-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, UDnwzR8lZFJlSLvc36IFajOqQl+bwRcLsa5AoW5C90dl0o6McK7AZ8zr0PLrVNse /UAwfjcD6JvfprTDCDqVoA== 0000903893-96-000947.txt : 19961115 0000903893-96-000947.hdr.sgml : 19961115 ACCESSION NUMBER: 0000903893-96-000947 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 19960930 FILED AS OF DATE: 19961113 SROS: NONE FILER: COMPANY DATA: COMPANY CONFORMED NAME: FIRST FINANCIAL CORP /RI/ CENTRAL INDEX KEY: 0000354948 STANDARD INDUSTRIAL CLASSIFICATION: STATE COMMERCIAL BANKS [6022] IRS NUMBER: 050391383 STATE OF INCORPORATION: RI FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 000-27878 FILM NUMBER: 96661250 BUSINESS ADDRESS: STREET 1: 180 WASHINGTON ST CITY: PROVIDENCE STATE: RI ZIP: 02903 BUSINESS PHONE: 4014213600 10-Q 1 FORM 10-Q FORM 10-Q SECURITIES AND EXCHANGE COMMISSION WASHINGTON D.C. 20549 QUARTERLY REPORT UNDER SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended Commission file number 0-27878 September 30, 1996 FIRST FINANCIAL CORP. (Exact name of registrant as specified in its charter) RHODE ISLAND 05-0391383 (State or other jurisdiction of (I.R.S. Employer Incorporation or organization) Identification No.) 180 WASHINGTON STREET, PROVIDENCE, RHODE ISLAND 02903 (Address of principal executive offices) (Zip Code) REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (401) 421-3600 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 filing requirements for the past 90 days. X Yes No --- --- At October 31, 1996, there were 1,328,041 shares of the Company's $1.00 par value stock issued, with 1,261,241 shares outstanding. FIRST FINANCIAL CORP. INDEX PART I - FINANCIAL INFORMATION Item 1 - Financial Statements 1 Consolidated Balance Sheets - September 30, 1996 and December 31, 1995 1 Consolidated Statements of Income - Three months and nine months ended September 30, 1996 and 1995 2 Consolidated Statements of Stockholders' Equity - Nine months ended September 30, 1996 and year ended December 31, 1995 3 Consolidated Statements of Cash Flows - Nine months ended September 30, 1996 and 1995 4 Notes to Consolidated Financial Statements - September 30, 1996 5 Item 2 - Management's Discussion and Analysis of Financial Condition and Results of Operations 6 PART II - OTHER INFORMATION Item 1 - Legal Proceedings 13 Item 2 - Changes in Securities 13 Item 3 - Defaults Upon Senior Securities 13 Item 4 - Submission of Matters to a Vote of Security Holders 13 Item 5 - Other Information 14 Item 6 - Exhibits and Reports on Form 8-K 14 SIGNATURES 15 EXHIBITS Computation of per share earnings - Exhibit 11 16 Financial Data Schedule - Exhibit 27 17
PART I - FINANCIAL INFORMATION ITEM 1 - FINANCIAL STATEMENTS FIRST FINANCIAL CORP. AND SUBSIDIARY CONSOLIDATED BALANCE SHEETS
SEPTEMBER 30, DECEMBER 31, 1996 1995 ---- ---- ASSETS (UNAUDITED) CASH AND DUE FROM BANKS $2,099,251 $1,866,249 ------------ ------------ SECURITIES PURCHASED UNDER AGREEMENTS TO RESELL 1,084,000 1,035,000 ------------ ------------ LOANS HELD FOR SALE ------- ------- ------------ ------------ SECURITIES: Held-to-maturity (market value: $15,763,474 and $14,566,501) 15,856,597 14,644,165 Available-for-sale (amortized cost: $27,981,724 and $15,006,743) 27,963,090 15,131,595 ------------ ------------ Total investment securities 43,819,687 29,775,760 ------------ ------------ FEDERAL HOME LOAN BANK STOCK 348,100 348,100 ------------ ------------ LOANS: Commercial 4,206,651 3,549,458 Commercial real estate 39,202,851 32,412,836 Residential real estate 22,572,630 23,657,622 Home equity lines of credit 3,412,249 3,671,892 Consumer 1,353,307 1,496,933 ------------ ------------ 70,747,688 64,788,741 Less - unearned discount 74,816 88,141 Allowance for possible loan losses 1,861,010 1,828,040 ------------ ------------ Net loans 68,811,862 62,872,560 ------------ ------------ OTHER REAL ESTATE OWNED 875,776 1,470,310 ------------ ------------ PREMISES AND EQUIPMENT, net 1,688,698 1,816,893 ------------ ------------ OTHER ASSETS 1,315,131 1,118,950 ------------ ------------ TOTAL ASSETS $120,042,505 $100,303,822 ============ ============ LIABILITIES AND STOCKHOLDERS' EQUITY DEPOSITS: Demand $11,307,333 $12,483,433 Savings and money market accounts 23,091,955 24,191,981 Time deposits 58,776,236 52,915,128 ------------ ------------ Total deposits 93,175,524 89,590,542 ------------ ------------ SECURITIES SOLD UNDER AGREEMENTS TO REPURCHASE 10,833,000 -------- ------------ ------------ ACCRUED EXPENSES AND OTHER LIABILITIES 847,290 677,059 ------------ ------------ SENIOR DEBENTURE 2,939,200 2,844,632 ------------ ------------ STOCKHOLDERS' EQUITY: Common Stock, $ 1 par value Authorized - 5,000,000 shares Issued - 1,328,041 shares and 750,000 shares 1,328,041 750,000 Surplus 4,431,380 500,000 Retained earnings 6,646,210 6,013,638 Unrealized (loss) gain on securities available-for-sale, net of taxes (11,180) 74,911 ------------ ------------ 12,394,451 7,338,549 Less - Treasury stock, at cost, 66,800 shares 146,960 146,960 ------------ ------------ Total stockholders' equity 12,247,491 7,191,589 ------------ ------------ TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $120,042,505 $100,303,822 ============ ============ The accompanying notes are an integral part of these consolidated financial statements.
1 FIRST FINANCIAL CORP. AND SUBSIDIARY CONSOLIDATED STATEMENTS OF INCOME
NINE MONTHS ENDED THREE MONTHS ENDED SEPTEMBER 30, SEPTEMBER 30, ------------ ------------ 1996 1995 1996 1995 ---- ---- ---- ---- (UNAUDITED) INTEREST INCOME: Interest and fees on loans $4,986,308 $4,433,167 $1,679,877 $1,532,686 Interest on investment securities - U.S. Government and agency obligations 1,134,806 1,027,393 448,131 358,476 Collateralized mortgage obligations 98,234 121,633 39,301 39,073 Mortgage backed securities 32,198 ------ 32,198 ------ Marketable equity securities and other 13,410 960 5,930 330 Interest on cash equivalents 130,321 117,363 32,423 55,925 ---------- ---------- ----------- ----------- Total interest income 6,395,277 5,700,516 2,237,860 1,986,490 ---------- ---------- ----------- ----------- INTEREST EXPENSE: Interest on deposits 2,794,146 2,508,899 960,119 904,538 Interest on repurchase agreements 23,150 ------ 23,150 ------ Interest on debenture 194,918 174,143 68,571 67,218 ---------- ---------- ----------- ----------- Total interest expense 3,012,214 2,683,042 1,051,840 971,756 ---------- ---------- ----------- ----------- Net interest income 3,383,063 3,017,474 1,186,020 1,014,734 PROVISION FOR POSSIBLE LOAN LOSSES 280,000 570,000 105,000 105,000 ---------- ---------- ----------- ----------- Net interest income after provision for possible loan losses 3,103,063 2,447,474 1,081,020 909,734 ---------- ---------- ----------- ----------- NONINTEREST INCOME: Service charges on deposits 227,815 214,170 77,832 74,153 Gain on loan sales 26,742 79,055 10,769 ------ Other 88,918 77,197 25,859 18,680 ---------- ---------- ----------- ----------- Total noninterest income 343,475 370,422 114,460 92,833 ---------- ---------- ----------- ----------- NONINTEREST EXPENSE: Salaries and employee benefits 1,219,076 1,179,648 395,917 393,330 Occupancy expense 273,868 254,033 86,386 87,588 Equipment expense 155,230 155,366 52,164 45,757 Other real estate owned (gains) losses, and expenses 44,885 106,371 4,960 93,458 Computer services 123,461 108,210 41,097 37,578 Deposit insurance assessments (refund) 1,000 86,817 500 (5,205) Other operating expenses 525,364 424,430 177,822 142,026 ---------- ---------- ----------- ----------- Total noninterest expense 2,342,884 2,314,875 758,846 794,532 ---------- ---------- ----------- ----------- Income before provision for income taxes 1,103,654 503,021 436,634 208,035 PROVISION FOR INCOME TAXES 374,912 159,790 154,486 73,144 ---------- ---------- ----------- ----------- Net income $728,742 $343,231 $282,148 $134,891 ========== ========== =========== =========== Earnings per share $ 0.73 $ 0.47 $ 0.22 $ 0.19 ========== ========== =========== =========== Dividends declared per share $ 0.09 $ 0.055 $ 0.03 $ ----- ========== ========== =========== =========== Weighted average common and common stock equivalent shares outstanding 992,381 728,623 1,261,241 728,453 ========== ========== =========== =========== The accompanying notes are an integral part of these consolidated financial statements.
2 FIRST FINANCIAL CORP. AND SUBSIDIARY CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
UNREALIZED (LOSS) GAIN ON SECURITIES AVAILABLE TOTAL COMMON RETAINED FOR SALE, NET TREASURY STOCKHOLDERS' STOCK SURPLUS EARNINGS OF TAXES STOCK EQUITY ----- ------- -------- -------- ----- ------ Balance, December 31, 1994 $750,000 $500,000 $5,571,013 $(114,893) $(146,960) $6,559,160 Net income -------- -------- 517,777 --------- --------- 517,777 Dividends declared ($.11 per share) -------- -------- (75,152) --------- --------- (75,152) Change in net unrealized (loss) gain on securities available-for-sale -------- -------- ---------- 189,804 --------- 189,804 -------- ---------- ---------- --------- --------- ----------- Balance, December 31, 1995 750,000 500,000 6,013,638 74,911 (146,960) 7,191,589 Net income -------- -------- 728,742 --------- --------- 728,742 Dividends declared ($.09 per share) -------- -------- (96,170) --------- --------- (96,170) Exercise of stock options and related tax effect 28,041 (41,744) ---------- --------- --------- (13,703) Issuance of 550,000 shares of common stock net of offering costs 550,000 3,973,124 ---------- --------- --------- 4,523,124 Change in net unrealized (loss) gain on securities available-for-sale -------- -------- ---------- (86,091) --------- (86,091) ---------- ---------- ---------- --------- --------- ----------- Balance, September 30, 1996 $1,328,041 $4,431,380 $6,646,210 $(11,180) $(146,960) $12,247,491 ========== ========== ========== ========= ========= =========== The accompanying notes are an integral part of these consolidated financial statements.
3 FIRST FINANCIAL CORP. AND SUBSIDIARY CONSOLIDATED STATEMENTS OF CASH FLOWS
NINE MONTHS ENDED SEPTEMBER 30 ------------------------------ 1996 1995 ---- ---- (UNAUDITED) CASH FLOWS FROM OPERATING ACTIVITIES: Net income $728,742 $343,231 Adjustments to reconcile net income to net cash provided by operating activities: Provision for possible loan losses 280,000 570,000 Depreciation and amortization 139,197 125,625 Accretion of discount on debenture 148,993 142,893 Net (accretion) amortization on investment securities held-to-maturity (5,899) 3,807 Net (accretion) on investment securities available-for-sale (100,864) (53,618) (Gains) losses on sale of OREO (16,957) 62,377 Gain on sales of loans (26,742) (79,055) Proceeds from sales of loans 890,652 1,002,982 Loans originated for sale (821,250) (908,515) Net (decrease) increase in unearned discount (13,325) 10,738 Net (increase) in other assets (138,788) (106,937) Net increase in deferred loan fees 11,230 30,957 Net increase in accrued expenses and other liabilities 77,969 20,860 ---------- ---------- Net cash provided by operating activities 1,152,958 1,165,345 ---------- ---------- CASH FLOWS FROM INVESTING ACTIVITIES: Purchase of Federal Home Loan Bank stock ---------- ---------- Proceeds from maturities of investment securities held-to-maturity 7,287,431 5,301,764 Proceeds from maturities of investment securities available-for-sale 22,950,000 17,645,000 Purchase of investment securities held-to-maturity (8,488,413) (6,054,726) Purchase of investment securities available-for-sale (35,829,666) (18,726,324) Net (increase) in loans (6,411,467) (5,263,718) Purchase of premises and equipment (11,002) (76,789) Sales of OREO 763,091 470,402 ---------- ---------- Net cash used in investing activities (19,740,026) (6,704,391) ---------- ---------- CASH FLOWS FROM FINANCING ACTIVITIES: Net (decrease) in demand accounts (1,176,100) (513,555) Net (decrease) in savings and money market accounts (1,100,026) (7,346,019) Net increase in time deposits 5,861,108 13,012,758 Net increase in securities sold under agreements to repurchase 10,833,000 ---------- Net proceeds on issuance of common stock 4,523,124 ---------- Exercise of stock options (13,703) ---------- Dividends paid (58,333) (37,576) ---------- ---------- Net cash provided by financing activities 18,869,070 5,115,608 ---------- ---------- NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 282,002 (423,438) CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 2,901,249 4,807,584 ---------- ---------- CASH AND CASH EQUIVALENTS, END OF PERIOD $3,183,251 $4,384,146 ========== ========== SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION: Interest paid $2,758,856 $2,614,442 ========== ========== Income taxes paid $ 245,750 $218,933 ========== ========== SUPPLEMENTAL DISCLOSURE OF NONCASH TRANSACTIONS: Transfer of loans to OREO $151,600 $809,748 ======== ======== The accompanying notes are an integral part of these consolidated financial statements.
4 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS AS OF AND FOR THE THREE MONTHS AND NINE MONTHS ENDED SEPTEMBER 30, 1996 (1) BASIS OF PRESENTATION The accompanying unaudited consolidated financial statements have been prepared in accordance with generally accepted accounting principles for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. In the opinion of management, all adjustments considered necessary for a fair presentation of the financial statements, primarily consisting of normal recurring adjustments, have been included. Operating results for the three months and nine months ended September 30, 1996 are not necessarily indicative of the results that may be expected for the year ending December 31, 1996 or any other interim period. These statements should be read in conjunction with the consolidated financial statements, notes and other information included in the Company's Registration Statement on Form S-1 (File No. 333-1654), as amended, declared effective by the Securities and Exchange Commission on May 13, 1996 (see Note 2 below). (2) PUBLIC OFFERING On May 13, 1996, the Securities and Exchange Commission simultaneously declared effective the Company's Registration Statement on Form S-1 filed under the Securities Act of 1933, as amended and its Registration Statement on Form 8-A filed under the Securities Exchange Act of 1934, as amended. The Registration Statement related to the public offering of 550,000 shares of Common Stock. On May 13, 1996 the Company entered into an Underwriting Agreement with Sandler O'Neill & Partners, L.P. (Underwriter) to purchase from the Company the shares of the Common Stock at the public offering price of $9.75 per share, less an underwriting discount of $.58 per share. On May 17, 1996, the Company received from the Underwriter the net proceeds of the public offering in the amount of $5,043,500 exclusive of $520,376 in expenses incurred in connection with the offering, while the number of common shares outstanding increased to 1,261,241 shares; including 28,041 shares issued in connection with the exercise of certain stock options. (3) DIVIDEND DECLARATION On August 19, 1996 the Company declared dividends of $37,837 or $.03 per share to all common stockholders of record on September 16, 1996, payable on October 1, 1996. 5 ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS GENERAL First Financial Corp. ("Company") is a bank holding company that was organized under Rhode Island law in 1980 for the purposes of owning all of the outstanding capital stock of First Bank and Trust Company ("Bank") and providing greater flexibility in helping the Bank achieve its business objectives. The Bank is a Rhode Island chartered commercial bank that was originally chartered and opened for business on February 14, 1972. The Bank provides a broad range of lending and deposit products primarily to individuals and small businesses ($10 million or less in total revenues). Although the Bank has full commercial banking and trust powers, it has not exercised its trust powers and does not, at the current time, provide asset management or trust administration services. The Bank's deposits are insured by the FDIC up to applicable limits. The Bank offers a variety of consumer financial products and services designed to satisfy the deposit and loan needs of its retail customers. The Bank's retail products include interest-bearing and noninterest-bearing checking accounts, money market accounts, passbook and statement savings, club accounts, and short-term and long-term certificates of deposit. The Bank also offers customary check collection services, wire transfers, safe deposit box rentals, and automated teller machine (ATM) cards and services. Loan products include commercial, commercial mortgage, residential mortgage, construction, home equity and a variety of consumer loans. The Company's results of operations depend primarily on its net interest income, which is the difference between interest and dividend income on interest-earning assets and interest expense on its interest-bearing liabilities. Its interest-earning assets consist primarily of loans and investment securities, while its interest-bearing liabilities consist primarily of deposits, securities sold under agreements to repurchase and the Senior Debenture. The Company's net income is also affected by its level of non-interest income, including fees and service charges, as well as by its non-interest expenses, such as salary and employee benefits, provisions to the allowance for possible loan losses, occupancy costs and, when necessary, expenses related to OREO and to the administration of non-performing and other classified assets. SUMMARY Total assets increased $19,738,683 or 19.7% to $120,042,505 at September 30, 1996, from $100,303,822 at December 31, 1995. This asset growth was due in large part to the issuance of 550,000 additional shares of common stock and the resultant increase in Stockholders' Equity from the net proceeds of the public offering of $4,523,124. The Company leveraged to some extent, the net proceeds of the public offering through the execution of securities sold under agreements to repurchase in the amount of $10,833,000. The motivation behind this transaction was to leverage the Company's capital position with the intent to ultimately increase the Company's return on Stockholders' Equity. The net proceeds of the public offering and subsequent increase in Securities Sold Under Agreements to Repurchase were used primarily to fund a $14,325,929 increase in Securities, Cash and Cash Equivalents which grew to $47,002,938 at September 30, 1996 from $32,677,009 at December 31, 1995. The growth in total assets was also assisted by an increase in total deposits of $3,584,982. The increase in deposits was used to fund the growth of the loan portfolio which increased $5,958,947 or 9.2% to $70,747,688 at September 30, 1996, from $64,788,741 at December 31, 1995. 6 For the three months ended September 30, 1996, the Company reported net income of $282,148 compared to net income of $134,891 for the three months ended September 30, 1995. Fully diluted net income per share for the quarter ended September 30, 1996 was $.22, as compared to $.19 per share for the same three month period of the prior year. Net income for the nine months ended September 30, 1996 amounted to $728,742 compared to net income of $343,231 for the nine months ended September 30, 1995. Fully diluted net income per share for the nine months ended September 30, 1996 was $.73, an increase of 55.3% from $.47 per share for the nine months ended September 30, 1995. The Company's improved earnings performance for the three months and nine months ended September 30, 1996 as compared to the three months and nine months ended September 30, 1995 resulted from (i) an increase in interest earning assets funded from the net proceeds of the public offering, along with an increase in deposits (ii) increased loan originations (iii) an improvement in net interest margin and (iv) improvement in asset quality and attendant reduction in the provision for possible loan losses. The $10,833,000 increase in Securities Sold Under Agreements to Repurchase and related increase in the Company's securities portfolio specifically, Mortgage Backed Securities, took place in the latter part of September 1996 and, threfore, had an insignificant impact on the Company's results of operations for the three months and nine months ended September 30, 1996. FINANCIAL CONDITION ASSET QUALITY The following table sets forth information regarding non-performing assets and delinquent loans 30-89 days past due as to interest or principal, and held by the Company at the dates indicated. The amounts and ratios shown are exclusive of the acquired loans and acquired allowance for possible loan losses associated with the 1992 acquisition of certain assets and the assumption of certain liabilities of the former Chariho-Exeter Credit Union:
AS OF AND FOR THE AS OF AND FOR THE NINE MONTHS ENDED YEAR ENDED SEPTEMBER 30, DECEMBER 31, ------------- ------------ 1996 1995 1995 ---- ---- ---- (DOLLARS IN THOUSANDS) Nonperforming loans $ 358 $ 686 $ 536 Other real estate owned $ 876 $1,222 $1,470 Total nonperforming assets $ 1,234 $1,908 $2,006 Loans 30-89 days delinquent $ 815 $ 485 $ 266 Nonperforming assets to total assets 1.08% 2.07% 2.11% Nonperforming loans to total loans 0.55% 1.24% 0.91% Net loan charge-offs to average loans (not annualized) 0.08% 1.01% 1.01% Allowance for possible loan losses to total loans 1.68% 1.43% 1.47% Allowance for possible loan losses to nonperforming loans 305.72% 116.04% 160.63%
7 In 1992, the Bank acquired certain assets and assumed certain deposit liabilities of the former Chariho-Exeter Credit Union ("Chariho"). The Bank and the State of Rhode Island Depositors Economic Protection Corporation ("DEPCO") established a reserve for possible loan losses of $3,850,000 for loans acquired. This reserve is available only for loans of Chariho existing as of the acquisition date. The following analysis summarizes activity for both the acquired reserve and the Bank's reserve for possible loan losses.
NINE MONTHS ENDED THREE MONTHS ENDED SEPTEMBER 30, SEPTEMBER 30, ------------- ------------- 1996 1995 1996 1995 ---- ---- ---- ---- Bank Reserve: Balance at beginning of period $861,693 $764,106 $988,345 $720,728 Provision 280,000 570,000 105,000 105,000 Loan charge-offs (63,064) (586,231) ------- (38,548) Recoveries 16,328 48,436 1,612 9,131 ---------- ---------- ---------- ---------- Balance at end of period 1,094,957 796,311 1,094,957 796,311 ---------- ---------- ---------- ---------- Acquired Reserve: Balance at beginning of period 966,347 1,493,201 767,958 1,267,821 Loan charge-offs (205,289) (228,670) -------- ------- Recoveries 4,995 1,673 (1,905) (1,617) ---------- ---------- ---------- ---------- 766,053 1,266,204 766,053 1,266,204 ---------- ---------- ---------- ---------- Total Reserve $1,861,010 $2,062,515 $1,861,010 $2,062,515 ========== ========== ========== ==========
As set forth in the Chariho Acquisition Agreement, the remaining balance, if any, in the acquired reserve at May 1, 1999, less an amount equal to l% of the remaining acquired loans, must be refunded to DEPCO. Conversely, in the event the reserve is inadequate, additional loan charge-offs will reduce the amount owed on the debenture issued to DEPCO in connection with the acquisition. At September 30, 1996, the remaining balance of acquired loans was $5,395,532. The Company continually assesses its delinquency position, charge-off experience and current real estate market conditions with respect to its entire loan portfolio. While management believes it uses the best information available in establishing the allowance for possible loan losses, future adjustments may be necessary if economic conditions differ substantially from the assumptions used in making the evaluation. At September 30, 1996, loans 30-89 days delinquent amounted to $814,971 as compared to $485,447 at September 30, 1995 and $266,488 at December 31, 1995. The Company believes that loans 30-89 days delinquent at December 31, 1995 were unusually low and that the level of loans 30-89 days delinquent at September 30, 1996 is typical of a $71 million loan portfolio. DEPOSITS AND SECURITIES SOLD UNDER AGREEMENTS TO REPURCHASE Total deposits increased $3,584,982 during the nine months ended September 30, 1996 from $89,590,542 at December 31, 1995, to $93,175,524 at September 30, 1996, despite the withdrawal of approximately $1,900,000 of volatile state demand deposits. At September 30, 1996, the Company held state and municipal demand deposits of $1,114,933. Savings and money market accounts decreased $1,100,026 during the nine months ended September 30, 1996, while time deposits increased $5,861,108 during the same period. 8 During September 1996 the Company executed $10,833,000 in Securities Sold Under Agreements to Repurchase. At September 30, 1996, these Agreements range in maturity from 30 days to 3 years with a weighted average life of 1.2 years and a weighted average stated rate of 5.92%. The proceeds from these Agreements were used to purchase mortgage backed securities. RESULTS OF OPERATIONS NET INTEREST INCOME Net interest income (the difference between interest earned on loans and investments and interest paid on deposits and other borrowings) increased to $3,383,063 for the nine months ended September 30, 1996, compared to $3,017,474 for the nine months ended September 30, 1995. This increase was the result of an increase in interest earning assets along with an increase in net interest margin. 9 The table below shows the average balance sheet, the interest earned and paid on interest earning assets and interest-bearing liabilities, and the resulting net interest spread and margin for the periods presented.
NINE MONTHS ENDED SEPTEMBER 30, ---------------------------------- 1996 1995 ---- ---- INTEREST AVERAGE INTEREST AVERAGE AVERAGE INCOME/ YIELD/ AVERAGE INCOME/ YIELD/ BALANCE EXPENSE RATE BALANCE EXPENSE RATE ------- ------- ---- ------- ------- ---- (DOLLARS IN THOUSANDS) INTEREST - EARNING ASSETS: Loans $67,384 $4,986 9.87% $60,417 $4,433 9.78% Investment securities taxable - AFS 15,112 697 6.15 13,058 526 5.37 Investment securities taxable - HTM 13,592 570 5.59 14,274 624 5.83 Securities purchased under agreement to resell 3,485 130 4.97 2,953 118 5.33 Federal Home Loan Bank Stock 348 12 4.60 ----- ----- ----- ------- ------ ---- ------- ------ ----- TOTAL INTEREST-EARNING ASSETS 99,921 6,395 8.53 90,702 5,701 8.38 NONINTEREST-EARNING ASSETS: Cash and due from banks 1,892 2,169 Premises and equipment 1,761 1,810 Other real estate owned 1,174 1,153 Allowance for possible loan losses (1,624) (2,109) Other assets 874 862 ------- ------- TOTAL NONINTEREST-EARNING ASSETS 4,077 3,885 ------- ------ TOTAL ASSETS $103,998 $94,587 ======== ======= INTEREST - BEARING LIABILITIES: Deposits: Interest bearing demand and NOW deposits $2,493 36 1.93% $2,734 44 2.15 Savings deposits 19,558 390 2.66 22,955 450 2.61 Money market deposits 1,651 30 2.42 2,236 44 2.62 Time deposits 56,256 2,338 5.54 43,834 1,970 5.99 Securities sold under agreements to repurchase 474 23 6.47 ----- ----- ----- Senior debenture 2,890 195 9.00 2,806 175 8.31 ------- ----- ------ ------ ----- ---- TOTAL INTEREST-BEARING LIABILITIES 83,322 3,012 4.82 74,565 2,683 4.80 ----- ------ ----- ---- NONINTEREST-BEARING LIABILITIES: Noninterest-bearing deposits 10,358 12,676 Other liabilities 598 466 ------- ------ TOTAL NONINTEREST-BEARING LIABILITIES 10,956 13,142 STOCKHOLDERS' EQUITY 9,720 6,880 ------- ------ TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $103,998 $94,587 ======== ======= NET INTEREST INCOME $3,383 $3,018 ====== ====== NET INTEREST SPREAD 3.71% 3.58% ==== ==== NET INTEREST MARGIN 4.51% 4.44% ==== ====
Total interest income for the three months ended September 30, 1996 was $2,237,860, compared to $1,986,490 for the same three month period of the prior year. This increase of $251,370 is primarily the result of a $12,571,000 increase in quarterly average interest-earning assets. The quarterly yield on interest-earning assets declined .09%. Total interest income for the nine months ended September 30, 1996 was $6,395,277, compared to $5,700,516 for the nine months ended September 30, 1995. This increase of $694,761 or 12.2%, is primarily attributed to a $9.2 million increase in average interest-earning assets to $99.9 million from $90.7 million and a .15% increase in yield on interest-earning assets. The increase in yield is primarily the result of a shift in the interest-earning asset mix to higher yielding loans. Of the $9.2 million increase in average 10 interest-earning assets, nearly $7.0 million took place in loans. For the nine months ended September 30, 1996, the average balance of outstanding loans approximated 67.4% of average interest-earning assets as compared to 66.6% for the nine months ended September 30, 1995. Total interest expense for the three months ended September 30, 1996 was $1,051,840, compared to $971,756 for the same period of the prior year. This increase of $80,084 or 8.2% is related to a $13,467,000 increase in quarterly average interest-bearing liabilities, offset somewhat by a .44% decline in quarterly average cost of funds primarily attributed to a general decline in the short-term interest rate environment. For the nine months ended September 30, 1996 total interest expense was $3,012,214 as compared to $2,683,042 for the same nine month period of 1995. This increase of $329,172 or 12.3% is solely attributable to $8.8 million increase in average interest-bearing liabilities to $83.3 million for the nine months ended September 30, 1996, compared to $74.6 million for the same nine month period of the prior year. PROVISION FOR POSSIBLE LOAN LOSSES The provision for possible loan losses totaled $105,000 for the three months ended September 30, 1996 and 1995. For the nine months ended September 30, 1996 and 1995, the provision for possible loan losses amounted to $280,000 and $570,000, respectively. The decrease in the provision for the nine months ended September 30, 1996 as compared to the same period of the prior year is the result of improvement is asset quality reflected by decreases in nonperforming loans, nonperforming assets, net loan charge-offs, and increases in the percentage of the allowance for possible loan losses to total loans and to nonperforming loans. NONINTEREST INCOME Total noninterest income increased $21,627 or 23.3% to $114,460 from $92,833 during the three months ended September 30, 1996 and 1995, respectively. Total noninterest income decreased $26,947 to $343,475 from $370,422 for the nine months ended September 30, 1996 compared to the nine months ended September 30, 1995, respectively. The decrease for the nine month period is attributable to a $52,313 decrease in gain on loan sales. NONINTEREST EXPENSE Total noninterest expense amounted to $758,846 and $794,532 for the three months ended September 30, 1996 and 1995, respectively. Of these amounts, deposit insurance assessments amounted to $500 for the three months ended September 30, l996 compared to a refund of $5,205 for the three months ended September 30, 1995. The refund is the result of a reduction in insurance premium assessments imposed by the Federal Deposit Insurance Corporation. Also, carrying and disposition costs associated with the Company's portfolio of foreclosed properties decreased to $4,960 for the three months ended September 30, 1996, compared to $93,458 for the same three month period of 1995. This decrease was primarily the result of a decrease in foreclosed properties. Other operating expenses increased $35,796 to $177,822 for the three months ended September 30, 1996 from $142,026 for the three months ended September 30, 1995. This increase is primarily the result of increased spending on advertising, public relations and legal and professional costs. 11 For the nine months ended September 30, 1996, total noninterest expense increased $28,009 or 1.2% to $2,342,884 from $2,314,875 for the same nine month period in 1995. This increase is largely attributed to a decrease of $85,817 in FDIC deposit insurance assessments and a decrease of $61,486 in net costs for carrying and disposing of foreclosed properties offset by: (i) a $39,428 increase in salaries and benefits primarily attributed to the adoption of a Supplemental Executive Retirement Plan at the end of 1995, (ii) a $19,835 increase in occupancy expense principally due to higher maintenance costs, (iii) a $15,251 increase in computer servicing fees, and (iv) a $100,934 increase in other operating expenses, most notably for advertising, public relations, and legal and professional fees associated with a publicly traded company. INCOME TAXES Income taxes for the three months ended September 30, 1996 were 35.4% of pretax income, compared to 35.2% of pretax income for the three months ended September 30, 1995. For the nine months ended September 30, 1996 and 1995, the effective tax rates are 34.0% and 31.8%, respectively. The distortion in effective rates was the result of the reversal of $12,000 in excess tax reserves during the second quarter of 1995. CAPITAL ADEQUACY The FDIC and the Federal Reserve Board have established guidelines with respect to the maintenance of appropriate levels of capital by both the Bank and the Company. Set forth below is a summary of FDIC and Federal Reserve Board capital requirements, and the Company's and the Bank's capital ratios as of September 30, 1996: REGULATORY MINIMUM (2) ACTUAL ----------- ------ The Company (1) Risk-based: Tier 1 4.00% 15.59% Totals 8.00 16.84 Leverage 3.00 9.96 The Bank Risk-based: Tier 1 4.00% 14.38% Totals 8.00 15.63 Leverage 3.00 9.47 - ----------- (1) The regulatory capital guidelines with respect to bank holding companies are not applicable unless the bank holding company has either consolidated assets in excess of $150 million or either: (i) engages in any bank activity involving significant leverage; or (ii) has a significant amount of outstanding debt that is held by the general public. Otherwise, the Federal Reserve Board applies its capital adequacy requirements on a "bank only" basis. (2) The 3% regulatory minimum leverage ratio applies only to certain highly- rated banks. Other institutions are subject to higher requirements. 12 ASSET/LIABILITY MANAGEMENT The Company's objective with respect to asset/liability management is to position the Company so that sudden changes in interest rates do not have a material impact on net interest income and stockholders' equity. The primary objective is to manage the assets and liabilities to provide for profitability and capital at prudent levels of liquidity and interest rate, credit, and market risk. The Company uses a static gap measurement as well as a modeling approach to review its level of interest rate risk. The internal targets established by the Company are to maintain: (i) a static gap of no more than a positive 10% or negative 15% of total assets at the one year time frame, (ii) a change in economic market value from base present value of no more than positive or negative 30%; and (iii) a change in net interest income from base of no more than positive or negative 17%. At June 30, 1996, the most recent date for which this information is available, the Company's one year static gap position was a negative $7,810,000 or 7.2% of total assets. LIQUIDITY Deposits and borrowings are the principal sources of funds for use in investing, lending and for general business purposes. Loan and investment amortization and prepayments provide additional significant cash flows. At September 30, 1996, the Company had $31,146,341, or 25.9% of assets in cash and cash equivalents and investments classified available-for-sale. The Bank is a member of the Federal Home Loan Bank of Boston, and as such has access to an unused borrowing capacity of $6,962,O00 at September 30, 1996. PART II - OTHER INFORMATION ITEM 1 - LEGAL PROCEEDINGS The Company and the Bank are involved in routine legal proceedings occurring in the ordinary course of business. In the opinion of management, final disposition of these lawsuits will not have a material adverse effect on the financial condition or results of operations of the Company or the Bank in the aggregate. 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 Not applicable. 13 ITEM 5 - OTHER INFORMATION Not applicable ITEM 6 - EXHIBITS AND REPORTS ON FORM 8-K (a) Exhibits EXHIBIT NUMBER DESCRIPTION -------------- ----------- 11 Computation of Per Share Earnings 27 Financial Data Schedule (b) Reports on Form 8-K None 14 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 Financial Corp. October 31, 1996 /s/ Patrick J. Shanahan, Jr. - ---------------------------------- ------------------------------------- Date Patrick J. Shanahan, Jr. President and Chief Executive Officer October 31, 1996 /s/ John A. Macomber - ---------------------------------- ------------------------------------- Date John A. Macomber Vice President, Treasurer and Chief Financial Officer 15 EX-11 2 COMPUTATION OF PER SHARE EARNINGS EXHIBIT 11 - COMPUTATION OF PER SHARE EARNINGS NINE MONTHS ENDED THREE MONTHS ENDED SEPTEMBER 30, SEPTEMBER 30, ----------------- ------------------ 1996 1995 1996 1995 ---- ---- ---- ---- Average shares outstanding 978,549 683,200 1,261,241 683,200 Average dilutive option shares 13,832 45,423 ------- 45,253 -------- -------- -------- ------- Total average shares 992,381 728,623 1,261,241 728,453 ======== ======== ======== ======= Net income $728,742 $343,231 $282,148 $134,891 ======== ======== ======== ======= Earnings per share $ 0.73 $ 0.47 $ 0.22 $ 0.19 ======== ======== ======== ======= 16 EX-27 3 FINANCIAL DATA SCHEDULE
9 9-MOS DEC-31-1996 SEP-30-1996 2,099,251 0 1,084,000 0 27,963,090 15,856,597 15,763,474 70,672,872 1,861,010 120,042,505 93,175,524 10,833,000 847,290 2,939,200 0 0 1,328,041 10,919,450 120,042,505 1,679,877 557,983 0 2,237,860 960,119 1,051,840 1,186,020 105,000 0 758,846 436,634 436,634 0 0 282,148 0.22 0.22 4.45 358,152 0 0 1,598,579 1,756,303 0 (293) 1,861,010 1,861,010 0 0
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