THIS DOCUMENT IS A COPY OF THE PROXY STATEMENT (DEF 14A) FILED ON DECEMBER 19,
1996 PURSUANT TO A RULE 201 TEMPORARY HARDSHIP EXEMPTION.
FIRST FINANCIAL HOLDINGS, INC.
34 Broad Street
Charleston, S. C. 29401
803-529-5800
December 18, 1996
Dear Stockholder:
You are cordially invited to attend the 1997 Annual Meeting of
Stockholders of First Financial Holdings, Inc. to be held at the
Corporation's main office, 34 Broad Street, Charleston, South Carolina, on
Wednesday, January 22, 1997, at 5:30 p.m., South Carolina time.
The attached Notice of Annual Meeting of Stockholders and Proxy
Statement describe the formal business to be transacted at the meeting.
During the meeting, we will also report on the operations of the
Corporation. Directors and officers of the Corporation, as well as a
representative of KPMG Peat Marwick LLP, the Corporation's independent
auditors, will be present to respond to any questions stockholders may
have.
The Corporation's consolidated financial statements, the report of the
independent auditors and management's discussion and analysis of financial
condition and results of operations are included in this proxy statement.
To ensure proper representation of your shares at the meeting, please
sign, date and return the enclosed proxy ballot in the enclosed postage-
prepaid envelope as soon as possible, even if you currently plan to attend
the meeting. This will not prevent you from voting in person, but will
assure that your vote is counted if you are unable to attend the meeting.
Sincerely,
/s/ A. Thomas Hood
A. Thomas Hood
President and Chief Executive Officer<PAGE>
FIRST FINANCIAL HOLDINGS, INC.
34 Broad Street
Charleston, South Carolina 29401
803-529-5800
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD ON JANUARY 22, 1997
NOTICE IS HEREBY GIVEN that the Annual Meeting of Stockholders
("Meeting") of First Financial Holdings, Inc. ("Corporation") will be held
at the main office of the Corporation at 34 Broad Street, Charleston, South
Carolina, on Wednesday, January 22, 1997, at 5:30 p.m., South Carolina
time.
A Proxy Ballot and a Proxy Statement for the Meeting are enclosed.
The Meeting is for the purpose of considering and acting upon:
1. The election of four directors of the Corporation;
2. The ratification of the First Financial Holdings, Inc.
Performance Equity Plan for Non-Employee Directors; and
3. Such other matters as may properly come before the
Meeting or any adjournments thereof.
NOTE: The Board of Directors is not aware of any other business to come
before the Meeting.
Any action may be taken on any one of the foregoing proposals at the
Meeting on the date specified above, or on any date or dates to which, by
original or later adjournment, the Meeting may be adjourned. Pursuant to
the Bylaws, the Board of Directors has fixed the close of business on
November 29, 1996, as the record date for the determination of the
stockholders entitled to vote at the Meeting and any adjournments thereof.
You are requested to complete and sign the enclosed Proxy Ballot,
which is solicited by the Board of Directors, and to mail it promptly in
the enclosed envelope. The Proxy will not be used if you attend and vote
in person at the Meeting.
BY ORDER OF THE BOARD OF DIRECTORS
/s/ Phyllis B. Ainsworth
PHYLLIS B. AINSWORTH
SECRETARY
Charleston, South Carolina
December 18, 1996
IMPORTANT: THE PROMPT RETURN OF THE SIGNED PROXY BALLOT WILL SAVE THE
CORPORATION THE EXPENSE OF FURTHER REQUESTS FOR PROXIES IN ORDER TO INSURE
A QUORUM. A SELF-ADDRESSED ENVELOPE IS ENCLOSED FOR YOUR CONVENIENCE. NO
POSTAGE IS REQUIRED IF MAILED IN THE UNITED STATES.
<PAGE>
PROXY STATEMENT
OF
FIRST FINANCIAL HOLDINGS, INC.
34 Broad Street
Charleston, South Carolina 29401
803-529-5800
ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD ON JANUARY 22, 1997
This Proxy Statement is furnished in connection with the solicitation
of proxies by the Board of Directors of First Financial Holdings, Inc.
("First Financial" or "Corporation") to be used at the Annual Meeting of
Stockholders of the Corporation ("Meeting"). The Meeting will be held at
the Corporation's main office at 34 Broad Street, Charleston, South
Carolina, on Wednesday, January 22, 1997, at 5:30 p.m., South Carolina
time. The accompanying Notice of Annual Meeting of Stockholders and this
Proxy Statement are first being mailed to stockholders on or about December
18, 1996.
First Financial operates as a multiple savings and loan holding
company for First Federal Savings and Loan Association of Charleston
("First Federal") and Peoples Federal Savings and Loan Association, Conway,
South Carolina ("Peoples Federal") (collectively, the "Associations").
REVOCATION OF PROXIES
Stockholders who execute proxies retain the right to revoke them at
any time. Unless so revoked, the shares represented by such proxies will
be voted at the Meeting and all adjournments thereof. Proxies may be
revoked by written notice delivered in person or mailed to the Secretary of
the Corporation at 34 Broad Street, Charleston, South Carolina 29401, or
the filing of a later proxy, to be received prior to a vote being taken on
a particular proposal at the Meeting. A proxy will not be voted if a
stockholder attends the Meeting and votes in person. Proxies solicited by
the Board of Directors of First Financial will be voted in accordance with
the directions given therein. Where no instructions are indicated, proxies
will be voted for the nominees for directors set forth below and for the
ratification of the Performance Equity Plan for Non-Employee Directors.
VOTING SECURITIES AND PRINCIPAL HOLDERS THEREOF
Stockholders of record as of the close of business on November 29,
1996, are entitled to one vote for each share then held. Stockholders are
not permitted to cumulate their votes for the election of directors. As of
November 29, 1996, the Corporation had 6,348,107 shares of common stock
("Common Stock") issued and outstanding.
Persons and groups owning in excess of 5% of the Corporation's Common
Stock are required to file certain reports disclosing such ownership
pursuant to the Securities Exchange Act of 1934, as amended ("1934 Act").
Based upon such reports, the following table sets forth, as of September
30, 1996, certain information as to those persons who were beneficial
owners of more than 5% of the outstanding shares of Common Stock.
Management knows of no persons other than those set forth below who owned
more than 5% of the Corporation's outstanding shares of Common Stock at
September 30, 1996. The table also sets forth information as to the shares
of Common Stock beneficially owned by the Chief Executive Officer of the
Corporation, by the Corporation's or the Associations' three other most
highly compensated individuals ("named executive officers") and by all
officers and directors of the Corporation as a group.
Name and Amount and Nature Percent of Shares
Address of of Beneficial of Capital Stock
Beneficial Owner Ownership(1) Outstanding
Dimensional Fund Advisors, Inc.(2) 387,900 6.10%
1299 Ocean Avenue
11th Floor
Santa Monica, California 90401
Named and Other Executive Officers (3)
A. Thomas Hood 101,159 1.59%
George N. Magrath, Jr. 24,389 (4)
Charles F. Baarcke, Jr. 35,151 (4)
John L. Ott, Jr. 58,391 (4)
A. L. Hutchinson, Jr.(5) 119,094 1.87%
Susan E. Baham(6) 38,568 (4)
All Officers and Directors
as a group 792,317(3) 12.46%
(39 persons)
(1) Unless otherwise indicated, all shares are owned directly by the named
persons or by the persons indirectly through a trust, corporation or
association, or as custodians or trustees for the shares of minor
children. The named persons effectively exercise voting and
investment power over such shares.
(2) Dimensional Fund Advisors, Inc. ("Dimensional"), a registered
investment advisor, is deemed to have beneficial ownership of 387,900
shares of the Corporation's Common Stock as of September 30, 1996.
Such shares are held in portfolios of DFA Investment Dimensions Group
Inc., a registered open-end investment company, or in series of the
DFA Investment Trust Company, a Delaware business trust, or the DFA
Group Trust and the DFA Participating Group Trust, investment vehicles
for qualified employee benefit plans, all of which Dimensional serves
as investment manager. Dimensional disclaims beneficial ownership of
all such shares.
(3) Includes 37,989, 13,800, 6,400, 16,050, 13,500, 16,020 and 252,732
shares of Common Stock that may be received upon the exercise of stock
options, which are exercisable within 60 days from September 30, 1996,
for Messrs. Hood, Magrath, Baarcke, Ott, Hutchinson and Mrs. Baham and
all officers and directors as a group, respectively.
(4) Less than one percent.
(5) Retired as President and Chief Executive Officer of First Financial on
June 30, 1996.
(6) Became Senior Vice President and Chief Financial Officer on July 1,
1996.
PROPOSAL I - ELECTION OF DIRECTORS
The Corporation's Board of Directors ("Board") is currently composed
of 10 members. The Corporation's Certificate of Incorporation provides
that directors are to be elected for terms of three years with
approximately one-third elected annually. At the Meeting, four directors
will be elected to serve for a three-year period, or until their respective
successors have been elected and qualified. The Nominating Committee has
nominated for election as directors Paula Harper Bethea, A. Thomas Hood, A.
L. Hutchinson, Jr. and Thomas E. Thornhill for three-year terms. All
nominees currently are members of the Board.
If any nominee is unable to serve, the shares represented by all valid
proxies will be voted for the election of such substitute as the Board may
recommend or the Board may amend the Bylaws and reduce the size of the
Board. At this time, the Board knows of no reason why any nominee might be
unavailable to serve.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" ALL OF THE NOMINEES FOR
DIRECTORS OF THE CORPORATION.
The following table sets forth for each nominee and for each director
continuing in office the name, age, principal occupation(s) during the past
five years, the first year elected as a director, the number of shares of
the Corporation's Common Stock beneficially owned and the percent of the
class of outstanding shares.
<TABLE>
<CAPTION>
Shares of
Common Stock
Beneficially
Year First Owned at Percent
Elected Year Term September 30, of
Name Age(1) Principal Occupation (2) Director(3) Expires 1996 (4) Class
Board Nominees
<S> <C> <C> <C> <C> <C> <C>
Paula Harper Bethea (5) 41 Director of Client Relations and 1996 2000 (6) 100 (9)
Development, Bethea, Jordan & Griffin,
PA, a law firm.
A. Thomas Hood (5)(7) 50 President and Chief Executive Officer of 1987 2000 (6) 101,159 1.59%
the Corporation since July 1, 1996, and
of First Federal since February 1, 1995.
Previously served in various capacities
for the Corporation and First Federal.
A. L. Hutchinson, Jr. (5)(7) 62 Vice Chairman of the Corporation and 1985 2000 (6) 119,094 1.87%
First Federal since February 1, 1995.
Previously served as President and Chief
Executive Officer and in other various
capacities for the Corporation and First
Federal.
Thomas E. Thornhill(5) 67 Principal, Clement, Crawford & Thornhill,1979 2000 (6) 21,001 (9)
Inc., a commercial real estate firm.
Directors Continuing in Office
Gary C. Banks, Jr. (5) 62 Director and retired Executive Vice 1987 1998 21,382 (9)
President, Banks Construction Company,
which specializes in highway
construction.
Joseph A. Baroody (7) 68 Retired President of N. B. Baroody Co., 1992 (8) 1998 5,342 (9)
Inc., a wholesale foods business.
Paul G. Campbell, Jr. (5) 50 Senior Vice President and General Manager1991 1998 4,800 (9)
of Alumax of South Carolina, a leading
primary aluminum reduction company in the
U. S.
James C. Murray (5) 57 President, Chief Executive Officer and 1991 1999 10,482 (9)
Chairman of Utilities Construction Co.,
an electrical contracting company
specializing in high voltage electrical
work and heavy industrial work in the
Southeast.
D. Kent Sharples (7) 53 President of Horry-Georgetown Technical 1992 (8) 1999 9,866 (9)
College.
D. Van Smith (5) 65 President and co-owner of Van Smith 1968 1999 26,097 (9)
Company, Inc., a concrete company;
President and owner of Smith and Smith,
Inc., an investment property company.
___________________
(1) As of September 30, 1996.
(2) Nominees and directors have held these vocations or positions for at
least five years, unless otherwise noted.
(3) Includes prior service, as applicable, on the Board of Directors of
First Federal.
(4) In accordance with Rule 13d-3 under the 1934 Act, a person is deemed
to be the beneficial owner, for purposes of this table, of any share
of the Corporation's Common Stock if he has shared voting and/or
investment power with respect to such security. The table includes
shares owned by spouses, other immediate family members in trust,
shares held in retirement accounts or funds for the benefit of the
named individuals and other forms of ownership, over which shares the
persons named in the table possess voting and investment power. None
of the directors have exercised their right to disclaim beneficial
ownership over shares in which they possess a beneficial interest.
This table also includes 82,158 shares of Common Stock subject to
outstanding options which are exercisable within 60 days from
September 30, 1996.
(5) Also serves as a Director of First Federal.
(6) Assuming re-election at the Meeting.
(7) Also serves as a Director of Peoples Federal.
(8) Does not include prior service on Board of Directors of Peoples
Federal.
(9) Less than one percent.
</TABLE>
The following discussion presents information with respect to the
nominees at the Meeting:
PAULA HARPER BETHEA is the Director of Client Relations and
Development for Bethea, Jordan & Griffin, P.A. of Hilton Head Island,
South Carolina, a law firm. A native of Hampton County, Mrs. Bethea is a
graduate of the University of South Carolina. Currently she is
Chairperson of the Board of Governors of United Way of America. She is a
Board member and past Chairperson of United Way of South Carolina and past
Chairperson of the Hilton Head Island Chamber of Commerce and is a member
of the Board and Executive Committee of the South Carolina Chamber of
Commerce. She served in 1991 on the State Chamber's Task Force for
Restructuring State Government and was a member and a Subcommittee Chair
of the Governor's Commission on Restructuring. Governor Campbell
presented the Order of the Palmetto, South Carolina's highest award for
volunteer service, to her in 1992.
A. THOMAS HOOD has been President and Chief Executive Officer of
First Financial since July 1, 1996, and of First Federal since February 1,
1995. He is a member of the Boards of Directors of the Corporation, First
Federal and Peoples Federal and is President of Charleston Financial
Services, Inc., a wholly-owned subsidiary of First Federal. He has also
served as Executive Vice President and Chief Operating Officer of First
Financial, Executive Vice President of the Services Division and Chief
Financial Officer of First Federal. He began his career with the
Association in 1975 and was elected to the Board of Directors in 1987. He
is a Citadel graduate and is a licensed Certified Public Accountant.
Mr. Hood is involved in many professional and community
organizations, including the Board of Directors of the Business
Development Corporation of South Carolina and the Board of Trustrees of
the Charleston Museum. He is Treasurer and a member of the Board of
Directors of the Trident United Way and past chairman of the Salvation
Army Advisory Board.
A. L. HUTCHINSON, Jr. is Vice Chairman of the Boards of Directors
of First Financial and First Federal. He served as President and Chief
Executive Officer of First Financial from January, 1988, when the
Corporation was organized, until his retirement on June 30, 1996. Mr.
Hutchinson began his career with First Federal in 1961, was promoted to
Executive Vice President--Production division in 1979, was elected to the
First Federal Board in 1985 and assumed the position of President of First
Federal in April, 1988.
A graduate of the Citadel, he serves on the Board of Directors of
the Star Gospel Mission and is past Chairman of the Trident Technical
College Foundation Board. He serves as Vice President for Administration
and is a member of the Board for the Boy Scouts Coastal Carolina Council.
THOMAS E. THORNHILL was elected to First Federal's Board of
Directors in 1979 and to First Financial's Board of Directors in 1988. A
retired Vice President and Treasurer of Charleston Oil Company, Mr.
Thornhill is a founding stockholder, Secretary and Treasurer of Clement,
Crawford & Thornhill, Inc., a commercial real estate firm. He has
received the designation CCIM, Certified Commercial Investment Member.
He is a Clemson University graduate, has previously served as
President of the national Clemson Alumni Association and remains active in
Clemson affairs, holding a distinguished service award from the
University. He is also a past president of the Kiwanis Club, the Trident
Chamber of Commerce, the United Way, and the Historic Charleston
Foundation.
MEETINGS AND COMMITTEES OF THE BOARD OF DIRECTORS
First Financial
The Board conducts its business through meetings of the Board of
Directors and through its committees. During the fiscal year ended
September 30, 1996, the Board held eight meetings. No director of First
Financial attended fewer than 75% of the total meetings of the Board and
committee meetings on which such Board member served during this period
for the Corporation.
The Executive Committee of the Corporation, composed of Messrs.
Smith, Hood, Hutchinson, Sharples, and Thornhill met six times during the
fiscal year ended September 30, 1996.
The Audit Committee of the Corporation, composed of Messrs.
Sharples, Baroody, Banks and Mrs. Bethea meets periodically to study the
findings of the Corporation's independent auditors and internal auditor
and to evaluate policies and procedures relating to internal controls.
This Committee met four times during the fiscal year ended September 30,
1996.
The Compensation/Benefits Committee of the Corporation, composed of
Messrs. Campbell, Baroody and Murray, reviews compensation policies and
benefit plans of the Corporation, grants stock options and recommends
compensation for senior management. This Committee held six meetings
during the fiscal year ended September 30, 1996.
Article II, Section 14 of the Corporation's Bylaws provides that the
Board shall act as a nominating committee for selecting the management
nominees for election as directors. Such section of the Bylaws also
provides as follows: "No nominations for directors except those made by
the nominating committee shall be voted upon at the annual meeting unless
other nominations by stockholders are made in writing and delivered to the
Secretary of the Corporation in accordance with the provisions of the
Corporation's Certificate of Incorporation." Article II, Section 15
further provides that any new business to be taken up at the annual
meeting shall be stated in writing and filed with the Secretary of the
Corporation in accordance with the provisions of the Corporation's
Certificate of Incorporation. Article IX of the Certificate of
Incorporation provides that notice of a stockholder's intent to make a
nomination or present new business at the meeting ("stockholder notice")
must be given not less than 30 days nor more than 60 days prior to any
such meeting; provided, however, that if less than 31 days notice of the
meeting is given to stockholders by the Corporation, a stockholder's
notice shall be delivered or mailed, as prescribed, to the Secretary of
the Corporation not later than the close of the tenth day following the
day on which notice of the meeting was mailed to stockholders. If
properly made, such nominations or new business shall be considered by
stockholders at such meeting. The Board held one meeting in its capacity
as the nominating committee during the fiscal year ended September 30,
1996.
First Federal
During the fiscal year ended September 30, 1996, the Board of
Directors of First Federal ("First Federal Board") held 13 meetings. No
director of the First Federal Board attended fewer than 75% of the total
meetings of the Board and committee meetings on which such Board member
served.
The Executive Committee of First Federal, composed of Messrs. Smith,
Hood, Hutchinson, Banks and Campbell, held no meetings during the fiscal
year ended September 30, 1996.
The Planning and Development Committee, composed of Messrs.
Thornhill, Hood, Murray and Mrs. Bethea, held one meeting during the
fiscal year ended September 30, 1996.
The Directors Loan Committee, composed of Messrs. Murray, Campbell,
Hood, Magrath and Stilley, met 12 times during the fiscal year ended
September 30, 1996.
The Public Relations Committee, composed of Messrs. Thornhill,
Hutchinson, Magrath and Mrs. Bethea held one meeting during the fiscal
year ended September 30, 1996.
The Audit Committee, composed of Messrs. Stilley, Banks, Campbell
and Murray, met four times during the fiscal year ended September 30,
1996.
The Compensation/Benefits Committee, composed of Messrs. Banks,
Stilley and Thornhill, reviews the evaluations of senior management, the
performance of the President and Chief Executive Officer, and recommends
salaries for the upcoming year. During the fiscal year ended September 30,
1996, the Committee held two meetings.
Article II, Section 14 of First Federal's Bylaws provides that the
Board in its entirety shall act as a nominating committee for selecting
the management nominees for election as directors. The nominating
committee met one time during the fiscal year ended September 30, 1996.
Peoples Federal
During the fiscal year ended September 30, 1996, the Board of
Directors of Peoples Federal ("Peoples Federal Board") held 12 meetings.
No director of Peoples Federal attended fewer than 75% of the total
meetings of the Board and committee meetings on which such Board member
served during this period.
The Executive Committee of Peoples Federal, composed of Messrs.
Baroody, Griffin, Hutchinson, Magrath and Sharples, held no meetings
during the fiscal year ended September 30, 1996.
The Loan Committee of Peoples Federal meets weekly, or on an as
needed basis, in Conway and in Florence. Three Directors and/or staff
constitute a quorum of which one of these members must be a non-management
Director. Dr. Griffin serves as Chairman in Conway and Mr. Willcox serves
in this capacity in Florence. There were 44 meetings held in Conway and
26 meetings held in Florence during the fiscal year ended September 30,
1996.
The Audit Committee of Peoples Federal, composed of Messrs. Baroody,
Sharples, Willcox, Swink and Speissegger, met four times during the
fiscal year ended September 30, 1996.
The Compensation Committee of Peoples Federal, composed of Messrs.
Baroody, Sharples and Speissegger, reviews the performance of and
recommends compensation for the President and Chief Executive Officer.
During the fiscal year ended September 30, 1996, the Committee held one
meeting.
Article II, Section 14 of Peoples Federal's Bylaws provides that the
board in its entirety shall act as a nominating committee for selecting
the management nominees for election as directors. The nominating
committee met one time during fiscal 1996.
MANAGEMENT REMUNERATION
Summary Compensation Table.
The following information is furnished for the Chief Executive
Officer and those named executive officers for the Corporation or the
Associations who received salaries and bonuses in excess of $100,000
during the fiscal year ended September 30, 1996, including Mr. Hutchinson,
who retired from service as an executive officer on June 30, 1996.
<TABLE>
<CAPTION>
SUMMARY COMPENSATION TABLE*
Long-Term
Annual Compensation Compensation
Awards
Other Annual All Other
Salary Compensation Stock Options Compensation
Name and Principal Position Year ($)(1) ($)(2) (#) ($)(3)
<S> <C> <C> <S> <C> <C>
A. Thomas Hood 1996 176,006 -- 3,000 10,240
President and Chief Executive Officer 1995 162,829 -- -- 6,259
of the Corporation and First Federal 1994 153,549 -- 15,600 7,190
George N. Magrath, Jr. 1996 111,028 -- 2,000 9,351
President 1995 110,319 -- -- 7,457
Peoples Federal 1994 97,839 -- 1,800 7,523
Charles F. Baarcke, Jr. 1996 127,866 -- 2,000 6,761
Senior Vice President 1995 121,755 -- -- 3,943
1994 115,574 -- 4,400 4,310
John L. Ott, Jr. 1996 131,441 -- 2,000 8,649
Senior Vice President 1995 125,271 -- -- 5,090
1994 120,268 -- 11,300 5,642
A. L. Hutchinson, Jr. 1996 197,324 -- -- 10,240
Retired President and Chief Executive
Officer of First Financial 1995 217,987 -- -- 6,259
effective 6/30/96 1994 213,178 -- 23,500 9,015
* All compensation, except for the compensation of George N. Magrath, Jr., is paid by First Federal but allocated
between the Corporation and First Federal based on approximate time spent by the named executive on Corporation
business. Mr. Magrath is compensated by Peoples Federal.
_________________
(1) Does not include directors' fees described below. Includes management
fees assessed First Financial by First Federal for hours spent
attending to First Financial business. Since the formation of First
Financial, effective June 30, 1988, none of its executive officers
have received any remuneration from First Financial. It is expected
that unless and until First Financial becomes actively involved in
additional businesses, no separate compensation will be paid to the
officers of First Financial in addition to that paid to them by First
Federal.
(2) Excludes perquisites which did not exceed $50,000 or 10% of salary
and bonus.
(3) Represents total 401(k) and profit sharing plan contributions paid by
the Corporation in fiscal year.
</TABLE>
Option Grants Table.
The following table sets forth all grants of options to the
Corporation's Chief Executive Officer and named executive officers for the
fiscal year ended September 30, 1996.
<TABLE>
<CAPTION>
OPTION GRANTS IN LAST FISCAL YEAR
Individual Grants Potential Realizable
Value at Assumed
Annual Rates of Stock
Price Appreciation for
% of Total Option Term
Options Options Granted Exercise
Granted to Employees in Price Expiration 5% 10%
Name (#) Fiscal Year ($/Sh) Date ($)(1) ($)(1)
<S> <C> <C> <C> <C> <C> <C>
A. Thomas Hood 3,000 6.03 20.25 4/25/06 98,955 157,569
George N. Magrath, Jr. 2,000 4.02 20.25 4/25/06 65,970 105,046
Charles F. Baarcke, Jr. 2,000 4.02 20.25 4/25/06 65,970 105,046
John L. Ott, Jr. 2,000 4.02 20.25 4/25/06 65,970 105,046
(1) The dollar amounts indicated in these columns are the result of
calculations assuming 5% and 10% growth rates as required by the
rules of the Securities and Exchange Commission ("SEC"). These
growth rates are not intended by First Financial to forecast future
appreciation, if any, of the price of First Financial Common Stock.
</TABLE>
Option Exercise Table.
The following table sets forth the aggregated option exercises in
fiscal 1996 and fiscal year-end option value for the Chief Executive
Officer and the named executive officers under the First Federal 1983 Stock
Option and Incentive Plan and First Financial's 1990 Stock Option and
Incentive Plan.
<TABLE>
<CAPTION>
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR END OPTION VALUES
Value of
Number of Unexercised
Unexercised In-the-Money
Shares Options at Fiscal Options at Fiscal
Acquired Year End Year End(1)
on Value Exercisable/ Exercisable/
Name Exercise Realized Unexercisable Unexercisable
<S> <C> <C> <C> <C>
A. Thomas Hood 2,951 $42,181 37,989/ $699,780/
George N. Magrath, Jr. -0- -0- 13,800/ 236,000/
Charles F. Baarcke, Jr. 18,200 279,825 6,400/ 88,000/
John L. Ott, Jr. 1,250 20,469 16,050/2,000 321,000/
A. L. Hutchinson, Jr. 30,000 443,750 13,500/ 270,000/
(1) The values shown equal the difference between the exercise price of
unexercised in-the-money options and the closing market price of the
underlying Common Stock at September 30, 1996. Options are in-the-
money if the fair market value of the Common Stock exceeds the
exercise price of the option.
</TABLE>
During fiscal 1993, the Stock Option Committee established First
Financial stock ownership guidelines for members of management. The
desired level of stock ownership is based on the market value of the
shares owned as a percentage of annual salary. The percentages are 400%,
200% and 100% for the President, Senior Vice Presidents and other members
of management, respectively. Stock ownership goals are expected to be met
within five years. When goals are met, additional stock options may be
granted. All members of management have met stock ownership goals set by
the Corporation, with the exception of 12 management members, 11 of which
have been management members for less than five years.
Employment Agreements.
First Federal entered into an employment agreement ("Agreement")
with Mr. Hood on July 30, 1987, which Agreement was subsequently amended
on September 29, 1988, October 1, 1993, and September 26, 1996, and
includes First Financial as a party to the Agreement since 1993.
Additionally, First Federal and First Financial entered into three-year
Agreements with Messrs. Baarcke and Ott on October 1, 1993. On the same
date, Peoples Federal and First Financial entered into an employment
agreement with Mr. Magrath for a term of three years. On September 26,
1996, First Federal and First Financial entered into a three-year
Agreement with Mrs. Susan Baham. The Agreements of Messrs. Hood, Magrath,
Baarcke, Ott and Mrs. Baham provide for a salary of not less than
$175,720, 93,600, 104,220, 112,080 and 88,448 per annum, respectively,
disability and retirement income benefits and bonus and other fringe
benefits as may be approved by the Board. The terms of the Agreements may
be extended for an additional 12 full calendar months upon action of the
Boards of First Federal, Peoples Federal and First Financial prior to the
anniversary date of the Agreements and on each succeeding anniversary date
thereafter. Each of the Agreements provides for termination for cause or
in certain events specified by Office of Thrift Supervision regulations.
Each of the Agreements is also terminable by First Federal, Peoples
Federal or the Corporation without cause except that the affected employee
would be entitled to the full amount of salary remaining under the term of
the Agreement. In the event of a change in control of the Corporation
resulting in the involuntary termination of employment following such
change in control, each Agreement provides for the payment to the employee
of the greater of the salary which would have been received for the
remainder of the Agreement or 2.99 of a year's salary for Messrs. Hood,
Magrath, Baarcke, Ott and Mrs. Baham. At September 30, 1996, Messrs.
Hood, Magrath, Baarcke, Ott and Mrs. Baham would have received
approximately $407,755, 269,372, 300,206, 312,612, and 217,660,
respectively, if the Agreements were terminated subsequent to change in
control.
On October 1, 1993, First Federal and First Financial entered into
employment agreements with management team members who met criteria set by
the Board of Directors. Agreements were also contracted with additional
officers on May 15, 1995, and March 26, 1996. In the event of a change in
control of the Corporation resulting in the involuntary termination of
employment of the officer, such officer would receive payment of one
year's salary. Nine officers hold one-year agreements. If agreements had
been terminated subsequent to a change in control effective October 1,
1996, such officers would have received approximately $653,600.
Supplemental Executive Retirement Plan.
First Federal maintains a Supplemental Executive Retirement Plan ("
SERP") for certain eligible officers and employees. The SERP is an
unfunded plan which provides for benefit payments to supplement those
payable under a defined benefit and pension plan (the "Pension Plan"),
under conditions specified in the SERP. The SERP covers certain employees
who had over 20 years of service with First Federal and had attained age
50 prior to the termination of the Pension Plan in 1990. Under the SERP,
First Federal will pay any required additional amounts so that the total
benefits paid to SERP participants will be the same as the Pension Plan
would have paid to such persons absent termination of the Pension Plan.
SERP benefits are based on final average pay and service with First
Federal to age 65. The benefits calculated under the SERP are offset by
payments under the Pension Plan and, after January 1, 1991, by the present
value of profit sharing contributions to First Financial's Sharing Thrift
Plan, a defined contribution plan. For the fiscal year ended September
30, 1996, total SERP costs charged to expense for Mr. Hutchinson was
$52,194 and the amount charged to expense for all officers and employees
was $64,395. On his retirement in June 1996, Mr. Hutchinson received an
initial payment of $25,386 from the SERP. It is anticipated that Mr.
Hutchinson will receive future payments of $50,772 annually.
NOTWITHSTANDING ANYTHING TO THE CONTRARY SET FORTH IN ANY OF THE
CORPORATION'S PREVIOUS FILINGS UNDER THE SECURITIES ACT OF 1933, AS
AMENDED, OR THE 1934 ACT THAT MIGHT INCORPORATE FUTURE FILINGS, INCLUDING
THIS PROXY STATEMENT, IN WHOLE OR IN PART, THE FOLLOWING REPORT AND
PERFORMANCE GRAPH SHALL NOT BE INCORPORATED BY REFERENCE INTO ANY SUCH
FILINGS.
Report of the Compensation Committee.
The Compensation/Benefits Committees of the Boards of Directors of
the Corporation, First Federal and Peoples Federal are composed entirely
of independent directors. The Corporation's Committee is responsible for
establishing and monitoring compensation policies of the Corporation and
for reviewing and ratifying the actions of the Associations' Compensation
Committees. Performance is evaluated and salaries are set at the
Associations' level.
It is the policy of First Federal and Peoples Federal that the
performance of senior management be evaluated using the same established
criteria which are used for the staff and that the salary structure for
the executive officers be included in the salary structure of the
Associations. The Committees are responsible for evaluating the
performance of the Chief Executive Officers of the Associations while the
Chief Executive Officers of the Associations evaluate the performance of
other senior officers of the respective Associations. Salary increases
are recommended to the Committee based on these evaluations. The
Committee reviews the evaluations and sets the salaries for the coming
year.
The Compensation Committees' considerations include management
skills, long-term performance, stockholder returns, operating results,
asset quality, asset-liability management, regulatory compliance and
unusual accomplishments as well as economic conditions and other external
events that affect the operations of the Corporation. Compensation
policies must promote the attraction and retention of highly-qualified
executives and the motivation of these executives for performance related
to a financial interest in the success of the Corporation and the
enhancement of long-term stockholder value.
In addition to salaries, the Corporation's compensation plan
includes Profit Sharing Plan contributions and matching contributions to
the 401(k) Plan, both of which are based on return on stockholders'
equity. Stock options are also awarded periodically based on performance,
length of service and salary grades. The awards of stock options should
provide increased motivation to work for the success of the Corporation
thereby increasing personal financial success. Options granted to
executives and employees are at a price equal to the closing price of the
Corporation's stock on the date of grant.
In September 1996, the Board approved a management Performance
Incentive Compensation Plan to become effective October 1, 1996. The
purpose of the plan is to share the rewards of excellent performance with
those managers who provide the knowledge, direction and work to accomplish
results that are above expectations. Standards of measurement have been
developed and the Associations must meet the goals as identified in the
strategic business plan.
Any incentive awards are supplements to annual compensation. No
incentive bonus will be awarded for a fiscal year regardless of
performance on individual factors if the Associations' return on
stockholders' equity is less than the approved minimum for that fiscal
year. Participants in the plan are limited to executives who are
responsible for directing functions which have significant impact on the
growth and profitability of the Associations and the Corporation.
Periodically, independent compensation consultants are engaged to
review the salary levels of all members of management as compared with
peers with comparable responsibilities in other companies. Results are
reported to the Compensation/Benefits Committee.
During the fiscal year ended September 30, 1996, the base
compensation for A.Thomas Hood, President and Chief Executive Officer of
the Corporation, was $175,620, which represented a 6.9% increase from the
previous fiscal year. Based on plan provisions, the Corporation also made
contributions to the Sharing Thrift Plan on his behalf.
PEOPLES FEDERAL SAVINGS AND FIRST FEDERAL SAVINGS AND
LOAN ASSOCIATION LOAN ASSOCIATION OF
CHARLESTON
Joseph A. Baroody Gary C. Banks, Jr.
D. Kent Sharples Walter A. Stilley, III
Herman B. Speissegger, Jr. Thomas E. Thornhill
FIRST FINANCIAL HOLDINGS, INC.
Joseph A. Baroody
Paul G. Campbell, Jr.
James C. Murray
Compensation Committee Interlocks And Insider Participation. The
Board has a Compensation/ Benefits Committee currently composed of Messrs.
Baroody, Campbell and Murray. Mr. Campbell is presently the Committee's
Chairman. The Committee reviews and ratifies the actions of the
Compensation Committees of First Federal and Peoples Federal. No member
of the Compensation Committee is a former or current officer or employee
of the Corporation or any of its subsidiaries.
Performance Graph. The following graph shows a five year comparison
of cumulative total returns for the Corporation, the CRSP Index for Nasdaq
Stock Market (U.S. Companies) and the CRSP Peer Group Index for Nasdaq
Stocks.*
Comparison of Five Year Cumulative Total Returns
Performance Graph for
FIRST FINANCIAL HOLDINGS, INC.
<TABLE>
<CAPTION>
9/30/91 9/30/92 9/30/93 9/30/94 9/30/95 9/30/96
<S> <C> <C> <C> <C> <C> <C>
FIRST FINANCIAL HOLDINGS, INC. $ 100.0 $ 144.4 $ 214.3 $ 247.5 $ 314.0 $ 320.2
CRSP Index for Nasdaq Stock Market 100.0 112.1 146.8 148.0 204.4 242.6
(US Companies)
CRSP Peer Group Index for Nasdaq Stocks 100.0 139.4 227.3 261.4 334.4 393.9
(SIC 6030-6039 US Only)
</TABLE>
Assumptions
Assumes $100 invested September 30, 1991, in First Financial
Holdings, Inc. Common Stock, Nasdaq Stock Market (U.S.
Companies) and CRSP Peer Group Index for Nasdaq Stocks.
Total return assumes reinvestment of dividends.
Fiscal year ending September 30.
* Source: Center for Research in Security Prices (CRSP), the
University of Chicago Graduate School of Business.<PAGE>
DIRECTORS' COMPENSATION
During the fiscal year ended September 30, 1996, members of the
Board of Directors of the Corporation received a fee of $8,040 except the
Chairman, who received a fee of $9,600. Non-management members of the
First Federal Board received $10,800 except the Chairman, who received
$12,900. No additional fees are paid to directors who serve on the
committees appointed by the Board. No fees are paid to officers of First
Federal who serve on the Board of Directors of the Corporation. Non-
management members of the Peoples Federal Board received a fee of $10,380
except for the Chairman, who received $12,600. The members of management
who serve on the Peoples Federal Board receive no additional
compensation. Effective October 1, 1994, non-management directors of the
Corporation, First Federal and Peoples Federal were offered the
opportunity to participate in the 1994 Outside Directors Stock Options-
for-Fees Plan, approved by the stockholders at the January 25, 1995,
Annual Meeting. In 1996, eight Directors (excluding Emeritus and Advisory
Directors) participated, deferring $88,822 in fees.
COMPLIANCE WITH SECTION 16(a) OF THE 1934 ACT
Section 16(a) of the 1934 Act requires certain officers of the
Corporation and its directors, and persons who beneficially own more than
ten percent of any registered class of the Corporation's equity
securities, to file reports of ownership and changes in ownership with the
SEC.
Based solely on a review of the reports and written representations
provided to First Financial by the above-referenced persons, the
Corporation believes that during the fiscal year ended September 30, 1996,
all filing requirements applicable to its reporting officers, directors
and greater than ten percent beneficial owners were properly and timely
complied with.
TRANSACTIONS WITH MANAGEMENT
In 1993, the directors of the First Federal Board adopted a revised
employee loan policy for financing and improving employee personal
residences, consumer loans and lot loans for primary residences only.
These loans are made in the ordinary course of business and on
substantially the same terms and collateral as those of comparable
transactions prevailing at the time and do not involve more than the
normal risk of collectibility or contain other unfavorable features.
Where loans are on owner-occupied, single-family homes, rates on the
promissory note are at prevailing rates; however, a separate contract
between First Federal and the participant provides for an adjustment in
rate below the prevailing market rate to a rate of 1/2 of 1% above the
index used for adjustable-rate single-family home loans at the time of
closing. On all loans, the floor interest rate will be First Federal's
internal monthly cost of funds as defined in the contract. The contract
further provides for First Federal to revert the rate charged to the
market rate if: 1) the participant does not occupy the property as a
primary residence, or 2) the participant is no longer employed with First
Federal or a wholly-owned subsidiary. Total consumer loan amounts
outstanding are limited to $30,000 depending on qualifications of the
participant. All consumer loan promissory notes are at prevailing rates;
however, by separate contract, rates are adjusted below prevailing market
rates. The directors of the First Federal Board established a maximum
aggregate loan amount of $200,000 for each employee of First Federal. As
a result of provisions contained in the Financial Institutions Reform,
Recovery and Enforcement Act of 1989 ("FIRREA"), loans are now granted at
interest rates below prevailing market rates only to non-insider
employees. For all insiders, market rates and fees apply. First Federal
also complies with all terms of Regulation O, which governs the activities
of loans to insiders.
All other eligible loans made to employees are made at prevailing
market rates in the ordinary course of business and also on the same terms
and collateral as those of comparable transactions in effect at the time
and do not involve more than the normal risk of collectibility or contain
other unfavorable features.
Peoples Federal has followed a policy of offering loans to its
directors, officers, and employees for the financing and improvement of
their personal residences, as well as consumer loans. These loans are
made in the ordinary course of business and also are made on substantially
the same terms, collateral and rates of interest as those of comparable
transactions prevailing at the time and do not involve more than the
normal risk of collectibility and are in compliance with FIRREA.
Set forth below is certain information relating to loans to officers
and directors of First Federal originated on preferential terms and with
aggregate balances in excess of $60,000 outstanding during the fiscal year
ended September 30, 1996. Peoples Federal does not make loans with
preferential terms to employees.
<TABLE>
<CAPTION>
Highest Balance
During Fiscal
Original Original Year Ending Balance at Contract Prevailing
Date of Loan September 30, September 30, Interest Interest
Name Type of Loan Loan Balance 1996 1996 Rate(1)(2) Rate(3)
<S> <C> <C> <C> <C> <S> <C> <C>
D. Van Smith Mortgage (4) 10/14/86 $250,000 $213,735 -0- 8.375% 9.580%
A. Thomas Hood Mortgage (4) 2/24/86 114,000 91,496 $89,544 9.375 11.000
(1) At the time of closing.
(2) Interest rate subject to periodic adjustment.
(3) At time of loan origination.
(4) Purpose of loan is to finance primary residence.
</TABLE>
PROPOSAL II -- RATIFICATION OF PERFORMANCE EQUITY PLAN FOR
NON-EMPLOYEE DIRECTORS
On April 25, 1996, the Board adopted the First Financial Holdings,
Inc. Performance Equity Plan for Non-Employee Directors (the "Plan"),
subject to ratification by the Corporation's stockholders at the Annual
Meeting. THE FULL TEXT OF THE PLAN IS SET FORTH AS EXHIBIT A TO THIS
PROXY STATEMENT. THE MAJOR FEATURES OF THE PLAN ARE SUMMARIZED BELOW, BUT
THIS SUMMARY IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO THE ACTUAL TEXT
OF THE PLAN.
Description of the Plan
Purpose
The purpose of the Plan is to provide non-employee directors with an
opportunity to increase their equity interest in the Corporation if the
Corporation and the Associations attain specified financial performance
criteria. The Corporation believes that the Plan will further reinforce
the common interest of directors and stockholders in enhancing the
financial performance of the Corporation.
Effective Date and Term
If approved by the stockholders at the Annual Meeting, the Plan
would become effective when approved. The term during which grants may be
made would expire on the tenth anniversary of the effective date.
Awards Under the Plan
With respect to each fiscal year of the Corporation, the Boards of
Directors of the Corporation and the Associations will specify financial
performance criteria ("performance targets") for the Corporation and the
Associations, as appropriate, and the percentage of total board fees
eligible for conversion to shares of Common Stock upon the attainment of
the performance targets. For any fiscal year, the Boards of the
Corporation and/or each of the Associations may also specify a range of
performance targets over which the percentage of fees eligible for
conversion to shares may increase. The performance targets for the
Corporation and each Association will be set forth in a resolution of the
respective board in advance of the fiscal year.
On the last business day of January of each fiscal year, each non-
employee director of the Corporation or an Association will receive an
award of shares of Common Stock for the preceding fiscal year based solely
on the attainment of the performance targets for the Corporation and/or
Association. The number of shares awarded will be determined separately
for each director by using the following formula:
X = Maximum amount of board fees eligible for conversion to
shares (total board fees multiplied by 50%).
Y = The percentage applicable according to the performance
targets stated on Appendix A of the Plan.
Z = Total shares of Common Stock awarded (X multiplied by Y
and divided by the Market Value of a Share on the date of
grant).
The shares of Common Stock awarded under the Plan will be in addition
to, and not in substitution for, the payment of Corporation and
Association Board fees in cash or stock options pursuant to the
Corporation's 1994 Stock Options-for-Fees Plan. No more than 50 percent
of the sum of a director's Corporation and Association Board fees in any
fiscal year may be converted to Common Stock under this Plan. None of the
shares awarded under the Plan will be subject to forfeiture upon the
termination of a director's service prior to completion of his or her
term.
For purposes of the Plan, the "fair market value" of the Common Stock
means, as of any date, the closing price of a share of Common Stock on the
Nasdaq Stock Market's National Market System, or, if no shares were traded
on such date, the next preceding date on which shares of Common Stock were
traded. If shares of Common Stock are not traded on a national securities
exchange or quoted on the Nasdaq Stock Market, and there are not at least
two brokerage companies reporting a bid price per share on any date, then
the fair market value will be that value determined in good faith by the
Board in such manner as it deems appropriate.
For the Corporation's 1996 fiscal year, and assuming stockholder
ratification of the Plan, shares of Common Stock will be awarded in
accordance with the formula set forth above on the basis of performance
targets contained in Appendix A to the Plan. The award of shares for the
1996 fiscal year will occur on the last business day of January.
Share Reserve; Adjustments
The Corporation has reserved 100,000 shares of Common Stock for
issuance under the Plan. Such shares may consist in whole or in part of
authorized and unissued or reacquired shares.
The number and kind of shares of Common Stock reserved under the Plan
will be automatically adjusted to prevent dilution or enlargement of the
rights of Plan participants in the event of any changes in the number or
kind of outstanding shares of Common Stock resulting from a merger,
recapitalization, stock exchange, stock split, stock dividend, other
extraordinary dividend or distribution, corporate division or other change
in the Corporation's corporate or capital structure.
Amendment of the Plan
The Board of Directors would be permitted to amend, suspend or
discontinue the Plan, but stockholder ratification of such action would be
required if necessary in order to ensure compliance with Rule 16b-3 under
the 1934 Act.
Federal Income Tax Treatment
Each non-employee director of the Corporation or the Associations who
participates in the Plan will be taxed upon the fair market value of the
Common Stock received upon the issuance of the Common Stock by the
Corporation. For federal income tax purposes, this amount would be
taxable as compensation income from self-employment and the Corporation
would be entitled to a corresponding deduction.
Plan Benefits
Insofar as awards under the Plan are determined by reference to the
attainment of annual performance targets, benefits under the Plan are not
generally determinable in advance. With respect to the Corporation's 1996
fiscal year, and assuming stockholder ratification of the Plan, it is
estimated that approximately 4,290 shares of Common Stock, in the
aggregate, based on the fair market value of the Common Stock on the
record date, will be awarded to non-employee directors of the Corporation
and its Associations on January 31, 1997. The value of the aggregate
award for the 1996 fiscal year would be approximately $104 thousand.
Vote Required and Board of Directors' Recommendation
THE BOARD OF DIRECTORS RECOMMENDS THAT STOCKHOLDERS VOTE FOR THE
PERFORMANCE EQUITY PLAN FOR NON-EMPLOYEE DIRECTORS. The affirmative vote
of a majority of the votes present in person or represented by proxy at
the Annual Meeting will be required to approve the Performance Equity Plan
for Non-Employee Directors.
OTHER MATTERS
The Board of Directors of the Corporation is not aware of any
business to come before the Meeting other than the matters described above
in this Proxy Statement. However, if any other matters should properly
come before the Meeting, it is intended that proxies in the accompanying
form will be voted in respect thereof in accordance with the judgement of
the person or persons voting the proxies. The cost of solicitation of
proxies will be borne by the Corporation. In addition to solicitations by
mail, directors, officers and regular employees of the Corporation may
solicit proxies personally or by telegraph or telephone without additional
compensation.
ANNUAL REPORT TO STOCKHOLDERS
A copy of the Summary Annual Report to Stockholders is being mailed
to each stockholder of record together with these proxy materials. The
audited financial statements of the Corporation for the year ended
September 30, 1996, together with Management's Discussion and Analysis of
Financial Condition and Results of Operations, are included in Exhibit B
to this Proxy Statement. The Corporation has filed with the SEC its
Annual Report on Form 10-K for the fiscal year ended September 30, 1996.
The Annual Report on Form 10-K contains detailed information concerning
the Corporation and its operations which is not included in the Summary
Annual Report to Stockholders, or in Exhibit B to this Proxy Statement. A
COPY OF THIS REPORT WILL BE FURNISHED TO STOCKHOLDERS WITHOUT CHARGE UPON
REQUEST IN WRITING TO: Phyllis B. Ainsworth, Secretary, First Financial
Holdings, Inc., P. O. Box 118068, Charleston, South Carolina 29423-8068.
THE ANNUAL REPORT ON FORM 10-K, THE SUMMARY ANNUAL REPORT AND EXHIBIT B
ARE NOT A PART OF THE CORPORATION'S SOLICITING MATERIAL.
STOCKHOLDER PROPOSALS
In order to be eligible for inclusion in the Corporation's proxy
materials for next year's Annual Meeting of Stockholders, any stockholder
proposal to take action at such meeting must be received at the
Corporation's main office at 34 Broad Street, Charleston, South Carolina,
no later than August 29, 1997. Any such proposals shall be subject to the
requirements of the proxy rules adopted under the 1934 Act.
BY ORDER OF THE BOARD OF DIRECTORS
PHYLLIS B. AINSWORTH
SECRETARY
Charleston, South Carolina
December 18, 1996
FORM 10-K
A COPY OF THE FORM 10-K AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION
WILL BE FURNISHED WITHOUT CHARGE TO STOCKHOLDERS AS OF THE RECORD DATE UPON
WRITTEN REQUEST TO PHYLLIS B. AINSWORTH, SECRETARY, FIRST FINANCIAL
HOLDINGS, INC., P.O. BOX 118068, CHARLESTON, SOUTH CAROLINA 29423-8068.
EXHIBIT A
FIRST FINANCIAL HOLDINGS, INC.
PERFORMANCE EQUITY PLAN FOR NON-EMPLOYEE DIRECTORS
1. Purpose
The purpose of the First Financial Holdings, Inc. Performance Equity
Plan for Non-Employee Directors (the "Plan") is to promote the interests
of First Financial Holdings, Inc. (the "Company"), its Affiliates and its
stockholders by attracting and retaining non-employee directors capable of
furthering the future success of the Company and its Affiliates and by
aligning their economic interests more closely with those of the
Company's stockholders.
2. Definitions
"Affiliate" shall mean First Federal Savings and Loan Association of
Charleston or Peoples Federal Savings and Loan Association.
"Affiliate Board" shall mean the board of directors of an Affiliate.
"Affiliate Fee" shall mean the retainer payable to a Participant
during the Plan Year for service on an Affiliate Board.
"Board" shall mean the board of directors of the Company.
"Board Fee" shall mean the retainer payable to a Participant during
the Plan Year for service on the Company Board.
"Fair Market Value" shall mean, as of any date, the closing price of
a share on the Nasdaq Stock Market's National Market System, or, if no
shares were traded on such date, the next preceding date on which shares
were traded. If shares are not traded on a national securities exchange
or quoted on the Nasdaq Stock Market, and there are not at least two
brokerage companies reporting a bid price per share on any date, then the
Fair Market Value shall be that value determined in good faith by the
Board in such manner as it deems appropriate.
"Participant" shall mean each member of the Board or an Affiliate
Board who is not an employee of the Company or an Affiliate.
"Plan Year" shall mean the fiscal year of the Company. The "Initial
Plan Year" shall mean the period beginning October 1, 1995 and ending
September 30, 1996.
"Rule 16b-3" shall mean Rule 16b-3 under the Securities Exchange Act
of 1934, as amended.
"Share" shall mean a common share of the Company and such other
securities as may be substituted for a Share or such other securities
pursuant to the adjustment provisions of Section 5.
3. Effective Date and Term of the Plan
The Plan shall become effective upon adoption by the Board, subject
to approval of the Plan by the affirmative vote of the holders of a
majority of the Shares present or represented and entitled to vote at the
annual meeting of the Company's stockholders to be held in January 1997 or
at any adjournment thereof.
The term during which Shares shall be granted under the Plan shall
expire ten (10) years after the effective date of the Plan.
4. Grant of Shares
For the Plan Year beginning October 1, 1996, and prior to the
beginning of each Plan Year thereafter during the term of the Plan, the
Board and each Affiliate Board shall specify financial performance
criteria (the "Performance Targets") for the Company and each Affiliate,
as appropriate, and the percentage of Board Fees or Affiliate Fees
eligible for conversion to Shares upon the attainment of the Performance
Targets for the Company and each Affiliate. For any Plan Year, the Board
or each Affiliate Board may specify a range of Performance Targets for the
Company or the Affiliate over which the percentage of Board Fees or
Affiliate Fees eligible for conversion to Shares may increase. The
Performance Targets for the Company and each Affiliate shall be set forth
in a resolution of the Board or the appropriate Affiliate Board.
On the last business day of January of each Plan Year, each
Participant shall receive an award of Shares for the preceding Plan Year
based solely on the attainment of the Performance Targets for the Company
(if the Participant is a member of the Board) and, on a separate basis,
each Affiliate (if the Participant is a member of an Affiliate Board).
The number of Shares awarded shall be determined separately for each
Participant by (x) multiplying the percentage of Participant's Board Fees
eligible for conversion to Shares by the Participant's Board Fees, (y) for
each Affiliate Board on which the Participant serves, multiplying the
percentage of the Participant's Affiliate Fees eligible for conversion to
Shares by the Participant's Affiliate Fees and (z) dividing the sum of the
amounts determined under clauses (x) and (y) by the Fair Market Value of a
Share on the date of grant; provided, however, that, notwithstanding
anything in this Plan to the contrary, no more than fifty (50) percent of
the sum of a Participant's Board Fees and Affiliate Fees in any Plan Year
may be converted to Shares under this Plan. Each award of Shares shall be
rounded to the nearest whole share.
For the Initial Plan Year, Shares shall be awarded in accordance
with the formula set forth in the preceding paragraph of this Section 4 on
the basis of Performance Targets contained in Appendix A to the Plan. The
award of Shares for the Initial Plan Year shall occur on the last business
day of January 1997.
The Shares awarded under this Plan shall be in addition to, and not
in substitution for, the payment of Board Fees and Affiliate Fees in cash.
None of the Shares awarded under this Plan shall be subject to forfeiture
upon the termination of a Participant's service prior to completion of his
or her term.
Subject to adjustment as provided in Section 5, the number of Shares
which may be granted under the Plan shall be 100,000. If on any date on
which Shares are to be granted to a Participant(s), the number of Shares
remaining available under the Plan is insufficient for the grant of
Shares otherwise authorized under the Plan for the preceding Plan Year,
then each Participant shall receive a proportionate number of the
remaining Shares (rounded to the greatest number of whole Shares). The
Shares granted under the Plan may consist in whole or in part of
authorized and unissued or reacquired Common Stock. The obligation of the
Company to deliver Shares shall be subject to all applicable laws, rules
and regulations, and to such approvals by governmental agencies as may be
deemed necessary or appropriate by the Company, including, among others,
such steps as counsel for the Company shall deem necessary or appropriate
to comply with requirements of relevant securities laws. This obligation
shall also be subject to the condition that any Shares reserved for
issuance under the Plan shall have been duly listed on any national
securities exchange which then constitutes the principal trading market
for the Shares.
5. Adjustments
The number and kind of Shares which shall be automatically granted
to each Participant under Section 4 of the Plan shall be automatically
adjusted to prevent dilution or enlargement of the rights of Participants
in the event of any changes in the number or kind of outstanding Shares
resulting from a merger, recapitalization, stock exchange, stock split,
stock dividend, other extraordinary dividend or distribution, corporate
division or other change in the Company's corporate or capital structure.
6. Amendment, Suspension and Discontinuance
The Board may at any time amend, suspend or discontinue the Plan,
provided that, if stockholder approval of such action is necessary in
order to ensure compliance with Rule 16b-3, such action shall be subject
to approval by the holders of the Shares by the vote and in the manner
required by Rule 16b-3.
7. Compliance with Rule 16b-3
The Company intends that the Plan and all transactions hereunder
meet all of the requirements of Rule 16b-3, and that any Participant shall
not, as a result of any grant hereunder, lose his or her status as a
"disinterested person" as defined in Rule 16b-3. Accordingly, if any
provision of the Plan does not meet a requirement of Rule 16b-3 as then
applicable to any such transaction, or would cause a Participant not to be
a "disinterested person," such provision shall be construed or deemed
amended to the extent necessary to meet such requirement and to preserve
such status.
8. Withholding
A Participant may be required to pay to the Company and the Company
shall have the right and is hereby authorized to withhold from any Award,
from any payment due or transfer made under any Award or from any
compensation or other amount owing to a Participant the amount of any
applicable withholding taxes in respect of any Shares granted under the
Plan and take such other action as may be necessary in the opinion of the
Company to satisfy all obligations for the payment of such taxes.
9. Governing Law
The Plan shall be applied and construed in accordance with and
governed by the law of the State of South Carolina and applicable Federal
law.
APPENDIX A
PERFORMANCE EQUITY PLAN FOR NON-EMPLOYEE DIRECTORS
PERFORMANCE TARGETS
RETURN ON EQUITY*
INITIAL PLAN YEAR 10/1/95 - 9/30/96
FIRST FINANCIAL HOLDINGS, INC.
Range
11.00 - 12.49% 50%
12.50 - 13.74% 75%
13.75% + 100%
FIRST FEDERAL OF CHARLESTON
Range
11.75 - 12.99% 50%
13.00 - 14.49% 75%
14.50% + 100%
PEOPLES FEDERAL
Range
11.75 - 12.99% 50%
13.00 - 14.49% 75%
14.50% + 100%
* Before after-tax effect of special SAIF Assessment
<PAGE>
EXHIBIT B
FIRST FINANCIAL HOLDINGS, INC.
FINANCIAL INFORMATION
The Annual Report on Form 10-K, the Summary Annual Report and this Exhibit
B are not a part of First Financial Holdings, Inc.'s soliciting material.
<PAGE>
EXHIBIT B
FIRST FINANCIAL HOLDINGS, INC.
INDEX
Five-Year Summary Selected Consolidated Financial
Information
Management's Discussion and Anaylsis of Financial Condition and
Results of Operations
Management's Report
Audit Committee's Report
Report of Independent Auditors
Consolidated Financial Statements
Notes to Consolidated Financial Statements
A copy of the Company's Annual Report on Form 10-K for the year ended
September 30, 1996, is available to stockholders free of charge. Requests
should be addressed to Phyllis B. Ainsworth, Corporate Secretary, First
Financial Holdings, Inc., P.O. Box 118068, Charleston, SC 29423-8068
<PAGE>
<TABLE>
<CAPTION>
FIRST FINANCIAL HOLDINGS, INC.
Selected Consolidated Financial Data(1)
At or For the Year Ended September 30,
1996 1995 1994 1993 1992
(dollar amounts in thousands except per share amounts)
Summary of Operations
<S> <C> <C> <C> <C> <C>
Interest income $ 111,118 $ 95,503 $ 85,652 $ 95,407 $ 86,328
Interest expense 65,997 55,794 44,755 51,696 51,930
Net interest income 45,121 39,709 40,897 43,711 34,398
Provision for loan losses (1,823) (451) (1,097) (3,700) (3,440)
Net interest income after provision for
loan losses 43,298 39,258 39,800 40,011 30,958
Other income 10,052 8,575 8,681 5,493 2,248
Non-interest expense (35,249) (33,424) (32,351) (30,745) (21,916)
SAIF Special Assessment (6,955)
Income tax expense (4,118) (5,171) (4,125) (3,481) (4,320)
Income before change in accounting
principle 7,028 9,238 12,005 11,278 6,970
Change in accounting principle 1,584
Net income $ 7,028 $ 9,238 $ 12,005 $ 12,862 $ 6,970
Per Common Share
Net income $ 1.11(2) $ 1.47 $ 1.88 $ 2.02(3) $ 1.10
Book value 14.91 14.50 13.20 12.56 10.75
Dividends 0.64 0.56 0.48 0.34 0.28
Dividend payout ratio 57.66% 38.10% 25.53% 16.83% 25.45%
Selected Ratios
Return on average equity 7.41%(4) 10.61% 14.64% 17.28% 10.59%
Return on average assets 0.48(5) 0.71 0.97 1.00 0.71
Gross interest margin (6) 2.93 2.91 3.21 3.39 3.36
Average equity as a percentage of average
assets 6.51 6.67 6.65 5.79 6.68
Problem assets as a percentage of total
assets 1.28 1.67 1.74 1.98 2.73
At September 30,
Assets $ 1,546,149 $ 1,365,348 $ 1,244,270 $ 1,259,265 $ 985,794
Loans receivable, net 1,280,110 1,083,367 963,366 967,607 757,448
Mortgage-backed securities 82,991 101,126 105,620 106,021 104,882
Investment securities 109,541 119,967 117,876 104,554 35,308
Deposits 1,061,617 1,074,313 1,062,995 1,051,219 737,586
Borrowings 348,970 172,120 79,267 106,677 165,058
Stockholders' equity 94,795 91,409 82,672 80,546 68,314
Number of offices 33 32 32 32 20
Full-time equivalent employees 540 509 537 532 335
(1) On October 9, 1992, the Company acquired Peoples Federal. The
acquisition was accounted for under the purchase method of accounting
and, accordingly, the consolidated financial statements do not include
Peoples Federal's assets, liabilities and equity or results of
operations prior to that date.
(2) Includes the effect of the SAIF Special Assessment which resulted in a
decrease of $.69 in earnings per common share.
(3) Includes the cumulative effect of a change in accounting principle
which resulted in an increase of $.25 in earnings per common share.
(4) Return on average equity excluding the effect of the SAIF Special
Assessment was 12.04%.
(5) Return on average assets excluding the effect of the SAIF Special
Assessment was .78%.
(6) Gross interest margin is the difference between the weighted average
yield on all interest-earning assets and the weighted average rate paid
on all interest bearing liabilities.
</TABLE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
General
First Financial Holdings, Inc. ( First Financial or the Company ),
headquartered in Charleston, South Carolina, is a multiple savings and loan
holding company with two operating subsidiaries, First Federal Savings and
Loan Association of Charleston, South Carolina ( First Federal ) and
Peoples Federal Savings and Loan Association, Conway, South Carolina
( Peoples Federal ) (together, the Associations ). Most of the
information presented in the following discussion of financial results is
indicative of the activities of the Associations. The following discussion
should be read in conjunction with the Selected Consolidated Financial Data
and the Consolidated Financial Statements and accompanying notes.
Although First Financial s core operations in 1996 surpassed results in
1995 and 1994, net income for fiscal 1996 reflected the after-tax effect of
a $4.4 million non-recurring expense, explained below under SAIF Special
Assessment, which materially reduced net income for the year.
Consolidated net income for 1996 totaled $7.0 million, or $1.11 per share,
compared to $9.2 million, or $1.47 per share, for the year ended September
30, 1995. Excluding the non-recurring special assessment described below,
First Financial would have recorded net income of $11.4 million, or $1.80
per share, in 1996.
Net income in 1996, excluding the effect of the non-recurring special
assessment, resulted in a return on average equity of 12.04% compared with
10.61% in 1995. Return on average assets in 1996, excluding the special
assessment, was 0 .78% compared with 0.71% in 1995. Including the effect
of the non-recurring special assessment, return on equity and return on
average assets in 1996 declined to 7.41% and 0.48%, respectively.
Operating results in 1996, exclusive of the special assessment, improved
principally due to higher net interest income, continued moderation in the
rate of increase in operating costs and significant growth in non-interest
income, partially offset by a higher provision for loan losses.
Net income in 1994 was $12.0 million, or $1.88 per share. Income in
1994 included the positive effect of a $1.1 million non-recurring gain on
the sale of Regal Cinemas stock. Also, as a result of tax benefits related
to the acquisition of Peoples Federal in 1993, First Financial s effective
income tax rate was 25.6% in 1994, much lower than the effective income tax
rates of 36.9% in 1996 and 35.9% in 1995.
SAIF Special Assessment
On September 30, 1996, President Clinton signed legislation providing
for a special assessment on financial institutions whose deposits are
insured by the Savings Association Insurance Fund ( SAIF ) of the Federal
Deposit Insurance Corporation ( FDIC ) at the rate of 65.7 cents per $100
of deposits held by such institutions at March 31, 1995. The money
collected will recapitalize the SAIF reserve to the level required by law.
In September of 1996 the Company recorded an expense of $7.0 million ($4.4
million after tax) for this assessment.
The recapitalization of the SAIF is expected to result in lower deposit
insurance premiums in the future for most SAIF-insured financial
institutions, including First Federal and Peoples Federal. Based on the
Company s insured deposits at September 30, 1996, the expected new premium
level, inclusive of the payment of interest on the FICO bonds, would result
in an estimated annual pre-tax savings of approximately $1.8 million
beginning in the March 1997 quarter.
The new legislation also provides for the merger, subject to certain
conditions, of the SAIF into the Bank Insurance Fund ("BIF") by 1999 and
also requires BIF-insured institutions to share in the payment of interest
on the bonds issued by a specially-created government entity, the Financing
Corporation ("FICO"), the proceeds of which were applied toward resolution
of the thrift industry crisis in the 1980s. Beginning on January 1, 1997,
SAIF-insured institutions will pay deposit insurance premiums at a rate of
6.4 basis points of their insured deposits and BIF-insured institutions
will pay deposit insurance premiums at the annual rate of 1.3 basis points
of their insured deposits towards the payment of interest on the FICO
bonds. These FICO interest premiums are in addition to the insurance
premiums that will be paid by SAIF-insured institutions to maintain the
SAIF reserve at its required level (which are expected to range from zero
basis points to 27 basis points pursuant to the current risk classification
system). The Associations are both currently well-capitalized financial
institutions and expect to pay total annual deposit insurance premiums,
including the FICO assessment, of 6.4 basis points of insured deposits
effective January 1, 1997.
Financial Position
At September 30, 1996, First Financial reported assets of $1.5 billion,
compared with $1.4 billion at September 30, 1995. Average assets and
average interest-earning assets increased by 11.6% and 12.4%, respectively,
in 1996. Asset growth was principally attributable to an increase of $197
million in net loans receivable, including loans held for sale, in 1996.
Stockholders equity totaled $94.8 million at September 30, 1996,
increasing from $91.4 million at September 30, 1995.
Investment Securities and Mortgage-backed Securities
The primary objective of the Company in its management of the investment
portfolio is to maintain a portfolio of high quality, highly liquid
investments with returns competitive with short-term U.S. Treasury or
agency securities and highly rated corporate securities. The Associations
are required to maintain average daily balances of liquid assets according
to certain regulatory requirements. The Associations have maintained
higher than average required balances in short-term investments based on
their continuing assessment of cash flows, the level of loan production,
current interest rate risk strategies and the assessment of the potential
direction of market interest rate changes. Total investment securities
declined $10.4 million in 1996, with year-end balances of $109.5 million as
of September 30, 1996, including $66.4 million in investments available for
sale.
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 companies to reassess the appropriateness of the classifications
of all securities previously made. The Company elected to reclassify
certain of its previously classified held to maturity securities to
available for sale. In December 1995, approximately $18.0 million of the
Company s mortgage-backed securities were transferred from held to
maturity to available for sale and approximately $32.2 million of
investment securities were also reclassified to available for sale from
held to maturity as a result of guidance provided in the Special Report.
Loans Receivable
Loans comprise the major portion of interest-earning assets of the
Company, accounting for 84% and 82% of average interest-earning assets in
1996 and 1995, respectively. Compared with balances on September 30, 1995,
net loans receivable grew by 18.2%. The Company s loan portfolio consists
of real estate mortgage and construction loans, home equity and other
consumer loans, credit card receivables and commercial business loans.
Management believes it continues to reduce the risk elements of its loan
portfolio through strategies focusing on residential mortgage and consumer
loan production.
Loan originations set a record in 1996, increasing 53.8% to $389.1
million from $253.0 million in 1995. Demand for all types of loans was
strong in 1996, with particularly significant origination increases
achieved in home mortgage lending over levels in 1995, resulting in single-
family gross loan balances at year-end increasing by $204.8 million, or
29.3% over 1995. Increases in single-family loans were fueled by a
favorable interest rate environment, healthy housing markets in coastal
South Carolina and a new correspondent lending program introduced at First
Federal. A large percentage of the Company s single-family originations
qualify for purchase by secondary market agencies. The Company has
traditionally retained virtually all adjustable-rate loan originations in
its portfolio while electing to sell a portion of fixed-rate loan
originations based on management s current asset/liability objectives.
Consumer loans also increased from $114.6 million on September 30, 1995
to $120.3 million on September 30, 1996. The Company experienced strong
growth in home equity, marine and auto loan originations due principally to
increased marketing for these products and more competitive interest rates.
Asset Quality
The Company believes it maintains a conservative philosophy regarding
its lending mix as well as its underwriting guidelines. The Company also
maintains loan quality monitoring policies and systems that require
detailed monthly and quarterly analyses of delinquencies, non-performing
loans, real estate owned and other repossessed assets. Reports of such
loans and assets by various categories are reviewed by management and the
Boards of Directors of the Associations. The majority of the Company's
loan originations are from coastal South Carolina and North Carolina and in
Florence, South Carolina.
Although the Company's loan portfolio grew significantly during the
year, management does not believe that the risk inherent in its loan
portfolio has increased. The largest component of growth has been in
single-family loans, which traditionally are expected to result in smaller
problem credits and less credit risk during various economic cycles than
may be experienced in other types of secured real estate lending. For
several years the Company s strategy has been to reduce its exposure to
commercial real estate, land acquisition and development and multifamily
real estate. Management believes this strategy has contributed to a
decline in problem assets over the past several years.
As a result of management s ongoing review of the loan portfolio, loans
are classified as non-accruing when uncertainty exists about the ultimate
collection of principal and interest under the original terms. The Company
closely monitors trends in problem assets which include non-accrual loans,
loans 90 days or more delinquent, renegotiated loans, and real estate and
other assets acquired in settlement of loans. Renegotiated loans are those
loans on which the Company has agreed to modifications of the terms of the
loan such as changes in the interest rate charged and/or other concessions.
The following table illustrates trends in problem assets and other asset
quality indicators over the past five years.
Problem Assets
<TABLE>
<CAPTION>
At September 30,
1996 1995 1994 1993 1992
(dollar amounts in thousands)
<S> <C> <C> <C> <C> <C>
Non-accrual loans $ 8,129 $ 7,709 $ 4,454 $ 8,965 $ 9,577
Accruing loans 90 days or more
delinquent 1,278 816 740 1,458 2,216
Renegotiated loans 8,049 11,103 13,129 9,001 7,210
Real estate and other assets
acquired in settlement of
loans 2,326 3,144 3,290 5,480 7,951
$ 19,782 $ 22,772 $ 21,613 $ 24,904 $ 26,954
As a percent of loans receivable
and real estate and other
assets acquired in
settlement of loans 1.54% 2.10% 2.24% 2.56% 3.52%
As a percent of total assets 1.28 1.67 1.74 1.98 2.73
Allowance for loan losses as a
percent of problem assets 56.63 46.71 49.64 43.13 17.95
Net charge-offs to average loans
outstanding 0.11 0.05 0.11 0.24 0.36
</TABLE>
Problem assets declined during fiscal 1996 by $3.0 million to $19.8
million, or 1.28% of total assets, compared with $22.8 million, or 1.67% of
total assets, at September 30, 1995. Non-accrual loans at September 30,
1996, include a $2.7 million loan collateralized by an apartment complex
in Charleston, South Carolina. Based on occupancy levels and the
delinquency status of the loan, the Company has allocated a specific
reserve of approximately $700 thousand against this property, resulting in
a carrying value of approximately $2.0 million. Also included in non-
accrual loans at September 30, 1996 and 1995 are two loans with balances of
approximately $1.1 million secured by residential lots in a resort
development in South Carolina. Renegotiated loans declined by $3.1 million
primarily due to the deletion of loans which have been returned to market
rates of interest and terms.
The allowance for loan losses at September 30, 1996 covers 56.63% of
reported problem assets, increasing from 46.71% as of September 30, 1995.
Management s long-term goals continue to include lower ratios of problem
assets to total assets, although management expects there will always
remain a core level of delinquent loans and real estate acquired in
settlement of loans from normal lending operations. Renegotiated loans
currently comprise approximately one-half of total problem assets. On
September 30, 1996, the weighted average yield on renegotiated loans was
7.49%, compared with 7.85% one year ago.
Allowance for Loan Losses
The allowance for loan losses is maintained at a level sufficient to
provide for estimated probable future losses in the loan portfolio.
Management reviews the adequacy of the allowance no less frequently than
each quarter, utilizing its internal portfolio analysis system. The
factors that are considered in a determination of the level of the
allowance are management s assessment of current economic conditions, the
composition of the loan portfolio, previous loss experience on certain
types of credit, a review of specific high-risk sectors of the loan
portfolio, selected individual loans and concentrations of credit. The
value of the underlying collateral is also considered during such reviews.
Allowance for Loan Losses
<TABLE>
<CAPTION>
Year Ended September 30,
1996 1995 1994 1993 1992
(dollar amounts in thousands)
<S> <C> <C> <C> <C> <C>
Balance, beginning of period $ 10,637 $ 10,728 $ 10,742 $ 4,837 $ 4,351
Loans charged-off:
Real estate loans 824 530 858 1,893 1,813
Commercial business loans 188 3 461 637 453
Consumer loans 732 508 673 793 908
Total charge-offs 1,744 1,041 1,992 3,323 3,174
Recoveries:
Real estate loans 336 356 658 632 122
Commercial business loans 31 32 76 176 4
Consumer loans 119 111 147 160 94
Total recoveries 486 499 881 968 220
Net charge-offs 1,258 542 1,111 2,355 2,954
Allowance on acquired
loans 4,560
Provision for loan losses 1,823 451 1,097 3,700 3,440
Balance, end of period:
Real estate loans 8,987 8,875 9,074 9,189 3,036
Commercial business loans 925 715 750 648 698
Consumer loans 1,290 1,047 904 905 1,103
Balance, end of period $ 11,202 $ 10,637 $ 10,728 $ 10,742 $ 4,837
Balance as a percent of net loans:
Real estate loans 0.79% 0.93% 1.09% 1.11% 0.50%
Commercial business loan 3.47 2.61 3.00 2.22 1.84
Consumer loans (1) 1.07 0.91 0.81 0.77 0.97
Total net loans 0.88 0.98 1.12 1.12 0.64
Net charge-offs as a percent of average net loans:
Real estate loans 0.05% 0.02% 0.02% 0.18% 0.26%
Commercial business loans 0.58 (0.11) 1.42 1.88 1.13
Consumer loans (1) 0.52 0.35 0.46 0.40 0.73
(1) Consumer loans include home equity lines of credit.
</TABLE>
On September 30, 1996, the total allowance for loan losses was $11.2
million compared with $10.6 million at September 30, 1995. Net real estate
loan charge-offs totaled $488 thousand in 1996 compared with $174 thousand
in 1995. Real estate loan charge-offs increased principally in 1996 due to
one charge-off of approximately $333 thousand on a commercial real estate
loan which was transferred to real estate owned. Management believes that
consumer loan net charge-offs of $613 thousand, which increased $216
thousand over comparable activity in fiscal 1995, increased principally due
to higher numbers of personal bankruptcy filings. After experiencing net
recoveries of $29 thousand in 1995, commercial loan net charge-offs
increased to $157 thousand in 1996. Based on the current economic
environment and other factors, management believes that the allowance for
loan losses at September 30, 1996 was maintained at a level adequate to
provide for inherent losses in the Company's loan portfolio.
Deposits
Retail deposits have traditionally been the primary source of funds
for the Company and also provide a customer base for the sale of additional
financial services. The Company has set strategic targets for net growth
in transaction accounts annually and in numbers of households served. The
Company believes that its future focus must be on increasing the number of
available opportunities to provide a broad array of products and services
to retail consumers. The Company s total deposits declined $12.7 million
during the year ended September 30, 1996, principally due to the maturity
of wholesale certificates of deposit. First Financial s deposit
composition at September 30, 1996 and 1995 is as follows:
Deposits
<TABLE>
<CAPTION>
At September 30,
1996 1995
Percent Percent of
Balance of Total Balance Total
(dollar amounts in thousands)
<S> <C> <C> <C> <C>
Checking accounts $ 123,907 11.67% $ 117,149 10.90%
Passbook, statement and other
accounts 119,509 11.26 125,588 11.69
Money market accounts 131,393 12.38 131,225 12.22
Retail certificate accounts 617,893 58.20 632,262 58.85
Jumbo certificates 68,218 6.42 54,339 5.06
Wholesale certificates 697 .07 13,750 1.28
Total deposits $ 1,061,617 100.00% $ 1,074,313 100.00%
</TABLE>
During 1996, First Financial s checking account balances increased
$6.8 million, money market account balances remained stable while passbook,
statement and other savings accounts declined $6.1 million. Total
balances in certificates of deposit declined by $13.5 million. National
and local market trends over the past several years suggest that consumers
are continuing to move an increasing percentage of discretionary savings
funds into alternative investments, such as annuities and stock and fixed
income mutual funds. While deposits remain a primary, highly stable source
of funds for the Company, deposits have declined as a percentage of
liabilities over recent years. As of September 30, 1996, deposits as a
percentage of liabilities declined to 73% from 84% at September 30, 1995.
The Company expects to maintain a significant portion of its overall
deposits in core account relationships; however, future growth in overall
deposit balances may be achieved primarily through specifically targeted
programs offering higher yielding investment alternatives to consumers.
Such targeted programs may increase the Company s overall cost of funds and
thus impact the Company s future net margins. The Company s average cost
of deposits at September 30, 1996 was 4.60% compared with 4.80% at
September 30, 1995.
Borrowings
Borrowings increased $177 million during the current year to $349
million as of September 30, 1996. Borrowings as a percentage of total
liabilities increased to approximately 24% at the end of 1996 compared with
14% in 1995. Borrowings from the FHLB of Atlanta increased $204.5 million
while reverse repurchase agreements declined $27.7 million. The net
increase in borrowings in 1996 is attributable to management s strategy to
utilize borrowings to fund much of its loan portfolio growth and to replace
losses in deposit balances. With strong growth in single-family conforming
loans, a large portion of which were adjustable-rate loans, management
believes it has improved its current liquidity capacity because of the
acceptance of such loans as collateral for existing and future FHLB
borrowings and the potential usage of such loans in securitizations of
loans for mortgage-backed securities.
The Company s average cost of FHLB advances and reverse repurchase
agreements declined from 5.88% at September 30, 1995 to 5.61% at September
30, 1996. Approximately $311 million in FHLB advances mature within one
year and all of the reverse repurchase agreements mature within three
months. There were no redemptions of the $19.8 million in 9.375% long-term
debt of the Company during 1996. The notes are callable at the option of
the Company, in whole or in part, at a redemption price of 102.00% from
September 1, 1996 through August 31, 1997. On September 1, 1997, the
redemption price is par.
Capital Resources
Average stockholders equity was $94.8 million during 1996,
increasing 8.9% from $87.0 million reported in 1995. The primary source of
growth in stockholders equity during 1996 was retained net income. The
Consolidated Statement of Stockholders Equity details the changes in
stockholders equity during the year. The Company s capital ratio, total
capital to total assets, was 6.13% at September 30, 1996 compared to 6.69%
at September 30, 1996.
In July of 1996 the Board of Directors approved a stock repurchase
program to acquire up to 250,000 shares of the Company s common stock to be
completed by March 31, 1997. During fiscal 1996, approximately 26,000
shares were repurchased at an average price of $19.73. During 1996, the
Company paid out $.64 in dividends per share for a payout ratio of 57.7%,
compared with dividends of $.56 and a payout ratio of 38.1% in 1995.
Excluding the effect of the special SAIF assessment, the payout ratio would
have approximated 35.6% in 1996. On October 24, 1996, the Board of
Directors declared a regular quarterly cash dividend of $.18 per share,
which will result in an increase of approximately 12.5% from the previous
amount of $.16 per common share.
The Associations are required to meet the regulatory capital
requirements of the Office of Thrift Supervision ( OTS ) which currently
include three measures of capital: a leverage or core capital requirement,
a tangible capital requirement and a risk-based capital requirement. Under
OTS regulations, the Associations both meet the requirements to be well-
capitalized. Current capital distribution regulations of the OTS allow
the greatest flexibility to well-capitalized institutions.
Liquidity and Asset and Liability Management
Liquidity
The desired level of liquidity for the Company is determined by
management in conjunction with the Asset/Liability Committees of the
Associations. The level of liquidity is based on management s strategic
direction for the Company, commitments to make loans and the Committees
assessment of each Association s ability to generate funds. Historically,
sources of liquidity have included net deposits to savings accounts,
amortizations and prepayments of loans, FHLB advances, reverse repurchase
agreements and sales of securities and loans held for sale.
The Associations are subject to federal regulations which currently
require the maintenance of a daily average balance of liquid assets equal
to 5.0% of net withdrawable deposits and borrowings payable in one year or
less. The Associations have adopted policies to maintain liquidity levels
well above the requirements. All requirements were met in 1996.
The Company's most stable and traditional source of funding has been
the attraction and retention of deposit accounts, the success of which the
Company believes is based primarily on the strength and reputation of the
Associations and rates paid on deposit accounts. First Federal has a major
market share of deposits in Charleston, Berkeley and Dorchester counties
and a growing share of deposits in the Georgetown market. Peoples
Federal s deposits are principally obtained in Horry and Florence counties.
By continuing to promote innovative new products, pricing competitively and
encouraging the highest level of quality in customer service, the Company
continues to successfully meet challenges from competitors, many of which
are non-banking entities offering alternative investment products.
Management does recognize, however, that due to disintermediation of
traditional savings balances to other alternative investment products,
including the equity markets, annuities and mutual funds, the pool of
retail deposit funds held in financial institutions will likely continue to
contract over time, resulting in more reliance by the Company on other
sources of funds.
Other primary sources of funds include borrowings from the FHLB,
principal repayments on loans and mortgage-backed securities, reverse
repurchase agreements and the sale of loans. As a measure of protection,
the Associations have back-up sources of funds available, including FHLB
borrowing capacity and securities available for sale.
During 1996, the Company experienced a net cash outflow from
investing activities of $169.8 million, consisting principally of a net
increase of $197.5 million in loans receivable and purchased loans. The
Company experienced net cash inflows of $18.9 million from operating
activities and $160.6 million from financing activities. Financing
activities consisted principally of $204.5 million in net additions to FHLB
advances, offset partially by $27.7 million in net repayments of reverse
repurchase agreements and decreases of $12.7 million in deposit balances.
Proceeds from the sale of loans totaled $6.9 million in 1996. Based
on recent asset/liability management objectives, management expects sales
of selected longer-term, fixed-rate loans will continue during fiscal 1997.
Parent Company Liquidity
As a holding company, First Financial conducts its business through
its subsidiaries. Unlike the Associations, First Financial is not subject
to any regulatory liquidity requirements. The principal source of funds
for the acquisition of Peoples Federal in 1992 was the issuance of $20.3
million in senior notes by the Company in September 1992. 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 securities;
and (iii) interest on its investment securities. As of September 30, 1996,
First Financial had cash reserves and existing marketable securities of
$13.9 million.
The Associations' ability to pay dividends and make other capital
contributions to First Financial is restricted by regulation and may
require regulatory approval. Such distributions may also depend on the
Associations ability to meet minimum regulatory capital requirements in
effect during the period. Current OTS regulations permit institutions
meeting certain capital requirements and subject to normal supervision to
pay out 100% of net income to date over the calendar year and 50% of
surplus capital existing at the beginning of the calendar year without
supervisory approval. Both Associations are currently subject to normal
supervision as to the payment of dividends.
Asset/Liability Management
Asset/liability management is the process by which the Company
constantly changes the mix, maturity and pricing of assets and liabilities
in an attempt to reduce a materially adverse impact on earnings resulting
from the direction, frequency and magnitude of change in market interest
rates. Although the net interest income of any financial institution is
perceived as being vulnerable to fluctuations in interest rates, the
Company s management has attempted to minimize that vulnerability. The
future regulatory capital requirements of all financial institutions will
become subject to the inclusion of additional components measured by
exposure to interest rate sensitivity.
The Company, working principally through the Asset and Liability
Committees of the Associations, has established policies and monitors
results to control interest rate risk. The Company utilizes measures such
as static gap, which is the measurement of the difference between interest-
sensitive assets and interest-sensitive liabilities repricing for a
particular time period. More importantly may be the process of evaluating
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 sheet
mix assumptions.
Management may adjust the Company s interest rate sensitivity
position primarily through decisions on the pricing, maturity and marketing
of particular deposit and loan products and by decisions regarding the
maturities of FHLB advances and other borrowings. The Company has
continued to emphasize adjustable-rate mortgage real estate lending and
short-term consumer and commercial business lending to accomplish its
objectives.
The following table sets forth in summary form the repricing
attributes of the Company s interest-earning assets and interest-bearing
liabilities. The time periods in the table represent the time period
before an asset or liability matures or can be repriced.
<TABLE>
<CAPTION>
Interest Rate Sensitivity Analysis at September 30, 1996
Interest Rate Sensitivity Period
13 Months-
3 Months 4-6 Months 7-12 Months 2 years Over 2 Years Total
<S> <C> <C> <C> <C> <C> <C>
Interest-earning assets: (dollar amounts in thousands)
Loans (1) $ 265,616 $ 213,373 $ 277,095 $ 58,385 $ 477,755 $ 1,292,224
Mortgage-backed securities 4,723 11,723 19,395 14 47,136 82,991
Interest-earning deposits and
investments 33,629 6,009 11,718 12,543 52,079 115,978
Total interest-earning assets 303,968 231,105 308,208 70,942 576,970 1,491,193
Interest-bearing liabilities:
Deposits:
Checking accounts (2) 8,743 8,742 17,484 19,053 40,486 94,508
Savings accounts (2) 5,079 5,078 10,158 16,862 82,332 119,509
Money market accounts 131,393 131,393
Certificate accounts 223,978 127,246 153,219 79,825 102,540 686,808
Total deposits 369,193 141,066 180,861 115,740 225,358 1,032,218
Borrowings 256,805 59,495 1,500 31,170 348,970
Total interest-bearing liabilities 625,998 200,561 182,361 115,740 256,528 1,381,188
Current period gap $(322,030) $ 30,544 $ 125,847 $ (44,798) $ 320,442 $ 110,005
Cumulative gap $(322,030) $ (291,486) $ (165,639) $ (210,437) $ 110,005
Percent of total assets (20.83)% (18.85)% (10.71)% (13.61)% 7.11%
Assumptions:
(1) Fixed-rate loans are shown in the time frame corresponding to
contractual principal amortization schedules. Adjustable-rate loans
are shown in the time frame corresponding to the next contractual
interest rate adjustment date.
(2) Interest-bearing checking accounts and savings accounts are assumed
to reprice in periods estimated by the Company's principal
regulator, the OTS. Decay rates for savings accounts approximate
17% in the first year and 14% in the second year. Decay rates for
checking accounts approximate 37% in the first year and 20% in the
second year.
</TABLE>
Based on the Company s September 30, 1996 static gap position, in a one-
year time period $843 million in interest-sensitive assets will reprice and
approximately $1.0 billion in interest-sensitive liabilities will reprice.
This current static gap position results in a negative mismatch of $166
million, or 10.7% of assets. The Company s static gap position one year
ago was a negative 0.06% of assets. The respective ratios and dollars
repricing as shown in the above table do not take into effect prepayments
to mortgage, consumer and other loans and mortgage-backed securities,
which may be significant in any year, based on the level and direction of
market interest rates. The above table also does not consider the
repricing considerations inherent in adjustable-rate loans, such as minimum
and maximum annual and lifetime interest rate adjustments and also the
index utilized.
In 1996, the Company extended maturities of interest-sensitive assets
through retention of loans, particularly those originated under newer
hybrid lending programs with both fixed-rate and variable-rate features.
These loans have become very popular with consumers and carry a fixed rate
of interest for three, five, or seven years and then adjust annually to an
established index.
A negative gap would normally suggest that net interest income would
increase if market rates decline. A rise in market rates would normally
have a detrimental effect on net interest income based on a negative gap.
The opposite would occur when an institution is positively-gapped. Based
on its current static gap position in the above table, which reflects
dollars repricing but not movements of indices to which assets and
liabilities are tied, First Financial was more biased toward a decline in
interest rates over the immediate future.
Derivative transactions may be used by the Company to better manage its
interest rate sensitivity. Although not used extensively by the Company in
the past, such measures may be utilized on a more frequent basis in the
future.
Results of Operations
Net Interest Income
The largest component of operating earnings for the Company is net
interest income. Net interest income totaled $45.1 million in 1996
compared with $39.7 million in 1995 and $40.9 million in 1994. The level
of net interest income is determined by balances of earning assets and
successfully managing the net interest margin. Changes in interest rates
paid on assets and liabilities, the rate of growth of the asset and
liability base, the ratio of interest-earning assets to interest-bearing
liabilities and management of the balance sheet s interest rate sensitivity
all factor into changes in net interest income.
Net interest income increased $5.4 million, or 13.6% in 1996. As the
table below illustrates, net yields were very comparable between fiscal
1996 and 1995. The strong growth in net interest income in 1996 therefore
was primarily attributable to an increase of $156.4 million in average
interest-earning assets. The Company s weighted average yield on assets
and weighted average cost of liabilities are shown for the periods
indicated. Such yields and costs are derived by dividing annualized
interest income and expense by the weighted average balances of interest-
earning assets or interest-bearing liabilities.
<TABLE>
<CAPTION>
Average Yields and Rates
Year Ended September 30,
1996 1995 1994
Average Average Average
Average Yield/ Average Yield/ Average Yield/
Balance Interest Cost Balance Interest Cost Balance Interest Cost
(dollar amounts in thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Interest-earning assets:
Loans (1) $1,187,353 $ 96,142 8.10% $1,025,034 $ 80,434 7.85% $ 967,732 $ 72,829 7.53%
Mortgage-backed securities 97,493 6,969 7.15 103,373 7,324 7.09 93,186 6,530 7.01
Investment securities 83,717 5,306 6.34 88,227 5,314 6.02 76,107 3,904 5.13
Other interest-earning
assets (2) 44,253 2,701 6.10 39,786 2,431 6.11 57,310 2,389 4.17
Total interest-earning assets 1,412,816 111,118 7.86 1,256,420 95,503 7.60 1,194,335 85,652 7.00
Non-interest-earning assets 42,933 48,389 39,258
Total assets $1,455,749 $1,304,809 $1,233,593
Interest-bearing liabilities:
Deposit accounts:
Checking accounts $ 120,905 1,730 1.43 $ 113,519 1,857 1.64 $ 109,116 1,871 1.71
Savings accounts 121,606 3,369 2.77 133,967 3,777 2.82 157,382 4,454 2.83
Money market accounts 130,532 4,789 3.67 133,112 5,060 3.80 146,798 4,305 2.93
Certificate accounts 690,955 39,771 5.76 682,318 36,947 5.41 633,821 29,080 4.59
Total deposits 1,063,998 49,659 4.67 1,062,916 47,641 4.48 1,047,117 39,710 3.79
FHLB advances 215,396 12,276 5.70 78,982 4,674 5.92 57,002 2,980 5.23
Other borrowings 58,520 4,062 6.94 46,533 3,479 7.48 24,532 2,065 8.41
Total interest-bearing
liabilities 1,337,914 65,997 4.93 1,188,431 55,794 4.69 1,128,651 44,755 3.96
Non-interest-bearing
liabilities 23,051 29,337 22,938
Total liabilities 1,360,965 1,217,768 1,151,589
Stockholders' equity 94,784 87,041 82,004
Total liabilities and
stockholders' equity $1,455,749 $1,304,809 $1,233,593
Net interest income/gross
margin $ 45,121 2.93% $ 39,709 2.91% $ 40,897 3.21%
Net yield on average interest-
earning assets 3.19% 3.16% 3.42%
Percent of average interest-
earning assets to average
interest-bearing liabilities 105.60% 105.72% 105.82%
(1) Average balances of loans include non-accrual loans.
(2) This computation includes interest-earning deposits, which are
classified as cash equivalents in the Company's Consolidated
Statements of Financial Condition.
</TABLE>
The net yield on average interest-earning assets was 3.19% in 1996
compared with 3.16% in 1995. Comparing operations in 1995 and 1994, the
decline of $1.2 million in net interest income was principally attributable
to a decline in the average net yield to 3.16% compared with 3.42% in 1994.
During that period, the average cost of interest-bearing liabilities
increased at a more rapid rate than corresponding yields on interest-
earning assets. More stable net interest margins prevailed in 1996 due to
the repricing of loans to lagged cost of funds indices and generally lower
levels of market interest rates prevalent throughout the year.
The following table presents the dollar amount of changes in interest
income and interest expense attributable to changes in volume and the
amount attributable to changes in rate. The combined effect of changes in
both volume and rate, which cannot be separately identified, has been
allocated proportionately to the change due to volume and due to rate.
Rate/Volume Analysis
<TABLE>
<CAPTION>
1996 versus 1995 1995 versus 1994
Increase (Decrease) Increase (Decrease)
Due to Due to
Volume Rate Net Volume Rate Net
(dollar amounts in thousands)
<S> <C> <C> <C> <C> <C> <C>
Interest income:
Loans $ 13,078 $ 2,630 $ 15,708 $ 4,427 $ 3,178 $ 7,605
Mortgage-backed securities (417) 62 (355) 719 75 794
Investment securities (281) 273 (8) 675 735 1,410
Other interest-earning assets 274 (4) 270 (865) 907 42
Total interest income 12,654 2,961 15,615 4,956 4,895 9,851
Interest expense:
Deposit accounts
Checking accounts 118 (245) (127) 69 (83) (14)
Savings accounts (342) (66) (408) (661) (16) (677)
Money market accounts (98) (173) (271) (430) 1,185 755
Certificate accounts 462 2,362 2,824 2,359 5,508 7,867
Total deposits 140 1,878 2,018 1,337 6,594 7,931
Borrowings 8,630 (445) 8,185 2,927 181 3,108
Total interest expense 8,770 1,433 10,203 4,264 6,775 11,039
Net interest income $ 3,884 $ 1,528 $ 5,412 $ 692 $ (1,880) $ (1,188)
</TABLE>
Provision for Loan Losses
The provision for loan losses is a charge to earnings in a given period to
maintain the allowance at an adequate level. In fiscal 1996, the Company s<PAGE>
provision expense was $1.8 million compared with $451 thousand in 1995 and
$1.1 million in 1994. The provision was higher in 1996 due to increased
loan charge-offs. Total loan loss reserves were $11.2 million and $10.6
million at September 30, 1996 and 1995, respectively, and represented 0.88%
and 0.98% of net loans receivable.
Net charge-offs in fiscal 1996 totaled $1.3 million, or 0.11% of average
net loans, compared with $542 thousand in 1995, or 0.05% of average net
loans. Net loan charge-offs of $1.1 million in 1994 resulted in charge-
offs to average loans of 0.11%.
Non-Interest Income
A strategic initiative of the Company is to increase non-interest income.
Traditionally, non-interest income for the Company has been principally
related to checking and deposit account fees and mortgage servicing fees.
Management recognizes that an increase in both traditional as well as
non-traditional sources of non-interest revenues is a priority in the
highly-competitive environment facing financial institutions today. Non-
interest income in 1996 improved to $10.1 million, increasing $1.5 million,
or 17.2% over non-interest income recorded in 1995.
The largest component of non-interest income, checking and other
deposit account fees, increased 18.3%, and totaled $4.7 million in 1996.
In the year ended September 30, 1995, checking and other deposit fees
totaled $4.0 million, increasing 11.9% over 1994. Growth was attributable
to increased demand accounts and the repricing of deposit account service
fees.
During 1996, commissions on sales of alternative investment products
improved to $323 thousand. Fiscal 1996 was the first full year of
operations of Link Investment Services, Inc., a full-service brokerage
subsidiary, established in the last quarter of fiscal 1995, offering
alternative investment products such as annuities and stock and fixed
income mutual funds. Operations are expected to expand further in 1997 as
additional brokers are added in Peoples Federal s locations in Florence and
Myrtle Beach. Operations of Link Investment Services recently expanded to
the newly opened Private Banking office of First Federal in Hilton Head.
Substantially all customer service representatives of First Federal are now
licensed to sell fixed-rate annuity products through branch locations of
First Federal.
Commissions on insurance sales of First Southeast Insurance Services
( First Southeast ) and credit life insurance sales commissions of the
Associations increased 12.9% in 1996 and 30% in 1995. Growth in 1995 was
due principally to the purchase of an insurance agency in Lake City, South
Carolina. During 1996, all insurance operations were consolidated under
one common corporate name and new internal operating systems were
installed, linking all of the insurance agents and locations.
A significant portion of the total non-interest income of $8.7 million
reported in 1994 was a $1.1 million gain on Regal Cinemas common stock.
The Regal Cinemas stock was obtained in exchange for the common stock of
Litchfield Theatres, which had been acquired by Peoples Federal in
connection with a bankruptcy filing of Litchfield. Gains on sales of
investment and mortgage-backed securities were lower in 1995 and 1996,
totaling $102 thousand and $74 thousand, respectively.
Non-Interest Expense
In the more competitive financial services market of recent years,
management has recognized the importance of controlling non-interest
expense to maintain and improve profitability. Management also recognizes
that there are operational costs which continue to increase as a result of
the present operating climate for regulated financial institutions. The
technical and operating environment for financial institutions continues to
require a well-trained and motivated staff, superior operating systems and
sophisticated marketing efforts.
Comparison of Non-Interest Expense
<TABLE>
<CAPTION>
Year Ended September 30,
1996 1995 1994 1993 1992
% Average % Average % Average % Average % Average
Amount Assets Amount Assets Amount Assets Amount Assets Amount Assets
(dollar amounts in thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Salaries and employee benefits $18,225 1.25% $17,542 1.34% $16,726 1.36% $15,686 1.22% $10,184 1.03%
Occupancy costs 3,194 0.22 3,040 0.23 2,745 0.22 2,616 0.20 1,940 0.20
Marketing 1,216 0.08 1,013 0.08 1,156 0.09 1,039 0.08 1,093 0.11
Depreciation, amortization,
rental and maintenance of
equipment 2,520 0.17 2,422 0.19 2,223 0.18 2,171 0.17 1,738 0.18
FDIC insurance premiums 2,570 0.18 2,503 0.19 2,558 0.21 2,381 0.19 1,583 0.16
Other 7,524 0.52 6,904 0.53 6,943 0.56 6,852 0.53 5,378 0.54
Sub-total 35,249 2.42 3,424 2.56 32,351 2.62 30,745 2.39 21,916 2.22
SAIF Special assessment 6,955 0.48
Total non-inerest expense $42,204 2.90% $33,424 2.56% $32,351 2.62% $30,745 2.39% $21,916 2.22%
</TABLE>
The special, one-time SAIF assessment, which was recorded as a non-
recurring other expense in the fourth quarter of 1996, totaled $7.0 million
and resulted in total non-interest expense of $42.2 million for the year.
Excluding the effect of the special assessment, non-interest expense in
1996 totaled $35.2 million, an increase of $1.8 million, or 5.5% over 1995.
For a complete discussion of the one-time SAIF assessment, refer to SAIF
Special Assessment discussed above.
The ratio of non-interest expense to average assets, excluding the
special assessment, declined to 2.42% in 1996, improving from 2.56% in 1995
and 2.62% in 1994. Another important measure of operating efficiency, the
Company s efficiency ratio, also declined to 63.7% in 1996 from 69.1% in
1995 and 66.1% in 1994. The decline experienced in both of these measures
of expense control is evidence of management s concentrated efforts to
exert more effective control over staffing and operating expenses.
Management, while pleased with the progress in 1996, continues to target
lower expense ratios as an important strategic goal of the Company.
The largest component of non-interest expense, salaries and employee
benefits, increased $683 thousand, or 3.9%, in 1996 due to increased
staffing for the expansion of products and services, normal annual merit
increases and higher contributions to 401(k) and profit-sharing employee
benefit plans. Health benefit expenditures moderated in fiscal 1996 as the
Company outsourced its health benefit programs, effective January 1, 1996,
after several years of providing a self-funded health program. In fiscal
1995, salaries and employee benefits increased $816 thousand, or 4.9%,
from 1994. Full-time equivalent employees numbered 540, 509 and 537 as of
September 30, 1996, 1995 and 1994, respectively. Increases in staff are
primarily attributable to First Southeast s purchase of an insurance agency
and the growth of Link Investment Services.
Occupancy expenses increased $154 thousand, or 5.1%, in 1996 and $295
thousand, or 10.7%, in 1995. Equipment expenses also increased $98
thousand and $199 thousand in 1996 and 1995, increasing 4.0% and 9.0%,
respectively, over the previous years. Occupancy and equipment expenses
have increased over the past two years due to consolidation of back-office
functions of First Federal into leased space and the expansion and
upgrading of several branch locations of the Associations. During 1996,
the Automated Teller Machine ( ATM ) network of First Financial has
expanded by over 67%, resulting in higher operating costs, but greatly
improving customer convenience and providing for future revenue
enhancements. A number of the ATM additions were made in supermarket
locations. During 1996, progress continued on the selection of a new
branch automation system. This major capital improvement project should be
completed in fiscal 1997.
FDIC insurance premium rates remained stable in 1996 with both
Associations being assessed at the lowest rate for SAIF-insured
institutions, $.23 per $100 in assessable deposits. As explained above
under SAIF Special Assessment, annual insurance premium rates will
decline to 6.4 basis points effective January 1, 1997, which includes a new
separate assessment for FICO funding. During the quarter ending December
31, 1996, the Company s subsidiaries will also be subject to a slight
reduction in costs to $.18 per $100 of assessable deposits from current
rates of $.23 per $100 of assessable deposits.
Over one-half of the $620 thousand increase in other expenses in 1996
resulted from a non-recurring charge of approximately $348 thousand in the
first quarter of 1996, related to a checking account loss.
Income Tax Expense
Income taxes totaled $4.1 million or 36.9% of pre-tax income in 1996,
compared to $5.2 million, or 35.9% of pre-tax income in 1995. In 1994, the
effective tax rate was 25.6%. The lower effective tax rate in 1994
resulted from the reduction of the deferred tax asset valuation allowance
at Peoples Federal due to Peoples Federal s positive operating results.
The effective tax rate in future periods is expected to approximate 37%.
Regulatory and Accounting Issues
The Small Business Job Protection Act of 1996 (the Act ), signed into
law on August 20, 1996, contains a provision that repeals the thrift bad
debt reserve method under section 593, effective for taxable years
beginning after December 31, 1995. As a result, all thrifts, including the
Associations, will be required to change from the reserve method of section
593 to either the specific charge-off method of section 166 (available to
all thrifts) or the experience method (available only to thrifts that
qualify as small banks, i.e., under $500 million in assets measured on a
controlled group basis) to compute the tax bad debt deduction.
Under the Act, the change in accounting method that eliminates the
reserve method triggers bad debt reserve recapture for post-1987 reserves
over a six-year period. At September 30, 1996, the Associations post-1987
reserves amounted to approximately $1.5 million. Pre-1988 reserves would
be subject to recapture if the institution makes distributions in excess of
accumulated earnings and profits or makes a distribution in a partial or
complete liquidation. A special provision suspends recapture of post-1987
reserves for up to two years if, during those years, the institution
satisfies a residential loan requirement. However, notwithstanding this
special provision, recapture would be required to begin no later that the
first taxable year beginning after December 31, 1997.
The Act differs substantially from prior law, which triggered recapture
upon a thrift institution s conversion to a bank or upon failure to satisfy
the tax law definition of a thrift. In addition, under prior law, a
converted thrift only recaptured the portion of the reserve attributable to
use of the percentage of taxable income method. There was no recapture of
bank reserves if the converted thrift used the experience method and
continued to qualify as a small bank as defined above.
Congress enacted and President Clinton signed the Omnibus Consolidated
Appropriations Act on September 30, 1996. Among the law s many provisions
is a resolution of the BIF-SAIF deposit insurance premium disparity, many
regulatory burden relief provisions and other bank-related legislation.
The BIF-SAIF provisions, which are discussed above under SAIF Special
Assessment, are contained in the Deposit Insurance Funds Act of 1996. The
BIF and SAIF will be merged on January 1, 1999 into a new Deposit Insurance
Fund ( DIF ), provided no insured depository institution is a savings
association on that date. The Treasury Department is directed to present
recommendations to Congress for establishment of a common depository
institution charter by March 31, 1997.
In October 1995, the Financial Accounting Standards Board ("FASB")
issued Statement of Financial Accounting Standards No. 123, Accounting for
Stock-Based Compensation ("SFAS 123"), which defines a fair value based
method of accounting for employee stock options or similar equity
instruments granted after December 31, 1994. SFAS 123 is effective for the
Company beginning in the fiscal year ending September 30, 1997. However,
SFAS 123 also allows an entity to continue to account for these plans
according to Accounting Principles Board Opinion No. 25, Accounting for
Stock Issued to Employees ("APB 25"), provided pro forma disclosures of
net income and earnings per share are made as if the fair value based
method of accounting defined by SFAS 123 had been applied. The Company
anticipates electing to continue to measure compensation cost related to
employee stock purchase options using APB 25, and will provide pro forma
disclosures as required in the 1997 financial statements.
The FASB issued Statement No. 125, Accounting for Transfers and
Servicing of Financial Assets and Extinguishments of Liabilities ("SFAS
125") in June of 1996. SFAS 125 establishes, among other things, new
criteria for determining whether a transfer of financial assets in exchange
for cash or other consideration should be accounted for as a sale or as a
pledge of collateral in a secured borrowing. SFAS 125 also establishes new
accounting requirements for pledged collateral. As issued, SFAS 125 is
effective for transfers and servicing of financial assets and
extinguishments of liabilities occurring after December 31, 1996.
After issuance of SFAS 125, the FASB became aware that the volume and
variety of certain transactions and the related changes to information
systems and accounting processes necessary to comply with the requirements
of SFAS 125 would make it extremely difficult for some affected enterprises
to apply the transfer and collateral provisions of SFAS 125 as soon as
January 1, 1997. The FASB has now issued an exposure draft to delay
certain provisions of SFAS 125 for one year. The Company s adoption of
SFAS 125 will have a minimal effect on the accounting practices of the
Company.
Impact of Inflation and Changing Prices
The Consolidated Financial Statements and related data presented herein
have been prepared in accordance with generally accepted accounting
principles which require the measurement of financial position and
operating results in terms of historical dollars, without considering
changes in the relative purchasing power of money over time because of
inflation.
Unlike most industrial companies, virtually all of the assets and
liabilities of a financial institution are monetary. As a result, interest
rates have a more significant impact on a financial institution s
performance than the effect of general levels of inflation. Interest rates
do not necessarily move in the same direction or in the same magnitude as
the price of goods and services since such prices are affected by
inflation. The Company is committed to continue its efforts to manage the
gap between its interest-sensitive assets and interest-sensitive
liabilities.
Information in the above Management's Discussion and Analysis of Financial
Condition and Results of Operations, other than historical information,
contains forward-looking statements that involve risks and uncertainties,
including, but not limited to, the impact of future regulatory actions of
the FDIC regarding federal deposit insurance rates, timing of certain new
business initiatives of the Company and the Company's interest rate risk
position. It is important to note that the Company's actual results may
differ materially and adversely from those discussed in the forward-looking
statements. The reader is cautioned to obtain a copy of the Company's
Annual Report on Form 10-K for the fiscal year ended September 30, 1996,
for a more complete discussion of operations in 1996.
MANAGEMENT'S REPORT
Primary responsibility for the integrity and objectivity of the
Company's consolidated financial statements rests with management. The
accompanying consolidated financial statements are prepared in conformity
with generally accepted accounting principles and accordingly include
amounts that are based on management's best estimates and judgements. Non-
financial information included in the Summary Annual Report to Stockholders
has also been prepared by management and is consistent with the
consolidated financial statements.
To assure that financial information is reliable and assets are
safeguarded, management maintains an effective system of internal controls
and procedures, important elements of which include: careful selection,
training, and development of operating personnel and management; an
organization that provides appropriate division of responsibility; and
communications aimed at assuring that Company policies and procedures are
understood throughout the organization. In establishing internal controls,
management weighs the costs of such systems against the benefits it
believes such systems will provide. An important element of the system is
an ongoing internal audit program.
To assure the effective administration of the system of internal
controls, the Company develops and widely disseminates written policies and
procedures, provides adequate communications channels and fosters an
environment conducive to the effective functioning of internal controls.
All employees of the Company are informed of the need to conduct our
business affairs in accordance with the highest ethical standards. The
Company has set forth a written corporate code of conduct and communicated
it to all employees.
KPMG Peat Marwick LLP, independent auditors, have audited the
Company's consolidated financial statements as described in their report.
/s/ A. Thomas Hood
President and Chief Executive Officer
AUDIT COMMITTEE'S REPORT
The Audit Committee of the Board of Directors of the Company is
comprised of four outside directors. The members of the Committee are: Dr.
D. Kent Sharples, Chairman, Mr. Joseph A. Baroody, Mr. Gary C. Banks, Jr.,
and Mrs. Paula Harper Bethea. The Committee held four meetings during
fiscal 1996.
The Audit Committee meets with the independent auditors, management,
and internal auditors to assure that all are carrying out their respective
responsibilities. The Audit Committee reviews the performance of the
independent auditors prior to recommending their appointment and meets with
them, without management present, to discuss the scope and results of their
audit work, including the adequacy of internal controls and the quality of
financial reporting. Both the independent auditors and the internal
auditors have full access to the Audit Committee.
/s/ D. Kent Sharples
Chairman, Audit Committee
REPORT OF INDEPENDENT AUDITORS
The Board of Directors
First Financial Holdings, Inc. and Subsidiaries
We have audited the accompanying consolidated statements of financial
condition of First Financial Holdings, Inc. and Subsidiaries as of
September 30, 1996 and 1995, and the related consolidated statements of
operations, stockholders' equity and cash flows for each of the years in
the three-year period ended September 30, 1996. These consolidated
financial statements are the responsibility of the Company's management.
Our responsibility is to express an opinion on these consolidated financial
statements based on our audits.
We conducted our audits in accordance with generally accepted
auditing standards. Those standards require that we plan and perform the
audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test
basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles
used and significant estimates made by management, as well as evaluating
the overall financial statement presentation. We believe that our audits
provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to
above present fairly, in all material respects, the consolidated financial
position of First Financial Holdings, Inc. and Subsidiaries at September
30, 1996 and 1995, and the consolidated results of their operations and
their cash flows for each of the years in the three-year period ended
September 30, 1996, in conformity with generally accepted accounting
principles.
KPMG PEAT MARWICK LLP
Greenville, South Carolina
October 25, 1996
<PAGE>
<TABLE>
<CAPTION>
FIRST FINANCIAL HOLDINGS, INC.
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
September 30,
1996 1995
(dollar amounts in thousands)
<S> <C> <C>
Assets
Cash and cash equivalents $ 34,124 $ 24,486
Investment securities held to maturity (fair value of
$27,417 and $68,687) 27,487 68,154
Investment securities available for sale, at fair value 66,434 39,831
Investment in capital stock of Federal Home Loan Bank, at
cost 15,620 11,982
Loans receivable, net of allowance of $11,202 and $10,637 1,278,757 1,083,367
Loans held for sale 1,353
Mortgage-backed securities held to maturity (fair value of
$18,844) 18,361
Mortgage-backed securities available for sale, at fair
value 82,991 82,765
Accrued interest receivable--loans 7,711 6,868
Accrued interest receivable--mortgage-backed securities 639 741
Accrued interest receivable--investment securities 1,449 1,666
Office properties and equipment, net 16,125 15,058
Real estate and other assets acquired in settlement of
loans 2,326 3,143
Other assets 11,133 8,926
Total assets $ 1,546,149 $ 1,365,348
Liabilities and Stockholders' Equity
Liabilities:
Deposit accounts $ 1,061,617 $ 1,074,313
Advances from Federal Home Loan Bank 312,402 107,853
Securities sold under agreements to repurchase 16,805 44,504
Long-term debt 19,763 19,763
Advances by borrowers for taxes and insurance 7,341 6,872
Outstanding checks 12,911 8,187
Due FDIC for SAIF Special Assessment 6,955
Other 13,560 12,447
Total liabilities 1,451,354 1,273,939
Commitments and contingencies (Note 16)
Stockholders' equity:
Serial preferred stock, authorized 3,000,000 shares--
none issued
Common stock, $.01 par value, authorized 12,000,000
shares, issued 6,974,645 and 6,884,438 shares
at September 30, 1996 and 1995, respectively 70 69
Additional paid-in capital 24,543 23,776
Retained income, substantially restricted 75,780 72,814
Unrealized net gain (loss) on securities available
for sale, net of income tax 341 (74)
Treasury stock at cost, 617,096 shares and 578,534
shares at September 30, 1996 and 1995,
respectively (5,939) (5,176)
Total stockholders' equity 94,795 91,409
Total liabilities and stockholders' equity $ 1,546,149 $ 1,365,348
</TABLE>
See accompanying notes to consolidated financial statements.
<TABLE>
<CAPTION>
FIRST FINANCIAL HOLDINGS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
Year Ended September 30,
1996 1995 1994
(dollar amounts in thousands, except per
share amounts)
<S> <C> <C> <C>
Interest Income
Interest on loans $ 96,142 $ 80,434 $ 72,829
Interest on mortgage-backed securities 6,969 7,324 6,530
Interest and dividends on investment
securities 5,306 5,314 3,904
Other 2,701 2,431 2,389
Total interest income 111,118 95,503 85,652
Interest Expense
Interest on deposits
NOW accounts 1,730 1,857 1,871
Passbook, statement and other
accounts 3,369 3,777 4,454
Money market accounts 4,789 5,060 4,305
Certificate accounts 39,771 36,947 29,080
Total interest on deposits 49,659 47,641 39,710
Interest on FHLB advances 12,276 4,674 2,980
Interest on securities sold under
agreements to repurchase 2,209 1,626 212
Interest on long-term debt 1,853 1,853 1,853
Total interest expense 65,997 55,794 44,755
Net interest income 45,121 39,709 40,897
Provision for loan losses 1,823 451 1,097
Net interest income after provision for loan
losses 43,298 39,258 39,800
Other Income
Net gain (loss) on sale of loans 57 9 (62)
Gain on sale of investment and mortgage-
backed securities 74 102 1,059
Loan servicing fees 1,169 1,217 1,394
Service charges and fees on deposit
accounts 4,671 3,950 3,529
Commissions on insurance 1,738 1,539 1,184
Brokerage fees 323 31
Bank card fees 981 779 698
Real estate operations, net (294) (196) (348)
Other 1,333 1,144 1,227
Total other income 10,052 8,575 8,681
Non-Interest Expense
Salaries and employee benefits 18,225 17,542 16,726
Occupancy costs 3,194 3,040 2,745
Marketing 1,216 1,013 1,156
Depreciation, amortization, rental and
maintenance of equipment 2,520 2,422 2,223
FDIC insurance premiums 2,570 2,503 2,558
FDIC SAIF Special Assessment 6,955
Other 7,524 6,904 6,943
Total non-interest expense 42,204 33,424 32,351
Income before income taxes 11,146 14,409 16,130
Income tax expense 4,118 5,171 4,125
Net income $ 7,028 $ 9,238 $ 12,005
Net income per common share $ 1.11 $ 1.47 $ 1.88
Cash dividends per common share $ 0.64 $ 0.56 $ 0.48
Weighted average shares outstanding 6,345 6,286 6,372
</TABLE>
See accompanying notes to consolidated financial statements.
<TABLE>
<CAPTION>
FIRST FINANCIAL HOLDINGS, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
Unrealized Net
Additional Gain (Loss) on
Common Paid-in Retained Available for Treasury Stock
Stock Capital Income Sale, Net Shares Amount Total
(dollar amounts in thousands)
<S> <C> <C> <C> <C> <C> <C> <C>
Balance, September 30, 1993 $68 $ 22,994 $ 58,159 $ 1,275 369 $ (1,950) $ 80,546
Common stock issued pursuant to
stock option and employee
benefit plans 243 243
Cash dividends ($.48 per share) (3,066) 3,066)
Treasury stock purchased 189 (2,909) (2,909)
Change in unrealized net gain
(loss) on securities available
for sale, net of income tax (4,147) (4,147)
Net income 12,005 12,005
Balance, September 30, 1994 68 23,237 67,098 (2,872) 558 (4,859) 82,672
Common stock issued pursuant to
stock option and employee
benefit plans 1 539 540
Cash dividends ($.56 per share) (3,522) (3,522)
Treasury stock purchased 20 (317) (317)
Change in unrealized net gain
(loss) on securities available
for sale, net of income tax 2,798 2,798
Net income 9,238 9,238
Balance, September 30, 1995 69 23,776 72,814 (74) 578 (5,176) 91,409
Common stock issued pursuant to
stock option and employee
benefit plans 1 767 768
Cash dividends ($.64 per share) (4,062) (4,062)
Treasury stock purchased 39 (763) (763)
Change in unrealized net gain
(loss) on securities available
for sale, net of income tax 415 415
Net income 7,028 7,028
Balance, September 30, 1996 $70 $ 24,543 $ 75,780 $ 341 617 $ (5,939) $ 94,795
</TABLE>
See accompanying notes to consolidated financial statements.
<TABLE>
<CAPTION>
FIRST FINANCIAL HOLDINGS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
Year Ended September 30,
1996 1995 1994
<S> <C> <C> <C>
(dollar amounts in thousands)
Operating Activities
Net income $ 7,028 $ 9,238 $ 12,005
Adjustments to reconcile net income to net cash provided by operating
activities
Depreciation 1,845 1,807 1,621
(Gain) loss on sale of loans, net (57) (9) 62
(Gain) loss on sale of investments, net (74) (102)
Gain on trading securities (1,059)
(Gain) loss on sale of property and equipment, net (57) 29 19
Gain on sale of real estate owned, net (177) (154) (374)
Amortization of unearned discounts/premiums on investments, net 360 220 (132)
Decrease in deferred loan fees and discounts (408) (817) (666)
Increase in receivables and prepaid expenses (2,881) (1,990) (1,671)
Provision for loan losses 1,823 451 1,097
Write downs of real estate acquired in settlement of loans 158 155 362
Increase (decrease) in deferred taxes (2,348) 1,903 (1,352)
FHLB stock dividends (296)
Proceeds from sales of loans held for sale 6,915 1,501 79,202
Origination of loans held for sale (8,268) (1,501) (63,794)
Increase in accounts payable and accrued expenses 14,927 3,833 781
Amortization of discount on long-term debt 126 126 126
Net cash provided by operating activities 18,912 14,690 25,931
Investing Activities
Proceeds from maturity of investments held to maturity 20,850 19,593 29,988
Proceeds from maturity of investments available for sale 12,328 2,502
(Purchases) redemption of mutual funds available for sale (175) (1,625) 1,000
Principal collected on investments held to maturity 1,792 328
Proceeds from sales of investments held to maturity 3,999
Proceeds from sales of investments available for sale 10,905 7,303 2,999
Proceeds from sales of trading securities 1,178
Purchases of investments held to maturity (9,896) (23,224) (36,640)
Purchases of investments available for sale (19,966) (9,227) (14,858)
Purchase of FHLB stock (3,638)
Increase in loans, net (158,752) (114,357) (13,200)
Net increase in credit card receivables (1,307) (1,031) (762)
Proceeds from sales of mortgage-backed securities available for sale 20,721 1,162
Repayments on mortgage-backed securities 20,111 12,311 40,567
Purchases of mortgage-backed securities (22,313) (5,744) (45,254)
Purchase of loans and loan participations (38,738) (6,655) (8)
Proceeds from the sales of real estate owned 2,885 2,656 4,435
Net purchase of office properties and equipment (2,855) (2,665) (1,829)
Net cash provided by (used in) investing activities (169,840) (115,712) (29,554)
Financing Activities
Net increase (decrease) in NOW, passbook and money market fund accounts $ 847 $(29,512) $(13,281)
Net increase (decrease) in certificates of deposit (13,543) 40,890 25,300
Net proceeds (repayment) of FHLB advances 204,549 61,447 (36,500)
Net purchase (repurchase) of securities sold under agreements to repurchase (27,699) 31,406 9,146
Increase in escrow accounts 469 1,008 117
Proceeds from sale of common stock 768 540 243
Dividends paid (4,062) (3,522) (3,066)
Treasury stock purchased (763) (317) (2,909)
Net cash provided by (used in) financing activities 160,566 101,940 (20,950)
Net increase (decrease) in cash and cash equivalents 9,638 918 (24,573)
Cash and cash equivalents at beginning of period 24,486 23,568 48,141
Cash and cash equivalents at end of period $ 34,124 $ 24,486 $ 23,568
Supplemental disclosures:
Cash paid during the period for:
Interest $ 63,475 $ 54,221 $ 44,858
Income taxes 5,140 4,631 6,253
Loans foreclosed 1,814 3,517 2,348
Unrealized net gain (loss) on securities available for sale, net of
income tax 415 2,798 (4,147)
Transfers of securities held to maturity to available for sale 50,185
</TABLE>
See accompanying notes to consolidated financial statements.
FIRST FINANCIAL HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 1996, 1995 and 1994
(All Dollar Amounts, Except Per Share And Where Otherwise Indicated, In
Thousands.)
1. Summary of Significant Accounting Policies
First Financial Holdings, Inc. ("First Financial" or the "Company")
is incorporated under the laws of the State of Delaware and became a
multiple savings and loan holding company upon the acquisition of Peoples
Federal Savings and Loan Association ("Peoples Federal") on October 9,
1992. Prior to that date, First Financial was a unitary savings and loan
holding company with First Federal Savings and Loan Association of
Charleston ("First Federal") as its only subsidiary.
Consolidation
The accompanying consolidated financial statements include the
accounts of the Company and its wholly-owned subsidiaries, First Federal
and Peoples Federal (together, the "Associations"). The Company's
consolidated financial statements also include the assets and liabilities
of service corporations wholly-owned by the Associations, three of which
are currently active. Charleston Financial Services, Inc. is primarily
engaged in data processing consulting, the sale of computer output
microfiche services and related equipment and the operation of Link
Investment Services, Inc. First Southeast Insurance Services, Inc. is a
property and casualty insurance agency with offices in Florence, Conway,
Lake City and Charleston. Carolopolis, Inc. is primarily engaged in real
estate management activities on a limited basis. All significant
intercompany accounts and transactions have been eliminated in
consolidation.
Adoption of SFAS 114 and SFAS 118
The Financial Accounting Standards Board ("FASB") has issued
Statement of Financial Accounting Standards ( SFAS ) 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 loan s fair value.
Fair value may be determined based upon the present value of expected cash
flows, market price of the loan, if available, or the value of the
underlying collateral. Expected cash flows are required to be discounted
at the loan's effective interest rate.
SFAS 114 was amended by SFAS 118, "Accounting by Creditors for
Impairment of a Loan -- Income Recognition and Disclosures," 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.
On October 1, 1995, the provisions of SFAS 114 and 118 were adopted.
The adoption of the Standards required no increase to the allowance for
loan losses and had no impact on net income for the year ended September
30, 1996.
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.
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 SFAS 115, Accounting for Certain
Investments in Debt and Equity Securities, 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.
Debt 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 Statements of Operations.
Debt and equity securities that are purchased 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 debt and equity 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 fair
value. Changes in the fair value of debt and equity securities available
for sale are included in stockholders' 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. Realized gains or losses on available for sale securities are
computed on the specific identification basis.
In November 1995, the FASB issued a Special Report as an aid in
understanding and implementing SFAS 115. The Special Report included
guidance that caused the Company to reassess the appropriateness of the
classifications of all securities held and account for any resulting
reclassifications at fair value in accordance with SFAS 115. During the
first quarter of fiscal 1996, the Company reclassified $32,161 of
investment securities and $18,024 of mortgage-backed securities from held
to maturity to available for sale.
Fair Value of Financial Instruments
The FASB issued SFAS 107, "Disclosures about Fair Value of Financial
Instruments," in December 1991. SFAS 107 requires disclosures about the
fair value of all financial instruments whether or not recognized in the
balance sheet, for which it is practicable to estimate that value. In
cases where quoted market prices are not available, fair values are based
on estimates using present value or other valuation techniques. Those
techniques are significantly affected by the assumptions used, including
the discount rate and estimates of future cash flows. In that regard, the
derived fair value estimates cannot be substantiated by comparison to
independent markets and, in many cases, could not be realized through
immediate settlement of the instrument. SFAS 107 excludes certain
financial instruments and all non-financial instruments from its disclosure
requirements. Accordingly, the aggregate fair value amounts represented do
not represent the underlying value of the Company.
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 the securities
underlying the agreements continue to be reflected as assets in the
Consolidated Statements of Financial Condition.
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 product 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 deferred and offset
by the deferral of certain direct expenses associated with loans
originated. The net deferred 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.
Allowance for Loan Losses
The Company provides for loan losses on the allowance method.
Accordingly, all loan losses are charged to the related allowance and all
recoveries are credited to the allowance. 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. The allowance for loan losses is subject to<PAGE>
periodic evaluation by various regulatory authorities and may be subject to
adjustment upon their examination.
The Company considers a loan to be impaired when, based upon current
information and events, it believes it is probable that the Company will be
unable to collect all amounts due according to the contractual terms of the
loan agreement on a timely basis. The Company s impaired loans include
loans identified as impaired through review of the non-homogeneous
portfolio and troubled debt restructurings. Specific valuation allowances
are established on impaired loans for the difference between the loan
amount and the fair value less estimated selling costs. Impaired loans may
be left on accrual status during the period the Company is pursuing
repayment of the loan. Such loans are placed on non-accrual status at the
point either: (1) they become 90 days delinquent; or (2) the Company
determines the borrower is incapable of, or has ceased efforts toward,
continuing performance under the terms of the loan. Impairment losses are
recognized through an increase in the allowance for loan losses and a
corresponding charge to the provision for loan losses. Adjustments to
impairment losses due to changes in the fair value of the collateral
properties for impaired loans are included in provision for loan losses.
When an impaired loan is either sold, transferred to real estate owned or
written down, any related valuation allowance is charged off.
Increases to the allowance for loan losses are charged by recording a
provision for loan losses. Charge-offs to the allowance are made when all,
or a portion, of the loan is confirmed as a loss based upon management s
review of the loan or through possession of the underlying security or
through a troubled debt restructuring transaction. Recoveries are credited
to the allowance.
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.
Long-term Debt
The costs of issuing the senior notes were capitalized and are being
amortized on the straight-line method over the term of the notes, which is
ten years.
Risk Management Instruments
Risk management instruments are utilized to modify the interest rate
characteristics of related assets or liabilities or hedge against changes
in interest rates or other exposures as part of the Company s asset and
liability management process. Instruments must be designated as hedges and
must be effective throughout the hedge period.
Gains and losses associated with futures and forward contracts used
as effective hedges of existing risk positions or anticipated transactions
are deferred as an adjustment to the carrying value of the related asset
and liability and recognized in income over the remaining term of the
related asset or liability.
The Company also utilizes forward delivery contracts and options for
the sale of mortgage-backed securities to reduce the interest rate risk
inherent in mortgage loans held for sale and the commitments made to
borrowers for mortgage loans which have not been funded. These financial
instruments are considered in the Company s valuation of its mortgage loans
held for sale which are carried at the lower of cost or market.
Risks and Uncertainties
In the normal course of its business the Company encounters two
significant types of risk: economic and regulatory. There are three main
components of economic risk: interest rate risk, credit risk and market
risk. The Company is subject to interest rate risk to the degree that its
interest-bearing liabilities mature or reprice at different speeds, or on
different bases, than its interest-earning assets. Credit risk is the risk
of default on the Company s loan portfolio that results from borrowers'
inability or unwillingness to make contractually required payments. Market
risk reflects changes in the value of collateral underlying loans
receivable, the valuation of real estate held by the Company, and the
valuation of loans held for sale, mortgage-backed securities available for
sale, purchased mortgage servicing rights, and capitalized servicing fees
receivable.
The Company is subject to the regulations of various government
agencies. These regulations can and do change significantly from period to
period. The Company also undergoes periodic examinations by the regulatory
agencies, which may subject it to further changes with respect to asset
valuations, amounts of required loss allowances and operating restrictions
resulting from the regulators' judgments based on information available to
them at the time of their examination.
In preparing the consolidated financial statements, management is
required to make estimates and assumptions that affect the reported amounts
of assets and liabilities and disclosure of contingent assets and
liabilities as of the dates of the Consolidated Statements of Financial
Condition and the Consolidated Statements of Operations for the periods
covered. Actual results could differ significantly from those estimates
and assumptions.
Income Taxes
Because some income and expense items are recognized in different
periods for financial reporting purposes and for purposes of computing
currently payable income taxes, a provision or credit for deferred income
taxes is made for such temporary differences at currently enacted income
tax rates applicable to the period in which realization or settlement is
expected. As changes in tax laws or rates are enacted, deferred tax assets
and liabilities are adjusted through the provision for income taxes.
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
periods' net income or retained income as previously reported.
2. Cash and Cash Equivalents
Cash and cash equivalents consist of the following:
September 30,
1996 1995
Cash working funds $ 11,339 $ 6,052
Non-interest-earning demand deposits 3,332 2,853
Deposits in transit 13,016 11,695
Interest-earning deposits 6,437 3,886
Total $ 34,124 $ 24,486
The Company considers all highly liquid investments with a maturity
of 90 days or less at the time of purchase to be cash equivalents.
3. Investment and Mortgage-backed Securities Held to Maturity
The amortized cost, gross unrealized gains, gross unrealized losses
and fair value of investment and mortgage-backed securities held to
maturity are as follows:
September 30, 1996
Gross Gross
Amortized Unrealized Unrealized Fair
Cost Gains Losses value
U.S. Treasury securities and
obligations of U.S.
government agencies and
corporations $ 27,487 $ 40 $ 110 $ 27,417
Total $ 27,487 $ 40 $ 110 $ 27,417
September 30, 1995
Gross Gross
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
U.S. Treasury securities and
obligations of U.S.
government agencies and
corporations $ 46,853 $ 338 $ 163 $ 47,028
Corporate securities 21,301 404 46 21,659
68,154 742 209 68,687
Mortgage-backed securities:
FHLMC 14,716 592 2 15,306
FNMA 2,987 137 2,850
GNMA 642 30 672
Other 16 16
18,361 622 139 18,844
Total $ 86,515 $1,364 $ 348 $ 87,531
The amortized cost and fair value of investment and mortgage-backed
securities held to maturity at September 30, 1996, by contractual maturity,
are shown below. Expected maturities will differ from contractual
maturities because borrowers may have the right to call or prepay
obligations with or without call or prepayment penalties.
September 30, 1996
Amortized Fair
Cost Value
Due in one year or less $ 14,513 $ 14,545
Due after one year through five years 12,974 12,872
Total $ 27,487 $ 27,417
Proceeds from the sale of investment and mortgage-backed securities
held to maturity during fiscal 1995 was $3,999. A gross realized gain of
$37 and a gross realized loss of $6 resulted in 1995. There were no sales
of investment securities held to maturity during fiscal 1996 and 1994. The
sales in fiscal 1995 were of securities scheduled to mature in three months
or less at the time of the sale.
4. Investment and Mortgage-backed Securities Available for Sale
The amortized cost, gross unrealized gains, gross unrealized losses
and fair value of investment and mortgage-backed securities available for
sale are as follows:
September 30, 1996
Gross Gross
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
[S] [C] [C] [C] [C]
U.S. Treasury securities and
obligations of U.S.
government agencies and
corporations $ 29,755 $ 116 $ 203 $ 29,668
Corporate securities 12,417 296 24 12,689
Mutual funds 24,561 484 24,077
66,733 412 711 66,434
Mortgage-backed securities:
FHLMC 35,276 904 96 36,084
FNMA 18,520 187 319 18,393
GNMA 28,356 203 45 28,514
82,152 1,294 455 82,991
Total $ 48,885 $ 1,706 $ 1,166 $149,425
September 30, 1995
Gross Gross
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
U.S. Treasury securities and
obligations of U.S.
government agencies and
corporations $ 15,792 $ 178 $ 96 $ 15,874
Mutual funds 24,656 699 23,957
40,448 178 795 39,831
Mortgage-backed securities:
FHLMC 20,570 389 140 20,819
FNMA 18,182 112 206 18,088
GNMA 43,508 465 115 43,858
82,260 966 461 82,765
Total $ 122,708 $1,144 $ 1,256 $122,596<PAGE>
The amortized cost and fair value of investment and mortgage-backed
securities available for sale at September 30, 1996 by contractual
maturity, are shown below. Expected maturities will differ from
contractual maturities because borrowers may have the right to call or
prepay obligations with or without call or prepayment penalties.
September 30, 1996
Amortized
Cost Fair Value
Due in one year or less $ 30,829 $ 30,359
Due after one year through five years 34,857 35,078
Due after five years through ten years 13,110 13,118
Due after ten years 70,089 70,870
Total $ 148,885 $ 149,425
Proceeds from the sale of the Company's investment and mortgage-
backed securities available for sale totaled $31,626 in fiscal 1996
resulting in a gross realized gain of $302 and a gross realized loss of
$10. Proceeds from the sale of the Company's investment and mortgage-
backed securities available for sale totaled $8,465 in fiscal 1995
resulting in a gross realized gain of $74 and a gross realized loss of $3.
Proceeds from the sale of the Company's investment securities available for
sale during fiscal 1994 were $2,999 resulting in a gross realized gain of
$2 and a gross realized loss of $2.
5. Federal Home Loan Bank Capital Stock
The Associations, as member institutions of the Federal Home Loan
Bank ("FHLB") of Atlanta, are required to own capital stock in the FHLB of
Atlanta based generally upon the Associations' balances of residential
mortgage loans and FHLB advances. FHLB capital stock is pledged to secure
FHLB advances. No ready market exists for this stock and it has no quoted
market value. However, redemption of this stock has historically been at
par value.
6. Net Income Per Common Share
Net income per common share is based on the weighted average number
of shares outstanding. Such weighted average outstanding shares were
6,344,575, 6,285,803 and 6,372,441 for the years ended September 30, 1996,
1995 and 1994, respectively. Outstanding stock options are common stock
equivalents but have no material dilutive effect on net income per common
share.
7. Loans Receivable
Loans receivable, including loans held for sale, consisted of the
following:
September 30,
1996 1995
Mortgage loans $ 1,129,046 $ 928,084
Residential construction loans 42,911 39,116
Mobile home loans 21,925 25,027
Savings account loans 5,430 5,262
Home equity lines of credit 45,353 43,852
Commercial business loans 26,634 27,825
Credit cards 10,453 9,146
Other consumer loans 37,124 31,294
1,318,876 1,109,606
Less:
Allowance for loan losses 11,202 10,637
Loans in process 26,652 14,282
Deferred loan fees and discounts on loans 912 1,320
38,766 26,239
Total $ 1,280,110 $ 1,083,367
First mortgage loans are net of whole loans and participation loans
sold and serviced for others in the amount of $216,128 and $230,238 at
September 30, 1996 and 1995, respectively.
Non-accrual and renegotiated loans are summarized as follows:
September 30,
1996 1995
Non-accrual loans $ 8,129 $ 7,709
Renegotiated loans 8,049 11,103
Total $ 16,178 $ 18,812
Interest income related to non-accrual and renegotiated loans that
would have been recorded if such loans had been current in accordance with
their original terms amounted to $1,198, $1,409 and $1,295 for the years
ended September 30, 1996, 1995 and 1994, respectively. Recorded interest
income on these loans was $612, $944 and $826 for 1996, 1995 and 1994,
respectively.
An analysis of changes in the allowance for loan losses is as follows:
Year Ended September 30,
1996 1995 1994
Balance, beginning of period $ 10,637 $ 10,728 $ 10,742
Charge-offs (1,744) (1,041) (1,992)
Recoveries 486 499 881
Net charge-offs (1,258) (542) (1,111)
Provision for loan losses 1,823 451 1,097
Balance, end of period $ 11,202 $ 10,637 $ 10,728<PAGE>
At September 30, 1996, impaired loans totaled $6,277, comprised of
$3,049 with specific loan loss allowances of $1,049 and $3,228 without
specific loss allowances. The average net recorded investment in impaired
loans for the year ended September 30, 1996 was $5,385. Interest income of
$26 was recognized on impaired loans during the period of impairment.
The Company principally originates residential and commercial real
estate loans throughout its primary market area located in the coastal
region of South Carolina and Florence County. Although the coastal region
has a diverse economy, much of the area is heavily dependent on the tourism
industry and industrial and manufacturing companies. A substantial portion
of its debtors' ability to honor their contracts is dependent upon the
stability of the real estate market and these economic sectors.
Residential one-to-four family real estate loans amounted to $903,269
and $698,442 at September 30, 1996 and 1995, respectively. Included in
this portfolio are loans in the amount of $114,101 and $112,551 made to
various non-owner-occupied investors. These loans, as well as the Company's
multi-family residential loan portfolio of $56,629 and $57,269 at September
30, 1996 and 1995, respectively, are highly dependent on occupancy rates
for residential properties throughout the Company's market area. The
Company generally maintains loan to value ratios of no greater than 80
percent on these loans.
Commercial real estate loans totaled $173,692 and $ 187,195 and
acquisition and development loans and lot loans totaled $38,367 and $24,294
at September 30, 1996 and 1995, respectively. These loans include amounts
used for acquisition, development and construction as well as permanent
financing of commercial income-producing properties. Such loans generally
are associated with a higher degree of credit risk than residential one-to-
four family loans due to the dependency on income production or future
development and sale of real estate.
Management closely monitors its credit concentrations and attempts to
diversify the portfolio within its primary market area. Before the
Financial Institutions Reform, Recovery, and Enforcement Act of 1989
("FIRREA") was enacted, the Company was allowed to lend substantially
higher amounts to any one borrower than the current regulatory limitations.
However, the Company's internal loan policy placed lower limits on loans to
any major borrower. Currently, there are no borrowers which exceed the
current general regulatory limitation of 15 percent of each Association's
capital. The maximum amount outstanding to any one borrower was $11,056 at
September 30, 1996 and $11,116 at September 30, 1995.
8. Office Properties and Equipment
Office properties and equipment are summarized as follows:
September 30,
1996 1995
Land $ 3,597 $ 3,517
Buildings and improvements 9,933 9,107
Furniture and equipment 11,770 10,709
Leasehold improvements 3,826 3,608
29,126 26,941
Less, accumulated depreciation and
amortization (13,001) (11,883)
Total $ 16,125 $ 15,058
9. Real Estate
Real estate and other assets acquired in settlement of loans held by
the Company are summarized as follows:
September 30,
1996 1995
Real estate acquired in settlement of loans $ 2,242 $ 3,123
Other assets acquired in settlement of loans 84 20
Total $ 2,326 $ 3,143
Real estate operations are summarized as follows:
<TABLE>
<CAPTION>
Year Ended September 30,
1996 1995 1994
<S> <C> <C> <C>
Gain on sale of real estate $ 177 $ 154 $ 374
Provision charged as a write-down to real estate (158) (155) (362)
Expenses (372) (235) (455)
Rental income 59 40 95
Total $ (294) $ (196) $ (348)
</TABLE>
10. Deposit Accounts
The deposit balances and related nominal rates were as follows:
<TABLE>
<CAPTION>
September 30,
1996 1995
Weighted
Weighted Average
Balance Average Rate Balance Rate
<S> <C> <C> <C> <C>
Non-interest-bearing demand accounts $ 29,399 $ 22,524
NOW accounts 94,508 1.70% 94,625 1.88%
Passbook, statement and other accounts 119,509 2.75 125,588 2.75
Money market accounts 131,393 3.53 131,225 3.91
374,809 2.54 373,962 2.77
Certificate accounts:
Fixed-rate 616,361 5.73 645,041 5.89
Variable-rate 70,447 5.67 55,310 5.88
686,808 5.72 700,351 5.89
Total $1,061,617 4.60% $1,074,313 4.80%
</TABLE>
Scheduled maturities of certificate accounts were as follows:
September 30,
1996 1995
Within one year $ 489,139 $ 520,333
After one but within two years 95,133 94,633
After two but within three years 44,671 21,363
Thereafter 57,865 64,022
Total $ 686,808 $ 700,351
The Company has pledged certain interest-earning deposits and
investment and mortgage-backed securities available for sale or held to
maturity with a carrying value of $38,348 and $33,960 at September 30,
1996 and 1995, respectively, to secure deposits by various entities. Fair
values of the deposits, investment and mortgage-backed securities pledged
were $39,034 and $34,469 at September 30, 1996 and 1995, respectively.
Certificates of deposit with balances equal to or exceeding $100
thousand totaled $141,513 and $134,234, at September 30, 1996 and 1995,
respectively.
11. Advances From Federal Home Loan Bank
Advances from the FHLB of Atlanta consisted of the following:
<TABLE>
<CAPTION>
September 30,
1996 1995
Weighted Weighted
Average Average
Maturity Balance Rate Balance Rate
<S> <C> <C> <C> <C>
One year $ 310,995 5.61% $ 106,446 5.88%
Fifteen years 330 6.00
Sixteen years 1,077 6.00 330 6.00
Seventeen years 1,077 6.00
Total $ 312,402 5.61% $ 107,853 5.88%
</TABLE>
As collateral for its advances, the Company has pledged qualifying
first mortgage loans and investment and mortgage-backed securities
available for sale and held to maturity in the amount of $416,535 and
$138,011 as of September 30, 1996 and 1995, respectively. In addition, all
of its FHLB stock is pledged as collateral for these advances. Advances
are subject to prepayment penalties.
12. Securities Sold Under Agreements to Repurchase
Securities sold under agreements to repurchase consisted of the
following:
<TABLE>
<CAPTION>
September 30,
1996 1995
<S> <C> <C>
Investment and mortgage-backed securities with an amortized
cost of $17,597 and $45,195 and fair value of $17,565
and $45,965 at September 30, 1996 and 1995, respectively $ 16,805 $ 44,504
</TABLE>
The agreements had a weighted average interest rate of 5.69 percent
and 5.89 percent at September 30, 1996 and 1995, respectively, and mature
within one year. The securities underlying the agreements were delivered
to the dealers who arranged the transactions. At September 30, 1996 and
1995, the agreements were to repurchase identical securities. Securities
sold under agreements to repurchase averaged $37,916 and $26,769 during
1996 and 1995, respectively, and the maximum amount outstanding at any
month-end during 1996 and 1995 was $43,860 and $45,217, respectively.
13. Long-term Debt
The $19,763 of senior notes at September 30, 1996 and 1995, are
unsecured debt obligations of the Company which mature on September 1,
2002, and bear annual interest at 9.375%, payable quarterly on December 1,
March 1, June 1 and September 1. The Company will redeem, at any time, at
par plus accrued interest, notes tendered by the personal representative or
surviving joint tenant or tenant by the entirety of a deceased holder
within 60 days of presentation of the necessary documents, up to an annual
maximum of $25 per holder or $1,000 in the aggregate. The Company will
redeem notes tendered by other beneficial holders commencing September 1,
1993, and on each anniversary thereof subject to per holder and aggregate
limitations. Notes totaling $487 were redeemed on September 1, 1993. The
notes are callable at the option of the Company, in whole or in part, at
any time on or after September 1, 1995. If called during the twelve months
beginning September 1, 1995, 1996, and after 1997 the redemption price is
104.0%, 102.0%, and 100.0%, respectively.
In the Indenture Agreement, the Company has agreed to certain
limitations on cash dividends and additional indebtedness. The Company has
also agreed to maintain certain levels of cash or marketable investment
securities, and unless certain conditions are met to redeem notes tendered
by noteholders, in the event of certain acquisition transactions related to
the Company or the sale or pledge of shares of the subsidiaries.
The Company has agreed to maintain investment securities with a fair
market value equal to or in excess of the next three scheduled, and at
certain dates, next four scheduled interest payments on the notes. The
Company may not declare or pay any cash dividends unless it is in
compliance with these liquidity requirements.
The Company has also agreed to repurchase the notes at 100% of the
principal amount plus accrued interest if, after certain acquisition
transactions related to the Company or the sale or pledge of shares of the
subsidiaries, the notes are not rated in certain investment grades by
either of two rating services.
Additionally, the Company has agreed that it will not permit any
subsidiary to issue additional indebtedness unless the Company is in
compliance with the terms and conditions of the Indenture Agreement and the
amount of any such indebtedness does not, when aggregated with all other
indebtedness, exceed 40% of the consolidated stockholders' equity of the
Company. The Company believes it is in compliance with all covenants of
the Indenture Agreement at September 30, 1996.
14. Income Taxes
Income tax expense for the years ended September 30, 1996, 1995 and
1994, is comprised of the following:
Federal State Total
1996:
Current $ 5,580 $ 886 $ 6,466
Deferred (1,998) (350) (2,348)
Total $ 3,582 $ 536 $ 4,118
1995:
Current $ 2,758 $ 510 $ 3,268
Deferred 1,606 297 1,903
Total $ 4,364 $ 807 $ 5,171
1994:
Current $ 4,241 $ 1,236 $ 5,477
Deferred (962) (390) (1,352)
Total $ 3,279 $ 846 $ 4,125
Under SFAS 109, deferred tax assets or liabilities are initially
recognized for differences between the financial statement carrying amount
and the tax bases of assets and liabilities which will result in future
deductible or taxable amounts and operating loss and tax credit
carryforwards. A valuation allowance is then established to reduce the
deferred tax asset to the level at which it is "more likely than not" that
the tax benefits will be realized. Realization of tax benefits of
deductible temporary differences and operating loss or credit carryforwards
depends on having sufficient taxable income of an appropriate character
within the carryback and carryforward periods. Sources of taxable income
that may allow for the realization of tax benefits include (1) taxable
income in the current year or prior years that is available through
carryback, (2) future taxable income that will result from the reversal of
existing taxable temporary differences, and (3) taxable income generated by
future operations. As a result of the earnings of Peoples Federal, the
valuation allowance of Peoples Federal was reduced and a tax benefit of
$2,544 was recognized for the year ended September 30, 1994.
A reconciliation from expected federal tax expense to consolidated
effective income tax expense for the periods indicated follows:
Year Ended September 30,
1996 1995 1994
Expected federal income tax expense $ 3,901 $ 5,043 $ 5,646
Increases (reductions) in income taxes
resulting from:
Change in the beginning-of-the-year
valuation allowance for deferred
tax assets allocated to income tax
expense 69 76 (2,544)
Tax exempt income (78) (81) (91)
South Carolina income tax expense,
net of federal income tax effect 348 525 536
Other, net (122) (392) 578
Total $ 4,118 $ 5,171 $ 4,125
Effective tax rate 36.9% 35.9% 25.6%
Savings associations that meet certain definitional tests and other
conditions prescribed by the Internal Revenue Code are allowed to deduct,
within limitations, a bad debt deduction computed as a percentage of
taxable income before such deduction (the "Percentage of Taxable Income
Method"). The deduction percentage was 8% for the years ended
September 30, 1996, 1995 and 1994. Alternately, a qualified savings
association may compute its bad debt deduction based upon actual loan loss
experience (the "Experience Method"). Peoples Federal computed its bad
debt deduction utilizing the Percentage of Taxable Income Method for the
year ended September 30, 1996 and utilized the Experience Method in all
earlier years presented while First Federal used the Percentage of Taxable
Income Method to compute its bad debt deduction for the year ended
September 30, 1995 and used the Experience Method for the years ended
September 30, 1996 and 1994. As a result of recent tax legislation,
Peoples Federal and First Federal will be required for the year ended
September 30, 1997 to recapture bad debt tax reserves in excess of pre-1988
base year amounts of approximately $1,468 over an eight year period and to
change their overall tax method of accounting for bad debts to the specific
charge-off method.
The tax effects of temporary differences that give rise to
significant portions of the deferred tax assets and deferred tax
liabilities at September 30, 1996 and 1995 are presented below.
<TABLE>
<CAPTION>
September 30,
1996 1995
<S> <C> <C>
Deferred tax assets:
Loan loss allowances deferred for tax purposes $ 3,753 $ 3,900
Expenses deducted under economic performance rules 2,198
Net operating loss carryforward 1,115 1,231
Unrealized loss on securities available for sale 37
Other 542 275
Total gross deferred tax assets 7,608 5,443
Less valuation allowance (355) (286)
Net deferred tax assets 7,253 5,157
Deferred tax liabilities:
Loan fee income adjustments for tax purposes 937 1,045
FHLB stock dividends deferred for tax purposes 1,663 1,663
Expenses deducted under economic performance rules 728
Excess carrying value of assets acquired for financial
reporting purposes over tax basis 189 210
Tax bad debt reserve in excess of base year amount 571 286
Unrealized gain on securities available for sale 209
Other 357
Total gross deferred tax liabilities 3,926 3,932
Net deferred tax asset (included in other assets) $ 3,327 $ 1,225
</TABLE>
A portion of the change in the net deferred tax asset relates to
unrealized gains and losses on securities available for sale. The related
current period tax expense of $246 has been recorded directly to
stockholders' equity The balance of the change in the net deferred tax
asset results from current period deferred tax benefit of $2,348.
The consolidated financial statements at September 30, 1996 and 1995
did not include a tax liability of $8,393 related to the base year bad debt
reserve amounts since these reserves are not expected to reverse until
indefinite future periods, and may never reverse. Circumstances that would
require an accrual of a portion or all of this unrecorded tax liability are
failure to meet the tax definition of a bank, dividend payments in excess of
current year or accumulated tax earnings and profits, or other distributions
in dissolution, liquidation or redemption of the Associations stock.
15. Benefit Plans
Stock Option Plans
The Company's 1983 Incentive Stock Option Plan provides for the granting
of incentive stock options for 636,824 shares of the Company's common stock.
This plan expired November 3, 1993.
On September 27, 1990, the Company's Board of Directors approved the
1990 Stock Option and Incentive Plan which was subsequently approved by the
stockholders on January 23, 1991. An aggregate of 440,000 shares have been
reserved for future issuance by the Company upon the exercise of stock options
under this Plan. Both plans provide for the granting of Incentive Stock
Options to key officers and employees to purchase the stock at the fair market
value on the date of the grant. The 1990 Stock Option and Incentive Plan also
provides for Non-Incentive Stock Options to be granted at a price to be
determined by the Stock Option Committee. Officers may select an exercise
period of one to ten years and other employees may exercise options within
five years.
Stock option activity is summarized below:
<TABLE>
<CAPTION>
Option
Price
Per
Available for Option Price Per Share
Grant Outstanding Share Range Average
<S> <C> <C> <C> <C>
1983 Stock Option Plan:
Balance, September 30, 1994 154,450 $ 5.38 $ 5.38
Options exercised (33,313) 5.38 5.38
Options forfeited (270) 5.38 5.38
Subtotal, September 30, 1995 120,867 5.38 5.38
Options exercised (52,922) 5.38 5.38
Subtotal, September 30, 1996 67,945 5.38 5.38
1990 Stock Option Plan
Balance, September 30, 1994 159,170 275,328 5.25-15.25 13.28
Options exercised (26,093) 5.25-19.50 12.35
Options forfeited 4,689 (4,689) 5.25-16.25 13.33
Options granted (40,725) 40,725 16.25-19.50 18.75
Subtotal, September 30, 1995 123,134 285,271 5.25-19.50 14.17
Options exercised (32,740) 5.25-19.50 12.45
Options forfeited 5,997 (5,997) 5.25-20.25 14.22
Options granted (49,730) 49,730 19.25-20.25 19.96
Subtotal, September 30, 1996 79,401 296,264 5.25-20.25 15.33
Balance, September 30, 1996 79,401 364,209 $ 5.25-20.25 $ 13.47
</TABLE>
Options of 67,945 granted under the 1983 Stock Option Plan expire by
February 16, 1999. Options of 296,264 granted under the 1990 Stock Option
Plan expire at various dates with the maximum date of April 25, 2006.
On July 28, 1994, the Company's Board of Directors approved the 1994
Outside Directors Stock Options-for-Fees Plan (the "1994 Director Plan") which
was subsequently approved by the stockholders on January 25, 1995. Under the
1994 Director Plan, options to purchase up to 200,000 shares of the Company's
common stock may be granted. The formula for computing the options awarded
considers the percentage of annual fees each director wished to allocate to
the 1994 Director Plan, the market price of the common stock of the Company on
the first business day of October of each fiscal year and the difference
between the market price and an option price. The option price is based on
75% of the market value of the common stock. Options covering 24,097 and
30,598 shares of common stock at an exercise price of $14.72 and $12.19 were
granted in lieu of otherwise payable cash compensation of $118 and $124 for
the Company's fiscal years ending September 30, 1996 and 1995, respectively.
All of the options granted in 1996 and 1995 remained outstanding on September
30, 1996, and are available for exercise before October 1, 2005.
Sharing Thrift Plan
The Company has established the Sharing Thrift Plan which includes a
deferred compensation plan (401(k)) for all full-time and certain part-time
employees. The Plan permits eligible participants to contribute a maximum of
15 percent of their annual salary (not to exceed limitations prescribed by
law). Part-time employees who work at least 1,000 hours in a calendar year
may also contribute to the Plan. The Company will match the employee's
contribution up to 5 percent of the employee's salary based on the attainment
of certain profit goals.
The Company's matching contribution charged to expense for the years
ended September 30, 1996, 1995 and 1994, was $457, $343 and $399,
respectively.
The Sharing Thrift Plan provides that all employees who have completed a
year of service with the Company in which they have worked at least 1,000
hours are entitled to receive a quarterly Profit Sharing Contribution of from
0% to 100% of 6% of their base pay during such quarter depending upon the
amount of each subsidiary's return on equity for that quarter. The Plan
provides that regardless of the return on equity each eligible employee will
receive a Profit Sharing Contribution equal to at least 1% of his base
compensation on an annual basis. Employees become vested in Profit Sharing
Contributions made to their accounts over a seven-year period or upon their
earlier death, disability or retirement at age 65 or over. Employees are able
to direct the investment of Profit Sharing Contributions made to their
accounts to any of the Plan investment funds. Contributions to the Plan
during 1996, 1995 and 1994 totaled $635, $516 and $561, respectively.
Other Postretirement Benefits
The Company sponsors postretirement benefit plans that provide health
care, life insurance and other postretirement benefits to retired employees.
The health care plans generally include participant contributions, co-
insurance provisions, limitations on the Company's obligation and service-
related eligibility requirements. The Company pays these benefits as they are
incurred. Postretirement benefits for employees hired after January 1, 1989
and those electing early retirement or normal retirement after January 1,
1999, were substantially curtailed.
In the first quarter of fiscal 1993, the Company adopted SFAS 106,
"Employers' Accounting for Postretirement Benefits Other Than Pensions,"
effective October 1, 1992, for the Company's retiree health and other welfare
benefit plans. SFAS 106 requires the accrual method of accounting for these
benefits, rather than the Company's previous policy, which was to record these
benefits as they were paid.
Net periodic postretirement benefit cost for fiscal 1996, 1995 and 1994
consisted of the following components:
Year Ended September 30,
1996 1995 1994
Service cost $ 7 $ 16
Interest cost $ 85 114 112
Amortization of transition obligation 79 79 79
Other amortizations and net deferrals (207) (85)
Net periodic postretirement benefit
cost $ (43) $ 115 $ 207
Reconciliation of Funded Status: September 30,
1996 1995 1994
Accumulated postretirement benefit
obligation $ (1,210) $ (1,582) $ (1,358)
Unrecognized transition obligation 1,261 1,340 1,418
Unrecognized net gains (409) (198) (412)
Accrued postretirement benefit cost $ (358) $ (440) $ (352)
Assumptions Used:
Weighted average discount rate 8.00% 7.50% 8.50%
Medical/Medicare trend rate
(initial)(pre-65 employees) 8.75 9.50 10.50
Medical/Medicare trend rate after 7
years (pre-65 employees) 5.75 5.75 6.00
Medical/Medicare trend rate
(initial)(post-65 employees) 7.75 8.25 9.00
Medical/Medicare trend(post-65
employees) rate after 7 years 5.75 5.75 6.00
An increase in the assumed health care cost trend rate by one percentage
point in each year would increase the accumulated postretirement benefit
obligation as of September 30, 1996 and September 30, 1995, by $124 and $147
and the aggregate of service and interest cost by $10 and $12, respectively.
16. Commitments and Contingencies
Loan Commitments
Outstanding commitments on mortgage loans not yet closed, including
commitments issued to correspondent lenders, amounted to approximately $20,432
at September 30, 1996. These were principally single-family loan
commitments. Other loan commitments totaled $514 at September 30, 1996.
Commitments to extend credit are agreements to lend to borrowers as long
as there is no violation of any condition established by the commitment
letter. Commitments generally have fixed expiration dates or other
termination clauses. The majority of the commitments will be funded within a
twelve month period. The Company evaluates each customer's creditworthiness
on a case-by-case basis. The amount of collateral obtained, if deemed
necessary by the Company upon extension of credit, is based on management's
credit evaluation of the borrower. Collateral held varies but primarily
consists of residential or income producing commercial properties.
The Company originates and services mortgage loans. Substantially all
of the Company's loan sales have been without provision for recourse.
Included in the $216,128 in whole loans and participation loans sold and
serviced for others at September 30, 1996 are recourse loans totaling $148.
Unused lines of credit on equity loans, credit cards, other consumer and
commercial loans amounted to $116,587 and $89,414 at September 30, 1996 and
1995, respectively. Based on historical trends, it is not expected that the
percentage of funds drawn on existing lines of credit will increase
substantially over levels currently utilized.
Interest Rate Cap
In connection with its asset/liability management program the Company
purchased an interest rate cap agreement with a counterparty on September 30,
1996. The purchase was made at a premium of $261 for the purpose of hedging
potential increases in interest rates on short-term liabilities. The Company
is not a dealer, does not make a market in cap agreements, and will not trade
the instrument. The Board of Directors' approved policy governing the use of
these instruments strictly forbids speculation of any kind. The cap agreement
has a notional principal amount of $10,000 and matures October 2, 1999. As of
September 30, 1996 the strike price was 5.625 percent versus three month
LIBOR. No unamortized fees were related to the cap as of September 30, 1996,
since settlement was October 2, 1996. Accordingly, no amortized cost was
incurred during the year ended September 30, 1996.
Lease Commitments
The Company occupies office space and land under leases expiring on
various dates through 2008.
Minimum rental commitments under noncancelable operating leases were as
follows:
September 30,
1996
One year $ 977
Two years 985
Three years 978
Four years 936
Five years 912
Thereafter 2,500
Total $ 7,288
Rental expenses under operating leases were $897, $844 and $651 in 1996,
1995 and 1994, respectively.
17. Stockholders' Equity and Dividend Restrictions
The ability of the Company to pay dividends depends primarily on the
ability of the Associations to pay dividends to the Company. The Associations
are subject to various regulatory capital requirements administered by the
federal banking agencies. Failure to meet minimum capital requirements can
initiate certain mandatory--and possibly additional discretionary--actions by
regulators that, if undertaken, could have a direct material effect on the
Associations' financial statements. Under capital adequacy guidelines and the
regulatory framework for prompt corrective action, the Associations must meet
specific capital guidelines that involve quantitative measures of the
Associations' assets, liabilities and certain off-balance-sheet items as
calculated under regulatory accounting practices. The Associations' capital
amounts and classifications are also subject to qualitative judgments by the
regulators about components, risk weightings and other factors.
Quantitative measures established by regulation to ensure capital
adequacy require the Associations to maintain minimum amounts and ratios (set
forth in the table below) of tangible and core capital (as defined in the
regulations) to total assets (as defined), and of risk-based capital (as
defined) to risk-based assets (as defined). Management believes, as of
September 30, 1996, that the Associations meet all capital adequacy
requirements to which they are subject.
As of September 30, 1996, the Associations were categorized as well-
capitalized under the regulatory framework for prompt corrective action. To
be categorized as well-capitalized the Associations must maintain minimum
total risk-based, Tier I risk-based, and Tier I core ( leverage ) ratios as
set forth in the table. There are no conditions or events since that date
that management believes have changed the institutions' category.
The Associations' actual capital amounts and ratios are also presented
in the table.
<TABLE>
<CAPTION>
First Federal: To Be Well Capitalized
For Capital Adequacy Under Prompt Corrective
Actual Purposes Action Provisions:
Amount Ratio Amount Ratio Amount Ratio
<S> <C> <C> <C> <C> <C> <C>
As of September 30, 1996:
Tangible capital
(to Total Assets) $ 72,049 6.65% $ 16,256 1.50%
Core capital
(to Total Assets) 72,049 6.65 32,526 3.00 $ 54,187 5.00%
Tier I capital
(to Risk-based Assets) 72,049 9.54 45,334 6.00
Risk-based capital
(to Risk-based Assets) 78,288 10.36 60,445 8.00 75,556 10.00
As of September 30, 1995:
Tangible capital
(to Total Assets) $ 72,926 7.36% $ 14,861 1.50%
Core capital
(to Total Assets) 72,926 7.26 29,722 3.00 $ 49,536 5.00%
Tier I capital
(to Risk-based Assets) 72,926 10.46 41,851 6.00
Risk-based capital
(to Risk-based Assets) 79,146 11.35 55,801 8.00 69,751 10.00
Peoples Federal: To Be Well Capitalized
For Capital Adequacy Under Prompt Corrective
Actual Purposes Action Provisions:
Amount Ratio Amount Ratio Amount Ratio
As of September 30, 1996:
Tangible capital
(to Total Assets) $ 27,115 6.10% $ 6,670 1.50%
Core capital
(to Total Assets) 27,115 6.10 13,340 3.00 $ 22,232 5.00%
Tier I capital
(to Risk-based Assets) 27,115 11.33 14,358 6.00
Risk-based capital
(to Risk-based Assets) 30,089 12.57 19,144 8.00 23,931 10.00
As of September 30, 1995:
Tangible capital
(to Total Assets) $ 27,244 7.49% $ 5,457 1.50%
Core capital
(to Total Assets) 27,244 7.49 10,914 3.00 $ 18,189 5.00%
Tier I capital
(to Risk-based Assets) 27,244 14.16 11,543 6.00
Risk-based capital
(to Risk-based Assets) 27,244 14.16 15,391 8.00 19,238 10.00
</TABLE>
Under the framework, the Associations' capital levels allow the
Associations to accept brokered deposits without prior approval from
regulators.
OTS capital distributions specify the conditions relative to an
institution s ability to pay dividends. The new regulations permit
institutions meeting fully phased-in capital requirements and subject only
to normal supervision to pay out 100 percent of net income to date over the
calendar year and 50 percent of surplus capital existing at the beginning
of the calendar year without supervisory approval. The regulations state
that an institution subject to more stringent restrictions may make request
through OTS to be subject to the new regulations. The Company has received
approval from the OTS to be subject to the requirements of the new
regulations.
The Company may not declare or pay a cash dividend on, or purchase,
any of its common stock, if the effect thereof would cause the capital of
the Associations to be reduced below the minimum regulatory capital
requirements.
Under Delaware law, the Company may declare and pay dividends on its
common stock either out of its surplus, as defined under Delaware law, or,
if there is no surplus, out of its net profits for the fiscal year in which
the dividend is declared and/or the preceding fiscal year.
18. Fair Value of Financial Instruments
The following table sets forth the fair value of the Company's
financial instruments at September 30, 1996 and 1995:
<TABLE>
<CAPTION>
September 30,
1996 1995<PAGE>
Carrying Fair Value Carrying Fair Value
Value Value
<S> <C> <C> <C> <C>
Financial instruments:
Assets:
Cash and cash equivalents $ 34,124 $ 34,124 $ 24,486 $ 24,486
Investments held to maturity 27,487 27,417 68,154 68,687
Investments available for sale 66,434 66,434 39,831 39,831
Investment in capital stock of FHLB 15,620 15,620 11,982 11,982
Loans receivable, net 1,278,757 1,285,089 1,083,367 1,090,897
Loans held for sale 1,353 1,362
Mortgage-backed securities held to maturity 18,361 18,844
Mortgage-backed securities available for sale 82,991 82,991 82,765 82,765
Liabilities:
Deposits:
Demand deposits, savings accounts and money 374,809 374,809 373,962 373,962
market accounts
Certificate accounts 686,808 687,840 700,351 697,917
Advances from FHLB 312,402 312,042 107,853 107,571
Securities sold under agreements to repurchase 16,805 16,805 44504 44,504
Long-term debt 19,763 19,714 19,763 19,714
Off-balance sheet items:
Mortgage loan commitments 20,432 20,499 25,908 25,414
</TABLE>
Financial instruments of the Company for which fair value approximates
the carrying amount at September 30, 1996, include cash and cash equivalents
and investment in the capital stock of the FHLB. The fair value of
investments, mortgage-backed securities, loans held for sale and long-term
debt is estimated based on bid prices published in financial newspapers or
bid quotations received from independent securities dealers.
Fair values are estimated for portfolios of loans with similar
financial characteristics. Loans are segregated by type such as single-
family residential, multi-family, non-residential, commercial and consumer.
Each loan category is further segmented into fixed- and adjustable-rate
interest terms and by performing and nonperforming categories.
The fair value of performing loans, except single-family residential
mortgage loans, is calculated by discounting scheduled cash flows through
the estimated maturity using estimated market discount rates that reflect
the credit and interest rate risk inherent in the loan. The estimate of
maturity is based on the Company's historical experience with repayments for
each loan classification, modified, as required, by an estimate of the
effect of current economic and lending conditions. For performing single-
family residential mortgage loans, fair value is derived from quoted market
prices for securities backed by similar loans, adjusted for differences
between the market for the securities and the loans being valued and an
estimate of credit losses inherent in the portfolio.
Under SFAS 107, the fair value of deposits with no stated maturity,
such as passbook accounts, checking and NOW accounts and money market
accounts, is equal to the amount payable on demand as of September 30, 1996.
The fair value of certificate accounts is estimated using the rates
currently offered for deposits of similar remaining terms. No value has
been estimated for the Company's long-term relationships with customers
(commonly known as the core deposit intangible) since such intangible asset
is not a financial instrument pursuant to the definitions contained in SFAS
107. The fair value of FHLB advances is estimated based on current rates
for borrowings with similar terms. The fair value of securities sold under
agreements to repurchase approximates the carrying value. The fair value of
mortgage loan commitments is estimated based on current levels of interest
rates versus the committed interest rates.
Management uses its best judgment in estimating the fair value of non-
traded financial instruments but there are inherent limitations in any
estimation technique. For example, liquid markets do not exist for many
categories of loans held by the Company. By definition, the function of a
financial intermediary is, in large part, to provide liquidity where
organized markets do not exist. Therefore, the fair value estimates
presented herein are not necessarily indicative of the amounts which the
Company could realize in a current transaction.
The information presented is based on pertinent information available
to management as of September 30, 1996. Although management is not aware of
any factors, other than changes in interest rates, that would significantly
affect the estimated fair values, the current estimated fair value of these
instruments may have changed significantly since that point in time.
19. First Financial Holdings, Inc. (Parent Company Only) Condensed
Financial Information
At fiscal year end, the Company's principal asset was its investment
in the Associations, and the principal source of income for the Company was
dividends and equity in undistributed earnings from the Associations. The
following is condensed financial information for the Company.
<TABLE>
<CAPTION>
Statements of Financial Condition
September 30,
1996 1995
<S> <C> <C>
Assets
Cash and cash equivalents $ 233 $ 88
U.S. Government and agency obligations available for sale, at fair
value 10,535 9,640
Mortgage backed securities available for sale, at fair value 3,134
Investment in Associations 100,014 100,648
Other 972 1,095
Total assets $ 114,888 $ 111,471
Liabilities and Stockholders' Equity
Accrued expenses $ 330 $ 299
Long-term debt 19,763 19,763
Stockholders' equity 94,795 91,409
Total liabilities and stockholders' equity $ 114,888 $ 111,471
</TABLE>
<TABLE>
<CAPTION>
Statements of Operations
Year Ended September 30,
1996 1995 1994
<S> <C> <C> <C>
Income
Equity in undistributed earnings of Associations $(1,080) $ 1,989 $ 6,922
Dividend income 10,250 9,500 7,400
Interest income 726 403 262
(Gain) loss on sale of investments available for sale (3) 2
Total income 9,896 11,889 14,586
Expenses
Interest expense 1,853 1,853 1,853
Salaries and employee benefits 546 335 245
Stockholder relations and other 469 463 483
Total expense 2,868 2,651 2,581
Net income 7,028 9,238 12,005
</TABLE>
<TABLE>
<CAPTION>
Statements of Cash Flows
Year Ended September 30,
1996 1995 1994
<S> <C> <C> <C>
Operating Activities
Net income $ 7,028 $ 9,238 $ 12,005
Adjustments to reconcile net income to net cash
provided by operating activities
Equity in undistributed earnings of Associations 1,080 (1,989) (6,922)
Depreciation 1
Amortization (24) (25) (9)
(Increase) decrease in accrued income and deferred
expenses 122 (12) 166
Increase in accrued expenses 47 74
Net cash provided by operating activities 8,254 7,286 5,240
Investing Activities
Repayments to mortgage-backed securities 3
Purchase of mortgage-backed securities available for
sale (3,127)
Proceeds from sale of investments available for sale 500 2,999
Proceeds from maturing investments available for sale 4,239 2,502
Purchase of investments available for sale (4,992) (2,996) (4,996)
Net (purchase) redemption of mutual funds (175) (1,625)
Net cash provided by (used in) investing activities (4,052) (4,121) 505
Financing Activities
Proceeds from sale of common stock 768 540 243
Treasury stock purchased (763) (317) (2,909)
Dividends paid (4,062) (3,522) (3,066)
Net cash provided by (used in) financing activities (4,057) (3,299) (5,732)
Net increase (decrease) in cash and cash equivalents 145 (134) 13
Cash and cash equivalents at beginning of period 88 222 209
Cash and cash equivalents at end of period $ 233 $ 88 $ 222
Supplemental disclosures:
Cash paid during the period for:
Interest $ 1,853 $ 1,853 $ 1,853
Income taxes 4,448 3,911 5,387
Unrealized net gain (loss) on securities
available for sale, net of income tax (32) 109 (137)
20. Dividend Reinvestment and Stock Purchase Plan
The Company has a Dividend Reinvestment and Stock Purchase Plan, as
amended May 26, 1988, for which shares are purchased only on the open
market. At September 30, 1996, 260,780 shares had been purchased and
remain in the plan.
21. Quarterly Results (Unaudited):
Summarized below are selected financial data regarding results of
operations for the periods indicated:
First Second Third Fourth
Quarter Quarter Quarter Quarter Year
1996
Total interest income $ 26,556 $ 27,481 $ 27,987 $ 29,094 $ 111,118
Net interest income 10,621 11,263 11,504 11,742 45,121
Provision for loan losses 305 420 498 600 1,823
Income before income taxes 3,928 4,582 4,738 (2,102) 11,146
Net income 2,505 2,917 3,024 (1,418) 7,028
Weighted average shares 6,308 6,332 6,370 6,368 6,345
outstanding (1)
Net income per common share $ 0.40 $ 0.46 $ 0.47 $ (0.22) $ 1.11
1995
Total interest income $ 22,352 $ 23,230 $ 24,375 $ 25,546 $ 95,503
Net interest income 10,072 9,705 9,694 10,238 39,709
Provision for loan losses 107 26 47 271 451
Income before income taxes 3,512 3,374 3,491 4,032 14,409
Net income 2,197 2,131 2,284 2,626 9,238
Weighted average shares 6,271 6,277 6,292 6,303 6,286
outstanding (1)
Net income per common share $ 0.35 $ 0.34 $ 0.36 $ 0.42 $ 1.47
1994
Total interest income $ 22,105 $ 20,948 $ 21,081 $ 21,518 $ 85,652
Net interest income 10,605 10,119 10,192 9,981 40,897
Provision for loan losses 585 118 255 139 1,097
Income before income taxes 4,082 3,863 4,585 3,600 16,130
Net income 3,025 2,763 3,576 2,641 12,005
Weighted average shares 6,417 6,415 6,397 6,301 6,372
outstanding (1)
Net income per common share $ 0.47 $ 0.43 $ 0.56 $ 0.42 $ 1.88
(1) Average shares in thousands.
<PAGE>
(X) PLEASE MARK VOTES PROXY BALLOT
AS IN THIS EXAMPLE
FIRST FINANCIAL
HOLDINGS, INC. For All
For Withhold Except
1. Election of Directors: ( ) ( ) ( )
Paula Harper Bethea, A. Thomas Hood, A. L. Hutchinson, Jr.
and Thomas E. Thornhill
RECORD DATE SHARES:
(Instruction: To withhold authority to vote for any nominee,
mark the "For All Except" box and strike a line through the
nominee's name in the list provided above.)
For Against Abstain
2. Proposal II - Ratification ( ) ( ) ( )
of the Performance Equity
Plan for Non-Employee Directors
3. In their discretion, upon any other business which may
properly come before the meeting or any adjournment thereof.
Mark box at right if address ( )
change is noted on the reverse
side of this card.
Please be sure to sign and date this Proxy Date
Stockholder sign here Co-owner sign here
DETACH CARD
FIRST FINANCIAL HOLDINGS, INC.
Dear Stockholder:
Please take note of the important information enclosed with this Proxy Ballot.
There are a number of issues related to the management and operation of your
Company that require your immediate attention and approval. These are
discussed in detail in the enclosed proxy materials.
Your vote counts, and you are strongly encouraged to exercise your right to
vote your shares.
Please mark the boxes on the proxy card to indicate how your shares will be
voted. Then sign the card, detach it and return your proxy ballot in the
enclosed postage paid envelope.
Your vote must be received prior to the Annual Meeting of Stockholders,
January 22, 1997.
Thank you in advance for your prompt consideration of these matters.
Sincerely,
First Financial Holdings, Inc.
PROXY FIRST FINANCIAL HOLDINGS, INC. PROXY
Proxy for Annual Meeting of Stockholders
This Proxy is Solicited on Behalf of the Board of Directors of the Corporation
The undersigned hereby appoints Gary C. Banks, Jr. and James C. Murray as the
official proxy committee of the Board of Directors, with full power of
substitution, as attorneys and proxies to vote all of the shares of COMMON
STOCK of First Financial Holdings, Inc. held or owned by the undersigned at
the Annual Meeting of Stockholders on January 22, 1997, and at any adjournments
thereof, as follows on the reverse.
THE SHARES OF COMMON STOCK REPRESENTED BY THIS PROXY WILL BE VOTED AS SPECIFIED.
IF NO CHOICE IS SPECIFIED, THE PROXY WILL BE VOTED FOR PROPOSALS I AND II.
Stockholders should sign exactly as name appears on the reverse. Any person
signing in a fiduciary capacity will please enclose proof of his appointment
unless such proof has already been furnished.
HAS YOUR ADDRESS CHANGED?
</TABLE>
