This
Statement requires that an enterprise (a) classify items of other comprehensive
income by their nature in a financial statement and (b) display the accumulated
balance of other comprehensive income separately from retained earnings and
additional paid-in-capital in the equity section of a statement of financial
position. SFAS No. 130 is effective for fiscal years beginning after December
15, 1997. Reclassification of financial statements for earlier periods provided
for comparative purposes is required. The Corporation plans to adopt SFAS No.
130 in 1998 and has not determined the impact on its consolidated financial
statements.
In June 1997, the Financial Accounting Standards Board issued Statement of
Accounting Financial Standards No. 131 ("SFAS No. 131"), "Disclosures about
Segments on an Enterprise and Related Information." SFAS No. 131 establishes
standards for the way that public business enterprises report information about
operating segments in annual financial statements and requires that those
enterprises report selected information about operating segments in interim
financial reports issued to shareholders. It also establishes standards for
related disclosures about products and services, geographic areas, and major
customers. This Statement is effective for financial statements for periods
beginning after December 15, 1997 and in the initial year of application,
comparative information for earlier years is to be restated. The Corporation
plans to adopt SFAS No. 131 in 1998 without any significant 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
(a) The Registrant's Annual Meeting of Shareholders was held on April 16, 1997.
(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, 1997,
were duly elected Directors of the Registrant. 75% of the outstanding
shares were voted. Of the 986,321 shares voted, each director received
at least 734,915 shares or 75% in favor.
2. 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, 1997, was approved by an affirmative
vote of 734,275 shares or 99.6% of the shares that voted, with 1,490
negative votes and 1,300 shares not voted.
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
The Form 8-K filed on April 9, 1997 announced that the Company had entered
into a definitive agreement with First Citizens dated April 2, 1997.
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: August 11, 1997 By: /s/ David S. Kemp
------------------------ ---------------------------------
David S. Kemp
(President)
Date: August 11, 1997 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> 6-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> JUN-30-1997
<CASH> 92,504
<INT-BEARING-DEPOSITS> 670,292
<FED-FUNDS-SOLD> 0
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 13,501,910
<INVESTMENTS-CARRYING> 500,308
<INVESTMENTS-MARKET> 485,060
<LOANS> 32,299,846
<ALLOWANCE> 357,825
<TOTAL-ASSETS> 48,629,937
<DEPOSITS> 38,836,853
<SHORT-TERM> 0
<LIABILITIES-OTHER> 772,142
<LONG-TERM> 0
0
0
<COMMON> 4,731,111
<OTHER-SE> 3,938,989
<TOTAL-LIABILITIES-AND-EQUITY> 48,629,937
<INTEREST-LOAN> 1,241,200
<INTEREST-INVEST> 468,916
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<INTEREST-TOTAL> 1,741,609
<INTEREST-DEPOSIT> 1,020,504
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<INTEREST-INCOME-NET> 721,105
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<EXPENSE-OTHER> 682,768
<INCOME-PRETAX> 32,686
<INCOME-PRE-EXTRAORDINARY> 32,686
<EXTRAORDINARY> 0
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<NET-INCOME> 23,986
<EPS-PRIMARY> .10
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<YIELD-ACTUAL> 2.95
<LOANS-NON> 151,000
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<ALLOWANCE-OPEN> 299,825
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