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 December 31, 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 (I.R.S. Employer Identification No.)
jurisdiction of incorporation
or organization)
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 January 31, 1996
$.01 Par Value 6,330,453
<PAGE>
FIRST FINANCIAL HOLDINGS, INC.
INDEX
PART I - FINANCIAL INFORMATION PAGE NO.
Consolidated Statements of Financial Condition 1
at December 31, 1995 and September 30, 1995
Consolidated Statements of Income for the Three 2
Months Ended December 31, 1995 and 1994
Consolidated Statements of Cash Flows for the 3-4
Three Months Ended December 31, 1995 and 1994
Notes to Financial Statements 5-7
Management's Discussion and Analysis of Results 8-16
of Operations and Financial Condition
PART II - OTHER INFORMATION 17-18
SIGNATURES 19
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
December 31, September 30,
1995 1995
(Amounts in thousands)
(Unaudited)
<S> <C> <C>
ASSETS
Cash and cash equivalents $ 29,559 $ 24,486
Investments held to maturity (market value of $34,644 and $68,687) 34,395 68,154
Investments available for sale, at fair value 71,499 39,831
Investment in capital stock of Federal Home Loan Bank, at cost 12,538 11,982
Loans receivable, net 1,119,670 1,083,367
Loans held for sale 12,592
Mortgage-backed securities held to maturity (market value of $18,844) 18,361
Mortgage-backed securities available for sale, at fair value 100,028 82,765
Accrued interest receivable 9,825 9,275
Office properties and equipment, net 15,282 15,058
Real estate and other assets acquired in settlement of loans 2,909 3,143
Other assets 8,311 8,926
Total assets $ 1,416,608 $ 1,365,348
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Deposit accounts $1,057,188 $ 1,074,313
Advances from Federal Home Loan Bank 179,907 107,853
Securities sold under agreements to repurchase 43,010 44,504
Long-term debt 19,763 19,763
Advances by borrowers for taxes and insurance 3,524 6,872
Other 18,590 20,634
Total liabilities 1,321,982 1,273,939
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 6,895,064 and 6,884,438 shares at
December 31, 1995 and September 30, 1995, respectively 69 69
Additional paid-in capital 23,876 23,776
Retained income, substantially restricted 74,310 72,814
Unrealized net gain (loss) on securities available for sale,
net of income tax 1,557 (74)
Treasury stock at cost, 579,062 and 578,534 shares at
December 31, 1995 and September 30, 1995, respectively (5,186) (5,176)
Total stockholders' equity 94,626 91,409
Total liabilities and stockholders' equity $ 1,416,608 $ 1,365,348
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
December 31,
1995 1994
(Amounts in thousands,
except per share amounts)
(Unaudited)
<S> <C> <C>
INTEREST INCOME
Interest on loans and mortgage-backed securities $24,593 $20,570
Interest and dividends on investments 1,316 1,313
Other 647 469
Total interest income 26,556 22,352
INTEREST EXPENSE
Interest on deposits 12,854 10,906
Interest on borrowed money 3,090 1,374
Total interest expense 15,944 12,280
NET INTEREST INCOME 10,612 10,072
Provision for loan losses 305 107
Net interest income after provision for loan losses 10,307 9,965
OTHER INCOME
Loan servicing fees 302 328
Service charges and fees on deposit accounts 1,145 974
Real estate operations, net (89) (90)
Other 989 711
Total other income 2,347 1,923
GENERAL AND ADMINISTRATIVE EXPENSES
Salaries and employee benefits 4,291 4,406
Occupancy costs 794 755
Marketing 333 306
Depreciation, amortization, rental and maintenance
of equipment 605 590
FDIC insurance premiums 654 620
Other 2,049 1,699
Total general and administrative expenses 8,726 8,376
Income before income taxes 3,928 3,512
Income tax expense 1,423 1,315
NET INCOME $ 2,505 $ 2,197
NET INCOME PER COMMON SHARE $ .40 $ .35
Cash dividends $ .16 $ .14
Weighted average shares outstanding 6,308 6,271
The accompanying notes are an integral part of the statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
FIRST FINANCIAL HOLDINGS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
Three Months Ended
December 31,
1995 1994
(Amounts in thousands)
(Unaudited)
<S> <C> <C>
OPERATING ACTIVITIES
Net income $ 2,505 $ 2,197
Adjustments to reconcile net income to net
cash provided by operating activities
Depreciation 446 437
Gain on sale of investments, net (5)
(Gain) loss on sale of property and equipment, net (1) 4
Gain on sale of real estate owned, net (28) (72)
Amortization of unearned discounts/premiums on
investments 101 (5)
(Increase) decrease in deferred loan fees and discounts 33 (119)
Decrease in receivables and prepaid expenses 65 829
Provision for loan losses 305 107
Write downs of real estate acquired in
settlement of loans 60
Origination of loans held for sale (12,592)
Decrease in accounts payable and accrued expenses (2,884) (2,005)
Net cash provided by (used in) operating activities (12,055) 1,433
INVESTING ACTIVITIES
Proceeds from maturity of investments 7,000 5,099
Proceeds from sale of investments 3,977
Proceeds, at par, of redemption of mutual funds
available for sale 500
Principal collected on investments 26 51
Purchases of investments (8,934) (5,941)
Increase in loans, net (31,445) (19,395)
Increase in credit card receivables (1,189) (1,041)
Purchases of loans and loan participations (4,417) (813)
Repayments on mortgage-backed securities 3,874 2,369
Purchases of mortgage-backed securities (1,436) (3,579)
Proceeds from the sales of real estate owned 674 959
Net purchase of office properties and equipment (670) (603)
Net cash used in by investing activities (32,040) (22,894)
FINANCING ACTIVITIES
Net increase (decrease) in deposit accounts (17,125) 7,405
Proceeds from FHLB advances 99,554 71,900
Repayment of FHLB advances (27,500) (46,500)
Increase (decrease) of securities sold under
agreements to repurchase (1,494) 1,679
Decrease in funds held for others (3,348) (3,242)
Proceeds from sale of common stock 100 83
Dividends paid (1,009) (877)
Treasury stock purchased (10)
Net cash provided by financing activities 49,168 30,448
Net increase in cash and cash equivalents 5,073 8,987
Cash and cash equivalents at beginning of period 24,486 23,568
Cash and cash equivalents at end of period $ 29,559 $ 32,555
Supplemental disclosures:
Cash paid during the period for:
Interest $ 20,145 $ 15,504
Income taxes 308 408
Loans foreclosed 389 367
Unrealized net gain (loss) on securities
available for sale, net of income tax 1,631 (1,473)
Transfers of securities held to maturity
to available for sale 50,185
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 6,307,817 for
the quarter ended December 31, 1995 as compared to 6,270,525 for
the quarter ended December 31, 1994.
Adoption of SFAS 114 and SFAS 118
The Financial Accounting Standards Board ("FASB") has issued
Statement of Financial Accounting Standards No. 114, "Accounting
by Creditors for Impairment of a Loan," ("SFAS 114") which
requires that all creditors value all specifically reviewed loans
for which it is probable that the creditor will be unable to
collect all amounts due according to the terms of the loan
agreement at the present value of expected cash flows, market
price of the loan, if available, or value of the underlying
collateral. Expected cash flows are required to be discounted at
the loan's effective interest rate. SFAS 114 is required for
fiscal years beginning after December 15, 1994.
The FASB also issued Standard No. 118, "Accounting by
Creditors for Impairment of a Loan -- Income Recognition and
Disclosures," ("SFAS 118") that amends SFAS 114 to allow a
creditor to use existing methods for recognizing interest income
on an impaired loan and by requiring additional disclosures about
how a creditor recognizes interest income related to impaired
loans. SFAS 118 is to be implemented concurrently with SFAS 114.
On October 1, 1995, the provisions of SFAS 114 and 118 were
adopted. The adoption required no increase to the allowance for
loan losses and had no impact on net income in the first quarter
of 1996. The Company reclassified amounts of in-substance
foreclosures to non-accrual loans for consistency in treatment.
A loan is also considered impaired if its terms are modified
in a troubled debt restructuring after October 1, 1995. For
these accruing impaired loans, cash receipts are typically
applied to principal and interest receivable in accordance with
the terms of the restructured loan agreement. Interest income is
recognized on these loans using the accrual method of accounting.
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 and Equity 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 in the Consolidated Statement of Operations.
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 and equity
securities available for sale are included in shareholders'
equity as unrealized 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
Operations of the Company. 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. The
obligations to repurchase securities sold are reflected as a
liability and securities underlying the agreements continue to be
reflected as assets in the Consolidated Statements of Financial
Condition.
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 less estimated costs to sell.
Costs relating to the development and improvement of such
property are capitalized, whereas those costs relating to holding
the property are charged to expense.
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, auto loans, marine loans,
mobile home 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.
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 $2.5 million, or $.40 per
share, for the first quarter of fiscal 1996, compared with $2.2
million, or $.35 per share earned in the first quarter of fiscal
1995. Growth in net interest income and increases in other
revenues were contributing factors to the improvement. Net
interest income in the December 1995 quarter totaled $10.6
million compared with $10.1 million one year ago. The increase
was primarily attributable to an increase of $132.0 million in
average earning assets in the current quarter compared with the
December 1994 quarter. The net interest margin in the first
quarter of fiscal 1996 was 3.15% compared with 3.31% in the
comparable quarter in fiscal 1995. Other income increased to
$2.3 million in the first quarter, up 22.0% from the comparable
quarter.
Federal budget negotiations continue to leave Savings
Association Insurance Fund ("SAIF") and Bank Insurance Fund
("BIF") reforms unsettled, even though there is no opposition
from the Clinton administration or Congress to the deposit
insurance sections of the balanced budget proposals. There
continues to be little doubt that a special assessment of
approximately 80 basis points on SAIF deposits will be enacted
sometime in 1996. There have been discussions recently of
providing separate legislation for the banking-related matters
should the budget impasse continue. In the interim well-
capitalized SAIF-insured institutions, such as First Federal and
Peoples Federal, continue to pay deposit insurance premiums of
$.23 per $100 of deposits on an annual basis while well-
capitalized BIF-insured institutions are subject currently to no
premiums other than a statutory fee of $2,000 per year. A
reduction in deposit insurance premiums of SAIF-insured
institutions is not expected to occur until the SAIF fund is
replenished by a special assessment. Based on assessable
deposits as of March 31, 1995, a special assessment of 80 basis
points would result in an expense of $6.3 million and $2.3
million, before tax, for First Federal and Peoples Federal,
respectively. Using the Company's effective tax rate in 1995 and
assuming the deductibility of the expense, an after-tax combined
charge of $5.5 million would result. During the first quarter of
fiscal 1996, SAIF premium expenses of $654 thousand were recorded
by the Associations based on current premium rates charged to
SAIF-insured well-capitalized institutions. For further
discussion of these issues, see "Management's Discussion and
Analysis of Financial Condition and Results of Operations --
Recapitalization Proposal" in the Company's Annual Report on Form
10-K for the year ended September 30, 1995.
BALANCE SHEET ANALYSIS
Consolidated assets of the Company totaled $1.4 billion at
December 31, 1995. During the quarter assets increased $51.3
million, or 15.0% on an annualized basis, principally as a result
of net growth of $48.9 million in loans receivable and loans held
for sale.
Cash, Investment Securities and Mortgage-backed Securities
Cash, deposits in transit and interest-bearing deposits
increased $5.1 million during the three months and totaled $29.6
million at December 31, 1995. Investments held to maturity
declined by $33.8 million while investments available for sale
increased $31.7 million. On November 15, 1995, the Financial
Accounting Standards Board ("FASB") issued a Special Report, "A
Guide to Implementation of Statement 115 on Accounting for
Certain Investments in Debt and Equity Securities," that
permitted an enterprise to reassess the appropriateness of the
classifications of all securities held upon the initial adoption
of the Special Report provided that such reassessment and any
resulting reclassification be completed no later than December
31, 1995. Any reclassifications from the held to maturity
category resulting from this one-time reassessment will not call
into question the intent of that enterprise to hold other debt
securities to maturity in the future. The Company evaluated its
investment position with respect to securities classified as held
to maturity in light of this new guidance on implementation.
Investment securities totaling $32.2 million were reclassified
from held to maturity to available for sale during the quarter.
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 quarter
purchases of investments totaled $8.9 million. Maturities and
sales of investments totaled $11.5 million during the quarter.
Mortgage-backed securities totaled $100.0 million at December
31, 1995. As mentioned above, the Company evaluated its
investment position with respect to mortgage-backed securities
held to maturity as allowed under the provisions of the Special
Report of the FASB and reclassified $18.0 million to available
for sale. All mortgage-backed securities of the Company are
currently classified as available for sale.
Loans Receivable
Loans receivable totaled $1.1 billion at December 31, 1995,
increasing $36.3 million from September 30, 1995. The principal
use of the Company's funds is the origination of mortgage and
other loans. The Company originated $74.3 million (net of
refinances) in mortgage loans, $12.2 million in consumer loans
and $6.3 million in commercial business loans during the three
months ending December 31, 1995. Included in mortgage loan
originations were $12.6 million in loans originated for sale.
The Company also purchased $4.4 million in loans from
correspondent originators.
Due to present market conditions, the Company has limited
growth in 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>
Dec. 31, Sept. 30, Dec. 31,
1995 1995 1994
<S> <C> <C> <C>
Residential (1-4 family) $ 748,172 $ 698,442 $ 604,655
Other residential 56,685 57,269 58,904
Land and lots 27,163 24,294 22,087
Commercial real estate 186,932 187,195 192,255
Home equity lines of credit 43,810 43,852 46,680
Consumer 72,680 70,729 65,354
Commercial business 28,844 27,825 24,521
Total gross loans $1,164,286 $1,109,606 $1,014,456
</TABLE>
As the above table indicates, gross loan balances increased
$54.7 million during the current quarter principally due to
growth in single family loans. Outstanding commitments to
originate mortgage loans and to fund the undisbursed portion of
construction loans amounted to $42.3 million at December 31,
1995, compared to $40.2 million at September 30, 1995. Unused
lines of credit on equity loans, consumer loans, credit cards and
commercial loans totaled $89.1 million as of December 31, 1995
compared to $89.4 million at September 30, 1995.
The Company originates the majority of its loans in its
primary market area located in 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 1995. The Company utilizes its existing
mortgage loan products and programs in establishing correspondent
relationships with other lenders.
Asset Quality
The following table summarizes the Company's problem assets
for the periods indicated (amounts in thousands):
<TABLE>
<CAPTION>
Dec. 31, Sept. 30, Dec. 31,
1995 1995 1994
<S> <C> <C> <C>
Non-accrual loans $ 7,013 $ 7,709 $ 5,081
Loans 90 days or more
past due (1) 465 816 4,656
Renegotiated loans 10,936 11,103 11,888
Real estate and other
assets acquired in
settlement of loans 2,910 3,144 2,666
Total $21,324 $22,772 $24,291
As a percent of net loans
and real estate owned 1.88% 2.10% 2.46%
As a percent of total assets 1.51% 1.67% 1.91%
(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>
Dec. 31, Sept. 30, Dec. 31,
1995 1995 1994
<S> <C> <C> <C>
Residential (1-4 family) $1,960 $2,087 $2,529
Other residential 3,161
Land and lots 1,254 2,375 951
Commercial real estate 2,260 2,292 1,831
Home equity lines of credit 22 22 17
Consumer 167 233 113
Commercial business 1,815 1,516 1,135
Total $7,478 $8,525 $9,737
</TABLE>
Loans on non-accrual and loans 90 days or more delinquent
totaled $7.5 million at December 31, 1995, declining $1.0 million
during the first quarter of fiscal 1996 primarily due to the
deletion of two loans totaling $1.1 million secured by
residential lots in a resort development.
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 December 31, 1995 and September 30, 1995 (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>
December 31, 1995 September 30, 1995
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 $ 2,388 $ 748,172 .32% $ 2,177 $ 698,442 .31%
Other 1,746 56,685 3.08 1,564 57,269 2.73
Land and lot loans 1,166 27,163 4.29 1,085 24,294 4.47
Commercial real estate 3,481 186,932 1.86 4,049 187,195 2.16
Commercial business 928 28,844 3.22 715 27,825 2.57
Consumer loans 1,091 116,490 .94 1,047 114,581 .91
Total $10,800 $1,164,286 .93 $10,637 $1,109,606 .96
</TABLE>
The following table provides a summary of activity in the
allowance for loan losses for the first quarter of fiscal 1995
(amounts in thousands).
<TABLE>
<CAPTION>
Balance Balance
Sept. 30 Charge- Dec. 31
1995 Additions offs Recoveries 1995
<S> <C> <C> <C> <C> <C>
Real estate $ 8,875 $(84) $ 17 $ 7 $ 8,781
Commercial business 715 191 3 25 928
Consumer 1,047 198 158 4 1,091
Total $10,637 $305 $178 $ 36 $10,800
</TABLE>
At December 31, 1995, impaired loans totaled $3.6 million.
Included in the allowance for loan losses is $652 thousand
related to $2.3 million of impaired loans. The rest of the
impaired loans are recorded at or below fair value.
Deposits and Borrowings
First Financial's deposit composition at the indicated dates
is as follows (amounts in thousands):
<TABLE>
<CAPTION>
December 31, 1995 September 30, 1995 December 31, 1994
% of % of % of
Balance Total Balance Total Balance Total
<S> <C> <C> <C> <C> <C> <C>
Checking accounts $ 119,999 11.35% $ 117,149 10.90% $ 114,569 10.70%
Passbook, statement and
other accounts 122,070 11.55 125,588 11.69 141,627 13.23
Money market funds 128,804 12.18 131,225 12.22 141,160 13.19
Certificate accounts 686,315 64.92 700,351 65.19 673,020 62.88
Total deposits $1,057,188 100.00% $1,074,313 100.00% $1,070,376 100.00%
</TABLE>
Checking and other transaction account balances have
increased as the Company has emphasized growth in these types of
products. 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 declined $17.1 million during the three months ending
December 31, 1995, partially as a result of the maturity of $11.0
million in wholesale certificate of deposits.
Primarily as a result of growth in loans receivable during
the quarter and the utilization of FHLB advances as a primary
source of net new funds, total borrowings increased $70.6 million
to total $242.7 million as of December 31, 1995. Approximately
$178.5 million in FHLB advances mature within one year from
December 31, 1995. Securities sold subject to repurchase of
$43.0 million mature within three months of December 31, 1995.
Stockholders' Equity
Stockholders' equity increased $3.2 million during the first
quarter of fiscal 1996 to total $94.6 million at December 31,
1995. The Company's capital ratio, total capital to total
assets, was 6.68% at December 31, 1995, compared to 6.69% at
September 30, 1995. During the quarter, the Company increased
its cash dividends to $.16 per share compared with $.14 per share
in the most recent 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
December 31, 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.
The following table summarizes the capital requirements for
First Federal and Peoples Federal as well as their capital
positions at December 31, 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 $73,258 7.21% $27,489 7.11%
Tangible capital
requirement 15,251 1.50 5,795 1.50
Excess $58,007 5.71% $21,694 5.61%
Core capital $73,258 7.21% $27,489 7.11%
Core capital requirement 30,503 3.00 11,592 3.00
Excess $42,755 4.21% $15,897 4.11%
Risk-based capital(a) $79,212 11.43% $27,489 13.37%
Minimum risk-based
capital requirement(a) 55,460 8.00 16,443 8.00
Excess(a) $23,752 3.43% $11,046 5.37%
____________________________
(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, 1995.
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 6.48% for the current three months compared to 7.30% for
the comparable period in fiscal 1995. Peoples Federal's average
liquidity ratio was 7.55% during the present three months
compared with 10.37% in the prior 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 quarter the Company experienced a net cash
outflow from investing activities of $32.0 million, consisting
principally of loans originated and purchased for investment,
offset by principal payments on loans and mortgage-backed
securities. The Company experienced cash outflows of $12.1
million from operating activities principally as a result of
$12.6 million in loans originated for sale. Financing activities
resulted in cash inflows of $49.2 million, consisting principally
of $72.1 million in FHLB advances offset by a $17.1 million
decrease in deposit balances.
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) 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 December 31, 1995, First Financial
had cash reserves and marketable securities of $10.9 million.
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, 1995.
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>
December 31, September 30, December 31,
1995 1995 1994
<S> <C> <C> <C>
Interest-earning assets
maturing or repricing
within one year $875,261 $874,889 $864,404
Interest-bearing
liabilities maturing
or repricing within
one year 934,621 875,742 731,366
Cumulative gap $(59,360) $ (853) $133,038
Gap as a percent of
total assets (4.19%) (.06%) 10.45%
</TABLE>
The Company's one year gap as a percent of total assets
declined from (.06)% to (4.19)% during the current three months.
One year ago, the Company's one year gap as a percent of total
assets was 10.45%. The change from one year ago is principally
due to the retention of fixed-rate loans originated by the
Company throughout the period. A negative gap indicates that
cumulative interest-sensitive liabilities exceed cumulative
interest-sensitive assets and suggests that net interest income
would increase if market rates declined. A positive gap would
suggest the reverse. This relationship is not always ensured due
to the repricing attributes of both interest sensitive assets and
interest sensitive liabilities. The Company generally considers
plus or minus 10% of assets to be its preferred gap position.
COMPARISON OF OPERATING RESULTS
QUARTERS ENDING DECEMBER 31, 1995 AND 1994
Net Interest Income
First Financial's net interest income for the three months
ending December 31, 1995 was $10.6 million compared with $10.1
million for the comparable quarter in fiscal 1995. The gross
interest margin declined from 3.04% in the prior quarter to 2.82%
in the current quarter and reflects an increase of .75% between
the two comparable periods in the Company's average cost of funds
which was only partially offset by a .53% increase in the
Company's yield on earning assets.
The following table summarizes rates, yields and average
earning asset and costing liability balances for the respective
quarters (amounts in thousands):
<TABLE>
Quarter Ending December 31,
1995 1994
Average Average Average Average
Balance Yield/Rate Balance Yield/Rate
<S> <C> <C> <C> <C>
Loans and mortgage-
backed securities $1,222,060 7.98% $1,091,918 7.47%
Other interest-earning
assets 125,613 6.20 123,774 5.71
Total interest-earning
assets $1,347,673 7.82% $1,215,692 7.29%
Deposits $1,069,886 4.77% $1,057,769 4.09%
Borrowings 197,003 6.23 88,084 6.19
Total interest-bearing
liabilities $1,266,889 5.00% $1,145,853 4.25%
Gross interest margin 2.82% 3.04%
Net interest margin 3.15% 3.31%
</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 December 31,
1995 versus 1994
Volume Rate Total
<S> <C> <C> <C>
Interest income:
Loans and mortgage-backed
securities $2,558 $1,465 $4,023
Investments and other
interest-earning assets 27 154 181
Total interest income 2,585 1,619 4,204
Interest expense:
Deposit accounts 126 1,822 1,948
Borrowings 1,707 9 1,716
Total interest expense 1,833 1,831 3,664
Net interest income $ 752 $ (212) $ 540
Total interest income for the current quarter of $26.6
million represents growth of $4.2 million from the comparative
quarter in fiscal 1995. Average balances of earning assets
increased $132.0 million during the current quarter compared to
the December 1994 quarter. Average yields on loans and mortgage-
backed securities increased by 51 basis points and the average
yield on all other earning assets increased 49 basis points.
Total interest expense increased $3.7 million during the
current quarter, with average interest-bearing liability balances
increasing by $121.0 million. The average cost of deposits
increased 68 basis points while the average cost of borrowings
increased 4 basis points. The Company's overall cost of funds
increased 75 basis points to 5.00% from 4.25% in the prior
period.
Provision for Loan Losses
During the current quarter, First Financial's provision for
loan losses totaled $305 thousand, compared to $107 thousand
during the same period in the previous year. Net charge-offs for
the current quarter totaled $142 thousand compared with $146
thousand in the comparable quarter in fiscal 1995. Total loan
loss reserves as of December 31, 1995 and 1994 were $10.8 million
and $10.7 million, respectively. Loan loss reserves as a
percentage of the total net loan portfolio, excluding mortgage-
backed securities, were .96% and 1.09% at December 31, 1995 and
1994, respectively.
Other Income/General and Administrative Expenses
Loan servicing fee income declined $26 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 $171 thousand during the current quarter,
reflecting increased balances in checking and other transaction
accounts at the Company and changes to service charge pricing
structure since the December 1994 quarter.
Other income increased $278 thousand, or 39.1%, in the
current quarter. Commissions from sales of insurance products
increased $140 thousand, or 51.0% from the December 1994 quarter.
During fiscal 1995 Magrath Insurance Agency, a subsidiary of
Peoples Federal, purchased an additional agency in Lake City,
South Carolina.
General and administrative expenses increased $350 thousand
during the current quarter. Operating expense increases in the
current quarter were primarily attributable to a non-recurring
loss of approximately $348 thousand related to a deposit account.
Excluding the non-recurring expense, the total of general and
administrative expenses would have been consistent with the
comparable quarter ended December 31, 1994. General and
administrative expenses as a percentage of average assets
declined from 2.66% in the December 31, 1994 quarter to 2.51% in
the current quarter. Salaries and employee benefits declined
$115 thousand while other operating expenses increased
moderately.
Income Tax Expense
During the current quarter, the Company's effective tax rate
was 36.2% compared to 37.4% in the comparable quarter. The
actual tax provision of $1.4 million resulted in an increase of
$108 thousand from the prior period.
IMPACT OF REGULATORY AND ACCOUNTING ISSUES
For a comprehensive discussion of regulatory and accounting
issues, refer to "Regulation of the Associations" in the
Company's 10K for the fiscal year ending September 30, 1995.
The Company adopted Statement of Financial Accounting
Standards No. 122, "Accounting for Mortgage Servicing Rights," on
October 1, 1995. This rule allows financial institutions to
capitalize servicing-related costs associated with mortgage loans
that are originated for sale, and to create servicing assets for
such loans. Prior to the Company's adoption, originated mortgage
servicing rights would not have been recognized. The Company had
no material amounts of loan sales in the first quarter of fiscal
1996.
<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
The following proposals were submitted to the Company's
stockholders at the annual meeting on January 24, 1996. The
proposals were approved by a vote of the stockholders.
Proposal I: Election of Directors
James C. Murray
D. Dent Sharples
D. Van Smith
Item 5 - Other Information
None
Item 6 - Exhibits and Report on Form 8-K.
Exhibits
(3.1) Certificate of Incorporation, as amended, of Registrant
(1)
(3.2) Bylaws, as amended, of Registrant (2)
(4) Indenture, dated September 10, 1992, with respect to the
Registrant's 9.375% Senior Notes, due September 1, 2002
(3)
(10.1) Acquisition Agreement dated as of December 9, 1991 by and
among the Registrant, First Federal Savings and Loan
Association of Charleston and Peoples Federal Savings and
Loan Association of Conway (3)
(10.2) Employment Agreement with A. L. Hutchinson, Jr., as
amended (4)
(10.3) Employment Agreement with A. Thomas Hood, as amended (4)
(10.4) Employment Agreement with Charles F. Baarcke, Jr. (4)
(10.5) Employment Agreement with John L. Ott, Jr. (4)
(10.6) 1990 Stock Option and Incentive Plan (5)
(10.7) 1994 Outside Directors Stock Options-for-Fees Plan (6)
(10.8) 1994 Employee Stock Purchase Plan (6)
(22) Subsidiaries of the Registrant (4)
____________
(1) Incorporated by reference to Exhibit 3 to the Registrant's
Quarterly Report on Form 10-Q for the quarter ended December
31, 1993
(2) Incorporated by reference to Exhibit 3 to the Registrant's
Quarterly Report on Form 10-Q for the quarter ended March
31, 1995
(3) Incorporated by reference to the Registrant's Registration
Statement on Form S-8 File No. 33-55067
(4) Incorporated by reference to the Registrant's Annual Report
on Form 10-K for the year ended September 30, 1995.
(5) Incorporated by reference to the Registrant's Registration
Statement on Form S-8 File No. 33-57855
(6) Incorporated by reference to the Registrant's Proxy
Statement for the Annual Meeting of Stockholders held on
January 25, 1995
There were no reports on Form 8-K filed during the quarter ended
December 31, 1995.
<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: February 13, 1996 By: /s/ A. Thomas Hood
A. Thomas Hood
Executive Vice President
Treasurer
Principal Financial
Officer
Duly Authorized
Representative
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 9
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> SEP-30-1996
<PERIOD-END> DEC-31-1995
<CASH> 26,421
<INT-BEARING-DEPOSITS> 3,138
<FED-FUNDS-SOLD> 0
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 171,527
<INVESTMENTS-CARRYING> 46,933
<INVESTMENTS-MARKET> 47,182
<LOANS> 1,143,062
<ALLOWANCE> 10,800
<TOTAL-ASSETS> 1,416,608
<DEPOSITS> 1,057,188
<SHORT-TERM> 222,917
<LIABILITIES-OTHER> 0
<LONG-TERM> 19,763
0
0
<COMMON> 69
<OTHER-SE> 94,557
<TOTAL-LIABILITIES-AND-EQUITY> 1,416,608
<INTEREST-LOAN> 24,593
<INTEREST-INVEST> 1,316
<INTEREST-OTHER> 647
<INTEREST-TOTAL> 26,556
<INTEREST-DEPOSIT> 12,854
<INTEREST-EXPENSE> 15,944
<INTEREST-INCOME-NET> 10,612
<LOAN-LOSSES> 305
<SECURITIES-GAINS> 5
<EXPENSE-OTHER> 2,049
<INCOME-PRETAX> 3,928
<INCOME-PRE-EXTRAORDINARY> 2,505
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,505
<EPS-PRIMARY> .40
<EPS-DILUTED> .40
<YIELD-ACTUAL> 3.15
<LOANS-NON> 7,013
<LOANS-PAST> 465
<LOANS-TROUBLED> 10,936
<LOANS-PROBLEM> 18,414
<ALLOWANCE-OPEN> 10,637
<CHARGE-OFFS> 178
<RECOVERIES> 36
<ALLOWANCE-CLOSE> 10,800
<ALLOWANCE-DOMESTIC> 10,800
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
