-----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, O96pHcgnvQNK6NMBBK3RwImcK0ugRn1pMq++UjRx+DXp9Gbo0897pY3QWjP/0zQt RCIJh/FQAu/WnZarf+ZC9A== 0000927016-98-003020.txt : 19980812 0000927016-98-003020.hdr.sgml : 19980812 ACCESSION NUMBER: 0000927016-98-003020 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 19980630 FILED AS OF DATE: 19980811 SROS: NASD 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: SEC FILE NUMBER: 000-27878 FILM NUMBER: 98681808 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 JUNE 30, 1998 Commission file number 0-27878 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 such filing requirements for the past 90 days. X Yes No --- --- At July 31, 1998, 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
PAGE PART I - FINANCIAL INFORMATION Item 1 - Financial Statements............................................ 1 Consolidated Balance Sheets - June 30, 1998 and December 31, 1997................................................. 1 Consolidated Statements of Income - Three months and six months ended June 30, 1998 and 1997........................... 2 Consolidated Statements of Stockholders' Equity - Six months ended June 30, 1998 and year ended December 31, 1997................................................. 3 Consolidated Statements of Cash Flows - Six months ended June 30, 1998 and 1997...................................... 4 Notes to Consolidated Financial Statements - June 30, 1998.......... 5 Item 2 - Management's Discussion and Analysis of Financial Condition and Results of Operations.................................... 6 PART II - OTHER INFORMATION Item 1 - Legal Proceedings............................................... 12 Item 2 - Changes in Securities........................................... 12 Item 3 - Defaults Upon Senior Securities................................. 12 Item 4 - Submission of Matters to a Vote of Security Holders............. 13 Item 5 - Other Information............................................... 13 Item 6 - Exhibits and Reports on Form 8-K................................ 13 SIGNATURES............................................................... 14 EXHIBITS Computation of Per Share Earnings - Exhibit 11........................... 15 Financial Data Schedule - Exhibit 27..................................... 16
PART I - FINANCIAL INFORMATION Item 1 - Financial Statements FIRST FINANCIAL CORP. AND SUBSIDIARY CONSOLIDATED BALANCE SHEETS
JUNE 30, DECEMBER 31, 1998 1997 ------------ ------------- ASSETS (UNAUDITED) CASH AND DUE FROM BANKS...................................................... $ 2,148,272 $ 2,837,014 SECURITIES PURCHASED UNDER AGREEMENTS TO RESELL. 992,123 3,878,000 LOANS HELD FOR SALE.......................................................... 160,000 380,000 INVESTMENT SECURITIES: Held-to-maturity (market value: $12,497,242 and $12,462,016)............... 12,518,639 12,467,740 Available-for-sale (amortized cost: $36,137,562 and $26,403,000)........... 36,340,938 26,598,634 ------------ ------------ Total investment securities............................................ 48,859,577 39,066,374 ------------ ------------ FEDERAL HOME LOAN BANK STOCK................................................. 447,700 447,700 LOANS: Commercial................................................................. 9,663,876 6,418,373 Commercial real estate..................................................... 46,807,575 45,976,986 Residential real estate.................................................... 19,160,635 21,464,343 Home equity lines of credit................................................ 3,488,681 2,838,377 Consumer................................................................... 1,263,801 1,056,791 ------------ ------------ 80,384,568 77,754,870 Less - Unearned discount................................................... 112,677 75,107 Allowance for possible loan losses......................................... 1,400,995 1,596,613 ------------ ------------ Net loans.............................................................. 78,870,896 76,083,150 ------------ ------------ OTHER REAL ESTATE OWNED...................................................... 529,021 782,190 PREMISES AND EQUIPMENT, net.................................................. 2,393,901 2,458,550 OTHER ASSETS................................................................. 1,498,670 1,376,889 ------------ ------------ TOTAL ASSETS................................................................. $135,900,160 $127,309,867 ============ ============ LIABILITIES AND STOCKHOLDERS' EQUITY DEPOSITS: Demand...................................................................... $ 12,947,045 $ 13,198,956 Savings and money market accounts........................................... 21,317,622 23,371,357 Time deposits............................................................... 65,793,445 62,719,558 ------------ ------------ Total deposits.......................................................... 100,058,112 99,289,871 SECURITIES SOLD UNDER AGREEMENTS TO REPURCHASE............................... 15,088,691 10,105,000 FEDERAL HOME LOAN BANK ADVANCES.............................................. 2,335,933 -- ACCRUED EXPENSES AND OTHER LIABILITIES....................................... 1,187,112 1,255,823 SENIOR DEBENTURE....................................................... 2,973,686 2,946,540 ------------ ------------ TOTAL LIABILITIES......................................................... 121,643,534 113,597,234 ------------ ------------ STOCKHOLDERS' EQUITY: Common Stock, $1 par value Authorized - 5,000,000 shares Issued - 1,328,041 shares................................................ 1,328,041 1,328,041 Surplus..................................................................... 4,431,380 4,431,380 Retained earnings........................................................... 8,522,139 7,982,792 Unrealized gain on securities available-for-sale, net of taxes.............. 122,026 117,380 ------------ ------------ 14,403,586 13,859,593 Less - Treasury stock, at cost, 66,800 shares............................... 146,960 146,960 ------------ ------------ TOTAL STOCKHOLDERS' EQUITY................................................... 14,256,626 13,712,633 ------------ ------------ TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY................................... $135,900,160 $127,309,867 ============ ============
The accompanying notes are an integral part of these consolidated financial statements. 1 FIRST FINANCIAL CORP. AND SUBSIDIARY CONSOLIDATED STATEMENTS OF INCOME
SIX MONTHS ENDED THREE MONTHS ENDED JUNE 30, JUNE 30, ----------------------- ---------------------- 1998 1997 1998 1997 ----------- ---------- ---------- ---------- (UNAUDITED) INTEREST INCOME: Interest and fees on loans........................................ $3,811,188 $3,612,979 $1,923,015 $1,843,020 Interest on investment securities- U.S. Government and agency obligations........................ 909,114 779,315 508,931 382,426 Collateralized mortgage obligations........................... 15,676 57,372 7,949 26,328 Mortgage backed securities.................................... 273,423 397,199 137,703 194,645 Marketable equity securities and other........................ 37,283 16,129 15,290 9,984 Interest on cash equivalents...................................... 132,478 69,618 72,316 38,810 ---------- ---------- ---------- ---------- Total interest income......................................... 5,179,162 4,932,612 2,665,204 2,495,213 ---------- ---------- ---------- ---------- INTEREST EXPENSE: Interest on deposits.............................................. 2,070,580 1,887,693 1,049,446 949,143 Interest on repurchase agreements................................. 353,348 325,262 196,496 165,500 Interest on advances.............................................. 39,267 -- 32,380 -- Interest on debenture............................................. 129,147 131,789 64,466 66,743 ---------- ---------- ---------- ---------- Total interest expense......................................... 2,592,342 2,344,744 1,342,788 1,181,386 Net interest income............................................ ---------- ---------- ---------- ---------- 2,586,820 2,587,868 1,322,416 1,313,827 PROVISION FOR POSSIBLE LOAN LOSSES................................. 125,000 150,000 75,000 75,000 ---------- ---------- ---------- ---------- Net interest income after provision for possible loan losses................................................. 2,461,820 2,437,868 1,247,416 1,238,827 ---------- ---------- ---------- ---------- NONINTEREST INCOME: Service charges on deposits....................................... 138,954 160,384 72,846 77,329 Gain on sale of securities........................................ -- -- -- -- Gain on loan sales................................................ 71,837 15,823 36,132 15,823 Other............................................................. 97,218 60,671 45,148 20,328 ---------- ---------- ---------- ---------- Total noninterest income....................................... 308,009 236,878 154,126 113,480 ---------- ---------- ---------- ---------- NONINTEREST EXPENSE: Salaries and employee benefits................................... 893,652 878,362 445,350 450,242 Occupancy expense................................................ 198,785 185,107 98,860 96,633 Equipment expense................................................ 132,148 99,419 68,074 49,226 Other real estate owned net losses and expenses.................. 34,613 24,044 32,005 6,924 Computer services................................................ 101,928 84,170 48,690 42,956 Deposit insurance assessments.................................... 6,000 4,870 3,004 2,435 Other operating expenses......................................... 337,455 354,208 168,311 177,138 ---------- ---------- ---------- ---------- Total noninterest expense...................................... 1,704,581 1,630,180 864,294 825,554 ---------- ---------- ---------- ---------- Income before provision for income taxes....................... 1,065,248 1,044,566 537,248 526,753 PROVISION FOR INCOME TAXES......................................... 374,553 377,903 183,371 190,457 ---------- ---------- ---------- ---------- NET INCOME......................................................... $ 690,695 $ 666,663 $ 353,877 $ 336,296 ========== ========== ========== ========== Earnings per share: Basic.......................................................... $ 0.55 $ 0.53 $ 0.28 $ 0.27 ========== ========== ========== ========== Diluted........................................................ $ 0.55 $ 0.53 $ 0.28 $ 0.27 ========== ========== ========== ========== Weighted average shares outstanding- Basic and Diluted.............................................. 1,261,241 1,261,241 1,261,241 1,261,241 ========== ========== ========== ==========
The accompanying notes are an integral part of these consolidated financial statements. 2 FIRST FINANCIAL CORP. AND SUBSIDIARY CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
UNREALIZED GAIN ON SECURITIES AVAILABLE FOR SALE, COMMON RETAINED NET OF STOCK SURPLUS EARNINGS TAXES ------- --------- ------------ ----------- Balance, December 31, 1996.............. $1,328,041 $4,431,380 $6,923,308 $ 34,132 Net income.............................. -- -- 1,311,733 -- Change in net unrealized gain........... on securities available-for-sale..... -- -- -- 83,248 Comprehensive income.................... -- -- -- -- Dividends declared ($.20 per share)..... -- -- (252,249) -- ---------- ---------- ---------- -------- Balance, December 31, 1997.............. 1,328,041 4,431,380 7,982,792 117,380 Net income.............................. -- -- 690,695 -- Change in net unrealized gain on securities available-for-sale..... -- -- -- 4,646 Comprehensive income.................... -- -- -- -- Dividends declared ($.12 per share...... -- -- (151,348) -- Balance, June 30, 1998.................. $1,328,041 $4,431,380 $8,522,139 $122,026 ========== ========== ========== ======== TOTAL TREASURY STOCKHOLDERS' COMPREHENSIVE STOCK EQUITY INCOME ------------- ------------- ------------- Balance, December 31, 1996.............. $ (146,960) $12,569,901 Net income.............................. -- 1,311,733 $ 1,311,733 Change in net unrealized gain on securities available-for-sale..... -- 83,248 83,248 ----------- Comprehensive income.................... -- -- $ 1,394,981 =========== Dividends declared ($.20 per share)..... -- (252,249) ---------- ----------- Balance, December 31, 1997.............. (146,960) 13,712,633 Net income.............................. -- 690,695 $ 690,695 Change in net unrealized gain on securities available-for-sale..... -- 4,646 4,646 ----------- Comprehensive income.................... -- -- $ 695,341 =========== Dividends declared ($.12 per share...... -- (151,348) ---------- ----------- Balance, June 30, 1998.................. $ (146,960) $14,256,626 ========== ===========
The accompanying notes are an integral part of these consolidated financial statements 3 FIRST FINANCIAL CORP. AND SUBSIDIARY CONSOLIDATED STATEMENTS OF CASH FLOWS
SIX MONTHS ENDED JUNE 30, ---------------------------- 1998 1997 ------------ ------------ (UNAUDITED) CASH FLOWS FROM OPERATING ACTIVITIES: Net income............................................................................. $ 690,695 $ 666,663 Adjustments to reconcile net income to net cash provided by operating activities: Provision for possible loan losses.................................................... 125,000 150,000 Depreciation and amortization......................................................... 141,739 106,594 Amortization of discount on debenture................................................. 102,674 100,736 Net accretion on investment securities held-to-maturity............................... (3,500) (6,265) Net accretion on investment securities available-for-sale............................. (100,317) (42,559) Losses (gains) on sale of OREO........................................................ 18,952 (2,017) Gains on sales of loans............................................................... (71,837) (15,823) Proceeds from sales of loans.......................................................... 1,020,210 399,908 Loans originated for sale............................................................. (728,373) (224,085) Net increase (decrease) in unearned discount.......................................... 37,570 (2,589) Net (increase) in other assets........................................................ (121,781) (262,699) Net (decrease) increase in deferred loan fees......................................... (3,529) 31,199 Net (decrease) in accrued expenses and other liabilities.............................. (159,947) (256,120) ------------ ------------ Net cash provided by operating activities............................................ 947,556 642,943 ------------ ------------ CASH FLOWS FROM INVESTING ACTIVITIES: Purchase of Federal Home Loan Bank stock................................................ -- (99,600) Proceeds from maturities of investment securities held-to-maturity...................................................................... 8,895,095 4,121,845 Proceeds from maturities of investment securities available-for-sale.................................................................... 43,539,739 14,931,609 Purchase of investment securities held-to-maturity...................................... (8,942,494) (2,000,000) Purchase of investment securities available-for-sale.................................... (53,173,983) (12,382,247) Net increase in loans................................................................... (3,056,787) (3,660,971) Purchase of premises and equipment...................................................... (77,090) (652,424) Sales of OREO........................................................................... 344,217 301,434 ------------ ------------ Net cash (used in) provided by investing activities................................... (12,471,303) 559,646 ------------ ------------ CASH FLOWS FROM FINANCING ACTIVITIES: Net (decrease) increase in demand accounts............................................. (251,911) 101,114 Net (decrease) increase in savings and money market accounts............................ (2,053,735) 302,026 Net increase (decrease) in time deposits................................................ 3,073,887 (815,846) Net increase in reverse repurchase agreements........................................... 4,983,691 -- Net increase in Federal Home Loan Bank advances......................................... 2,335,933 -- Dividends paid.......................................................................... (138,737) (100,899) ------------ ------------ Net cash provided by (used in) financing activities................................... 7,949,128 (513,605) ------------ ------------ NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS............................................................................. (3,574,619) 688,984 CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD................................................................................. 6,715,014 4,364,713 ------------ ------------ CASH AND CASH EQUIVALENTS, END OF PERIOD................................................ $ 3,140,395 $ 5,053,697 ============ ============ SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION: Interest paid........................................................................... $ 2,592,349 $ 2,286,495 ============ ============ Income taxes paid....................................................................... $ 599,500 $ 515,687 ============ ============ SUPPLEMENTAL DISCLOSURE OF NONCASH TRANSACTIONS: Transfer of loans to OREO............................................................... $ 110,000 $ 161,000 ============ ============
The accompanying notes are an integral part of these consolidated financial statements. 4 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS FOR THE PERIOD ENDED JUNE 30, 1998 (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 six months ended June 30, 1998 are not necessarily indicative of the results that may be expected for the year ending December 31, 1998, or any other interim period. For further information refer to the consolidated financial statements, notes and other information included in the Company's annual report and Form 10-K for the period ended December 31, 1997, filed with the Securities and Exchange Commission. (2) DIVIDEND DECLARATION On May 18, 1998 the Company declared dividends of $75,675 or $.06 per share to all common stockholders of record on June 15, 1998, payable on July 1, 1998. (3) RECENT DEVELOPMENTS In June 1997, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards (SFAS) No. 130, "Reporting Comprehensive Income". SFAS No. 130 established standards for reporting and display of comprehensive income and its components in a full set of general purpose financial statements displayed with the same prominence as other financial statements. SFAS No. 130 became effective for both interim and annual periods beginning after December 15, 1997, with retroactive application to prior periods presented. The Company has chosen to disclose comprehensive income, which consists of net income and changes in unrealized gains and losses on securities available-for-sale net of income taxes in the Consolidated Statements of Stockholders' Equity. The following table presents comprehensive income for the three months and six months ended June 30, 1998 and 1997.
SIX MONTHS ENDED THREE MONTHS ENDED JUNE 30, JUNE 30, ------------------------- ----------------------- 1998 1997 1998 1997 ------ ------ ------ ------ Net income $690,695 $666,663 $353,877 $336,296 Change in net unrealized gain (loss) on securities available-for-sale 4,646 21,592 (21,304) 94,992 -------- -------- -------- -------- Comprehensive income $695,341 $688,255 $332,573 $431,288 ======== ======== ======== ========
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 accounts, 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 Bank's products and services are delivered through its four branch network system. The Bank's main office and branch are located in Providence, Rhode Island with branches in Cranston, Richmond and its newest branch in North Kingstown, Rhode Island. 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, Federal Home Loan Bank advances, and the Senior Debenture. The Company's net income is also affected by its level of noninterest income, including fees and service charges, as well as by its noninterest 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 - ------- For the three months ended June 30, 1998, the Company reported net income of $353,877 compared to net income of $336,296 for the three months ended June 30, 1997, or an increase of 5.2%. Basic and diluted net income per share were $.28 for the quarter ended June 30, 1998, compared to $.27 per share for the same three month period of the prior year. Net income for the six months ended June 30, 1998, amounted to $690,695 compared to net income of $666,663 for the six months ended June 30, 1997. Basic and diluted net income per share for the six months ended June 30, 1998, were $.55 compared to $.53 per share for the six months ended June 30, 1997. The Company's improved earnings performance resulted from, (i) an increase in earning assets, offset by a reduction in net interest spreads and net interest margins; (ii) continued improvement in asset quality reflected by decreases in nonperforming loans and nonperforming assets; (iii) an increase in noninterest income primarily due to an increase in gain on loan sales; and (iv) only a modest increase in noninterest expense. The Company was able to absorb the start-up costs of its newest branch located as an in-store branch in the North Kingstown Wal-Mart Super Store which opened in June 1997. The Company also absorbed the fixed charges associated with the technology-related capital expenditures incurred in the second half of 1997. Total assets increased $8,590,293 or 6.7% to $135,900,160 at June 30, 1998 from $127,309,867 at December 31, 1997. The loan portfolio, net of unearned discount, increased $2,592,128 or 3.3% to $80,271,891 at June 30, 1998 from 6 $77,679,763 at December 31, 1997. Investment securities increased $9,793,203 to $48,859,577 at June 30, 1998 from $39,066,374 at December 31, 1997, while cash and cash equivalents decreased $3,574,619 to $3,140,395 at June 30, 1998 from $6,715,014 at December 31, 1997. The increase in the Company's total assets was funded primarily from, (i) a $4,983,691 increase in securities sold under agreements to repurchase to $15,088,691 at June 30, 1998 from $10,105,000 at December 31, 1997; (ii) a $2,335,933 increase in Federal Home Loan Bank advances and; (iii) an increase in deposits of $768,241 to $100,058,112 at June 30, 1998 from $99,289,871 at December 31, 1997. FINANCIAL CONDITION ASSET QUALITY - ------------- The following table sets forth information regarding nonperforming 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 SIX MONTHS ENDED YEAR ENDED JUNE 30, DECEMBER 31, ------------------------ ------------- 1998 1997 1997 ------ ------ ------ (DOLLARS IN THOUSANDS) Nonperforming loans................................... $ 248 $ 339 $ 17 Other real estate owned............................... $ 529 $ 537 $ 782 Total nonperforming assets............................ $ 777 $ 876 $ 799 Loans 30-89 days delinquent........................... $ 603 $ 405 $ 490 Nonperforming assets to total assets.................. 0.57% 0.75% 0.65% Nonperforming loans to total loans.................... 0.32% 0.48% 0.02% Net loan charge-offs to average loans................. 0.06% 0.01% 0.34% Allowance for possible loan losses to total loans..... 1.67% 1.89% 1.64% Allowance for possible loan losses to nonperforming loans (multiple).................................... 5.20X 3.97X 73.33X
The following represents the activity in the allowance for possible loan losses for the three months and six months ended June 30, 1998:
SIX MONTHS ENDED THREE MONTHS ENDED JUNE 30, JUNE 30, ---------------------------- ------------------------ 1998 1997 1998 1997 ------ ------ ------ ------ Bank Reserve: Balance at beginning of period........................ $1,208,322 $1,199,617 $1,259,180 $1,267,506 Provision............................................ 125,000 150,000 75,000 75,000 Loan charge-offs..................................... (51,223) (26,829) (49,934) (9,699) Recoveries........................................... 8,998 22,689 6,851 12,670 ---------- ---------- ---------- ---------- Balance at end of period.............................. 1,291,097 1,345,477 1,291,097 1,345,477 ---------- ---------- ---------- ---------- Acquired Reserve: Balance at beginning of period........................ 388,291 742,840 168,966 712,202 Loan charge-offs..................................... (272,188) (169,695) (55,688) (141,041) Recoveries (Administrative Costs).................... (6,205) (4,603) (3,380) (2,619) ---------- ---------- ---------- Balance at end of period.............................. 109,898 568,542 109,898 568,542 ---------- ---------- ---------- ---------- Total Reserve......................................... $1,400,995 $1,914,019 $1,400,995 $1,914,019 ========== ========== ========== ==========
The Company continually reviews its delinquency position, underwriting and appraisal procedures, 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. 7 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 1% of the remaining acquired loans, must be refunded to the State of Rhode Island Depositors Economic Protection Corporation ("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 June 30, 1998, the remaining balance of acquired loans was $3,083,886. DEPOSITS AND OTHER BORROWINGS - ----------------------------- Total deposits increased $768,241 during the six months ended June 30, 1998, from $99,289,871 at December 31, 1997, to $100,058,112 at June 30, 1998. During the six months ended June 30, 1998, demand, savings and money market deposits decreased $2,305,646 while time deposits increased $3,073,887. The shift in deposits from passbook and statement savings accounts to short term (one year or less) time deposits is consistent with the Company's experience over the past several years and is reflective of depositors' financial astuteness in the marketplace. Securities sold under agreements to repurchase increased $4,983,691 during the six months ended June 30, 1998 to $15,088,691 from $10,105,000 at December 31, 1997. This increase is attributable to a single municipal customer and is considered volatile. During the six months ended June 30, 1998, the Company took down advances for the first time from the Federal Home Loan Bank of Boston. The purpose of these borrowings was to match the funding for selected loans. At June 30, 1998, outstanding advances were $2,335,933. 8 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) was $2,586,820 for the six months ended June 30, 1998, compared to $2,587,868 for the six months ended June 30, 1997. The virtually flat reporting of net interest income was the result of an increase in interest earning assets offset by a decrease in net interest spreads. 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.
SIX MONTHS ENDED JUNE 30, ------------------------------------------------------------ 1998 1997 ------------------------------ --------------------------- INTEREST AVERAGE INTEREST AVERAGE AVERAGE INCOME/ YIELD/ AVERAGE INCOME/ YIELD/ BALANCE EXPENSE RATE BALANCE EXPENSE RATE ---------- -------- --------- -------- -------- ------- (DOLLARS IN THOUSANDS) INTEREST - EARNING ASSETS: Loans............................................. $ 78,945 $ 3,811 9.64% $ 74,249 $3,613 9.73% Investment securities taxable - AFS............... 30,849 886 5.74 26,810 865 6.45 Investment securities taxable - HTM............... 11,300 331 5.86 12,597 371 5.89 Securities purchased under agreements to resell......................................... 5,364 132 4.92 2,828 70 4.95 Federal Home Loan Bank Stock and other............ 716 19 5.31 540 14 5.19 -------- -------- -------- -------- ------ ---- TOTAL INTEREST-EARNING ASSETS........................ 127,174 5,179 8.14 117,024 4,933 8.43 -------- -------- ------ ---- NONINTEREST-EARNING ASSETS: Cash and due from banks.......................... 2,224 2,047 Premises and equipment........................... 2,446 1,868 Other real estate owned.......................... 677 731 Allowance for possible loan losses............... (1,497) (1,982) Other assets..................................... 1,402 1,038 -------- -------- TOTAL NONINTEREST-EARNING ASSETS..................... 5, 252 3,702 -------- -------- TOTAL ASSETS......................................... $132,426 $120,726 ======== ======== INTEREST - BEARING LIABILITIES: Deposits: Interest bearing demand and NOW deposits.............................. $ 3,742 36 1.92% $ 3,144 30 1.91% Savings deposits........................ 16,780 219 2.61 18,093 237 2.62 Money market deposits................... 1,224 15 2.45 1,447 17 2.35 Time deposits........................... 65,243 1,801 5.52 58,905 1,604 5.45 Securities sold under agreements to repurchase............................... 12,773 353 5.53 10,778 325 6.03 Federal Home Loan Bank Advances................. 1,250 39 6.24 -- -- -- Senior debenture................................ 2,983 129 8.65 2,932 132 9.00 -------- -------- -------- -------- ------ ---- TOTAL INTEREST-BEARING LIABILITIES................... 103,995 2,592 4.98 95,299 2,345 4.92 -------- -------- ------ ---- NONINTEREST-BEARING LIABILITIES: Noninterest-bearing deposits..................... 13,178 11,807 Other liabilities................................ 1,309 825 -------- -------- TOTAL NONINTEREST-BEARING LIABILITIES................ 14,487 12,632 STOCKHOLDERS' EQUITY................................. 13,944 12,795 -------- -------- TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY........... $132,426 $120,726 ======== ======== NET INTEREST INCOME.................................. $ 2,587 $2,588 ======== ====== NET INTEREST SPREAD.................................. 3.16% 3.51% ======== ==== NET INTEREST MARGIN.................................. 4.07% 4.42% ======== ====
9 Total interest income for the three months ended June 30, 1998 was $2,665,204, compared to $2,495,213 for the same three month period of the prior year. This increase of $169,991 was primarily the result of a $15 million increase in quarterly average interest-earning assets, offset by a 46 basis point reduction in yield to 8.07% from 8.53%. The increase in earning assets was disproportionate in that quarterly average loans as a percentage of quarterly average earning assets decreased to 60.6% for the three months ended June 30, 1998, compared to 64.0% for the three months ended June 30, 1997. Consequently, the majority of earning asset growth occurred within the lower yielding investment portfolio. This growth, coupled with a lower interest rate environment, accounted for the overall decline in earning asset yield. Total interest income for the six months ended June 30, 1998, was $5,179,162, compared to $4,932,612 for the six months ended June 30, 1997. Despite a $10 million increase in average earning assets, the interest-earning asset yield declined 29 basis points to 8.14% from 8.43%. The decline in yield was a reflection of a somewhat lower interest rate environment as well as a shift in earning asset mix from the loan portfolio to the investment portfolio. During the three months and six months ended June 30, 1998, the Company sought wholesale funding sources for short-term investing or match funding loan production. Although this strategy compressed spreads and margins; net income, earnings per share, and return on equity showed improvement. Total interest expense for the three months ended June 30, 1998 was $1,342,788, compared to $1,181,386 for the same period of the prior year. This increase of $161,402 or 13.7% was primarily the result of a $13.7 million increase in quarterly average interest-bearing liabilities. Of this growth, approximately $7 million came from wholesale funding sources. The other funding source occurred within certificates of deposit which grew an average of $6.7 million. Despite this growth, the Company's cost of funds remained flat at 4.97% during the second quarter of 1998 and 1997. For the six months ended June 30, 1998, total interest expense was $2,592,342 as compared to $2,344,744 for the same six month period of 1997. This increase was the result of an $8.7 million increase in interest-bearing liabilities along with a 6 basis point increase in cost of funds to 4.98% from 4.92%. Despite a lower interest rate environment, growth in higher cost time deposits, and utilization of wholesale funding sources for arbitrage purposes and match funding of loans drove up the Company's cost of funds. PROVISION FOR POSSIBLE LOAN LOSSES - ---------------------------------- The provision for possible loan losses totaled $75,000 for the three months ended June 30, 1998 and 1997. For the six months ended June 30, 1998 and 1997, the provision for possible loan losses amounted to $125,000 and $150,000, respectively. The decrease in the provision for the six months ended June 30, 1998, as compared to the same period of the prior year is the result of improvement in asset quality reflected by decreases in nonperforming loans and nonperforming assets. NONINTEREST INCOME - ------------------ Total noninterest income increased $40,646 to $154,126 for the three months ended June 30, 1998, from $113,480 for the three months ended June 30, 1997. For the six months ended June 30, 1998 and 1997, noninterest income increased $71,131 to $308,009 from $236,878. For both the three month and six month reporting period, the increases were attributable to an increase in gains on the sale of the guaranteed portion of Small Business Administration ("SBA") loans and the imposition of ATM surcharge fees for non-customer ATM usage. NONINTEREST EXPENSE - --------------------- Total noninterest expense amounted to $864,294 and $825,554 for the three months ended June 30, 1998 and 1997, respectively. The increase of $38,740 or 4.7% was primarily the result of occupancy costs associated with the North Kingstown branch which opened in June 1997, depreciation charges for the technology- related capital expenditures which occurred in the second half of 1997, and increases in computer servicing costs. Total noninterest expense increased $74,401 or 4.6% to $1,704,581 for the six months ended June 30, 1998, from $1,630,180 for the six months ended June 30, 1997. This increase was largely due to operating the North Kingstown branch of approximately $89,000; technology-related costs and charges of nearly $51,000; less savings of $70,000 associated with the repeal of the state tax on deposits and a reduction of pension costs. 10 INCOME TAXES - ------------ Income taxes for the three months ended June 30, 1998, were $183,371 or 34.1% of pretax income, compared to $190,457 or 36.2% of pretax income for the three months ended June 30, 1997. For the six months ended June 30, 1998 and 1997, income taxes were $374,453 and $377,903, respectively, or 35.2% and 36.2% of pretax income, respectively. The lower effective tax rates in 1998 are primarily due to proportionately more Bank income favorably taxed for state income taxes. 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 June 30, 1998:
REGULATORY MINIMUM (2) ACTUAL ----------- ------- The Company (1) Risk-based: Tier 1........................ 4.00% 18.47% Totals........................ 8.00 19.74 Leverage........................ 3.00 10.30 The Bank Risk-based: Tier 1......................... 4.00% 17.60% Totals....................... 8.00 18.86 Leverage......................... 3.00 10.02
(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. 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 March 31, 1998, the most recent date for which this information is available, the Company's one year static gap position was a negative $13,029,000 or 9.7% of total assets. 11 By using simulation modeling techniques, the Company is able to measure its interest rate risk exposure as determined by the impact of sudden movements in interest rates on net interest income and equity. This exposure is termed "earnings-at-risk" and "equity-at-risk". At March 31, 1998, the Company's earnings-at-risk under a (plus or minus)200 basis point interest rate shock test measured a negative 3.5% in a worst case scenario. Under a similar test, the Company's equity-at-risk measured a negative 14.37% of market value of equity at March 31, 1998. At March 31, 1998, the Company's earnings-at-risk and equity-at-risk fell well within tolerance levels established by internal policy. 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 June 30, 1998, the Company had $39,481,333 or 29.1% of assets in cash and cash equivalents and investments classified as 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 $6,618,067 at June 30, 1998, of which $2,352,000 was in the form of an overnight Line of Credit. YEAR 2000 COMPLIANCE - -------------------- The efficient operation of the Company's business is highly dependent on its computer software programs and operating systems. Virtually all of these programs and systems are furnished, supported and maintained by correspondent institutions, computer service and system providers, and software vendors. As the year 2000 approaches, a critical business issue has emerged regarding how existing application software programs and operating systems can accommodate this date value. As a result, the year 1999 could be the maximum date value these systems will be able to accurately process. The Company has adopted a Year 2000 Plan which calls for completion of a risk assessment, identification, reprogramming and testing of all programs and systems no later than March 31, 1999. The Company has completed the risk assessment and identification phase of the Year 2000 Plan and is now in the reprogramming and testing phase. The Plan also requires all programs and systems to be fully tested and Year 2000 compliant by June 30, 1999. The Company is in constant communication with its outside vendors, with whom it is reliant, to ensure that their timetable and progress is consistent with that of the Company. The Company has also communicated with significant borrowers and mission critical vendors to determine the status of their Year 2000 compliance efforts. The Company has also kept the Bank's depositors informed of its efforts. The Company has incorporated a contingency plan into the Year 2000 Plan should there be a major system failure. However, the Company believes that such a major system failure is highly unlikely. The Company does not anticipate that the remedial or systems' failure costs incurred in connection with Year 2000 compliance will be material to its financial condition or results of operations. 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. 12 ITEM 4 - SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS The Company held its 1998 Annual Meeting of Stockholders on May 13, 1998. The meeting was held for the purpose of: (I) electing Patrick J. Shanahan, Jr., Gary R. Alger and Joseph V. Mega, Directors of the Company for a three year term expiring at the Annual Meeting in the year 2001 and (ii) ratifying the selection of Arthur Andersen LLP as the independent public accountants for the Company for the fiscal year ending December 31, 1998. At the time of the 1998 Annual Meeting there were 1,261,241 shares entitled to vote. Shares voted either in person or by proxy totaled 1,120,812 shares. The results of the votes cast were as follows: For Against Abstention ----- ------- ---------- (i) To elect Directors of the Company for three years: Patrick J. Shanahan, Jr. 1,120,087 725 Gary R. Alger 1,119,087 1,725 Joseph V. Mega 1,118,887 1,925 (ii) To select Arthur Andersen LLP as independent public accountants for the Company for the fiscal year ending December 31,1998 1,119,212 600 1,000 In addition, upon completion of the Annual Meeting the Director's terms continue as follows: Name Term to Expire in: ---- ------------------ Raymond F. Bernardo 1999 Joseph A. Keough 1999 Peter L. Mathieu, Jr., M.D. 1999 Artin Coloian, Esq. 2000 John Nazarian, Ph.D. 2000 William P. Shields 2000 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 13 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. July 31, 1998 \s\ Patrick J. Shanahan, Jr. - ------------------------- ------------------------------- Date Patrick J. Shanahan, Jr. Chairman, President and Chief Executive Officer July 31, 1998 \s\ John A. Macomber - ------------------------- ------------------------------ Date John A. Macomber Vice President, Treasurer and Chief Financial Officer 14 EX-11 2 COMPUTATION OF PER SHARE EARNINGS EXHIBIT 11 - COMPUTATION OF PER SHARE EARNINGS
SIX MONTHS ENDED THREE MONTHS ENDED JUNE 30, JUNE 30, --------------------------- ---------------------- 1998 1997 1998 1997 ------ ------ ------ ------ Weighted average common shares outstanding 1,261,241 1,261,241 1,261,241 1,261,241 Weighted average equivalent shares -- -- -- -- ---------- ---------- ---------- ---------- Weighted average common and common stock equivalent shares outstanding 1,261,241 1,261,241 1,261,241 1,261,241 ========== ========== ========== ========== Net income $ 690,695 $ 666,663 $ 353,877 $ 336,296 ========== ========== ========== ========== Earnings per share: Basic $ 0.55 $ 0.53 $ 0.28 $ 0.27 ========== ========== ========== ========== Diluted $ 0.55 $ 0.53 $ 0.28 $ 0.27 ========== ========== ========== ==========
EX-27 3 FINANCIAL DATA SCHEDULE
9 3-MOS DEC-31-1998 APR-01-1998 JUN-30-1998 2,148,272 0 992,123 0 36,340,938 12,518,639 12,497,242 80,271,891 1,400,995 135,900,160 100,058,112 15,088,691 1,187,112 5,309,619 0 0 1,328,041 12,928,585 135,900,160 1,923,015 742,189 0 2,665,204 1,049,446 1,342,788 1,322,416 75,000 0 864,294 537,248 537,248 0 0 353,877 0.28 0.28 4.00 357 0 0 1,392,263 1,428,146 105,622 3,471 1,400,995 1,400,995 0 0
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