SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the Quarterly period ended June 30, 1995
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
Commission File Number: 0-17122
FIRST FINANCIAL HOLDINGS, INC.
(Exact name of registrant as specified in its charter)
Delaware 57-0866076
(State or other jurisdiction of incorporation (I.R.S. Employer
or organization) Identification No.)
34 Broad Street, Charleston, South Carolina 29401
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (803) 529-5800
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act
of 1934 during the preceding 12 months (or for such shorter period that
the registrant was required to file such reports), and (2) has been subject
to such filing requirements for the past 90 days. YES X NO
APPLICABLE ONLY TO CORPORATE ISSUERS: Indicate the number of shares
outstanding of each of the issuer's classes of common stock, as of the latest
practicable date.
Class Outstanding Shares at
Common Stock August 11, 1995
$.01 Par Value 6,302,643
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FIRST FINANCIAL HOLDINGS, INC.
INDEX
PART I - FINANCIAL INFORMATION PAGE NO.
Consolidated Statements of Financial Condition
at June 30, 1995 and September 30, 1994 1
Consolidated Statements of Income for the Three
Months Ended June 30, 1995 and 1994 2
Consolidated Statements of Income for the Nine
Months Ended June 30, 1995 and 1994 3
Consolidated Statements of Cash Flows for the
Nine Months Ended June 30, 1995 and 1994 4
Notes to Financial Statements 5-9
Management's Discussion and Analysis of Results
of Operations and Financial Condition 10-32
PART II - OTHER INFORMATION 33
SIGNATURES 34
EXHIBITS 35
SCHEDULES OMITTED
All schedules other than those indicated above are omitted
because of the absence of the conditions under which they are
required or because the information is included in the Financial
Statements and related notes.
<PAGE>
<TABLE>
<CAPTION>
FIRST FINANCIAL HOLDINGS, INC.
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
June 30, September 30,
1995 1994
(Amounts in thousands)
(Unaudited)
<S> <C> <C>
ASSETS
Cash and cash equivalents $ 31,463 $ 23,568
Investments held to maturity (market value of $70,676 and $66,974) 70,233 67,997
Investments available for sale, at fair value 37,504 37,897
Investment in capital stock of Federal Home Loan Bank, at cost 11,982 11,982
Loans receivable, net 1,033,735 960,532
Mortgage-backed securities held to maturity (market value of $20,852
and $22,291) 20,217 22,483
Mortgage-backed securities available for sale, at fair value 85,929 83,137
Accrued interest receivable 8,890 7,862
Office properties and equipment, net 15,079 14,229
Real estate and other assets acquired in settlement of loans 5,092 6,124
Other assets 8,176 8,459
Total assets $1,328,300 $1,244,270
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Deposit accounts $1,065,441 $1,062,995
Advances from Federal Home Loan Bank 87,407 46,406
Securities sold under agreements to repurchase 42,133 13,098
Long-term debt 19,763 19,763
Advances by borrowers for taxes and insurance 5,411 5,864
Outstanding checks 8,498 6,080
Other 10,320 7,392
Total liabilities 1,238,973 1,161,598
Stockholders' equity:
Serial preferred stock, authorized 3,000,000 shares--
none issued
Common stock, $.01 par value, authorized 12,000,000 shares,
issued and outstanding 6,881,102 and 6,822,574 shares at
June 30, 1995 and September 30, 1994, respectively 69 68
Additional paid-in capital 23,736 23,237
Retained income, substantially restricted 71,071 67,098
Unrealized net loss on securities available for sale,
net of income tax (374) (2,872)
Treasury stock at cost, 578,534 and 558,214 shares at
June 30, 1995 and September 30, 1994, respectively (5,175) (4,859)
Total stockholders' equity 89,327 82,672
Total liabilities and stockholders' equity $1,328,300 $1,244,270
The accompanying notes are an integral part of the statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
FIRST FINANCIAL HOLDINGS, INC.
CONSOLIDATED STATEMENTS OF INCOME
Three Months Ended
June 30,
1995 1994
(Amounts in thousands,
except per share amounts)
(Unaudited)
<S> <C> <C>
INTEREST INCOME
Interest on loans and mortgage-backed securities $ 22,346 $19,509
Interest and dividends on investments 1,341 979
Other 688 593
Total interest income 24,375 21,081
INTEREST EXPENSE
Interest on deposits 12,378 9,747
Interest on borrowed money 2,303 1,142
Total interest expense 14,681 10,889
NET INTEREST INCOME 9,694 10,192
Provision for loan losses 47 255
Net interest income after provision for loan losses 9,647 9,937
OTHER INCOME
Net gain (loss) on sale of loans -- (143)
Gain on trading securities -- 1,059
Loan servicing fees 287 339
Service charges and fees on deposit accounts 1,011 897
Real estate operations, net (26) (54)
Other 893 717
Total other income 2,165 2,815
GENERAL AND ADMINISTRATIVE EXPENSES
Salaries and employee benefits 4,382 4,201
Occupancy costs 761 723
Marketing 249 351
Depreciation, amortization, rental and maintenance of equipment 607 556
FDIC insurance premiums 637 624
Other 1,685 1,712
Total general and administrative expenses 8,321 8,167
Income before income taxes 3,491 4,585
Income tax expense 1,207 1,009
NET INCOME $ 2,284 $ 3,576
NET INCOME PER COMMON SHARE $ .36 $ .56
Cash dividends $ .14 $ .12
Weighted average shares outstanding 6,292 6,357
The accompanying notes are an integral part of the statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
FIRST FINANCIAL HOLDINGS, INC.
CONSOLIDATED STATEMENTS OF INCOME
Nine Months Ended
June 30,
1995 1994
(Amounts in thousands,
except per share amounts)
(Unaudited)
<S> <C> <C>
INTEREST INCOME
Interest on loans and mortgage-backed securities $64,209 $59,619
Interest and dividends on investments 4,019 2,774
Other 1,729 1,741
Total interest income 69,957 64,134
INTEREST EXPENSE
Interest on deposits 34,886 29,272
Interest on borrowed money 5,600 3,946
Total interest expense 40,486 33,218
NET INTEREST INCOME 29,471 30,916
Provision for loan losses 180 958
Net interest income after provision for loan losses 29,291 29,958
OTHER INCOME
Net gain (loss) on sale of loans 1 (57)
Gain on trading securities -- 1,059
Loan servicing fees 930 1,049
Service charges and fees on deposit accounts 2,912 2,587
Real estate operations, net (189) (266)
Other 2,486 2,389
Total other income 6,140 6,761
GENERAL AND ADMINISTRATIVE EXPENSES
Salaries and employee benefits 13,152 12,334
Occupancy costs 2,234 2,038
Marketing 793 868
Depreciation, amortization, rental and maintenance of equipment 1,792 1,663
FDIC insurance premiums 1,894 1,939
Other 5,189 5,347
Total general and administrative expenses 25,054 24,189
Income before income taxes 10,377 12,530
Income tax expense 3,765 3,166
NET INCOME $6,612 $ 9,364
NET INCOME PER COMMON SHARE $ 1.05 $ 1.46
Cash dividends $ .42 $ .36
Weighted average shares outstanding 6,280 6,396
The accompanying notes are an integral part of the statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
FIRST FINANCIAL HOLDINGS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
Nine Months Ended
June 30,
1995 1994
(Amounts in thousands)
(Unaudited)
<S> <C> <C>
OPERATING ACTIVITIES
Net income $ 6,612 $ 9,364
Adjustments to reconcile net income to net
cash provided by operating activities
Depreciation 1,328 1,173
(Gain) loss on sale of loans, net (1) 57
Gain on sale of investments, net (48) -
Gain on trading securities - (1,059)
Loss on sale of property and equipment, net 14 14
Gain on sale of real estate owned, net (112) (233)
Amortization of unearned discounts/premiums on investments (63) (11)
Decrease in deferred loan fees and discounts (218) (772)
Increase in receivables and prepaid expenses (745) (1,694)
Provision for loan losses 180 958
Write downs of real estate acquired in settlement of loans 148 356
FHLB stock dividends - (298)
Proceeds from sales of loans held for sale 677 74,998
Origination of loans held for sale - (78,204)
Increase (decrease) in accounts payable and accrued expenses 4,059 (819)
Amortization of purchase accounting adjustments 196 (66)
Net cash provided by operating activities 12,027 3,764
INVESTING ACTIVITIES
Proceeds from maturity of investments held to maturity 10,100 15,399
Proceeds from maturity of investments available for sale - 2,502
Proceeds, at par, of redemption of mutual funds available for sale - 5,000
Principal collected on investments 1,671 263
Proceeds from sales of investments held to maturity 3,999 -
Proceeds from sales of investments available for sale 7,303 1,999
Purchases of investments held to maturity (18,014) (24,839)
Purchases of investments available for sale (6,201) (10,059)
Purchases of mutual funds available for sale - (4,000)
(Increase) decrease in loans, net (71,989) 13,078
Net increase in credit card receivables (885) (528)
Purchase of loans (2,260) -
Repayment on mortgage-backed securities 8,097 41,530
Purchases of mortgage-backed securities available for sale (5,744) (25,221)
Proceeds from the sales of real estate owned 2,359 3,679
Net purchase of office properties and equipment (2,192) (631)
Net cash provided by investing activities (73,756) 18,172
FINANCING ACTIVITIES
Net increase (decrease) in deposit accounts 2,497 (6,747)
Proceeds from FHLB advances 205,500 26,000
Repayment of FHLB advances (164,500) (53,000)
Net purchase of securities sold under agreements to repurchase 29,035 3,391
Decrease in funds held for others (453) (1,032)
Proceeds from sale of common stock 500 178
Dividends paid (2,639) (2,307)
Treasury stock purchased (316) (1,531)
Net cash used in financing activities 69,624 (35,048)
Net increase (decrease) in cash and cash equivalents 7,895 (13,112)
Cash and cash equivalents at beginning of period 23,568 48,140
Cash and cash equivalents at end of period $31,463 $ 35,028
Supplemental disclosures:
Cash paid during the period for:
Interest $40,483 $ 34,288
Income taxes 2,883 4,449
Loans foreclosed or insubstance foreclosed 2,389 3,883
Loans securitized into mortgage-backed securities - -
Change in net urealized holding gain on trading securities - 1,177
Increase (decrease) in unrealized net gain (loss) on
securities available for sale, net of income tax 2,498 (3,475)
The accompanying notes are an integral part of the statements.
</TABLE>
<PAGE>
FIRST FINANCIAL HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 1 - Summary of Significant Accounting Policies
Consolidation
The unaudited consolidated financial statements include the
accounts of First Financial Holdings, Inc. ("the Company") and
its wholly-owned subsidiaries, First Federal Savings and Loan
Association of Charleston and Peoples Federal Savings and Loan
Association of Conway and all of their subsidiaries. All
significant intercompany items related to the consolidated
subsidiaries have been eliminated.
Earnings per Share
Earnings per share are computed by dividing earnings by the
weighted average number of shares outstanding during the period.
The weighted average shares outstanding amounted to 6,292,282 for
the quarter ended June 30, 1995 as compared to 6,357,341 for the
quarter ended June 30, 1994. The weighted average shares
outstanding amounted to 6,280,039 for the nine months ended
June 30, 1995 as compared to 6,396,497 for the nine months ended
June 30, 1994.
Cash and Cash Equivalents
For purposes of reporting cash flows, cash and cash
equivalents include cash on hand, amounts due from banks and all
investments payable on demand or with original terms of three
months or less.
Investments in Debt Securities
The Company's investments in debt securities principally
consist of U.S. Treasury securities and mortgage-backed
securities purchased by the Company or created when the Company
exchanges pools of loans for mortgage-backed securities. The
Company adopted Statement of Financial Accounting Standards
("SFAS") 115 as of September 30, 1993. In accordance with SFAS
115, the Company classifies its investments in debt securities as
held to maturity securities, trading securities and available for
sale securities as applicable.
Securities are designated as held to maturity if the Company
has the positive intent and the ability to hold the securities to
maturity. Held to maturity securities are carried at amortized
cost, adjusted for the amortization of any related premiums or
the accretion of any related discounts into interest income using
a methodology which approximates a level yield of interest over
the estimated remaining period until maturity. Unrealized losses
on held to maturity securities, reflecting a decline in value
judged by the Company to be other than temporary, are charged to
income.
Debt and equity securities that are bought and held
principally for the purpose of selling in the near term are
reported as trading securities. Trading securities are carried
at fair value with unrealized holding gains and losses included
in earnings.
The Company classifies securities as available for sale when
at the time of purchase it determines that such securities may be
sold at a future date or if the Company does not have the intent
or ability to hold such securities to maturity.
Securities designated as available for sale are recorded at
market value. Changes in the market value of debt securities
available for sale are included in shareholders' equity as
unrealized holding gains or losses net of the related tax effect.
Unrealized losses on available for sale securities, reflecting a
decline in value judged to be other than temporary, are charged
to income in the Consolidated Statements of Income. Realized
gains or losses on available for sale securities are computed on
the specific identification basis.
Securities Sold Under Agreements to Repurchase
The Company enters into sales of securities under agreements
to repurchase (reverse repurchase agreements). Fixed coupon
reverse repurchase agreements are treated as financings and the
obligations to repurchase securities sold are reflected as a
liability in the Consolidated Statements of Financial Condition.
The securities underlying the agreements remain in the asset
accounts.
Allowance for Possible Loan Losses
The Company provides for loan losses on the allowance method.
Accordingly, all loan losses are charged to related allowances
and all recoveries are credited to the allowances. Additions to
the allowance for loan losses are provided by charges to
operations based on various factors which, in management's
judgment, deserve current recognition in estimating losses. Such
factors considered by management include the fair value of the
underlying collateral, growth and composition of the loan
portfolios, the relationship of the allowance for loan losses to
outstanding loans, loss experience, delinquency trends, and
economic conditions. Management evaluates the carrying value of
loans periodically and the allowances are adjusted accordingly.
While management uses the best information available to make
evaluations, future adjustments to the allowances may be
necessary if economic conditions differ substantially from the
assumptions used in making the evaluations. Allowances for loan
losses are subject to periodic evaluation by various regulatory
authorities and may be subject to adjustment upon their
examination.
Office Properties and Equipment
Office properties and equipment are stated at cost less
accumulated depreciation and amortization. Depreciation is
provided generally on the straight-line method over the estimated
life of the related asset for financial reporting purposes.
Estimated lives range up to thirty years for buildings and
improvements and up to ten years for furniture, fixtures and
equipment. Maintenance and repairs are charged to expense as
incurred. Improvements which extend the useful lives of the
respective assets are capitalized. Accelerated depreciation is
utilized on certain assets for income tax purposes.
Real Estate
Real estate acquired through foreclosure is initially
recorded at the lower of cost or estimated fair value.
Subsequent to the date of acquisition, it is carried at the lower
of cost or fair value, adjusted for net selling costs. Fair
values of real estate owned are reviewed regularly and writedowns
are recorded when it is determined that the carrying value of
real estate exceeds the fair value. Costs relating to the
development and improvement of such property are capitalized,
whereas those costs relating to holding the property are charged
to expense.
The Company records loans as in-substance foreclosures, if
the borrower has little or no equity in the collateral based upon
its current fair value; proceeds for repayment of the loan can be
expected to be generated only through the operation or sale of
the collateral; and the borrower has effectively abandoned
control of the collateral or has continued to retain control of
the collateral but, because of the current financial status of
the borrower, it is doubtful the borrower will be able to repay
the loan in the foreseeable future. In-substance foreclosures
are included in real estate acquired through foreclosure in the
accompanying Consolidated Statements of Financial Condition and
are accounted for as real estate acquired through foreclosure.
Loans Receivable and Loans Held for Sale
The Company's real estate loan portfolio consists primarily
of long-term loans secured by first mortgages on single-family
residences, other residential property, commercial property and
land. The adjustable-rate mortgage loan is the Company's primary
loan offering for portfolio lending purposes. The Company's
consumer loans include lines of credit, mobile home loans, auto
loans, marine loans and loans on various other types of consumer
products. The Company also makes shorter term commercial
business loans on a secured and unsecured basis.
Fees are charged for originating loans at the time the loan
is granted. Loan origination fees received, if any, are offset
by the deferral of certain direct expenses associated with loans
originated. The net fees or costs are recognized as yield
adjustments by applying the interest method.
Interest on loans is accrued and credited to income based on
the principal amount and contract rate on the loan. The accrual
of interest is discontinued when, in the opinion of management,
there is an indication that the borrower may be unable to meet
future payments as they become due, generally when a loan is
ninety days past due. When interest accrual is discontinued, all
unpaid accrued interest is reversed. While a loan is on non-
accrual status, interest is recognized only as cash is received.
Loans are returned to accrual status only when the loan is
reinstated and ultimate collectibility of future interest is no
longer in doubt.
Mortgage loans originated and intended for sale in the
secondary market are carried at the lower of cost or estimated
market value in the aggregate. Net unrealized losses are
provided for in a valuation allowance by charges to operations.
Income Taxes
Effective October 1, 1992, the Company prospectively adopted
SFAS 109, "Accounting for Income Taxes", which requires an asset
and liability approach to accounting for income taxes. Under
SFAS 109, deferred income taxes reflect the net tax effects of
temporary differences between the carrying amounts of assets and
liabilities for financial reporting purposes and the amounts used
for income tax purposes. Financial statements for prior years
reflect income taxes recorded under the deferred method required
by previous accounting standards.
Reclassifications
Certain amounts previously presented in the consolidated
financial statements for prior periods have been reclassified to
conform to current classifications. All such reclassifications
had no effect on the prior period's net income or retained
earnings as previously reported.
<PAGE>
FIRST FINANCIAL HOLDINGS, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION
BASIS OF CONSOLIDATIONS AND PRESENTATION
The unaudited consolidated financial statements include the
accounts of First Financial Holdings, Inc., ("First Financial, or
the Company") and its wholly-owned subsidiaries, First Federal
Savings and Loan Association of Charleston ("First Federal") and
Peoples Federal Savings and Loan Association of Conway ("Peoples
Federal") (together, the "Associations"). All significant
intercompany items related to the consolidated subsidiaries have
been eliminated.
GENERAL
The Company recorded net income of $2.3 million, or $.36 per
share, for the third quarter of fiscal 1995, compared with $3.6
million, or $.56 per share earned in the third quarter of fiscal
1994. Net income for the June 1994 quarter included a one-time
gain of $1.1 million ($826 thousand after tax) on the sale of
Regal Cinemas stock. Another major component of the variance in
net income for the comparable periods was an increase in the
effective tax rate in the June 1995 quarter due to the
elimination of net operating loss carryforwards at Peoples
Federal. The effective tax rate for the June 1995 quarter was
34.6% compared to 22.0% in the June 1994 quarter.
Income before taxes for the June 1995 quarter was $3.5
million. Excluding the one-time securities gain of $1.1 million
from the quarter ending June 30, 1994, income before taxes also
totaled $3.5 million.
Net income for the nine months ended June 30, 1995, was $6.6
million compared with $9.4 million for the same period last year.
Variances in net income for the nine-month period include the
previously mentioned securities gain in the third quarter of 1994
and an increase in the effective income tax rate due to the
elimination of net operating loss carry forwards attributable to
Peoples Federal. The effective income tax rate for the nine
months ended June 30, 1995 was 36.3% compared to last year's rate
of 25.3%.
Primary and fully diluted earnings per share for the quarter
ended June 1995 were $.36 as compared to $.56 in the June 1994
quarter ($.43 after excluding the securities gain) and $.34 in
the March 1995 quarter. Earnings per share for the nine months
ended June 30, 1995 were $1.05 as compared to $1.46 ($1.33 after
excluding the securities gain) in the nine months ended June 30,
1994.
On January 30, 1995, the Company announced a stock repurchase
program to acquire up to approximately 250,000 shares of the
Company's common stock, which represents approximately 4.0% of
the Company's outstanding common stock. Repurchases of 19,900
shares at an average price of $15.53 have been made under the
plan through June 30, 1995.
The deposits of First Federal and Peoples Federal are insured
by the Federal Deposit Insurance Corporation ("FDIC"). The FDIC
along with the Treasury and other federal agencies proposed on
July 28 that the Savings Association Insurance Fund ("SAIF") be
recapitalized to the same ratio levels as the Bank Insurance Fund
("BIF") through a special premium assessment between 85 and 90
basis points of deposits. After such an assessment, the proposal
outlines that the assessment rates would then be initially equal
and eventually result in a merger of the two funds. For a more
complete discussion of management's assessment of the impact of
this proposal on the operations of the Company, see
"Recapitalization Proposal."
BALANCE SHEET ANALYSIS
Consolidated assets of the Company totaled $1.3 billion at
June 30, 1995 compared to $1.2 billion at September 30, 1994.
During the nine months assets increased $84.0 million principally
as a result of growth of $73.2 million in net loans receivable.
Cash and Investment Securities
Cash, deposits in transit and interest-bearing deposits
increased $7.9 million during the nine months and totaled $31.5
million at June 30, 1995. Investments held to maturity increased
by $2.2 million while investments available for sale declined
$393 thousand. The Company's investments and other interest-
earning deposits continue to be comprised primarily of U. S.
Government and agency securities, Federal Home Loan Bank ("FHLB")
of Atlanta stock and overnight deposits in the FHLB of Atlanta.
During the nine months purchases of investments held to maturity
totaled $18.0 million while purchases of investments available
for sale totaled $6.2 million. Maturities of investments totaled
$11.8 million during the period with sales of $11.3 million
recorded.
Loans and Mortgage-backed Securities
Loans receivable totaled $1.0 billion at June 30, 1995
compared to $960.5 million at September 30, 1994. Mortgage-
backed securities increased $526 thousand in the current nine
months to total $106.1 million at June 30, 1995.
The principal use of the Company's funds is the origination
of mortgage and other loans. The Company originated $126.0
million (net of refinances) in mortgage loans, $30.4 million in
consumer loans and $17.5 million in commercial business loans
during the nine months ending June 30, 1995. Purchases of
adjustable-rate mortgage-backed securities available for sale
totaled $5.7 million in the nine months ending June 30, 1995.
The Company did not originate any loans for sale during the
current period.
Due to present market conditions, the Company has
substantially reduced originations of loans made on
nonresidential properties and placed greater emphasis on single-
family lending. This policy is expected to over time reduce the
Company's exposure to commercial real estate. The following
table summarizes the composition of the Company's gross loan
portfolio (amounts in thousands):
<TABLE>
<CAPTION>
June 30, Sept. 30, June 30,
1995 1994 1994
<S> <C> <C> <C>
Residential (1-4 family) $ 653,951 $ 582,783 $563,487
Other residential 57,717 59,309 59,878
Acquisition and development 5,199 7,674 10,775
Other land and lots 16,455 15,313 13,617
Commercial real estate 188,320 191,976 197,397
Home equity lines of credit 45,331 47,389 47,881
Consumer 69,643 64,204 63,886
Commercial business 27,153 24,962 24,356
Mortgage-backed securities 106,146 105,620 90,630
Total gross loans $1,169,915 $1,099,230 $1,071,907
</TABLE>
As the above table indicates, gross loan and mortgage-backed
securities balances increased $70.7 million during the current
nine months principally due to the Company's retention of all
single-family loans originated during the period.
The Company's primary lending market is the coastal region of
South Carolina. Less than 1% of total gross loans are secured by
property or collateral located outside South Carolina. In an
effort to expand mortgage lending operations and improve earning
asset growth the company began originating mortgage loans in
other markets in South Carolina in the June 1995 quarter. The
Company utilizes its existing mortgage loan products and programs
in establishing correspondent relationships with other lenders.
Outstanding commitments to originate mortgage loans and to
fund the undisbursed portion of construction loans amounted to
$33.9 million at June 30, 1995, compared to $29.2 million at
September 30, 1994. Unused lines of credit on equity loans,
consumer loans, credit cards and commercial loans totaled $88.4
million as of June 30, 1995 compared to $84.8 million at
September 30, 1994.
Asset Quality
Problem assets increased $518 thousand during the first nine
months of fiscal 1995, primarily due to higher levels of non-
accrual loans and loans 90 days or more past due. The following
table summarizes the Company's problem assets for the periods
indicated (amounts in thousands):
<TABLE>
<CAPTION>
June 30, Sept. 30, June 30,
1995 1994 1994
<S> <C> <C> <C>
Non-accrual loans $ 3,822 $ 1,620 $ 1,758
Loans 90 days or more
past due (1) 2,040 740 353
Renegotiated loans 11,177 13,129 13,200
In-substance foreclosures 2,674 2,834 3,470
Real estate and other
assets acquired in
settlement of loans 2,418 3,290 3,665
Total $22,131 $21,613 $ 22,446
As a percent of net loans
and real estate owned 2.13% 2.24% 2.35%
As a percent of total assets 1.67% 1.74% 1.83%
(1) The Company continues to accrue interest on these loans.
</TABLE>
Non-accruing loans and loans contractually delinquent 90 days
or more are comprised of the following types of loans (amounts in
thousands):
<TABLE>
<CAPTION>
June 30, Sept. 30, June 30,
1995 1994 1994
<S> <C> <C> <C>
Residential (1-4 family) $2,004 $1,452 $1,043
Other residential - - -
Acquisition and development
loans 1,405 - 100
Other land and lots 72 302 354
Commercial real estate 1,102 285 190
Home equity lines of credit 16 - 17
Consumer 119 123 219
Commercial business 1,144 198 188
Total $5,862 $2,360 $2,111
</TABLE>
Loans on non-accrual and loans 90 days or more delinquent
totaled $5.9 million at June 30, 1995, increasing $3.5 million
during the first nine months of fiscal 1995. Approximately $1.9
million of the increase relates to several loans for one
borrowing entity secured by first mortgages on residential
properties and a subdivision development and junior liens and
assignments on residential and commercial properties. The
borrowers have experienced cash flow problems resulting in
serious delinquency.
Renegotiated loans declined $2.0 million during the current
nine months. A $1.2 million resort development loan renegotiated
in 1983 was repaid during the current period.
Real estate and other assets acquired in settlement of loans
and in-substance foreclosures declined by $1.0 million during the
current nine months. The Company continues to be successful in
disposing of real estate once it obtains title to the collateral.
Allowance for Loan Losses
The allowance for loan losses represents a reserve for
potential losses existing in the loan portfolio. The adequacy of
the allowance for loan losses is evaluated at least quarterly
based, among other factors, on a continuous review of the
Company's loan portfolio, with particular emphasis on adversely
classified loans.
The following table sets forth the allocation of the
Company's allowance for loan losses (excluding mortgage-backed
securities) at June 30, 1995 and September 30, 1994 (amounts in
thousands). The allocation of the allowance for loan losses set
forth in the table should not be interpreted as an indication
that charge-offs will necessarily occur in these amounts or
proportions or that the allocation indicates future charge-off
trends.
<TABLE>
<CAPTION>
June 30, 1995 September 30, 1994
Gross % of Gross % of
Loan Allowance Loan Allowance
Allowance Balance to Balance Allowance Balance to Balance
<S> <C> <C> <C> <C> <C> <C>
Residential loans:
1-4 family $ 2,306 $ 653,951 .35% $ 1,825 $582,783 .31%
Other 1,613 57,717 2.79 1,582 59,309 2.67
Acquisition and
development loans 217 5,199 4.17 382 7,674 4.98
Other land and lot loans 543 16,455 3.30 1,009 15,313 6.59
Commercial real
estate 4,178 188,320 2.22 4,276 191,976 2.23
Commercial business 766 27,153 2.82 750 24,962 3.00
Consumer loans 985 114,974 .86 904 111,593 .81
Total $10,608 $1,063,769 1.00% $10,728 $993,610 1.08%
</TABLE>
The following table provides a summary of activity in the
allowance for loan losses for the first nine months of fiscal
1995 (amounts in thousands).
<TABLE>
<CAPTION>
Balance Balance
Sept. 30 Charge- June 30
1994 Additions offs Recoveries 1995
<S> <C> <C> <C> <C> <C>
Real estate $ 9,074 $ (95) $251 $129 $ 8,857
Commercial business 750 (98) 32 146 766
Consumer 904 373 369 77 985
Total $10,728 $ 180 $652 $352 $10,608
</TABLE>
Deposits
Retail deposits are the primary source of funding for the
Company for lending purposes and as a customer base for providing
additional financial services. The Company's total deposits
increased $2.4 million during the nine months ending June 30,
1995.
First Financial's deposit composition at the indicated dates
is as follows (amounts in thousands):
<TABLE>
<CAPTION>
June 30, 1995 September 30, 1994 June 30, 1994
% of % of % of
Balance Total Balance Total Balance Total
<S> <C> <C> <C> <C> <C> <C>
Checking accounts $ 116,264 10.91% $ 112,270 10.56% $ 107,769 10.32%
Passbook, statement and
other accounts 133,039 12.49 150,693 14.18 159,654 15.29
Money market funds 125,829 11.81 140,511 13.22 141,887 13.59
Certificate accounts 690,309 64.79 659,521 62.04 634,951 60.80
Total deposits $1,065,441 100.00% $1,062,995 100.00% $1,044,261 100.00%
</TABLE>
The Company continues to face moderate disintermediation of
balances of short-term deposit accounts because of the current
level of deposit account interest rates versus overall market
interest rates. The Company utilized brokered certificates of
deposit programs during the current nine months. Such deposits
comprised $11.2 million or 1.05% of total deposits at June 30,
1995 while there were no comparable brokered deposits at
September 30, 1994 or June 30, 1994.
Borrowings
Primarily as a result of growth in loans receivable during
the nine months and the utilization of FHLB advances as a primary
source of funds, total borrowings increased $70.0 million to
total $149.3 million as of June 30, 1995. Approximately $86.0
million in FHLB advances and $42.1 million in reverse repurchase
agreements mature within one year from June 30, 1995.
Stockholders' Equity
Stockholders' equity increased $6.7 million during the first
nine months of fiscal 1995 to total $89.3 million at June 30,
1995. The Company's capital ratio, total capital to total
assets, was 6.72% at June 30, 1995, compared to 6.64% at
September 30, 1994. During the current nine months, the Company
paid cash dividends of $.42 per share compared with $.36 per
share in the earlier period.
Regulatory Capital
Under current Office of Thrift Supervision ("OTS")
regulations, savings associations must satisfy three minimum
capital requirements: core capital, tangible capital and risk-
based capital. Savings associations must meet all of the
standards in order to comply with the capital requirements. At
June 30, 1995, both subsidiaries were categorized as "well
capitalized" under the Prompt Corrective Action regulations
adopted by the OTS pursuant to the Federal Deposit Insurance
Corporation Improvement Act of 1991 ("FDICIA"). To remain in
this status, the Associations must maintain core and risk-based
capital ratios of at least 5.0% and 10.0%, respectively.
On November 28, 1994, the OTS announced its decision to
reverse immediately its August 1993 interim policy requiring
associations to include unrealized gains and losses, net of
income taxes, on available for sale debt securities in regulatory
capital. Under the revised OTS policy, the Associations have
added back any unrealized losses, and deducted any unrealized
gains, net of income taxes, on available for sale securities
reported as a separate component of equity capital pursuant to
SFAS 115. Available for sale equity securities have been valued
at the lower of cost or fair value for regulatory capital
purposes. This revised policy is consistent with the policies of
other federal banking agencies. The OTS policy allows an option
to adopt the revised policy at December 31, 1994, March 31, 1995
or June 30, 1995. Both Associations adopted the policy, which
had a positive effect on regulatory capital computations, at
December 31, 1994.
The following table summarizes the capital requirements for
First Federal and Peoples Federal as well as their capital
positions at June 30, 1995:
<TABLE>
<CAPTION>
First Federal Peoples Federal
Percent of Percent of
Amount Assets Amount Assets
(Amounts in thousands)
<S> <C> <C> <C> <C>
Tangible capital $72,249 7.45% $27,038 7.76%
Tangible capital requirement 14,551 1.50 5,230 1.50
Excess $57,698 5.95% $21,808 6.26%
Core capital $72,249 7.45% $27,038 7.76%
Core capital requirement 29,102 3.00 10,460 3.00
Excess $43,147 4.45% $16,578 4.76%
Risk-based capital(a) $78,466 11.62% $27,038 14.86%
Minimum risk-based capital requirement(a) 54,020 8.00 14,555 8.00
Excess(a) $24,446 3.62% $12,483 6.86%
____________________________
(a) Based on total risk-weighted assets.
</TABLE>
For a complete discussion of capital issues, refer to
"Capital Requirements" and "Dividend Limitations" in the
Company's 10K for the fiscal year ending September 30, 1994.
RECAPITALIZATION PROPOSAL
At a July 28, 1995 hearing of the Senate Banking Committee, a
plan for dealing with the problems of the SAIF was offered by the
Treasury, FDIC, OTS and Federal Reserve Board. Specifics of the
plan include:
- Institutions holding SAIF-insured deposits would be
required to pay a special premium in an amount sufficient to
capitalize the SAIF fully as of January 1, 1996. The special
premium would be between 85 and 90 basis points of deposits to
yield up to $6.6 billion, the current amount necessary to reach
1.25%. It is estimated that the BIF reached its 1.25% reserve
ratio goal in the second quarter of 1995.
- Once the SAIF is fully capitalized, it is expected that
SAIF and BIF premiums initially would be equal. If over time,
the loss rate to the SAIF exceeds that of BIF, SAIF premiums may
have to be raised above BIF premiums to the extent required to
maintain the 1.25% required reserve ratio. If the BIF loss rate
turns out to be higher than SAIF's, and if as a result, BIF
premiums have to be raised in order to maintain the BIF at 1.25%,
SAIF premiums would also be raised in tandem. This would ensure
that BIF institutions, which under the proposal are required to
share the Financing Corporation ("FICO") obligation, do not pay
higher insurance premiums than SAIF members.
- The FDIC Board could exempt weak institutions from the
special assessment when the board determines that payment would
increase the risk to the SAIF. Exempt institutions would be
required to continue paying insurance premiums as set under the
SAIF premium schedule through 1999. These institutions would
have the option of paying a prorated portion of the special
premium during the subsequent four year period in order to drop
down to the new, lower premium schedule.
- FICO interest payments would be spread among all FDIC
insured institutions on a pro rata basis across all deposits, with
every institution paying approximately 2.5 basis points
initially. This amount is expected to decrease over time as the
combined deposits of banks and thrifts grow.
- Under the legislation, the BIF and the SAIF would be merged
into a single federal deposit insurance fund "as soon as
practicable," preferably no later than 1998.
Each agency has its own perspective on the common language of
the joint plan, and while there is agreement on major elements,
there are some variations. To protect and stabilize the SAIF
during the period prior to fund merger, OTS and FDIC have
supported making leftover Resolution Trust Corporation ("RTC")
funds available to cover extraordinary and unanticipated losses
of the SAIF.
In a summary of the testimony of Acting OTS Director,
Jonathan Fiechter, the OTS estimates that the impact of an 85
basis point special premium on the thrift industry would be
substantial, reducing industry capital by 7.8%. The OTS believes
that most OTS-regulated thrifts, however, have sufficient capital
to absorb the special premium without a change in their
regulatory capital status and can generate earnings to rebuild
capital. Reducing the capital of SAIF-insured institutions will
have an immediate impact on their lending capacity. The
aggregate home lending capacity of savings associations could be
temporarily reduced. In the long run, home lending will benefit
from placing SAIF-insured institutions on a level playing field
with other federally-insured institutions and strengthening the
source of funding for the FICO interest payments.
Management has reviewed the potential effects of the joint
proposal on the regulatory capital of First Federal and Peoples
Federal. Management has based its projections on a special
assessment of 85 basis points on the Associations' SAIF-assessable
deposits held as of March 31, 1995.
<TABLE>
<CAPTION>
Estimated Impact on Net Income
First Federal Peoples Federal
(Amounts in thousands)
<S> <C> <C>
SAIF-Assessable Deposits $783,519 $284,074
Special Premium 6,660 2,415
Estimated Tax Effect 2,464 894
Impact on Net Income 4,196 1,521
</TABLE>
Applying the impact of these estimates as a reduction to
regulatory capital computations computed as of June 30, 1995,
results in the following estimated regulatory capital levels:
<TABLE>
<CAPTION>
First Federal Peoples Federal
<S> <C> <C>
Tangible capital $ 68,053 $ 25,517
Percent of assets 7.06% 7.37%
Core capital $ 68,053 $ 25,517
Percent of assets 7.06% 7.37%
Risk-based capital $ 74,270 $ 25,517
Percent of risk-based assets 11.00% 14.03%
</TABLE>
If the proposal is adopted as outlined above, management
believes that both First Federal and Peoples Federal would
continue to be categorized as "well capitalized" under the Prompt
Corrective Action regulations pursuant to FDICIA. Under these
regulations, the Associations must maintain total risk-based
capital of 10.0% or more, Tier I risk-based capital of 6.0% or
more and a Tier I leverage (core) capital ratios of 5.0% or more
to be categorized well capitalized.
On August 8, 1995, the FDIC took action to cut the BIF
premium schedule to a range of 4 cents to 31 cents per $100 of
deposits effective in early October 1995. If both Associations
remain well-capitalized and the joint proposal is adopted in
substantially the same form as noted above, effective January 1,
1996, deposit premiums would be reduced from 23.5 cents per $100
of deposits to 4 cents per $100, resulting in an annual before
tax reduction in premiums of $1.5 million and $554 thousand,
respectively, for First Federal and Peoples Federal, based on
assessable deposits at March 31, 1995. Management estimates annual
after-tax net income will be positively impacted by $1.0 million
and $349 thousand, respectively, for First Federal and Peoples
Federal.
First Financial's stockholders' equity of $89.3 million as of
June 30, 1995, would be reduced by approximately $5.7 million
based on the projections above. Book value per common share
would be reduced by approximately $.91. However, on an annual
basis, assuming a reduction in deposit insurance premiums to 4
cents per $100 of deposits, after-tax income would improve by
approximately $1.3 million.
LIQUIDITY AND ASSET AND LIABILITY MANAGEMENT
Liquidity
The Associations are subject to federal regulations which
require the maintenance of a daily average balance of liquid
assets equal to 5.00% of net withdrawable savings and borrowings
payable in one year. First Federal had an average liquidity
ratio of 7.24% for the current nine months compared to 9.17% for
the comparable period in fiscal 1994. Peoples Federal's average
liquidity ratio was 9.81% during the present nine months compared
with 9.41% in the comparable period.
The Associations' primary sources of funds consist of retail
deposits, borrowings from the FHLB, principal repayments on loans
and mortgage-backed securities, securities sold under agreements
to repurchase and the sale of loans. Each of the Association's
sources of liquidity are subject to various uncertainties beyond
the control of the Associations. As a measure of protection, the
Association's have back-up sources of funds available, including
excess FHLB borrowing capacity and excess liquidity in securities
available for sale.
During the current nine months the Company experienced a net
cash outflow from investing activities of $73.8 million,
consisting principally of loans originated for investment and
mortgage-backed securities purchased, offset by principal
payments on loans and mortgage-backed securities. In addition
the Company experienced cash inflows of $12.0 million from
operating activities and $69.6 million from financing activities.
Financing activities consisted principally of $41.0 million in
net additions to FHLB advances and $29.0 million of net additions
to reverse repurchase agreements.
Parent Company Liquidity
As a holding company, First Financial conducts its business
through its subsidiaries. First Financial issued $20.3 million
in senior notes of the Company in September 1992 principally for
the purpose of acquiring Peoples Federal. Potential sources for
First Financial's payment of principal and interest on the notes
include: (i) dividends from First Federal and Peoples Federal;
(ii) payments from existing cash reserves and sales of marketable
investment securities; and (iii) interest on investment assets.
The Company has agreed to prepay, at a price of 100% of the
principal plus accrued interest to the date of prepayment, up to
$1.0 million of the notes tendered by noteholders for prepayment
during the period of issuance through September 1, 1993, and
thereafter in any twelve month period ending September 1, subject
to certain limitations.
As of June 30, 1995, First Financial had cash reserves and
marketable securities of $8.7 million. Cash reserves and
marketable securities may also be utilized for the stock
repurchase program recently announced in January 1995, whereby
the Company may repurchase approximately 250,000 shares of common
stock.
First Federal's and Peoples Federal's ability to pay
dividends and make other capital contributions to First Financial
is restricted by regulation and may require regulatory approval.
First Federal's and Peoples Federal's ability to make
distributions may also depend on each institution's ability to
meet minimum regulatory capital requirements in effect during the
period. For a complete discussion of capital distribution
regulations, refer to "Dividend Limitations" in the Company's 10K
for the fiscal year ending September 30, 1994.
Asset/Liability Management
The Company's Asset and Liability Committees establish
policies and monitor results to control interest rate
sensitivity. Although the Company utilizes measures such as
static gap, which is simply the measurement of the difference
between interest-sensitive assets and interest-sensitive
liabilities repricing for a particular time period, just as
important a process is the evaluation of how particular assets
and liabilities are impacted by changes in interest rates or
selected indices as they reprice. Asset/liability modeling is
performed by the Company to assess varying interest rate and
balance mix assumptions. These projections enable the Company to
adjust its strategies to lessen the impact of significant
interest rate fluctuations.
The following table is a summary of First Financial's one
year gap at indicated dates (amounts in thousands):
<TABLE>
<CAPTION>
June 30, September 30, June 30,
1995 1994 1994
<S> <C> <C> <C>
Interest-earning assets maturing or
repricing within one year $881,264 $842,471 $804,987
Interest-bearing liabilities maturing or
repricing within one year 828,144 681,467 652,766
Cumulative gap $ 53,120 $161,004 $152,221
Gap as a percent of
total assets 4.00% 12.94% 12.40%
</TABLE>
First Financial has continued its emphasis on the origination
of adjustable-rate and other short-term loans in order to reduce
interest rate risk. The Company's one year positive gap as a
percent of total assets declined from 12.94% to 4.00% during the
current nine months. A positive gap indicates that cumulative
interest-sensitive assets exceed cumulative interest-sensitive
liabilities and suggests that net interest income would increase
if market rates increased. A negative gap would suggest the
reverse. Because adjustments to interest rates on adjustable-
rate loans and mortgage-backed securities tend to lag changes in
market rates, the benefit attributed to a positive gap will be
experienced over a longer period of time depending on how fast
the indices rise and the frequency of repricing of the assets.
The Company also has a significant portion of its adjustable-rate
loan portfolio indexed to various cost of funds indices, which
tend to lag the market to a greater extent than treasury-related
indices.
COMPARISON OF OPERATING RESULTS
QUARTERS ENDING June 30, 1995 AND 1994
Net Interest Income
First Financial's net interest income for the three months
ending June 30, 1995 was $9.7 million compared with $10.2 million
for the comparable quarter in fiscal 1994. The gross interest
margin declined from 3.26% in the prior quarter to 2.82% in the
current quarter and reflects a greater increase in the Company's
average cost of funds than its average yield on earning assets.
Average yields on earning assets were 7.72% and 7.16% in the
June 1995 and 1994 periods. Interest rates paid on deposits and
borrowings increased from one year ago resulting in a increase of
100 basis points in the cost of funds. Management anticipates
that average asset yields will slowly improve as certain of the
indices used to reprice adjustable-rate mortgage loans, consumer
and commercial business loans are expected to increase further in
future months. Management, however, also expects the cost of
deposits and borrowings may increase due to increases in market
interest rates, thus creating a potential for further contraction
of the gross interest margin. The following table summarizes
rates, yields and average earning asset and costing liability
balances for the respective quarters (amounts in thousands):
<TABLE>
<CAPTION>
Quarter Ending June 30,
1995 1994
Average Average Average Average
Balance Yield/Rate Balance Yield/Rate
<S> <C> <C> <C> <C>
Loans and mortgage-backed securities $1,136,837 7.88% $1,048,820 7.46%
Other interest-earning assets 129,903 6.27 131,361 4.80
Total interest-earning assets $1,266,740 7.72% $1,180,181 7.16%
Deposits $1,063,128 4.67% $1,041,156 3.76%
Borrowings 138,294 6.68 78,389 5.85
Total interest-bearing liabilities $1,201,422 4.90% $1,119,545 3.90%
Gross interest margin 2.82% 3.26%
Net interest margin 3.06% 3.45%
</TABLE>
The following rate/volume analysis depicts the increase
(decrease) in net interest income attributable to interest rate
and volume fluctuations compared to the prior period (amounts in
thousands):
<TABLE>
<CAPTION>
Quarter Ending June 30,
1995 versus 1994
Volume Rate Total
<S> <C> <C> <C>
Interest income:
Loans and mortgage-backed
securities $1,698 $1,139 $2,837
Investments and other
interest-earning assets (18) 475 457
Total interest income 1,680 1,614 3,294
Interest expense:
Deposit accounts 211 2,420 2,631
Borrowings 979 182 1,161
Total interest expense 1,190 2,602 3,792
Net interest income $ 490 $ (988) $ (498)
</TABLE>
Total interest income for the current quarter of $24.3
million represents growth of $3.3 million from the comparative
quarter in fiscal 1994. Average balances of earning assets
increased $86.6 million during the current quarter compared to
the June 1994 quarter. Average yields on loans and mortgage-
backed securities increased by 42 basis points. Approximately
70% of the Company's gross loan portfolio, including mortgage-
backed securities, is comprised of adjustable-rate loans, with a
majority of such loans repricing to cost of funds or treasury-
based indices. The majority of such loans reprice on an annual
basis.
The average yield on all other earning assets increased from
4.80% in the prior quarter to 6.27% in the current quarter. The
average yield increased 147 basis points in the current quarter
as short-term interest rates increased substantially from year-
ago levels.
Total interest expense increased $3.8 million during the
current quarter, with average interest-bearing liability balances
increasing by $81.9 million. An increasingly competitive deposit
market resulted in a higher cost of funds during the quarter.
The average cost of deposits increased 91 basis points while the
average cost of borrowings increased 83 basis points. The
Company's overall cost of funds increased 100 basis points to
4.90% from 3.90% in the prior period.
Provision for Loan Losses
During the current quarter, First Financial's provision for
loan losses totaled $47 thousand, compared to $255 thousand
during the same period in the previous year. Net charge-offs for
the current quarter totaled $37 thousand compared with $285
thousand in the comparable quarter in fiscal 1994. Total loan
loss reserves as of June 30, 1995 and 1994 were $10.6 million and
$10.9 million, respectively. Loan loss reserves as a percentage
of the total net loan portfolio, excluding mortgage-backed
securities, were 1.03% and 1.15% at June 30, 1995 and 1994,
respectively.
Other Income
Other income in the June 1994 quarter included a before-tax
unrealized gain of $1.1 million on Regal Cinemas stock. The
Regal Cinemas stock was previously obtained in exchange for the
common stock of Litchfield Theatres. The Litchfield Theatres
stock was received by Peoples Federal after Litchfield filed for
bankruptcy protection.
Net losses of $143 thousand were incurred on the sale of
mortgage loans during the June 30, 1994 quarter. Sales of fixed-
rate residential loans originated for sale totaled $10.9 million
in the prior quarter. There were virtually no loan sales during
the current quarter in keeping with management's strategy to
include originations of higher-yielding fixed-rate mortgage loans
in the loan portfolio.
Loan servicing fee income declined $52 thousand in the
current quarter, primarily as a result of decreases in balances
of loans serviced and respective servicing fees. Fees on deposit
accounts increased $114 thousand during the current quarter,
reflecting increased balances in checking and other transaction
accounts at the Company and the implementation of new service
charges. Real estate operations, net, produced losses of $26
thousand and $54 thousand in the quarters ending June 30, 1995
and 1994, respectively.
General and Administrative Expenses
General and administrative expenses increased $154 thousand,
or 1.89%, during the current quarter. General and administrative
expenses as a percentage of average assets declined from 2.68% in
the June 30, 1994 quarter to 2.54% in the current quarter.
Salaries and benefits increased $181 thousand, principally as a
result of annual merit increases, higher benefit costs and the
effect of more fixed salary costs being recognized in the current
period due to lower loan origination volume. Full-time
equivalent employees declined from 535 as of June 30, 1994 to 499
at June 30, 1995.
Occupancy costs increased moderately in the current quarter
and were primarily attributable to the leasing of additional
space at First Federal's Operations Center for the consolidation
of all its back-office functions. Increased equipment expenses
resulted from higher purchases of new operating systems to
improve productivity. These increases were offset by other
initiatives of the Company which have contributed to holding many
expenses at or below prior quarter levels.
Income Tax Expense
During the current quarter, the Company's effective tax rate
was 34.6% compared to 22.0% in the comparable quarter. The
actual tax provision of $1.2 million resulted in an increase of
$198 thousand from the prior period. The increased effective rate
is attributable to the elimination of net operating losses at
Peoples Federal.
COMPARISON OF OPERATING RESULTS
NINE MONTHS ENDING June 30, 1995 AND 1994
Net Interest Income
First Financial's net interest income for the nine months
ending June 30, 1995 was $29.5 million compared with $30.9
million for the comparable nine months in fiscal 1994. The gross
interest margin declined from 3.25% in the prior nine months to
2.93% in the current nine months.
The following table summarizes rates, yields and average
earning asset and costing liability balances for the respective
periods (amounts in thousands):
<TABLE>
<CAPTION>
Nine Months Ending June 30,
1995 1994
Average Average Average Average
Balance Yield/Rate Balance Yield/Rate
<S> <C> <C> <C> <C>
Loans and mortgage-backed securities $1,112,984 7.72% $1,058,578 7.53%
Other interest-earning assets 127,795 6.01 132,631 4.55
Total interest-earning assets $1,240,779 7.54% $1,191,209 7.20%
Deposits $1,061,158 4.40% $1,041,946 3.76%
Borrowings 114,171 6.55 84,156 6.27
Total interest-bearing liabilities $1,175,329 4.61% $1,126,102 3.95%
Gross interest margin 2.93% 3.25%
Net interest margin 3.17% 3.46%
</TABLE>
The following rate/volume analysis depicts the increase
(decrease) in net interest income attributable to interest rate
and volume fluctuations compared to the prior period (amounts in
thousands):
<TABLE>
<CAPTION>
Nine Months Ending June 30
1995 versus 1994
Volume Rate Total
<S> <C> <C> <C>
Interest income:
Loans and mortgage-backed
securities $3,079 $ 1,511 $ 4,590
Investments and other
interest-earning assets (170) 1,403 1,233
Total interest income 2,909 2,914 5,823
Interest expense:
Deposit accounts 549 5,065 5,614
Borrowings 1,470 184 1,654
Total interest expense 2,019 5,249 7,268
Net interest income $ 890 $(2,335) $(1,445)
</TABLE>
Provision for Loan Losses
During the current nine months, First Financial's provision
for loan losses totaled $180 thousand, compared to $958 thousand
during the same period in the previous year. Net charge-offs for
the current nine months totaled $300 thousand compared with $832
thousand in the comparable period in fiscal 1994.
Other Income
Net losses on the sale of mortgage loans totaled $57 thousand
during the nine months ending June 30, 1994. Sales of fixed-rate
residential loans originated for sale totaled $75.0 million in
the prior period. There were virtually no loan sales during the
current nine months.
Loan servicing fee income declined $119 thousand in the
current nine months, primarily as a result of decreases in
balances of loans serviced and respective servicing fees. Fees
on deposit accounts increased $325 thousand during the current
period. Real estate operations, net, produced losses of $189
thousand and $266 thousand in the nine months ending June 30,
1995 and 1994, respectively.
General and Administrative Expenses
General and administrative expenses increased $865 thousand
during the current nine months. General and administrative
expenses as a percentage of average assets declined from 2.62% in
the prior period to 2.60% in the current period. Salaries and
benefits increased $818 thousand, principally as a result of
annual merit increases, higher benefit costs and the effect of
more fixed salary costs being recognized in the current period
due to lower loan origination volume.
FDIC insurance premiums were $45 thousand lower in the
current nine months compared to the prior period. Although
deposit balances have increased, both subsidiaries are now
assessed at the lowest premium rate currently in effect under the
FDIC risk-based assessment plan. Peoples Federal had been
subject to a higher assessment rate until January 1, 1994.
Income Tax Expense
During the first nine months, the Company's effective tax
rate was 36.3% compared to 25.3% in the comparable period. The
actual tax provision of $3.8 million resulted in an increase of
$599 thousand from the prior period. The increased effective rate
is attributable to the elimination of net operating losses at
Peoples Federal.
IMPACT OF REGULATORY AND ACCOUNTING ISSUES
For a comprehensive discussion of regulatory issues, refer to
"Regulation of the Associations" in the Company's 10K for the
fiscal year ending September 30, 1994.
The federal banking agencies have finally completed their two
year effort to overhaul regulations implementing the Community
Reinvestment Act ("CRA"). The final rule is the culmination of
proposal efforts made in response to President Clinton's July
1993 request that the agencies review and revise the CRA
regulations to make them more performance-based, objective, and
less burdensome. The rule replaces the twelve assessment factors
used to evaluate CRA performance with three tests, the lending,
investment and service tests, and the lending test will carry the
primary emphasis. Full implementation of the rule will begin
July 1, 1997, but institutions may opt to be evaluated under the
new requirements as early as January 1, 1996, provided they have
sufficient data collected. In all cases, data collection
requirements begin January 1, 1996.
On May 12, 1995, the Financial Accounting Standards Board
issued Statement of Financial Accounting Standards ("SFAS")
No. 122 "Accounting for Mortgage Servicing Rights," which amends
SFAS No. 65, "Accounting for Mortgage Banking Activities." The
rule will allow financial institutions to capitalize servicing-
related costs associated with mortgage loans that are originated
for sale, and to create a servicing asset for such loans. Prior
to this rule, originated mortgage servicing rights were generally
accorded off-balance-sheet treatment.
While the rule is to be applied prospectively, financial
institutions may apply the new accounting for mortgage loans that
were originated and sold in fiscal years or interim periods for
which financial statements or information has not been issued.
All financial institutions will be required to adopt the rule
after December 15, 1995.
<PAGE>
FIRST FINANCIAL HOLDINGS, INC.
OTHER INFORMATION
Item 1 - Legal Proceedings
Periodically, there are various claims and lawsuits involving
the Associations and their subsidiaries mainly as defendants,
such as claims to enforce liens, condemnation proceedings on
properties in which the Associations hold security interests,
claims involving the making and servicing of real property loans
and other issues incident to the Association's business. In the
opinion of management and the Company's legal counsel, no
material loss is expected from any of such pending claims or
lawsuits.
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
None
Item 6 - Exhibits and Report on Form 8-K.
None
<PAGE>
FIRST FINANCIAL HOLDINGS, INC.
SIGNATURES
Pursuant to the requirements of the Securities and 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 Holdings, Inc.
Date: August 11, 1995 By: /s/ A. Thomas Hood
A. Thomas Hood
Executive Vice President
Treasurer
Principal Financial Officer
Duly Authorized Representative
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 9
<MULTIPLIER> 1000
<S> <C> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> SEP-30-1995
<PERIOD-END> JUN-30-1995
<CASH> 27,359
<INT-BEARING-DEPOSITS> 4,104
<FED-FUNDS-SOLD> 0
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 123,433
<INVESTMENTS-CARRYING> 102,432
<INVESTMENTS-MARKET> 103,510
<LOANS> 1,044,343
<ALLOWANCE> 10,608
<TOTAL-ASSETS> 1,328,300
<DEPOSITS> 1,065,441
<SHORT-TERM> 129,540
<LIABILITIES-OTHER> 0
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<COMMON> 69
0
0
<OTHER-SE> 89,258
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<INTEREST-DEPOSIT> 34,886
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<LOAN-LOSSES> 180
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<EXPENSE-OTHER> 5,189
<INCOME-PRETAX> 10,377
<INCOME-PRE-EXTRAORDINARY> 10,377
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 6,612
<EPS-PRIMARY> 1.05
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<YIELD-ACTUAL> 3.17
<LOANS-NON> 3,822
<LOANS-PAST> 2,040
<LOANS-TROUBLED> 11,177
<LOANS-PROBLEM> 17,039
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