-----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, S5NgBIxKWP2GByt9W4CsVSs7kmI2tGkVVNMtjN6ii9QP7aMkmwLbFbB2a2iaAO8g APUZ8gbuxHOc9adxze5cJw== 0000927016-98-003982.txt : 19981113 0000927016-98-003982.hdr.sgml : 19981113 ACCESSION NUMBER: 0000927016-98-003982 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 19980930 FILED AS OF DATE: 19981112 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: 98745377 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 SEPTEMBER 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 November 10, 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 - September 30, 1998 and December 31, 1997..................................................... 1 Consolidated Statements of Income - Three months and nine months ended September 30, 1998 and 1997..................................... 2 Consolidated Statements of Stockholders' Equity - Nine months ended September 30, 1998 and year ended December 31, 1997................... 3 Consolidated Statements of Cash Flows - Nine months ended September 30, 1998 and 1997........................................... 4 Notes to Consolidated Financial Statements - September 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................................................. 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................................................. 13 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, 1998 1997 ------------- ------------ ASSETS (UNAUDITED) CASH AND DUE FROM BANKS...................................................... $ 3,148,558 $ 2,837,014 SECURITIES PURCHASED UNDER AGREEMENTS TO RESELL.............................. 6,499,038 3,878,000 LOANS HELD FOR SALE.......................................................... 120,000 380,000 INVESTMENT SECURITIES: Held-to-maturity (fair value: $10,536,440 and $12,462,016)................. 10,529,740 12,467,740 Available-for-sale (amortized cost: $33,019,614 and $26,403,000)........... 33,055,014 26,598,634 ------------ ------------ Total investment securities............................................ 43,584,754 39,066,374 ------------ ------------ FEDERAL HOME LOAN BANK STOCK................................................. 447,700 447,700 LOANS: Commercial................................................................. 11,903,732 6,418,373 Commercial real estate..................................................... 46,293,420 45,976,986 Residential real estate.................................................... 17,857,855 21,464,343 Home equity lines of credit................................................ 3,394,418 2,838,377 Consumer................................................................... 1,222,095 1,056,791 ------------ ------------ 80,671,520 77,754,870 Less - Unearned discount................................................... 100,364 75,107 Allowance for possible loan losses......................................... 1,322,938 1,596,613 ------------ ------------ Net loans.............................................................. 79,248,218 76,083,150 ------------ ------------ OTHER REAL ESTATE OWNED...................................................... 564,021 782,190 PREMISES AND EQUIPMENT, net.................................................. 2,350,824 2,458,550 OTHER ASSETS................................................................. 1,442,593 1,376,889 ------------ ------------ TOTAL ASSETS................................................................. $137,405,706 $127,309,867 ============ ============ LIABILITIES AND STOCKHOLDERS' EQUITY DEPOSITS: Demand...................................................................... $ 15,627,422 $ 13,198,956 Savings and money market accounts........................................... 22,078,958 23,371,357 Time deposits............................................................... 63,786,111 62,719,558 ------------ ------------ Total deposits.......................................................... 101,492,491 99,289,871 SECURITIES SOLD UNDER AGREEMENTS TO REPURCHASE............................... 12,201,610 10,105,000 FEDERAL HOME LOAN BANK ADVANCES.............................................. 5,121,336 -- ACCRUED EXPENSES AND OTHER LIABILITIES....................................... 1,189,656 1,255,823 SENIOR DEBENTURE............................................................. 2,953,850 2,946,540 ------------ ------------ TOTAL LIABILITIES............................................................ 122,958,943 113,597,234 ------------ ------------ 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........................................................... 8,813,062 7,982,792 Unrealized gain on securities available-for-sale, net of taxes.............. 21,240 117,380 ------------ ------------ 14,593,723 13,859,593 Less - Treasury stock, at cost, 66,800 shares............................... 146,960 146,960 ------------ ------------ TOTAL STOCKHOLDERS' EQUITY................................................... 14,446,763 13,712,633 ------------ ------------ TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY................................... $137,405,706 $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
NINE MONTHS ENDED THREE MONTHS ENDED SEPTEMBER 30, SEPTEMBER 30, ---------------------- ---------------------- 1998 1997 1998 1997 ---------- ---------- ---------- ---------- (UNAUDITED) INTEREST INCOME: Interest and fees on loans........................................ $5,790,886 $5,468,231 $1,979,698 $1,855,252 Interest on investment securities- U.S. Government and agency obligations........................ 1,404,151 1,154,391 495,037 375,076 Collateralized mortgage obligations........................... 30,396 77,953 14,720 20,581 Mortgage backed securities.................................... 417,021 578,640 143,598 181,441 Marketable equity securities and other........................ 53,155 25,989 15,872 9,860 Interest on cash equivalents...................................... 172,366 107,889 39,888 38,271 ---------- ---------- ---------- ---------- Total interest income......................................... 7,867,975 7,413,093 2,688,813 2,480,481 ---------- ---------- ---------- ---------- INTEREST EXPENSE: Interest on deposits.............................................. 3,089,046 2,861,917 1,018,466 974,224 Interest on repurchase agreements................................. 551,110 488,416 197,762 163,154 Interest on advances.............................................. 82,484 -- 43,217 -- Interest on debenture............................................. 193,184 201,926 64,037 70,137 ---------- ---------- ---------- ---------- Total interest expense......................................... 3,915,824 3,552,259 1,323,482 1,207,515 Net interest income............................................ ---------- ---------- ---------- ---------- 3,952,151 3,860,834 1,365,331 1,272,966 PROVISION FOR POSSIBLE LOAN LOSSES................................. 200,000 200,000 75,000 50,000 ---------- ---------- ---------- ---------- Net interest income after provision for possible loan losses................................................... 3,752,151 3,660,834 1,290,331 1,222,966 ---------- ---------- ---------- ---------- NONINTEREST INCOME: Service charges on deposits....................................... 211,206 236,719 72,252 76,335 Gain on sale of securities........................................ -- -- -- -- Gain on loan sales................................................ 115,572 15,823 43,735 -- Other............................................................. 134,265 83,626 37,047 22,955 ---------- ---------- ---------- ---------- Total noninterest income....................................... 461,043 336,168 153,034 99,290 ---------- ---------- ---------- ---------- NONINTEREST EXPENSE: Salaries and employee benefits................................... 1,337,968 1,350,268 444,316 471,906 Occupancy expense................................................ 299,978 280,439 101,193 95,332 Equipment expense................................................ 200,468 156,485 68,320 57,066 Other real estate owned net losses and expenses.................. 45,285 28,873 10,672 4,829 Computer services................................................ 158,191 124,796 56,263 40,626 Deposit insurance assessments.................................... 8,962 8,250 2,962 3,380 Other operating expenses......................................... 525,803 527,370 188,348 173,162 ---------- ---------- ---------- ---------- Total noninterest expense...................................... 2,576,655 2,476,481 872,074 846,301 ---------- ---------- ---------- ---------- Income before provision for income taxes....................... 1,636,539 1,520,521 571,291 475,955 PROVISION FOR INCOME TAXES......................................... 579,246 550,645 204,693 172,742 ---------- ---------- ---------- ---------- NET INCOME......................................................... $1,057,293 $ 969,876 $ 366,598 $ 303,213 ========== ========== ========== ========== Earnings per share: Basic.......................................................... $0.84 $0.77 $0.29 $0.24 ========== ========== ========== ========== Diluted........................................................ $0.84 $0.77 $0.29 $0.24 ========== ========== ========== ========== 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 COMMON RETAINED FOR SALE, STOCK SURPLUS EARNINGS NET OF ---------- --------- ---------- ---------- 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 ($.20 per share)............................... -- -- (252,249) -- ---------- ---------- ---------- ---------- Balance, December 31, 1997.............. 1,328,041 4,431,380 7,982,792 117,380 Net income.............................. -- -- 1,057,293 -- Change in net unrealized gain on securities available-for-sale..... -- -- -- (96,140) Comprehensive income.................... -- -- -- -- Dividends declared ($.18 per share................................ -- -- (227,023) -- ---------- ---------- ---------- ---------- Balance, September 30, 1998............. $1,328,041 $4,431,380 $8,813,062 $ 21,240 ========== ========== ========== ==========
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.............................. -- 1,057,293 $ 1,057,293 Change in net unrealized gain on securities available-for-sale..... -- (96,140) (96,140) ----------- Comprehensive income.................... -- -- $ 961,153 =========== Dividends declared ($.18 per share............................... -- (227,023) ----------- ----------- Balance, September 30, 1998............. $ (146,960) $14,446,763 =========== ===========
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, ------------------------------- 1998 1997 --------------- -------------- (UNAUDITED) CASH FLOWS FROM OPERATING ACTIVITIES: Net income............................................................................. $ 1,057,293 $ 969,876 Adjustments to reconcile net income to net cash provided by operating activities: Provision for possible loan losses.................................................... 200,000 200,000 Depreciation and amortization......................................................... 213,827 168,275 Amortization of discount on debenture................................................. 154,487 151,598 Net accretion on investment securities held-to-maturity............................... (4,285) (8,750) Net accretion on investment securities available-for-sale............................. (183,404) (60,194) Losses (gains) on sale of OREO........................................................ 18,952 (2,017) Gains on sales of loans............................................................... (115,572) (15,823) Proceeds from sales of loans.......................................................... 2,261,042 557,480 Loans originated for sale............................................................. (1,835,421) (368,695) Net increase in unearned discount..................................................... 25,257 3,853 Net (increase) in other assets........................................................ (65,704) (13,370) Net (decrease) increase in deferred loan fees......................................... (21,366) 38,291 Net (decrease) in accrued expenses and other liabilities.............................. (211,910) (244,959) ------------ ------------ Net cash provided by operating activities.......................................... 1,493,196 1,375,565 ------------ ------------ CASH FLOWS FROM INVESTING ACTIVITIES: Purchase of Federal Home Loan Bank stock................................................ -- (99,600) Proceeds from maturities of investment securities held-to-maturity...................... 12,602,696 7,885,101 Proceeds from maturities of investment securities available-for-sale.................... 88,517,783 (18,130,071) Purchase of investment securities held-to-maturity...................................... (10,660,411) (3,500,000) Purchase of investment securities available-for-sale.................................... (94,950,993) 17,671,170 Net increase in loans................................................................... (3,513,959) (5,612,579) Purchase of premises and equipment...................................................... (106,101) (959,569) Sales of OREO........................................................................... 344,217 304,448 ------------ ------------ Net cash used in investing activities............................................... (7,766,768) (2,441,100) ------------ ------------ CASH FLOWS FROM FINANCING ACTIVITIES: Net increase in demand accounts........................................................ 2,428,466 1,504,916 Net (decrease) in savings and money market accounts..................................... (1,292,399) (740,292) Net increase in time deposits........................................................... 1,066,553 3,409,218 Net increase (decrease) in reverse repurchase agreements................................ 2,096,610 (223,000) Net increase in Federal Home Loan Bank advances......................................... 5,121,336 -- Dividends paid.......................................................................... (214,412) (163,961) ------------ ------------ Net cash provided by financing activities........................................... 9,206,154 3,786,881 ------------ ------------ NET INCREASE IN CASH AND CASH EQUIVALENTS................................................ 2,932,582 2,721,346 CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD........................................... 6,715,014 4,364,713 ------------ ------------ CASH AND CASH EQUIVALENTS, END OF PERIOD................................................ $ 9,647,596 $ 7,086,059 ============ ============ SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION: Interest paid........................................................................... $ 3,922,304 $ 3,474,859 ============ ============ Income taxes paid....................................................................... $ 872,000 $ 652,242 ============ ============ SUPPLEMENTAL DISCLOSURE OF NONCASH TRANSACTIONS: Transfer of loans to OREO............................................................... $ 145,000 $ 326,002 ============ ============
The accompanying notes are an integral part of these consolidated financial statements. 4 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS FOR THE PERIOD ENDED SEPTEMBER 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 nine months ended September 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 August 17, 1998 the Company declared dividends of $75,675 or $.06 per share to all common stockholders of record on September 15, 1998, payable on October 1, 1998. (3) RECENT DEVELOPMENTS On October 13, 1998, First Financial Corp. ("Company") issued to the Board of Directors of Mayflower Co-operative Bank ("Mayflower"), Middleboro, Massachusetts, an expression of interest to acquire Mayflower. The proposed acquisition would require the exchange of each share of Mayflower common stock outstanding for nearly 1.7 shares of the Company's common stock. On October 29, 1998, the Company received a written rejection of its proposal from the Mayflower Board of Directors. 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 nine months ended September 30, 1998 and 1997.
NINE MONTHS ENDED THREE MONTHS ENDED SEPTEMBER 30, SEPTEMBER 30, ----------------------- -------------------- 1998 1997 1998 1997 --------- -------- -------- -------- Net income $1,057,293 $ 969,876 $ 366,598 $303,213 Change in net unrealized gain (loss) on securities available-for-sale (96,140) 76,444 (100,786) 54,852 ---------- ---------- --------- -------- Comprehensive income $ 961,153 $1,046,320 $ 265,812 $358,065 ========== ========== ========= ========
5 ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS GENERAL - -------- First Financial Corp. 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 September 30, 1998, the Company reported net income of $366,598 compared to net income of $303,213 for the three months ended September 30, 1997, or an increase of 20.9%. Basic and diluted net income per share were $.29 for the quarter ended September 30, 1998, compared to $.24 per share for the same three month period of the prior year. Net income for the nine months ended September 30, 1998, amounted to $1,057,293 compared to net income of $969,876 for the nine months ended September 30, 1997. Basic and diluted net income per share for the nine months ended September 30, 1998, were $.84 compared to $.77 per share for the nine months ended September 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 $10,095,839 or 7.9% to $137,405,706 at September 30, 1998 from $127,309,867 at December 31, 1997. The loan portfolio, net of unearned discount, increased $2,891,393 or 3.7% to $80,571,156 at September 30, 1998 6 from $77,679,763 at December 31, 1997. Investment securities increased $4,518,380 to $43,584,754 at September 30, 1998 from $39,066,374 at December 31, 1997, and cash and cash equivalents also increased $2,932,582 to $9,647,596 at September 30, 1998 from $6,715,014 at December 31, 1997. The increase in the Company's total assets was funded primarily from, (i) a $2,096,610 increase in securities sold under agreements to repurchase to $12,201,610 at September 30, 1998 from $10,105,000 at December 31, 1997; (ii) a $5,121,336 increase in Federal Home Loan Bank advances and; (iii) an increase in deposits of $2,202,620 to $101,492,491 at September 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 NINE MONTHS ENDED YEAR ENDED SEPTEMBER 30, DECEMBER 31, ----------------- ----------------- 1998 1997 1997 -------- -------- -------- (DOLLARS IN THOUSANDS) Nonperforming loans................................... $ 102 $ 162 $ 17 Other real estate owned............................... $ 564 $ 702 $ 782 Total nonperforming assets............................ $ 666 $ 864 $ 799 Loans 30-89 days delinquent........................... $ 269 $ 794 $ 490 Nonperforming assets to total assets.................. 0.48% 0.71% 0.65% Nonperforming loans to total loans.................... 0.13% 0.22% 0.02% Net loan charge-offs to average loans................. 0.11% 0.21% 0.34% Allowance for possible loan losses to total loans..... 1.70% 1.72% 1.64% Allowance for possible loan losses to nonperforming loans (multiple)................... 13.03X 7.77X 73.33X
The following represents the activity in the allowance for possible loan losses for the three months and nine months ended September 30, 1998 and 1997:
NINE MONTHS ENDED THREE MONTHS ENDED SEPTEMBER 30, SEPTEMBER 30, ------------------------------- ---------------------------- 1998 1997 1998 1997 ----------- ------------------ ----------- --------------- Bank Reserve: Balance at beginning of period............................ $1,208,322 $1,199,617 $1,291,097 $1,345,477 Provision................................................ 200,000 200,000 75,000 50,000 Loan charge-offs......................................... (96,214) (168,770) (44,991) (141,941) Recoveries............................................... 10,830 23,681 1,832 992 ---------- ---------- ---------- ---------- Balance at end of period.................................. 1,322,938 1,254,528 1,322,938 1,254,528 ---------- ---------- ---------- ---------- Acquired Reserve: Balance at beginning of period............................ 388,291 742,840 109,898 568,542 Loan charge-offs......................................... (460,093) (169,695) (187,905) -- Recoveries (Administrative Costs)........................ (12,072) (10,978) (5,867) (6,375) Reclassification to Senior Debenture..................... 83,874 -- 83,874 -- ---------- ---------- ---------- ---------- Balance at end of period.................................. -0- 562,167 -0- 562,167 ---------- ---------- ---------- ---------- Total Reserve............................................. $1,322,938 $1,816,695 $1,322,938 $1,816,695 ========== ========== ========== ==========
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, as was the case during the third quarter of 1998, additional loan charge-offs reduce the amount owed on the debenture issued to DEPCO in connection with the acquisition. At September 30, 1998, the remaining balance of acquired loans was $2,703,236. DEPOSITS AND OTHER BORROWINGS - ----------------------------- Total deposits increased $2,202,620 during the nine months ended September 30, 1998, from $99,289,871 at December 31, 1997, to $101,492,491 at September 30, 1998. During the nine months ended September 30, 1998, savings and money market deposits decreased $1,292,399 while demand and time deposits increased $3,495,019. 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 $2,096,610 during the nine months ended September 30, 1998 to $12,201,610 from $10,105,000 at December 31, 1997. This increase is attributable to a single municipal customer and is considered volatile. During the nine months ended September 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 as well as refinance a maturing reverse repurchase agreement at more favorable terms. At September 30, 1998, outstanding advances were $5,121,336. 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 $3,952,151 for the nine months ended September 30, 1998, compared to $3,860,834 for the nine months ended September 30, 1997. The increase in 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.
NINE MONTHS ENDED SEPTEMBER 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............................................. $ 79,698 $ 5,791 9.69% $ 74,969 $5,468 9.72% Investment securities taxable - AFS............... 31,598 1,356 5.72 26,544 1,284 6.45 Investment securities taxable - HTM............... 11,790 519 5.87 12,136 531 5.83 Securities purchased under agreements to resell......................................... 4,674 172 4.91 2,896 108 4.97 Federal Home Loan Bank Stock and other 673 30 5.94 540 22 5.43 TOTAL INTEREST-EARNING ASSETS........................ -------- -------- -------- -------- ------ ---- 128,433 7,868 8.17 117,085 7,413 8.44 -------- -------- ------ ---- NONINTEREST-EARNING ASSETS: Cash and due from banks.......................... 2,244 2,164 Premises and equipment........................... 2,425 2,040 Other real estate owned.......................... 628 698 Allowance for possible loan losses............... (1,449) (1,954) Other assets..................................... 1,407 1,326 -------- -------- TOTAL NONINTEREST-EARNING ASSETS..................... 5, 255 4,274 -------- -------- TOTAL ASSETS......................................... $133,688 $121,359 ======== ======== INTEREST - BEARING LIABILITIES: Deposits: Interest bearing demand and NOW deposits................................ $ 3,631 53 1.95% $ 3,196 47 1.96% Savings deposits........................ 16,855 332 2.63 17,924 352 2.62 Money market deposits................... 1,236 22 2.37 1,427 26 2.43 Time deposits........................... 64,955 2,682 5.51 59,132 2,437 5.50 Securities sold under agreements to repurchase............................... 13,338 551 5.51 10,714 488 6.07 Federal Home Loan Bank Advances................. 1,771 83 6.25 -- -- -- Senior debenture................................ 2,988 193 8.61 2,936 202 9.17 -------- -------- -------- -------- ------ ---- TOTAL INTEREST-BEARING LIABILITIES................... 104,774 3,916 4.98 95,329 3,552 4.97 -------- -------- ------ ---- NONINTEREST-BEARING LIABILITIES: Noninterest-bearing deposits..................... 13,571 11,924 Other liabilities................................ 1,266 1,148 -------- -------- TOTAL NONINTEREST-BEARING LIABILITIES................ 14,837 13,072 STOCKHOLDERS' EQUITY................................. 14,077 12,958 -------- -------- TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY........... $133,688 $121,359 ======== ======== NET INTEREST INCOME.................................. $ 3,952 $3,861 ======== ====== NET INTEREST SPREAD.................................. 3.19% 3.47% ======== ====== NET INTEREST MARGIN.................................. 4.10% 4.40% ======== ======
9 Total interest income for the three months ended September 30, 1998 was $2,688,813, compared to $2,480,481 for the same three month period of the prior year. This increase of $208,332 was primarily the result of a $13.6 million increase in quarterly average interest-earning assets, offset by a 24 basis point reduction in yield to 8.22% from 8.46%. The increase in earning assets was disproportionate in that quarterly average loans as a percentage of quarterly average earning assets decreased to 62.0% for the three months ended September 30, 1998, compared to 65.1% for the three months ended September 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 nine months ended September 30, 1998, was $7,867,975, compared to $7,413,093 for the nine months ended September 30, 1997. Despite a $11.3 million increase in average earning assets, the interest-earning asset yield declined 27 basis points to 8.17% from 8.44%. 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 nine months ended September 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 September 30, 1998 was $1,323,482, compared to $1,207,515 for the same period of the prior year. This increase of $115,967 or 9.6% was primarily the result of a $10.9 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 $4.8 million. For the nine months ended September 30, 1998, total interest expense was $3,915,824 as compared to $3,552,259 for the same nine month period of 1997. This increase was the result of an $9.4 million increase in interest-bearing liabilities along with a basis point increase in cost of funds to 4.98% from 4.97%. 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 - ---------------------------------- During the third quarter of 1998, the Company provided $75,000 for possible loan losses compared to $50,000 during the third quarter of 1997. This increased provision was not an indication of a deterioration of asset quality, but rather an accommodation to loan portfolio growth. At September 30, 1998, nonperforming loans were down $60,000 to $102,000 and delinquencies were down $525,000 to $269,000, compared to September 30, 1997. The allowance for possible loan losses as a percent of total loans was 1.70% and 1.72% at September 30, 1998 and 1997, respectively. The provision for possible loan losses amounted to $200,000 for the nine months ended September 30, 1998 and 1997. NONINTEREST INCOME - ------------------ Total noninterest income increased $53,744 to $153,034 for the three months ended September 30, 1998, from $99,290 for the three months ended September 30, 1997. For the nine months ended September 30, 1998, noninterest income increased $124,875 to $461,043 from $336,168 for the nine months ended Setpember 30, 1997. For both the three month and nine 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 $872,074 and $846,301 for the three months ended September 30, 1998 and 1997, respectively. The increase of $25,773 or 3.0% was primarily the result of 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 $100,174 or 4.0% to $2,576,655 for the nine months ended September 30, 1998, from $2,476,481 for the nine months ended September 30, 1997. This increase was largely due to operating the North Kingstown branch which opened in June 1997; technology- related costs and charges; offset by savings 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 September 30, 1998, were $204,693 or 35.8% of pretax income, compared to $172,742 or 36.3% of pretax income for the three months ended September 30, 1997. For the nine months ended September 30, 1998 and 1997, income taxes were $579,246 and $550,645, respectively, or 35.4% 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 September 30, 1998:
REGULATORY MINIMUM (2) ACTUAL ----------- ------- The Company (1) Risk-based: Tier 1........................ 4.00% 18.44% Totals........................ 8.00 19.69 Leverage........................ 3.00 10.60 The Bank Risk-based: Tier 1......................... 4.00% 17.71% Totals....................... 8.00 18.97 Leverage......................... 3.00 10.33
(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 September 30, 1998, the Company's one year static gap position was a negative $13,250,000 or 9.6% 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 September 30, 1998, the Company's earnings-at-risk under a (plus or minus)200 basis point interest rate shock test measured a negative 2.3% in a worst case scenario. Under a similar test, the Company's equity-at-risk measured a negative 10.26% of market value of equity at September 30, 1998. At September 30, 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 September 30, 1998, the Company had $42,702,610 or 31.8% 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 $3,832,664 at September 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. In confronting the Year 2000 problem, the Company faces potential risks to its and the Bank's operations. As stated above, the Company purchases substantially all of its software from third parties who face the same Year 2000 challenge as the Company. In addition, the Company relies almost exclusively on other companies for the functioning of its automated system. Thus, the Company's operations could be adversely affected if the operations of these third parties are adversely affected by the Year 2000 problem. Most importantly, the Company faces risks that all banking institutions, whether large or small, also face. Included among these risks is the risk that the Year 2000 date change may result in the inability to process and underwrite loan applications, to credit deposits and withdrawals from customer accounts, to credit loan payments or track delinquencies, to properly reconcile and record daily activity or to engage in similar normal banking activities. Additionally, if those commercial loan customers of the Bank whose operations depend heavily on computers and computer software experience Year 2000 compliance problems and suffer adverse effects with respect to their own operations, their ability to meet their obligations to the Bank could be adversely affected. This could force the Bank to increase its provision for loan losses or take more aggressive collection actions, potentially impacting the Company's earnings. Furthermore, the Bank faces the risk that in light of potential uncertainty as to the availability of their funds after the date change and a decrease in interest rates, the Bank's deposit customers could withdraw their funds, causing the Bank to experience deposit run-off prior to the Year 2000 date change. This potential deposit contraction could make it necessary for the Company to change its sources of funding which could materially affect the Company's earnings. Moreover, to the extent that the risks posed by the Year 2000 problem are pervasive in data processing and transmission and communications services worldwide, the Company cannot predict with any certainty that its operations will remain materially unaffected after January 1, 2000 or on dates preceding this date at which time post-January 1, 2000 dates become significant within the Bank's systems. Finally, to the extent that certain utility and communication services utilized by the Company face Year 2000 problems, the Company's operations could be disrupted. 12 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. The contingency plan calls for a conversion to another core system provider in the event of a system failure during the remediation effort. If the failure occurs on or after January 1, 2000, the Company will convert to a manual system until the computerized system is remedied. The Company believes that a major system failure is highly unlikely, but limited exceptions across its core applications may occur. 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. The discussion above contains certain forward-looking statements. The costs of the Year 2000 conversion, the date which the Company has set to complete its Year 2000 project and statements about anticipated compliance are based on the Company's current estimates and are subject to various uncertainties that could cause actual results to differ materially from the Company's expectations. Such uncertainties include, among others, the success of the Company in identifying systems that are not Year 2000 compliant, the nature and amount of programming required to upgrade or replace each of the affected systems, the availability of qualified personnel, consultants and other resources, and the success of the year 2000 compliance efforts of others. Readers are cautioned not to place undue reliance on these forward looking statements. 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 ITEM 5 - OTHER INFORMATION Not Applicable 13 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. November 10, 1998 /s/ Patrick J. Shanahan, Jr. - ----------------- -------------------------------- Date Patrick J. Shanahan, Jr. Chairman, President and Chief Executive Officer November 10, 1998 /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, ------------------------ ---------------------- 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 $1,057,293 $ 969,876 $ 366,598 $ 303,213 ========== ========== ========== ========== Earnings per share: Basic $ 0.84 $ 0.77 $ 0.29 $ 0.24 ========== ========== ========== ========== Diluted $ 0.84 $ 0.77 $ 0.29 $ 0.24 ========== ========== ========== ==========
EX-27 3 FINANCIAL DATA SCHEDULE
9 3-MOS DEC-31-1998 JUL-01-1998 SEP-30-1998 3,148,558 0 6,499,038 0 33,055,014 10,529,740 10,536,440 80,571,156 1,322,938 137,405,706 101,492,491 12,201,610 1,189,656 8,075,186 0 0 1,328,041 13,118,722 137,405,706 1,979,698 709,115 0 2,688,813 1,018,466 1,323,482 1,365,331 75,000 0 872,074 571,291 571,291 0 0 366,598 .29 .29 4.17 101,493 0 0 1,483,894 1,400,995 149,022 (4,032) 1,322,938 1,322,938 0 0
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