UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
X ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the Fiscal Year Ended September 30, 1996
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
Commission File Number: 0-17122
FIRST FINANCIAL HOLDINGS, INC.
(Exact name of registrant as specified in its charter)
Delaware 57-0866076
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
34 Broad Street, Charleston, South Carolina 29401
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (803)529-5800
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, par value $.01 per share
(Title of Class)
Indicate by check mark whether the registrant (1) has filed
all reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months
(or for such shorter period that the registrant was required to
file such reports), and (2) has been subject to such filing
requirements for the past 90 days. YES [X] NO [ ]
Indicate by check mark if disclosure of delinquent filers
pursuant to Item 405 of Regulation S-K is not contained herein,
and will not be contained, to the best of registrant's knowledge,
in definitive proxy or information statements incorporated by<PAGE>
reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [X]
As of December 13, 1996, there were issued and outstanding
6,311,022 shares of the Registrant's common stock. The
registrant's common stock is traded over-the-counter and is
listed on the National Association of Securities Dealers
Automated Quotation ("Nasdaq") National Stock Market under the
symbol "FFCH." The aggregate market value of the common stock
held by nonaffiliates of the registrant, based on the closing
sales price of the registrant's common stock as quoted on the
Nasdaq Stock Market on December 13, 1996, was $146,731,262
(6,311,022 shares at $23.25 per share). It is assumed for
purposes of this calculation that none of the registrant's
officers, directors and 5% stockholders are affiliates.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Proxy Statement for the 1997 Annual Meeting
of Stockholders. (Part II and Part III)
PART I
Item 1. BUSINESS
GENERAL
First Financial Holdings, Inc. ("First Financial" or the
"Company") was incorporated in the State of Delaware on September
3, 1987, for the purpose of becoming a savings and loan holding
company for First Federal Savings and Loan Association of
Charleston ("First Federal"). On January 27, 1988, the
stockholders of First Federal approved the reorganization of
First Federal into the holding company form of ownership. The
reorganization was completed on June 30, 1988, on which date
First Federal became the wholly-owned subsidiary of the Company
and stockholders of First Federal exchanged their shares of First
Federal Common Stock for shares of the Company's Common Stock.
Prior to completion of the reorganization, the Company had no
assets or liabilities and engaged in no business activities.
Subsequent to the holding company reorganization, the Company has
not engaged in any significant activity other than holding the
stock of First Federal and certain passive investment activities.
On October 9, 1992, the Company consummated the acquisition
of Peoples Federal Savings and Loan Association, Conway, South
Carolina ("Peoples Federal") upon the voluntary supervisory
conversion of Peoples Federal from a federal mutual to a federal
stock savings and loan association, resulting in Peoples Federal
being held as a wholly-owned subsidiary of First Financial. As a
result of the acquisition of Peoples Federal, First Financial
became a multiple savings and loan holding company for First
Federal and Peoples Federal (together, the "Associations").
First Federal, chartered in 1934, is the largest financial
institution headquartered in the Charleston, South Carolina
metropolitan area and the second largest thrift institution in
South Carolina. First Federal is a federally-chartered stock
savings and loan association that conducts its business through
its home office in the city's historic district, twenty branch
offices in the three surrounding counties and two full-service
offices in Georgetown, South Carolina. During 1996 First Federal
relocated its Highway 61 office to Magwood Road at the Highway 61
Expressway.
Peoples Federal was chartered in 1914 and is a federal stock
savings and loan association headquartered in Conway, South
Carolina. Peoples Federal is the result of a merger of Peoples
Federal of Conway and Peoples Federal of Florence in 1982.
Peoples Federal conducts its business through ten branch offices,
a loan production office in Sunset Beach, North Carolina and its
main office in Conway. Branches are located in the Myrtle
Beach/Grand Strand area (4), Florence (3), Conway (2) and Loris
(1). During 1996 Peoples Federal opened its first in-store
branch in a Wal-Mart superstore located in Surfside Beach, South
Carolina.
The business of the Company consists primarily of acting as
financial intermediary by attracting savings deposits from the
general public and using such funds, together with borrowings and
other funds, to originate first mortgage loans on residential
properties located in its primary market areas. The Company also
makes construction and consumer and other non-mortgage loans and
invests in mortgage-backed securities, federal government and
agency obligations, money market obligations and certain
corporate obligations. Through subsidiaries of the Associations,
the Company also engages in property and casualty insurance,
brokerage of investment products and certain data processing
activities. None of the subsidiary activities is considered to
constitute a business segment.
First Federal and Peoples Federal are members of the Federal
Home Loan Bank ("FHLB") System and their savings deposits are
insured by the Federal Deposit Insurance Corporation ("FDIC")
under the Savings Association Insurance Fund ("SAIF") up to
applicable limits. The Associations are subject to comprehensive
regulation, examination and supervision by the Office of Thrift
Supervision ("OTS") and the FDIC.
The Associations are subject to capital requirements under
OTS regulations, and must satisfy three minimum capital
requirements: core capital, tangible capital and risk-based
capital. For more information regarding the Associations'
compliance with capital requirements, see "Regulation of the
Associations -- Capital Requirements" contained herein and Note
17 of Notes to Consolidated Financial Statements, which are
contained in the Company's annual meeting proxy statement.
LENDING ACTIVITIES
General
At September 30, 1996, the Company s net loan portfolio
totaled approximately $1.3 billion, or 82.79% of the Company's
total assets. The Company s principal lending activity is the
origination of loans secured by single-family residential real
estate. Prior to fiscal 1993, the Company s lending activities
also included the origination of significant amounts of income
property loans secured by multi-family and non-residential real
estate. In that year, First Federal curtailed loans made on
nonresidential properties primarily due to adverse changes in
market conditions and increased levels of nonperforming assets
arising from this type of lending. Peoples Federal had curtailed
such lending before its acquisition by the Company in early
fiscal 1993. Thus, in the period since 1992, the Company has
shifted its focus to concentrate on single-family residential
mortgage lending and consumer lending. The Company also offers
commercial business loans of the type traditionally offered by
commercial banks. Although federal regulations allow the Company
to originate loans nationwide, the Company has originated
substantially all of its loans in its primary market areas of
Charleston, Dorchester, Berkeley, Georgetown, Horry and Florence
counties in South Carolina and Brunswick County in North
Carolina.
Since 1995 the Company also has had a correspondent lending
program allowing for the purchase of loans originated by
unaffiliated mortgage lenders and brokers in South Carolina and
North Carolina. Loans originated by these lenders and brokers
are subject to the same underwriting standards as those used by
the Company in its own lending and are accepted for purchase only
after approval by the Company s underwriters. Purchases under
this program totaled $37.9 million in fiscal 1996.
The Company makes both fixed-rate and adjustable-rate loans
and generally retains the servicing on loans originated. A large
percentage of single-family loans are made pursuant to certain
guidelines which will permit the sale of such loans in the
secondary market to government agencies or private investors.
The Company s primary single-family product is the conventional
loan. However, loans are also originated which are either
partially guaranteed by the Veterans Administration ("VA") or
fully insured by the Federal Housing Administration ("FHA").
Set forth below is selected data relating to the aggregate
composition of the Company s loan and mortgage-backed securities
portfolios on the dates indicated.
<TABLE>
<CAPTION>
At September 30,
1996 1995 1994 1993 1992
% of % of % of % of % of
Port- Port- Port- Port- Port-
Amount folio Amount folio Amount folio Amount folio Amount folio
(dollar amounts in thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
TYPE OF LOAN
Conventional real estate loans:
Loans on existing
property $1,125,230 87.9% $ 928,084 85.7% $818,564 85.0% $818,320 84.6% $599,670 79.2%
Construction loans 46,727 3.7 39,116 3.6 40,827 4.2 23,989 2.5 26,242 3.5
Commercial business
loans 26,634 2.1 27,825 2.6 25,403 2.7 29,189 3.0 38,269 5.1
Consumer loans:
Home equity 47,633 3.7 47,015 4.3 51,486 5.3 58,109 6.0 61,595 8.1
Mobile homes 21,925 1.7 25,027 2.3 28,276 2.9 31,476 3.2 33,622 4.4
Credit Cards 10,453 0.8 9,146 0.8 8,115 0.8 7,354 0.8 7,554 1.0
Savings account
loans 5,430 0.4 5,262 0.5 4,677 0.5 4,751 0.5 1,991 0.3
Other consumer
loans 34,844 2.7 28,131 2.6 19,096 2.0 15,872 1.6 8,650 1.1
Total gross loans
receivable 1,318,876 103.0 1,109,606 102.4 996,444 103.4 989,060 102.2 777,593 102.7
Allowance for loan losses (11,202) (0.9) (10,637) (1.0) (10,728) (1.1) (10,742) (1.1) (4,837) (0.7)
Loans in process (26,652) (2.0) (14,282) (1.3) (20,213) (2.1) (7,742) (0.8) (12,201) (1.6)
Deferred loan fees
and discounts (912) (0.1) (1,320) (0.1) (2,137) (0.2) (2,969) (0.3) (3,107) (0.4)
Loans
receivable,net $1,280,110 100.0% $1,083,367 100.0% $963,366 100.0% $ 967,607 100.0% $757,448 100.0%
TYPE OF SECURITY
Real estate:
Single-family
residential $ 843,890 65.9% $ 644,706 59.5% $551,826 57.3% $ 498,858 51.6% $311,853 41.2%
2- to 4-family 59,379 4.7 53,736 5.0 31,604 3.3 32,087 3.3 29,762 3.9
Other dwelling units 56,629 4.4 57,269 5.3 59,310 6.2 61,898 6.4 56,331 7.5
Commercial, industrial,
or land 212,059 16.6 211,489 19.5 216,651 22.5 249,466 25.8 227,966 30.1
Commercial business
loans 26,634 2.1 27,825 2.6 25,403 2.6 29,189 3.0 38,269 5.1
Consumer loans:
Home equity 47,633 3.7 47,015 4.3 51,486 5.3 58,109 6.0 61,595 8.1
Mobile homes 21,925 1.7 25,027 2.3 28,276 2.9 31,476 3.2 33,622 4.4
Credit Cards 10,453 0.8 9,146 0.8 8,115 0.8 7,354 0.8 7,554 1.0
Savings account loans 5,430 0.4 5,262 0.5 4,677 0.5 4,751 0.5 1,991 0.3
Other consumer 34,844 2.7 28,131 2.6 19,096 2.0 15,872 1.6 8,650 1.1
Total gross loans
receivable 1,318,876 103.0 1,109,606 102.4 996,444 103.4 989,060 102.2 777,593 102.7
Allowance for loan
losses (11,202) (0.9) (10,637) (1.0) (10,728) (1.1) (10,742) (1.1) (4,837) (0.7)
Loans in process (26,652) (2.0) (14,282) (1.3) (20,213) (2.1) (7,742) (0.8) (12,201) (1.6)
Deferred loan fees
and discounts (912) (0.1)% (1,320) (0.1) (2,137) (0.2) (2,969) (0.3) (3,107) (0.4)
Loans receivable,
net $1,280,110 100.0% $1,083,367 100.0% $963,366 100.0% $ 967,607 100.0% $757,448 100.0%
</TABLE>
The Company's total loan originations during 1996 increased
$136.1 million, or 53.8%, from 1995. Management believes the
increase is due principally to moderately lower mortgage interest
rates which resulted in an increase in refinancing activity and
the strong housing markets in which the Company operates. During
fiscal 1995, loans originated declined by $11.9 million over 1994
originations.
The following table shows, at September 30, 1996, the dollar
amount of adjustable-rate loans and fixed-rate loans in the
Company's portfolio based on their contractual terms to maturity.
The amounts in the table do not include adjustments for
undisbursed amounts in loans in process, deferred loan fees and
discounts or allowances for loan losses. Demand loans, loans
having no stated schedule of repayments and no stated maturity,
and overdrafts are reported as due in one year or less.
Contractual principal repayments of loans do not necessarily
reflect the actual term of the Company's loan portfolios. The
average life of mortgage loans is substantially less than their
contractual terms because of loan prepayments and because of
enforcement of due-on-sale clauses, which gives the Company the
right to declare a loan immediately due and payable if, among
other things, the borrower sells the real property subject to the
mortgage. The average life of mortgage loans tends to increase
when current market rates on mortgage loans substantially exceed
rates on existing mortgage loans. Correspondingly, when market
rates on mortgages decline below rates on existing mortgage
loans, the average life of these loans tends to be reduced.
<TABLE>
<CAPTION>
Over Over Ten
Over One Over Two Three toOver Five to Over
Within to Two to Three Five to Then Fifteen Fifteen
Consolidated One Year Years Years Years Years Years Years Total
(dollars in thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Real estate mortgages:
Adjustable-rate $ 4,786 $ 4,158 $ 1,865 $ 8,027 $ 22,039 $ 57,850 $569,924 $ 668,649
Fixed-rate 28,831 9,681 13,271 21,928 35,835 113,864 279,898 503,308
Consumer loans:
Adjustable-rate 41,768 202 411 1,475 7,164 5,581 3,853 60,454
Fixed-rate 18,237 5,008 6,774 15,642 12,464 1,507 199 59,831
Commercial business
loans:
Adjustable-rate 13,548 2,251 986 1,678 726 19,189
Fixed-rate 5,138 1,330 428 519 30 7,445
Total $112,308 $ 22,630 $ 23,735 $ 49,269 $ 77,502 $178,832 $854,600 $ 1,318,876
</TABLE>
Residential Mortgage Lending
At September 30, 1996, the Company s real estate loans totaled
approximately $1.2 billion, or 88.86% of gross loans receivable. One- to
four-family residential mortgage loans totaled $903.3 million or 77.07% of the
Company's real estate loans and 68.49% of total gross loans receivable. The
Company offers adjustable-rate ("ARM") and fixed-rate mortgage loans with
terms ranging from 10 years to 30 years.
The ARMs currently offered by the Company have up to 30-year terms and
interest rates which adjust annually or every three, five or seven years in
accordance with a designated index. ARMS may be originated with a 1% or 2%
cap on any increase or decrease in the interest rate per year, with a 4%, 5%
or 6% limit on the amount which the interest rate can increase or decrease
over the life of the loan.
The Company emphasizes the origination of ARMs rather than long-term,
fixed-rate mortgage loans for inclusion in its portfolios. In order to
encourage the origination of ARMs with interest rates which adjust annually,
the Company, like many of its competitors, may offer a rate of interest on
such loans below the fully-indexed rate for the initial period of the loan. <PAGE>
The Company presently offers single-family ARMs indexed to the one year
constant maturity treasury index. While these loans are expected to adjust
more quickly to changes in market interest rates, they may not adjust as
rapidly as changes occur in the Company s cost of funds. Included in the
Company s single-family ARMs are loans originated in the past which reprice to
spreads over cost of funds indices. The Company underwrites ARMs based on the
fully-indexed rate. The Company s fixed-rate residential mortgage loans have
terms ranging from 10 to 30 years and require level monthly payments
sufficient to amortize principal over the life of the loan.
The Company originates residential mortgage loans with loan-to-value
ratios up to 95%. Generally, on mortgage loans exceeding 80% loan-to-value
ratio, the Company requires private mortgage insurance which protects the
Company against losses of at least 20% of the mortgage loan amount. All
property securing real estate loans made by the Company is appraised either by
appraisers regularly employed by the Company or by independent appraisers
selected by the Company. Loans are usually made pursuant to certain guidelines
which will permit the sale of such loans in the secondary market.
The Company offers various other residential lending programs, including
bi-weekly mortgage loans and two-step mortgage loans originated principally
for first-time home buyers. The Company also offers, as part of its Community
Reinvestment Act program, more flexible underwriting criteria to broaden the
availability of mortgage loans in the communities it serves.
The majority of the Company's residential construction loans are made
to finance the construction of individual owner-occupied houses up to 90%
loan-to-value. These construction loans are generally structured to be
converted to permanent loans at the end of the construction phase. Loan
proceeds are disbursed in increments as construction progresses and as
inspections warrant. As part of its residential lending program, the Company
also offers construction loans with 75% loan-to-value ratios to qualified
builders. These construction loans are generally at a competitive fixed rate
of interest for one- or two-year periods. The Company also offers lot loans
intended for residential use. Such loans may be on a fixed-rate or adjustable-
rate basis.
Commercial Real Esate, Multifamily and Land Lending
At September 30, 1996, the Company s commercial real estate portfolio
totaled $173.7 million, or 13.17% of total gross loans and 14.82% of real
estate loans. Its multi-family portfolio totaled $56.6 million, or 4.29% of
total gross loans and 4.83% of total real estate loans. Loans made with land
as security totaled $38.4 million, or 2.91% of total gross loans and 3.27% of
total real estate loans.
The Company originates both short-term construction and permanent loans
secured by industrial warehouses, medical and professional office buildings,<PAGE>
multi-family apartment projects and mid-rise office buildings located in its
primary lending areas of Charleston, Dorchester, Berkeley, Georgetown, Horry
and Florence counties. Approximately 98% of the existing commercial and
multi-family real estate loans were made in these counties. Because of market
conditions, since 1993 the Company has limited growth in loans made on
commercial real estate, multi-family properties and on land acquisition and
development projects and placed greater emphasis on single-family real estate
lending.
Interest rates charged on permanent commercial real estate loans are
determined by market conditions existing at the time of the loan commitment.
Such loans are generally made on an adjustable-rate basis, ranging from one-
half to two percent above the prime lending rate. Permanent commercial real
estate loans generally have been made for terms of ten years with provisions
for interest rate adjustments semi-annually or annually and payments based on
30-year amortizations. Payment adjustments occur annually. In the past the
Company originated a substantial portion of its commercial real estate loans
at rates generally two to three percent above its prevailing cost of funds.
As such loans reach call or loan review dates or refinance, it is the
Company's current policy to negotiate most of these loans to new terms based
on the prime lending rate as the index.
Commercial and multi-family mortgage lending generally involves greater
risk than single-family lending. Such lending typically involves larger loan
balances to single borrowers or groups of related borrowers than single-family
lending. Furthermore, the repayment of loans secured by income-producing
properties is typically dependent upon the successful operation of the related
real estate project. If the cash flow from the property is reduced (for
example, if leases are not obtained or renewed), the borrower s ability to
repay the Company s loans may be impaired. These risks can be affected
significantly by supply and demand in the market for the type of property
securing the loan and by general economic conditions, and commercial and
multi-family loans may thus be subject, to a greater extent than single-family
property loans to adverse conditions in the economy.
Consumer Lending
Federal regulations permit the Company to make secured and unsecured
consumer loans up to 35% of their assets. In addition, the Associations have
lending authority above the 35% category for certain consumer loans, such as
home equity loans, property improvement loans, mobile home loans and loans
secured by savings accounts. The Company's gross consumer loans totaled
$120.3 million at September 30, 1996, or 9.12% of gross loans receivable. The
largest component of consumer lending is comprised of single-family home
equity lines of credit and other equity loans, currently totaling $47.6
million, or 39.60% of all consumer loans. Remaining consumer loans primarily
consist of loans secured by mobile homes, boats, automobiles and credit cards.
Commercial Business Lending
The Company is permitted under federal law to make secured or unsecured
loans for commercial, corporate business and agricultural purposes including
issuing letters of credit. The aggregate amount of such loans outstanding
generally may not exceed 10% of an institution's assets.
The Company s commercial business loans are generally made on a secured
basis with terms that usually do not exceed five years. Most of the Company s
commercial business loans to date have interest rates that change at periods
ranging from 30 days to one year based on the Company s prime lending rate.
Some loans have fixed interest rates determined at the time of takedown. At
September 30, 1996, the Company s commercial business loans outstanding were
$26.6 million, which represented 2.02% of total gross loans receivable.
Loan Sales and Servicing
While the Company originates adjustable-rate loans for its own
portfolio, fixed-rate loans are generally made on terms that will permit their
sale in the secondary market. The Company participates in secondary market
activities by selling whole loans and participations in loans to the Federal
National Mortgage Association ("FNMA"), the Federal Home Loan Mortgage
Corporation ("FHLMC"), as well as other institutional investors. This
practice enables the Company to satisfy the demand for such loans in its local
communities, to meet asset and liability objectives of management and to
develop a source of fee income through loan servicing. At September 30, 1996,
the Company was servicing loans for others of $216.1 million.
Based on the current level of market interest rates and other factors,
the Company presently intends to sell selected current originations of
conforming 30-year and 15-year conventional fixed-rate mortgage loans. The
Company s policy with respect to the sale of fixed-rate loans is dependent to
a large extent on the general level of market interest rates. Sales of
fixed-rate residential loans totaled $6.9 million in 1996, $1.5 million in
1995 and $79.2 million in 1994. At September 30, 1996, the Company had $1.4
million in loans held for sale.
Loan Solicitation, Processing and Underwriting
The Company actively solicits loan applications from existing customers,
local real estate agents, builders, real estate developers, and various other
persons. Upon receipt of a loan application from a prospective borrower, a
credit report is ordered to verify specific information relating to the loan
applicant's employment, income and credit standing. An appraisal of the real
estate intended to secure the proposed loan is undertaken by an independent
appraiser, who is approved by the Company in accordance with current
regulations and its respective policies, or by an in-house appraiser. As soon
as the required information is obtained and the appraisal is completed, the
loan is submitted to the Company s loan underwriting officers who make a
recommendation to the Associations Loan Committees for approval or
disapproval. One program offered by First Federal, the Quick Close Mortgage,
eliminates the requirement for a standard appraisal and substitutes an
internal property evaluation performed by First Federal personnel. This
program is only available to loans with loan to value ratios of 90% or less
and for loan originations retained in First Federal's portfolio. Stringent
underwriting standards also apply.
When considering loans with a higher degree of risk, additional
collateral may be obtained or mortgage insurance or other guarantees may be
considered necessary by the Company. Loans over a specified dollar limit are
also subject to additional approval of the Associations Board of Directors.
All related party transactions are processed according to regulatory
guidelines and normal underwriting guidelines. The Loan Committees and full
Boards of Directors of the Associations review and approve all related party
loans.
Certain risks are inherent with loan portfolios which contain commercial
real estate, multi-family, commercial business and consumer loans. While
these types of loans provide benefits to the Company s asset/liability
management programs and reduce exposure to interest rate changes, such loans
may entail significant additional credit risks compared to residential
mortgage lending. Commercial real estate and multi-family loans may involve
large loan balances to single borrowers or groups of related borrowers. In
addition, the payment experience on loans secured by income-producing
properties is typically dependent on the successful operation of the
properties and thus may be subject to a greater extent to adverse conditions
in the local or regional real estate market or in the general economy.
Construction loans also involve additional risks attributable to the
fact that loan funds are advanced upon the security of the project under
construction. Consumer loans have historically tended to have a higher rate
of default than residential mortgage loans.
There are, due to the nature of ARMs, unquantifiable risks resulting
from increased costs to the borrower as a result of periodic repricing.
Despite the benefits of ARMs to the Company s asset/liability management
program, they pose additional risks, primarily because as interest rates rise,
the underlying payment by the borrower rises, increasing the potential for
default. At the same time, the marketability of the underlying property may
be adversely affected by higher interest rates.
All of the above risk factors are present in the Company's loan
portfolio and could have an impact on future delinquency and charge-off rates
and levels.
Limits on Loan Concentrations
The Associations permissible lending limits for loans to one borrower
is the greater of $500,000 or 15% of unimpaired capital and surplus (except
for loans fully secured by certain readily marketable collateral, in which
case this limit is increased to 25% of unimpaired capital and surplus). At
September 30, 1996, First Federal's and Peoples Federal's lending limits under
this restriction were $11.8 million and $4.5 million, respectively. A broader
limitation (the lesser of $30 million or 30% of unimpaired capital and
surplus) is provided under certain circumstances and subject to OTS approval
for loans to develop domestic residential housing units. In addition, the
Associations may provide purchase money financing for the sale of any asset
without regard to the loans to one borrower limitation so long as no new funds
are advanced and the Associations are not placed in a more detrimental
position than if they had held the asset.
Loan Origination and Other Fees
In addition to interest earned on loans, the Company receives loan
origination fees or "points" for originating loans. Loan points are a
percentage of the principal amount of the mortgage loan charged to the
borrower for originating the loan.
Loan origination fees received, if any, are offset by the deferral of
certain direct expenses associated with loans originated. The net fees or
costs are recognized as yield adjustments by applying the interest method
according to SFAS No. 91, "Accounting for Nonrefundable Fees and Costs
Associated with Originating or Acquiring Loans and Initial Direct Costs of
Leases."
The Company also receives other fees and charges relating to existing
loans, which include late charges and fees collected in connection with a
change in borrower or other loan modifications. These fees and charges have
not constituted a material source of loan fee income.
NON-PERFORMING ASSETS AND RISK ELEMENTS
Loan Delinquencies
When a borrower fails to make a required payment on a loan, the Company
attempts to cure the default by contacting the borrower. The Company contacts
the borrower after a payment is past due less than 20 days, and a late charge
is assessed on the loan. In most cases, defaults are cured promptly. If the
delinquency on a mortgage loan continues 60 to 90 days and is not cured
through normal collection procedures or an acceptable arrangement is not
worked out with the borrower, the Company will institute measures to remedy
the default, including commencing a foreclosure action. The Company may
accept voluntary deeds of the secured property in lieu of foreclosure.
The Company s mortgage loans are generally secured by the use of a
mortgage instrument. Notice of default under these loans is required to be
recorded and mailed. If the default is not cured within three months, a
notice of sale is posted, mailed and advertised, and a sale is then conducted.
Problem Assets and Asset Classifications
Loans are reviewed on a regular basis and are placed on a non-accrual
status when, in the opinion of management, the collection of accrued interest
is doubtful. Generally, consumer loans and commercial business loans are
placed on non-accrual status when the loans are more than 90 days delinquent.
Unsecured consumer loans are charged off when the loan becomes over 120 days
delinquent. Real estate loans are placed on non-accrual status when
management determines that the interest may not be collectible.
Renegotiated loans are loans which the Company has agreed to modify the
terms of the loan. Such modifications may include changing the interest rate
charged and/or other concessions.
Real estate acquired by the Company as a result of foreclosure or by
deed in lieu of foreclosure is classified as real estate acquired in
settlement of loans until such time as it is sold. When such real property is
acquired, it is recorded at fair value. Any write-down of the property is
charged to the allowance for loan losses.
The following table sets forth information with respect to the Company s
problem assets at the dates indicated.
<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
1,278 816 740 1,458 2,216 delinquent
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%<PAGE>
</TABLE>
The Company's problem assets as a percentage of total assets over the
past five years have declined from 2.73% at September 30, 1992 to 1.28% as of
September 30, 1996. Although problem asset totals may include loans which
are considered to be earning assets, there generally exists more than normal
risk associated with the severity of delinquency or the renegotiated terms of
these loans.
For further discussion of the Company s problem assets, see
"Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Asset Quality" and Note 7 of the Notes to Consolidated Financial
Statements.
ALLOWANCE FOR LOAN LOSSES
The Company s allowance for loan losses totaled $11.2 million at
September 30, 1996. Management periodically evaluates the adequacy of the
allowance based upon historical delinquency rates, the size of the Company s
loan portfolios and various other factors. See Note 7 of Notes to the
Consolidated Financial Statements for information concerning the Associations'
provision and allowance for loan losses. For a discussion of changes in the
Company's allowance for loan losses, see "Management's Discussion and Analysis
of Financial Condition and Results of Operations--Allowance for Loan Losses."
In the Spring of 1993 management learned of the initial recommendations
of the United States Department of Defense to close numerous Naval facilities
in the Charleston Metropolitan Area. The Base Realignment and Closure
Commission subsequently voted to include the Charleston Naval Station and the
Charleston Naval Shipyard in its final list of military facilities to be
closed. The Commission also voted to consolidate the East Coast Naval
Electronics Systems Engineering Center in the Charleston area. The provision
for loan losses of $3.7 million in fiscal 1993 partially reflected increased
reserves for the potential impact on the loan portfolio of the military base
closures in the Charleston metropolitan area. The total allowance for loan
losses also increased in fiscal 1993 by $4.6 million for the allowance on
loans acquired in the Peoples Federal acquisition. In April of 1996 most of
the net reductions in employment related to military downsizing were
completed. Although there were adverse affects on Charleston and the
surrounding counties related to military reductions over the past three years,
the Charleston economy has been positively affected by recent business
expansion.
While the Company believes it has established its allowance for loan
losses in accordance with generally accepted accounting principles at
September 30, 1996, there can be no assurance that regulators, when reviewing
the Associations portfolios in the future, will not request the Associations
to increase significantly their allowance for loan losses, thereby adversely
affecting the Company's financial condition and earnings.
The following table sets forth the breakdown of the Company's allowance
for loan losses by loan category at the dates indicated. Management believes
that the allowance can be allocated by category only on an approximate basis.
The allocation of the allowance to each category is not necessarily indicative
of future losses and does not restrict the use of the allowance to absorb
losses in any category.
At September 30,
1996 1995 1994 1993 1992
(dollar amounts in thousands)
Allowance for loan losses applicable to:
Real estate loans $ 8,987 $ 8,875 $ 9,074 $ 9,189 $ 3,036
Commercial loans 925 715 750 648 698
Consumer loans 1,290 1,047 904 905 1,103
Total $ 11,202 $ 10,637 $ 10,728 $ 10,742 $ 4,837
Percent of loans to total net loans:
Real estate loans 88.7% 87.0% 85.9% 84.9% 80.0%
Commercial business
Loans 2.0 2.5 2.6 3.0 5.0
Consumer loans 9.3 10.5 11.5 12.1 15.0
Total 100.0% 100.0% 100.0% 100.0% 100.0%
OTS Asset Classification System
OTS regulations include a classification system for problem assets,
including assets that previously had been treated as "scheduled items." Under
this classification system, problem assets for insured institutions are
classified as "substandard," "doubtful" or "loss," depending on the presence
of certain characteristics discussed below.
An asset is considered "substandard" if inadequately protected by the
current net worth and paying capacity of the obligor or of the collateral
pledged, if any. "Substandard" assets include those assets characterized by
the "distinct possibility" that the institution will sustain "some loss" if
the deficiencies are not corrected. Assets classified as "doubtful" have all
of the weaknesses inherent in those classified "substandard" with the added
characteristic that the weaknesses present make "collection or liquidation in
full," on the basis of currently existing facts, conditions, and values,
"highly questionable and improbable." Assets classified "loss" are those
considered "uncollectible" and of such little value that their continuance as
assets without the establishment of a specific loss reserve is not warranted.
When an institution classifies problem assets as either substandard or
doubtful, it is required to establish general allowances for loan losses in an
amount deemed prudent by management. General allowances represent loss
allowances which have been established to recognize the inherent risks
associated with lending activities, but which, unlike specific allowances,
have not been allocated to particular problem assets. When an institution
classifies problem assets as "loss," it is required either to establish a
specific allowance for losses equal to 100% of the amount of the asset so
classified or to charge off such amount. An institution's determination as to
the classification of its assets and the amount of its valuation allowances is
subject to review by the OTS, which can order the establishment of additional
general or specific loss allowances. The Company has classified $30.9 million
in assets as substandard and $1.6 million as loss, respectively, as of
September 30, 1996.
The OTS classification of assets regulation also provides for a "special
mention" designation, in addition to the "substandard," "doubtful" and "loss"
classifications. "Special mention" assets are defined as those that do not
currently expose an institution to a sufficient degree of risk to warrant
classification as either "substandard," "doubtful" or "loss" but do possess
credit deficiencies or potential weaknesses deserving management's close
attention which, if not corrected, could weaken the asset and increase such
risk in the future. The designation "special mention" shall be made by either
the institution or its examiner. The Company had $18.8 million of assets
designated "special mention" as of September 30, 1996.
Management periodically reviews its loan portfolio, and has, in the
opinion of management, appropriately classifed and established allowances
against all assets requiring classification under the regulation.
INVESTMENT ACTIVITIES
The Associations are required under federal regulations to maintain a
minimum amount of liquid assets which may be invested in specified short-term
securities and are also permitted to invest in other types of securities.
Investment decisions are made by authorized officers of the Company and the
Associations within policies established by the Company's and the
Associations' Boards of Directors.
At September 30, 1996, the Company's investment and mortgage-backed
securities portfolio totaled approximately $192.5 million, which included
stock in the FHLB of Atlanta of $15.6 million. Investment securities include
U.S. Government and agency obligations and corporate bonds approximating $57.2
million and $12.7 million, respectively. At September 30, 1996 there were
seven investments in mutual funds totaling approximately $24.1 million.
Mortgage-backed securites totaled $83.0 million as of September 30, 1996. See
Note 1 of Notes to Consolidated Financial Statements for a discussion of the
Company's accounting for investment and mortgage-backed securities. See Notes
3, 4 and 5 of Notes to Consolidated Financial Statements for additional
information regarding investment and mortgage-backed securities and FHLB of
Atlanta stock.
Objectives of the investment policies of the Company are achieved
through investing in U.S. Government, federal agency, corporate debt
securities, mortgage-backed securities, short-term money market instruments,
mutual funds, loans and other investments as authorized by OTS regulations and
specifically approved by the Boards of Directors of the Company and the
Associations. Investment portfolio guidelines specifically identify those
securities eligible for purchase and describe the operations and reporting
requirements of the Investment Committees which execute investment policy.
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 treasury or agency
securities and highly rated corporate securities.
As members of the FHLB System, the Associations are required to maintain
an investment in the common stock of the FHLB of Atlanta. See "Regulation of
the Associations -- Federal Home Loan Bank System." The stock of the FHLB of
Atlanta is redeemable at par value.
Securities may differ in terms of default risk, interest risk, liquidity
risk and expected rate of return. Default risk is the risk that an issuer
will be unable to make interest payments, or to repay the principal amount on
schedule. The Company primarily invests in U.S. Government and federal agency
obligations. U.S. Government obligations are regarded as free of default
risk. The issues of most government agencies are backed by the strength of
the agency itself plus a strong implication that in the event of financial
difficulty, the agency would be assisted by the federal government. The
credit quality of corporate debt varies widely. The Company only invests in
commercial paper and corporate debt securities which are rated in either one
of the three highest categories by two nationally recognized investment rating
services.
The Company adopted SFAS 115 effective September 30, 1993. Accordingly,
investments are classified as either held to maturity, available for sale or
as trading securities. At September 30, 1996 the Company had no "trading"
securities.
The Company's investment in mortgage-backed securities serve several
primary functions. First, the Company has securitized whole loans for
mortgage-backed securities issued by federal agencies to use as collateral for
certain of its borrowings and to secure public agency deposits. Second, the
Company previously securitized loans with federal agencies to reduce its
credit risk exposure and to reduce regulatory risk-based capital requirements.
Third, the Company acquires mortgage-backed securities from time to time to
meet earning asset growth objectives and provide additional interest income
when necessary to augment reduced loan originations and replace loan portfolio
runoff.
The following tables sets forth the carrying value of the Company's
investment and mortgage-backed securities portfolio, excluding stock in the
FHLB of Atlanta, maturities and average yields at September 30, 1996. The
fair value of the Company's investment securities portfolio, excluding stock
in the FHLB of Atlanta, was $176.8 million on that date.
Investment and Mortgage-backed Securities Portfolio
<TABLE>
<CAPTION>
As of September 30,
1996 1995 1994
Amortized Fair Amortized Fair Amortized Fair
Cost Value Cost Value Cost Value
(dollar amounts in thousands)
Securities Held to Maturity
<S> <C> <C> <C> <C> <C> <C>
U.S. Treasury and U.S. Government agencies
and corporations $ 27,487 $ 27,417 $ 46,853 $ 47,028 $ 51,432 $ 50,636
Corporate debt and other securities 21,301 21,659 16,565 16,338
Mortgage-backed securities of FNMA, FHLMC
and GNMA 18,361 18,844 22,483 22,291
Total securities held to maturity $ 27,487 $ 27,417 $ 86,515 $ 87,531 $ 90,480 $ 89,265
Maturity and Yield Schedule as of September 30, 1996
Weighted
Carrying Average
Value Yield
U.S. Treasury and U.S. Government agencies
and corporations:
Within 1 year $ 14,513 6.15%
After 1 but within 5 years 12,974 6.16%
Total securities held to maturity $ 27,487 6.15%
As of September 30,
1996 1995 1994
Amortized Fair Amortized Fair Amortized Fair
Cost Value Cost Value Cost Value
(dollar amounts in thousands)
Securities Available for Sale
U.S. Treasury and U.S. Government agencies
and corporations $ 29,755 $ 29,668 $ 15,792 $ 15,874 $ 16,270 $ 15,700
Corporate debt and other securities 12,417 12,689
Equity securities
Asset Management Fund-Adjustable Rate
Mortgage Portfolio 9,000 8,932 9,000 8,932 9,000 8,815
Federated Adjustable Rate Mortgage Fund 10,000 9,709 10,000 9,689 10,000 9,618
Other mutual funds and other 5,561 5,436 5,656 5,336 4,000 3,764
Mortgage-backed securities of FNMA, FHLMC
and GNMA 82,152 82,991 82,260 82,765 86,116 83,137
Total securities available for sale $ 148,885 $ 149,425 $ 122,708 $ 122,596 $ 125,386 $ 121,034
Maturity and Yield Schedule as of September 30, 1996
Weighted
Carrying Average
Value Yield
U.S. Treasury and U.S. Government agencies
and corporations:
Within 1 year 4,012 6.54%
After 1 but within 5 years 20,662 5.93%
After 5 but within 10 years 4,994 8.11%
29,668 6.38%
Corporate debt and other securities:
Within 1 year 2,254 6.42%
After 1 but within 5 years 8,406 8.14%
After 5 but within 10 years 2,029 7.24%
12,689 7.69%
Equity securities
Within 1 year 24,077 5.81%
Mortgage-backed securities of FNMA, FHLMC and GNMA:
Within 1 year 16 6.00%
After 1 but within 5 years 6,010 6.78%
After 5 but within 10 years 6,095 7.93%
After 10 years 70,870 7.58%
82,991 7.55%
149,425 7.05%
</TABLE>
SOURCES OF FUNDS
Deposits are the primary source of funds for lending and investing
activities. The amortization and scheduled payment of loans and maturities of
investment securities provide a stable source of funds, while deposit
fluctuations and loan prepayments are significantly influenced by the overall
interest rate environment and other market conditions. FHLB advances and
short-term borrowings provide supplemental liquidity sources based on specific
needs or if management determines that these are the best sources of funds to
meet current requirements.
Deposits
The Company offers a number of deposit accounts including passbook
savings accounts, NOW/checking, commercial checking, money market accounts,
Individual Retirement Accounts ("IRA") and certificate accounts which
generally range in maturity from three months to five years. Deposit account
terms vary, with the principal differences being the minimum balance required,
the time period the funds must remain on deposit and the interest rate. For a
schedule of the dollar amounts in each major category of the Company s deposit
accounts, see Note 10 of Notes to Consolidated Financial Statements.
The following table sets forth the dollar amount of deposits in the
various types of savings accounts offered by the Company on the dates
indicated.
<TABLE>
<CAPTION>
Balance at Balance at Balance at
September 30, % of September 30, % of September 30, % of
1996 Deposits 1995 Deposits 1994 Deposits
(dollar amounts in thousands)
<S> <C> <C> <C> <C> <C> <C>
NOW and checking accounts $ 123,907 11.67% $ 117,149 10.90% $ 112,270 10.56%
Passbook and regular savings 119,509 11.26 125,588 11.69 150,693 14.17
Money market deposit accounts 131,393 12.38 131,225 12.22 140,511 13.22
Savings certificates
6 mos. or less 99,782 9.40 105,785 9.85 74,631 7.02
Savings certificates
greater than 6 mos. 382,756 36.05 406,108 37.80 406,564 38.25
Jumbo certificates 68,218 6.42 54,339 5.06 52,693 4.96
IRA accounts(1) 136,052 12.82 134,119 12.48 125,633 11.82
Total $ 1,061,617 100.00% $ 1,074,313 100.00% $ 1,062,995 100.00%
(1) Balances include different account types of varying maturities that have
not been included in other categories above.
</TABLE>
The Associations are subject to short-term fluctuations in deposit flows
as well as to internal shifts in deposits among the various deposit products
as customers move their funds to obtain a better yield. The Asset and
Liability Committees of the Associations manage the mix, maturity and pricing
of assets and liabilities in order to minimize the impact on earnings as
changes in interest rates occur.
The Associations' deposits are obtained primarily from residents of
South Carolina. Management estimates that less than 2% of deposits at
September 30, 1996, are obtained from customers residing outside of South
Carolina. The principal methods used by the Company to attract deposit
accounts include the offering of a wide variety of services and accounts,
competitive interest rates, and convenient office locations and service hours.
The Company utilizes traditional marketing methods to attract new customers
and savings deposits, including mass media advertising and direct mail. The
Company also provides customers access to the convenience of automated teller
machines ("ATMs") through a proprietary ATM network and access to regional and
national ATM networks. The Company also enjoys an excellent reputation for
providing products and services to meet the needs of market segments, such as
seniors. For example, 50-Plus Club members benefit from a number of
advantageous programs, such as exclusive travel packages, special events and
classic movies.
Savings Deposit Activity
The following table sets forth the savings activities of the Company for
the periods indicated.
For the Year Ended September 30,
1996 1995 1994
(dollars in thousands)
Net increase (decrease) before $ (49,993) $ (23,161) $ (18,479)
interest credited
Interest credited 37,297 34,479 30,255
Net increase $ (12,696) $ 11,318 $ 1,776
Jumbo Certificates of Deposit
The following table indicates the amount of the Company s jumbo
certificates of deposit by time remaining until maturity as of September 30,
1996. Jumbo certificates of deposit require minimum deposits of $100,000 and
have negotiable interest rates.
Maturity Period At September 30, 1996
(dollar amounts in thousands)
Three months or less $ 31,783
Over three through six months 16,210
Over six through twelve months 16,053
Over twelve months 4,172
Total $ 68,218
Borrowings
The Company relies upon advances from the FHLB of Atlanta to supplement
their supply of lendable funds and to meet deposit withdrawal requirements.
The FHLB of Atlanta has served as the Company s primary borrowings source.
Advances from the FHLB of Atlanta are typically secured by the Company s stock
in the FHLB of Atlanta and a portion of the Company s first mortgage loans.
Interest rates on advances vary from time to time in response to general
economic conditions.
At September 30, 1996, the Company had advances totaling $312.4 million
from the FHLB of Atlanta at an average rate of 5.61%. At September 30, 1996,
the maturity of the Associations' FHLB advances ranged from one to sixteen
years. Substantially all of the advances mature within one year. For more
information on borrowings, see Note 11 of Notes to Consolidated Financial
Statements.
The Associations have periodically entered into transactions to sell
securities under agreements to repurchase ("reverse repurchase agreements")
through broker-dealers. Reverse repurchase agreements evidence indebtedness
of the Company arising from the sale of securities that the Company is
obligated to repurchase at specified prices and dates. At the date of
repurchase, the Company will, in some cases, enter into another reverse
repurchase agreement to fund the repurchase of the maturing agreement. For
regulatory and accounting purposes these reverse repurchase agreements are
deemed to be borrowings collateralized by the securities sold. At September
30, 1996, the Company had $16.8 million of outstanding reverse repurchase
agreements secured by mortgage-backed securities. The agreements had a
weighted average interest rate of 5.69% at September 30, 1996, and mature
within three months. For more information on borrowings, see Note 12 of Notes
to Consolidated Financial Statements.
The following table sets forth certain information regarding short-term
borrowings by the Company at the end of and during the periods indicated:
<TABLE>
<CAPTION>
At or For the Year Ended September 30,
1996 1995 1994
(dollar amounts in thousands)
<S> <C> <C> <C>
Weighted Average Rate Paid On (at end of period):
FHLB advances 5.61% 5.88% 5.03%
Securities sold under agreements to repurchase 5.69% 5.89% 5.20%
Maximum Amount of Borrowings Outstanding (during
period):
FHLB advances 312,402 $107,853 82,962
Securities sold under agreements to repurchase 43,860 45,217 13,098
Approximate Average Amount of Short-term Borrowings
With Respect To:
FHLB advances 215,396 78,982 57,002
Securities sold under agreements to repurchase 38,757 26,769 4,769
Approximate Weighted Average Rate Paid On (during
period):
FHLB advances 5.70% 5.92% 5.23%
Securities sold under agreements to repurchase 5.70% 6.08% 4.40%
Long-term Debt
On September 17, 1992, the Company issued $20.3 million aggregate
principal amount of Senior Notes ("Notes") due September 1, 2002. The Notes
bear interest at 9-3/8% per year. The Company received net proceeds of
approximately $19.0 million, $16.5 million of which was used to complete the
acquisition of Peoples Federal on October 9, 1992. The Company has agreed to
prepay, at a price of 100% of the principal plus accrued interest to the date
of prepayment, up to $1.0 million of the Notes tendered by noteholders for
prepayment during the period from the date of issuance through September 1,
1993, and thereafter in any twelve-month period ending September 1, subject to
certain limitations. The Company's obligation to prepay Notes tendered for
prepayment is not cumulative. Although the Company is obligated to prepay in
any prepayment period up to $1.0 million of the Notes annually, it is not
required to establish a sinking fund or otherwise set aside funds for that
purpose. The ability of the Company to prepay the Notes depends, to a
substantial degree, upon interest income generated by the Company's investment
assets, the availability of alternative credit sources, and the payment of
dividends and other fees to the Company by the Associations. Notes totaling
$487 thousand were redeemed on September 1, 1993. None have been redeemed
since that time. See Note 13 of Notes to Consolidated Financial Statements
for additional information on the Notes.
The principal expense of the Company is the interest due annually on the
Notes which approximates $1.9 million, assuming certain noteholder options to
elect prepayment of the Notes are not exercised. Payments of interest and
principal on the Notes are dependent upon the ability of First Federal and
Peoples Federal to pay dividends to the Company. Dividend and other capital
distributions by the subsidiaries are restricted by regulation and may require
regulatory approval. For further information, see "Regulation of the
Associations - Dividend Limitations."
ASSET AND LIABILITY MANAGEMENT
Management believes that the analysis and management of interest rate
risk is crucial to the long-term profitability of the Company as well as the
savings and loan industry generally. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations -- Liquidity and
Asset and Liability Management" for a further discussion of the Associations'
asset/liability management strategies and for the Company's interest rate
sensitivity analysis table at September 30, 1996.
Rate/Volume Analysis
For the Company's rate/volume analysis and interest rate margin, see
"Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Net Interest Income."
For additional information regarding the Company's yields and costs and
changes in net interest income, refer to "Management's Discussion and Analysis
of Financial Condition and Results of Operations -- Net Interest Income."
SUBSIDIARY ACTIVITIES
The Associations are permitted under OTS regulations to invest up to 2%
of their assets in service corporations, with an additional investment of 1%
of assets where such investment is primarily for community, inner-city and
community development purposes. At September 30, 1996, First Federal and
Peoples Federal were authorized to invest up to $21.7 million and $8.9
million, respectively, in the stock of, or loans to, service corporations
(based upon the 2% limitation). At September 30, 1996, First Federal's
investment in stock and secured and unsecured loans in its service
corporations was $521,615. At September 30, 1996, Peoples Federal's
investment in its service corporations was $1.4 million.
First Federal has two wholly-owned subsidiaries:
Charleston Financial Services
Incorporated on January 28, 1977, its primary operations include the
conversion of computer information to a microfiche format, the sale of data
processing consulting services and software and the operation of a full-
service brokerage subsidiary, Link Investment Services, Inc. At September 30,
1996, First Federal's investment in and advances to this subsidiary totaled
$138,663. Operations of Charleston Financial Services resulted in a net loss
of $25,868 for the year ended September 30, 1996.
The Carolopolis Corporation
The Carolopolis Corporation was incorporated in 1976 for the principal
purpose of land acquisition and development and construction of various
projects for resale. Development activities began in 1981 and ended in 1989.
The Carolopolis Corporation has been inactive for a number of years until 1996
when a lower tier corporation of Carolopolis was formed to operate and market
for resale a commercial real estate property acquired through foreclosure by
First Federal. First Federal's investment in the Carolopolis Corporation on<PAGE>
September 30, 1996 was $383,341 and a loss of $197,013 was incurred during
1996.
Peoples Federal has two wholly-owned subsidiaries, only one of which is
active:
First Southeast Insurance Services, Inc.
This subsidiary, formerly known as the Magrath Insurance Agency, was
purchased by Peoples Federal in 1986. In 1988, the agency purchased two
smaller insurance agencies. During 1995 an additional agency in Lake City,
South Carolina, was purchased as well as the Adams Insurance Agency in
Charleston, previously owned by a subsidiary of First Federal. Total
insurance premiums during fiscal year 1996 approximated $8.5 million. In
terms of premium dollars, the insurance agency is approximately 60% commercial
lines and 40% personal lines. The agency represents several companies for
both commercial and personal insurance products. Peoples Federal's investment
in First Southeast Insurance Services, Inc. on September 30, 1996 was $1.4
million. Operations of this subsidiary resulted in income of $151,020 in
1996.
COMPETITION
First Federal was the second largest and Peoples Federal the fifth
largest of savings associations headquartered in South Carolina at September
30, 1996, based on asset size as reported by the OTS. The Company faces
strong competition in the attraction of savings deposits and in the
origination of real estate and other loans. The Company s most direct
competition for savings deposits has historically come from commercial banks
and from other savings institutions located throughout South Carolina. The
Company also faces competition for savings from credit unions and competition
for investors' funds from short-term money market securities and other
corporate and government securities. In the more recent past, money market,
stock, and fixed-income mutual funds have attracted an increasing share of
household savings and are significant competitors of the Company.
The Company's competition for real estate and other loans comes
principally from commercial banks, other thrift institutions, mortgage banking
companies, insurance companies, developers, and other institutional lenders.
The Company competes for loans principally through the interest rates and loan
fees charged and the efficiency and quality of the services provided
borrowers, developers, real estate brokers, and home builders.
PERSONNEL
As of September 30, 1996, the Company had 540 full-time equivalent
employees. The Company provides its full-time employees and certain part-time
employees with a comprehensive program of benefits, including medical and<PAGE>
dental benefits, life insurance, long-term disability coverage, a profit-
sharing plan and a 401(k) plan. The employees are not represented by a
collective bargaining agreement. The Company believes its employee relations
are excellent.
REGULATION
The Associations are subject to extensive regulation, examination and
supervision by the OTS as their chartering agency, and the FDIC, as the
insurer of its deposits. The activities of federal savings institutions are
governed by the Home Owners' Loan Act, as amended (the "HOLA") and, in certain
respects, the Federal Deposit Insurance Act ("FDIA") and the regulations
issued by the OTS and the FDIC to implement these statutes. These laws and
regulations delineate the nature and extent of the activities in which federal
savings associations may engage. Lending activities and other investments
must comply with various statutory and regulatory capital requirements. In
addition, the Associations' relationship with their depositors and borrowers
are also regulated to a great extent, especially in such matters as the
ownership of deposit accounts and the form and content of the Associations'
mortgage documents. The Associations must file reports with the OTS and the
FDIC concerning their activities and financial condition in addition to
obtaining regulatory approvals prior to entering into certain transactions
such as mergers with, or acquisitions of, other financial institutions. There
are periodic examinations by the OTS and the FDIC to review the Associations'
compliance with various regulatory requirements. The regulatory structure
also gives the regulatory authorities extensive discretion in connection with
their supervisory and enforcement activities and examination policies,
including policies with respect to the classification of assets and the
establishment of adequate loan loss reserves for regulatory purposes. Any
change in such policies, whether by the OTS, the FDIC or Congress, could have
a material adverse impact on the Company, the Associations and their
operations. The Company, as a savings and loan holding company, also is
required to file certain reports with, and otherwise comply with the rules and
regulations of, the OTS.
Federal Regulation of Savings Associations
Office of Thrift Supervision
The OTS is an office in the Department of the Treasury subject to the
general oversight of the Secretary of the Treasury. The OTS generally
possesses the supervisory and regulatory duties and responsibilities formerly
vested in the Federal Home Loan Bank Board. Among other functions, the OTS
issues and enforces regulations affecting federally-insured savings
associations and regularly examines these institutions.
Federal Deposit Insurance Corporation
The FDIC is an independent federal agency established originally to
insure the deposits, up to prescribed statutory limits, of federally-insured
banks and to preserve the safety and soundness of the banking industry. In
1989 the FDIC also became the insurer, up to the prescribed limits, of the
deposit accounts held at federally-insured savings associations and
established two separate funds: the Bank Insurance Fund ("BIF") and the SAIF.
As insurer of deposits, the FDIC has examination, supervisory and enforcement
authority over all savings associations.
The Associations' accounts are insured by the SAIF. The FDIC insures
deposits at the Associations to the maximum extent permitted by law. The
Associations currently pay deposit insurance premiums to the FDIC based on a
risk-based assessment system established by the FDIC for all SAIF-member
institutions. Under applicable regulations, institutions are assigned to one
of three capital groups that are based solely on the level of an institution's
capital -- "well capitalized," "adequately capitalized," and
"undercapitalized" -- which are defined in the same manner as the regulations
establishing the prompt corrective action system, as discussed below. These
three groups are then divided into three subgroups which reflect varying
levels of supervisory concern, from those which are considered to be healthy
to those which are considered to be of substantial supervisory concern. The
matrix so created results in nine assessment risk classifications, with rates
currently ranging from .23% on SAIF assessable deposits for well capitalized,
financially sound institutions with only a few minor weaknesses to .31% on
SAIF assessable deposits for undercapitalized institutions that pose a
substantial risk of loss to the SAIF unless effective corrective action is
taken. The FDIC is authorized to raise assessment rates in certain
circumstances. Assessments expensed for the year ended September 30, 1996,
totalled $2.6 million.
Until the second half of 1995, the matrix for assessing SAIF-member
institutions deposit premiums was applied to BIF-member institutions. As a
result of the BIF having reached its designated reserve ratio, effective
January 1, 1996, the FDIC substantially reduced deposit insurance premiums for
well-capitalized, well-managed, financial institutions that are members of the
BIF. Under the new assessment schedule, rates were reduced to a range of 0 to
.27%, with approximately 92% of BIF members paying the statutory minimum
annual assessment rate of $2,000. Pursuant to the Deposit Insurance Fund
("DIF"), which was enacted on September 30, 1996, the FDIC imposed a special
one-time assessment on each depository institution with SAIF-assessable
deposits so that the SAIF may achieve its designated reserve ratio. First
Federal's and Peoples Federal's assessments amounted to $5.1 million and $1.8
million and were expensed during the quarter ended September 30, 1996.
Beginning January 1, 1997, the assessment schedule for SAIF members will be
the same as that for BIF members. In addition, beginning January 1, 1997,
SAIF members will be charged an assessment of 0.064% of SAIF-assessable
deposits for the purpose of paying interest on the obligations issued by the
Financing Corporation ("FICO") in the 1980s to help fund the thrift industry<PAGE>
cleanup. BIF-assessable deposits will be charged an assessment to help pay
interest on the FICO bonds at a rate of approximately 0.013% until the earlier
of December 31, 1999 or the date upon which the last savings association
ceases to exist, after which time the assessment will be the same for all
insured deposits.
The DIF Act provides for the merger of the BIF and the SAIF into the
Deposit Insurance Fund on January 1, 1999, but only if no insured depository
institution is a savings association on that date. The DIF contemplates the
development of a common charter for all federally-chartered depository
institutions and the abolition of separate charters for national banks and
federal savings associations. It is not known what form the common charter
may take and what effect, if any, the adoption of a new charter would have on
the operation of the Associations.
The FDIC may terminate the deposit insurance of any insured depository
institution if it determines after a hearing that the institution has engaged
or is engaging in unsafe or unsound practices, is in an unsafe or unsound
condition to continue operations, or has violated any applicable law,
regulation, order or any condition imposed by an agreement with the FDIC. It
also may suspend deposit insurance temporarily during the hearing process for
the permanent termination of insurance, if the institution has no tangible
capital. If insurance of accounts is terminated, the accounts at the
institution at the time of termination, less subsequent withdrawals, shall
continue to be insured for a period of six months to two years, as determined
by the FDIC. Management is aware of no existing circumstances that could
result in termination of the deposit insurance of the Associations.
Federal Home Loan Bank System
The FHLB System, consisting of 12 FHLBs, is under the jurisdiction of
the Federal Housing Finance Board ("FHFB"). The designated duties of the FHFB
are to: supervise the FHLBs; ensure that the FHLBs carry out their housing
finance mission; ensure that the FHLBs remain adequately capitalized and able
to raise funds in the capital markets; and ensure that the FHLBs operate in a
safe and sound manner.
The Associations, as members of the FHLB-Atlanta, are required to
acquire and hold shares of capital stock in the FHLB-Atlanta in an amount
equal to the greater of (i) 1.0% of the aggregate outstanding principal amount
of residential mortgage loans, home purchase contracts and similar obligations
at the beginning of each year, or (ii) 1/20 of its advances (borrowings) from
the FHLB of Atlanta. First Federal and Peoples Federal were in compliance
with this requirement with an investment in FHLB-Atlanta stock of $9.6 million
and $6.0 million at September 30, 1996, respectively.
Among other benefits, the FHLB provides a central credit facility
primarily for member institutions. It is funded primarily from proceeds
derived from the sale of consolidated obligations of the FHLB System. It
makes advances to members in accordance with policies and procedures
established by the FHFB and the Board of Directors of the FHLB-Atlanta. First
Federal and Peoples Federal had FHLB advances totaling $192.4 million and
$120.0 million, respectively, at September 30, 1996.
Prompt Corrective Action
Under the FDIA, each federal banking agency is required to implement a
system of prompt corrective action for institutions that it regulates. The
federal banking agencies have promulgated substantially similar regulations to
implement this system of prompt corrective action. Under the regulations, an
institution shall be deemed to be (i) "well-capitalized" if it has a total
risk-based capital ratio of 10.0% or more, has a risk-based capital ratio of
6.0% or more, has a leverage ratio of 5.0% or more and is not subject to
specified requirements to meet and maintain a specific capital level for any
capital measure; (ii) "adequately capitalized" if it has a total risk-based
capital ratio of 8.0% or more, a risk-based capital ratio of 4.0% or more and
a leverage ratio of 4.0% or more (3.0% under certain circumstances) and does
not meet the definition of "well capitalized," (iii) "undercapitalized" if it
has a total risk-based capital ratio that is less than 8.0%, a risk-based
capital ratio that is less than 4.0% or a leverage ratio that is less than
4.0% (3.0% under certain circumstances), (iv) "significantly undercapitalized"
if it has a total risk-based capital ratio that is less than 6.0%, a
risk-based capital ratio that is less than 3.0% or a leverage ratio that is
less than 3.0% and (v) "critically undercapitalized" if it has a ratio of
tangible equity to total assets that is equal to or less than 2.0%.
A federal banking agency may, after notice and an opportunity for a
hearing, reclassify a well-capitalized institution as adequately capitalized
and may require an adequately capitalized institution or an undercapitalized
institution to comply with supervisory actions as if it were in the next lower
category if the institution is in an unsafe or unsound condition or has
received in its most recent examination, and has not corrected, a less than
satisfactory rating for asset quality, management, earnings or liquidity.
(The OTS may not, however, reclassify a significantly undercapitalized
institution as critically undercapitalized.)
An institution generally must file a written capital restoration plan
that meets specified requirements, as well as a performance guaranty by each
company that controls the institution, with the appropriate federal banking
agency within 45 days of the date that the institution receives notice or is
deemed to have notice that it is undercapitalized, significantly
undercapitalized or critically undercapitalized. Immediately upon becoming
undercapitalized, an institution shall become subject to the various mandatory
and discretionary restrictions on its operations.
At September 30, 1996, the Associations were categorized as "well-
capitalized" institutions under the prompt corrective action regulations of
the OTS.
Standards for Safety and Soundness
The FDIA requires the federal banking regulatory agencies to prescribe, by
regulation, standards for all insured depository institutions relating to: (i)
internal controls, information systems and internal audit systems; (ii) loan
documentation; (iii) credit underwriting; (iv) interest rate risk exposure;
(v) asset growth; and (vi) compensation, fees and benefits. The federal
banking agencies adopted regulations and Interagency Guidelines Prescribing
Standards for Safety and Soundness ("Guidelines") to implement safety and
soundness standards required by the FDIA. The Guidelines set forth the safety
and soundness standards that the federal banking agencies use to identify and
address problems at insured depository institutions before capital becomes
impaired. The agencies also proposed asset quality and earnings standards
which, if adopted in final, would be added to the Guidelines. If the OTS
determines that the Associations fail to meet any standard prescribed by the
Guidelines, the agency may require the Associations to submit to the agency an
acceptable plan to achieve compliance with the standard, as required by the
FDIA. OTS regulations establish deadlines for the submission and review of
such safety and soundness compliance plans.
Qualified Thrift Lender Test
All savings associations are required to meet a qualified thrift lender
("QTL") test to avoid certain restrictions on their operations. A savings
institution that fails to become or remain a QTL shall either become a
national bank or be subject to the following restrictions on its operations:
(1) the association may not make any new investment or engage in activities
that would not be permissible for national banks; (2) the association may not
establish any new branch office where a national bank located in the savings
institution's home state would not be able to establish a branch office;
(3) the association shall not be eligible to obtain new advances from any
FHLB; and (4) the payment of dividends by the association shall be subject to
the rules regarding the statutory and regulatory dividend restrictions
applicable to national banks. Also, beginning three years after the date on
which the savings institution ceases to be a QTL, the savings institution
would be prohibited from retaining any investment or engaging in any activity
not permissible for a national bank and would be required to repay any
outstanding advances to any FHLB. In addition, within one year of the date on
which a savings association controlled by a company ceases to be a QTL, the
company must register as a bank holding company and become subject to the
rules applicable to such companies. A savings institution may requalify as a
QTL if it thereafter complies with the QTL test.
Currently, the QTL test requires that either an institution qualify as a
domestic building and loan association under the Code or that 65% of an
institution's "portfolio assets" (as defined) consist of certain housing and
consumer-related assets on a monthly average basis in nine out of every 12
months. Assets that qualify without limit for inclusion as part of the 65%
requirement are loans made to purchase, refinance, construct, improve or
repair domestic residential housing and manufactured housing; home equity
loans; mortgage-backed securities (where the mortgages are secured by domestic
residential housing or manufactured housing); FHLB stock; and direct or
indirect obligations of the FDIC; and loans for educational purposes, loans to
small businesses and loans made through credit cards. In addition, the
following assets, among others, may be included in meeting the test subject to
an overall limit of 20% of the savings institution's portfolio assets: 50% of
residential mortgage loans originated and sold within 90 days of origination;
100% of consumer loans; and stock issued by the FHLMC or the FNMA. Portfolio
assets consist of total assets minus the sum of (i) goodwill and other
intangible assets, (ii) property used by the savings institution to conduct
its business, and (iii) liquid assets up to 20% of the institution's total
assets. At September 30, 1996, the qualified thrift investments of First
Federal and Peoples Federal exceeded 65% of their respective portfolio assets
as required by regulation.
Liquidity Requirements
Under OTS regulations, each savings institution is required to maintain
an average daily balance of liquid assets (cash, certain time deposits and
savings accounts, bankers' acceptances, and specified U.S. Government, state
or federal agency obligations and certain other investments) equal to a
monthly average of no less than a specified percentage (currently 5%) of its
net withdrawable accounts plus short-term borrowings. OTS regulations also
require each savings institution to maintain an average daily balance of
short-term liquid assets at a specified percentage (currently 1.0%) of the
total of its net withdrawable savings accounts and borrowings payable in one
year or less. Monetary penalties may be imposed for failure to meet liquidity
requirements. At September 30, 1996, liquidity ratios of the Associations
exceeded regulatory requirements.
Capital Requirements
Under OTS regulations a savings association must satisfy three minimum
capital requirements: core capital, tangible capital and risk-based capital.
Savings associations must meet all of the standards in order to comply with
the capital requirements.
OTS capital regulations establish a 3% core capital or leverage ratio
(defined as the ratio of core capital to adjusted total assets). Core capital
is defined to include common stockholders' equity, non-cumulative perpetual
preferred stock and any related surplus, and minority interests in equity
accounts of consolidated subsidiaries, less (i) any intangible assets except
for certain qualifying intangible assets; (ii) certain mortgage servicing
rights; and (iii) equity and debt investments in subsidiaries that are not
"includable subsidiaries," which is defined as subsidiaries engaged solely in
activities not impermissible for a national bank, engaged in activities
impermissible for a national bank but only as an agent for its customers, or
engaged solely in mortgage-banking activities. In calculating adjusted total
assets, adjustments are made to total assets to give effect to the exclusion
of certain assets from capital and to account appropriately for the
investments in and assets of both includable and nonincludable subsidiaries.
Institutions that fail to meet the core capital requirement would be required
to file with the OTS a capital plan that details the steps they will take to
reach compliance. In addition, the OTS' prompt corrective action regulation
provides that a savings institution that has a leverage ratio of less than 4%
(3% for institutions receiving the highest CAMEL examination rating) will be
deemed to be "undercapitalized" and may be subject to certain restrictions.
See "-- Prompt Corrective Action."
As required by federal law, the OTS has proposed a rule revising its
minimum core capital requirement to be no less stringent than that imposed on
national banks. The OTS has proposed that only those savings associations
rated a composite one (the highest rating) under the CAMEL rating system for
savings associations will be permitted to operate at or near the regulatory
minimum leverage ratio of 3%. All other savings associations will be required
to maintain a minimum leverage ratio of 4% to 5%. the OTS will assess each
individual savings association through the supervisory process on a case-by-
case basis to determine the applicable requirement. No assurance can be given
as to the final form of any such regulation, the date of its effectiveness or
the requirement applicable to the Associations.
Savings associations also must maintain "tangible capital" not less than
1.5% of the Association's adjusted total assets. "Tangible capital" is
defined, generally, as core capital minus any "intangible assets" other than
purchased mortgage servicing rights.
Each savings institution must maintain total risk-based capital equal to
least 8% of risk-weighted assets. Total risk-based capital consists of the
sum of core and supplementary capital, provided that supplementary capital
cannot exceed core capital, as previously defined. Supplementary capital
includes (i) permanent capital instruments such as cumulative perpetual
preferred stock, perpetual subordinated debt and mandatory convertible
subordinated debt, (ii) maturing capital instruments such as subordinated
debt, intermediate-term preferred stock and mandatory convertible subordinated
debt, subject to an amortization schedule, and (iii) general valuation loan
and lease loss allowances up to 1.25% of risk-weighted assets.
The risk-based capital regulation assigns each balance sheet asset held
by a savings institution to one of four risk categories based on the amount of<PAGE>
credit risk associated with that particular class of assets. Assets not
included for purposes of calculating capital are not included in calculating
risk-weighted assets. The categories range from 0% for cash and securities
that are backed by the full faith and credit of the U.S. Government to 100%
for repossessed assets or assets more than 90 days past due. Qualifying
residential mortgage loans (including multi-family mortgage loans) are
assigned a 50% risk weight. Consumer, commercial, home equity and residential
construction loans are assigned a 100% risk weight, as are nonqualifying
residential mortgage loans and that portion of land loans and nonresidential
construction loans which do not exceed an 80% loan-to-value ratio. The book
value of assets in each category is multiplied by the weighting factor (from
0% to 100% assigned to that category). These products are then totaled to
arrive at total risk-weighted assets. Off-balance sheet items are included in
risk-weighted assets by converting them to an approximate balance sheet
"credit equivalent amount" based on a conversion schedule. These credit
equivalent amounts are then assigned to risk categories in the same manner as
balance sheet assets and included risk-weighted assets.
The OTS has incorporated an interest rate risk component into its
regulatory capital rule. Under the rule, savings associations with "above
normal" interest rate risk exposure would be subject to a deduction from total
capital for purposes of calculating their risk-based capital requirements. A
savings association's interest rate risk is measured by the decline in the net
portfolio value of its assets (i.e., the difference between incoming and
outgoing discounted cash flows from assets, liabilities and off-balance sheet
contracts) that would result from a hypothetical 200 basis point increase or
decrease in market interest rates divided by the estimated economic value of
the association's assets, as calculated in accordance with guidelines set
forth by the OTS. A savings association whose measured interest rate risk
exposure exceeds 2% must deduct an interest rate risk component in calculating
its total capital under the risk-based capital rule. The interest rate risk
component is an amount equal to one-half of the difference between the
institution's measured interest rate risk and 2%, multiplied by the estimated
economic value of the association's assets. That dollar amount is deducted
from an association's total capital in calculating compliance with its risk-
based capital requirement. Under the rule, there is a two quarter lag between
the reporting date of an institution's financial data and the effective date
for the new capital requirement based on that data. A savings association
with assets of less than $300 million and risk-based capital ratios in excess
of 12% is not subject to the interest rate risk component, unless the OTS
determines otherwise. The rule also provides that the Director of the OTS may
waive or defer an association's interest risk component if its believes that
the OTS-calculated interest rate risk component overstates its interest rate
risk exposure. In addition, certain "well-capitalized" institutions may obtain
authorization to use their own interest rate risk exposure model to calculate
their interest rate risk component in lieu of the OTS-calculated amount. The
OTS has postponed the date that the interest rate risk component will first be
deducted from an institution's total capital until savings associations become
familiar with the process for requesting an adjustment to its interest rate
risk component.
Refer to Note 17 of Notes to Consolidated Financial Statements for a
summary of all applicable capital requirements of First Federal and Peoples
Federal.
Limitations on Capital Distributions
OTS regulations impose uniform limitations on the ability of all savings
associations to engage in various distributions of capital such as dividends,
stock repurchases and cash-out mergers. In addition, OTS regulations require
the Associations to give the OTS 30 days' advance notice of any proposed
declaration of dividends, and the OTS has the authority under its supervisory
powers to prohibit the payment of dividends. The regulation utilizes a
three-tiered approach which permits various levels of distributions based
primarily upon a savings association's capital level.
A Tier 1 savings association has capital in excess of its fully
phased-in capital requirement (both before and after the proposed capital
distribution). A Tier 1 savings association may make (without application but
upon prior notice to, and no objection made by, the OTS) capital distributions
during a calendar year up to 100% of its net income to date during the
calendar year plus one-half its surplus capital ratio (i.e., the amount of
capital in excess of its fully phased-in requirement) at the beginning of the
calendar year or the amount authorized for a Tier 2 association. Capital
distributions in excess of such amount require advance notice to the OTS. A
Tier 2 savings association has capital equal to or in excess of its minimum
capital requirement but below its fully phased-in capital requirement (both
before and after the proposed capital distribution). Such an association may
make (without application) capital distributions up to an amount equal to 75%
of its net income during the previous four quarters depending on how close the
association is to meeting its fully phased-in capital requirement. Capital
distributions exceeding this amount require prior OTS approval. Tier 3
associations are savings associations with capital below the minimum capital
requirement (either before or after the proposed capital distribution). Tier
3 associations may not make any capital distributions without prior approval
from the OTS.
The Associations currently meet the criteria to be designated Tier 1
associations and, consequently, could at their option (after prior notice to,
and no objection made by, the OTS) distribute up to 100% of their net income
during the calendar year plus 50% of their surplus capital ratio at the
beginning of the calendar year less any distributions previously paid during
the year.
Investment Rules
Under the HOLA, savings institutions are generally subject to the
national bank limit on loans to one borrower. Generally, this limit is 15% of
the Associations' unimpaired capital and surplus, plus an additional 10% of
unimpaired capital and surplus, if such loan is secured by readily-marketable
collateral, which is defined to include certain financial instruments and
bullion. The OTS by regulation has amended the loans to one borrower rule to
permit savings associations meeting certain requirements, including capital
requirements, to extend loans to one borrower in additional amounts under
circumstances limited essentially to loans to develop or complete residential
housing units. At September 30, 1996, First Federal's and Peoples Federal's
limit on loans to one borrower was $11.8 million and $4.5 million,
respectively. At September 30, 1996, the largest aggregate amount of loans by
First Federal and Peoples Federal to any one borrower, including related
entities, was approximately $11.1 million and $3.4 million, respectively, and
were secured by multi-family real estate and a golf course facility,
respectively.
Activities of Associations and Their Subsidiaries
When a savings association establishes or acquires a subsidiary or
elects to conduct any new activity through a subsidiary that the association
controls, the savings association shall notify the FDIC and the OTS 30 days in
advance and provide the information each agency may, by regulation, require.
Savings associations also must conduct the activities of subsidiaries in
accordance with existing regulations and orders.
The OTS may determine that the continuation by a savings association of
its ownership control of, or its relationship to, the subsidiary constitutes a
serious risk to the safety, soundness or stability of the association or is
inconsistent with sound banking practices or with the purposes of the FDIA.
Based upon that determination, the FDIC or the OTS has the authority to order
the savings association to divest itself of control of the subsidiary. The
FDIC also may determine by regulation or order that any specific activity
poses a serious threat to the SAIF. If so, it may require that no SAIF member
engage in that activity directly.
Transactions with Affiliates
Savings associations must comply with Sections 23A and 23B of the
Federal Reserve Act ("Sections 23A and 23B") relative to transactions with
affiliates in the same manner and to the same extent as if the savings
association were a Federal Reserve member bank. A savings and loan holding
company, its subsidiaries and any other company under common control are
considered affiliates of the subsidiary savings association under the HOLA.
Generally, Sections 23A and 23B: (i) limit the extent to which the insured
association or its subsidiaries may engage in certain covered transactions
with an affiliate to an amount equal to 10% of such institution's capital and
surplus and place an aggregate limit on all such transactions with affiliates<PAGE>
to an amount equal to 20% of such capital and surplus, and (ii) require that
all such transactions be on terms substantially the same, or at least as
favorable to the institution or subsidiary, as those provided to a non-
affiliate. The term "covered transaction" includes the making of loans,
purchase of assets, issuance of a guaranty and similar other types of
transactions.
Three additional rules apply to savings associations under FIRREA: (i)
a savings association may not make any loan or other extension of credit to an
affiliate unless that affiliate is engaged only in activities permissible for
bank holding companies; (ii) a savings association may not purchase or invest
in securities issued by an affiliate (other than securities of a subsidiary);
and (iii) the OTS may, for reasons of safety and soundness, impose more
stringent restrictions on savings associations but may not exempt transactions
from or otherwise abridge Section 23A or 23B. Exemptions from Section 23A or
23B may be granted only by the Federal Reserve Board, as is currently the case
with respect to all FDIC-insured banks. The Associations have not been
significantly affected by the rules regarding transactions with affiliates.
The Associations' authority to extend credit to executive officers,
directors and 10% shareholders, as well as entities controlled by such
persons, is currently governed by Sections 22(g) and 22(h) of the Federal
Reserve Act, and Regulation O thereunder. Among other things, these
regulations require that such loans be made on terms and conditions
substantially the same as those offered to unaffiliated individuals and not
involve more than the normal risk of repayment. Regulation O also places
individual and aggregate limits on the amount of loans the Associations may
make to such persons based, in part, on the each of the Associations' capital
position, and requires certain board approval procedures to be followed. The
OTS regulations, with certain minor variances, apply Regulation O to savings
institutions.
Regulation of the Company
First Financial is a multiple savings and loan holding company within
the meaning of the HOLA. As such, the Company is registered with the OTS and
is subject to OTS regulations, examinations, supervision and reporting
requirements. The Company is required to file certain reports with and
otherwise comply with the regulations of the OTS and the Securities and
Exchange Commission. As subsidiaries of a savings and loan holding company,
the Associations are subject to certain restrictions in their dealings with
the Company and with other companies affiliated with the Company and also are
subject to regulatory requirements and provisions as federal institutions.
Company Acquisitions
The HOLA and OTS regulations issued thereunder generally prohibit a
savings and loan holding company, without prior OTS approval, from acquiring
more than 5% of the voting stock of any other savings association or savings
and loan holding company or controlling the assets thereof. They also
prohibit, among other things, any director or officer of a savings and loan
holding company, or any individual who owns or controls more than 25% of the
voting shares of such holding company, from acquiring control of any savings
association not a subsidiary of such savings and loan holding company, unless
the acquisition is approved by the OTS.
Company Activities
There generally are more restrictions on the activities of a multiple
savings and loan holding company than a unitary savings and loan holding
company. Specifically, if either federally insured subsidiary savings
association fails to meet the QTL test, the activities of the Company and any
of its subsidiaries (other than the Associations or other federally insured
subsidiary savings associations) would thereafter be subject to further
restrictions. The HOLA provides that, among other things, no multiple savings
and loan holding company or subsidiary thereof which is not an insured
association shall commence or continue for more than two years after becoming
a multiple savings and loan association holding company or subsidiary thereof,
any business activity other than: (i) furnishing or performing management
services for a subsidiary insured institution, (ii) conducting an insurance
agency or escrow business, (iii) holding, managing, or liquidating assets
owned by or acquired from a subsidiary insured institution, (iv) holding or
managing properties used or occupied by a subsidiary insured institution, (v)
acting as trustee under deeds of trust, (vi) those activities previously
directly authorized by regulation as of March 5, 1987 to be engaged in by
multiple holding companies or (vii) those activities authorized by the Federal
Reserve Board as permissible for bank holding companies, unless the OTS by
regulation, prohibits or limits such activities for savings and loan holding
companies. Those activities described in (vii) above also must be approved by
the OTS prior to being engaged in by a multiple holding company.
Qualified Thrift Lender Test
The HOLA requires any savings and loan holding company that controls a
savings association that fails the QTL test, as explained under "-- Federal
Regulation of Savings Associations -- Qualified Thrift Lender Test," must,
within one year after the date on which the association ceases to be a QTL, to
register as and be deemed a bank holding company subject to all applicable
laws and regulations.
FEDERAL AND STATE TAXATION
The Company and the Associations report their income on a fiscal year
basis using the accrual method of accounting and are subject to federal income
taxation in the same manner as other corporations with some exceptions,
including particularly the Associations' reserve for bad debts discussed
below. The following discussion of tax matters is intended only as a summary
and does not purport to be a comprehensive description of the tax rules
applicable to the Associations or the Company.
Savings institutions such as the Associations which meet certain
definitional tests primarily relating to their assets and the nature of their
business ("qualifying thrifts") are permitted to establish a reserve for bad
debts and to make annual additions thereto, which additions may, within
specified formula limits, be deducted in arriving at their taxable income.
The Associations' deduction with respect to "qualifying loans," which are
generally loans secured by certain interests in real property, may be computed
using an amount based on the Associations' actual loss experience, or a
percentage equal to 8% of the Associations' taxable income, computed with
certain modifications and reduced by the amount of any permitted additions to
the non-qualifying reserve. The Associations' deduction with respect to non-
qualifying loans must be computed under the experience method which
essentially allows a deduction based on the Associations' actual loss
experience over a period of several years. Each year the Associations select
the most favorable way to calculate the deduction attributable to an addition
to the tax bad debt reserve.
The Associations currently satisfy the qualifying thrift definitional
tests. If the Associations failed to satisfy such tests in any taxable year,
they would be unable to make additions to their bad debt reserves. Instead,
the Associations would be required to deduct bad debts as they occur and would
additionally be required to recapture their bad debt reserve deductions
ratably over a multi-year period. Among other things, the qualifying thrift
definitional tests require the Associations to hold at least 60% of their
assets as "qualifying assets." Qualifying assets generally include cash,
obligations of the United States or any agency or instrumentality thereof,
certain obligations of a state or political subdivision thereof, loans secured
by interests in improved residential real property or by savings accounts,
student loans and property used by the Associations in the conduct of their
banking business. The Associations' ratios of qualifying assets to total
assets exceeded 60% through September 30, 1996. Although there can be no
assurance that the Associations will continue to satisfy the 60% test,
management believes that this level of qualifying assets can be maintained by
the Associations.
The amount of the addition to the reserve for loan losses on qualifying
real property loans under the percentage-of-taxable-income method cannot
exceed the amount necessary to increase the balance of the reserve for losses
on qualifying real property loans at the close of the taxable year to 6% of
the balance of the qualifying real property loans outstanding. Also, if the
qualifying thrift uses the percentage of taxable income method, then the
qualifying thrift's aggregate addition to its reserve for losses on qualifying
real property loans cannot, when added to the addition to the reserve for
losses on nonqualifying loans, exceed the amount by which: (i) 12% of the
amount that the total deposits or withdrawable accounts of depositors of the
qualifying thrift at the close of the taxable year exceeds (ii) the sum of the
qualifying thrift's surplus, undivided profits and reserves at the beginning
of such year. The Associations do not expect this overall limitation to
restrict the Associations' deduction for additions to its bad debt reserve for
the year ended September 30, 1996. At September 30, 1996, First Federal's and
Peoples Federal's total bad debt reserve for tax purposes was approximately
$11.3 million and $11.7 million, respectively.
Recently enacted legislation will affect the Associations' tax bad debt
reserves beginning with the fiscal year ending September 30, 1997. The Small
Business Job Protection Act of 1996, 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 enacted legislation, 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 $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." This requirement would be met if the
principal amount of the institution's residential loan originations exceeds a
base year amount, which is determined by reference to the average of the
institution's loan originations during the six taxable years ending before
January 1, 1996. However, notwithstanding this special provision, recapture
would be required to begin no later than the first taxable year beginning
after December 31, 1997.
The enacted legislation differs significantly 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.
To the extent that the Associations make "nondividend distributions" to
the Company that are considered as made: (i) from the reserve for losses on
qualifying real property loans, to the extent the reserve for such losses
exceeds the amount that would have been allowed under the experience method;
or (ii) from the supplemental reserve for losses on loans ("Excess
Distributions"), then an amount based on the amount distributed will be
included in the Associations' taxable income. The enacted legislation amends
the definition of Excess Distributions to mean "nondividend distributions"
from the base year reserves on qualifying and nonqualifying property loans and
the supplemental reserve for losses on loans. Nondividend distributions
include distributions in excess of the Associations' current and accumulated
earnings and profits, distributions in redemption of stock and distributions
in partial or complete liquidation. However, dividends paid out of the
Associations' current or accumulated earnings and profits, as calculated for
federal income tax purposes, will not be considered to result in a
distribution from the Associations' bad debt reserve. Thus, any dividends to
the Company that would reduce amounts appropriated to the Associations' bad
debt reserve and deducted for federal income tax purposes would create a tax
liability for the Associations. The amount of additional taxable income
attributable to an Excess Distribution is an amount that, when reduced by the
tax attributable to the income, is equal to the amount of the distribution.
Thus, if, the Associations make a "nondividend distribution," then
approximately one and one-half times the amount so used would be includable in
gross income for federal income tax purposes, assuming a 35% corporate income
tax rate (exclusive of state and local taxes). See "REGULATION" for limits on
the payment of dividends by the Associations. The Associations do not intend
to pay dividends that would result in a recapture of any portion of their tax
bad debt reserves.
The Internal Revenue Code of 1986, as amended (the "Code") imposes a tax
on alternative minimum taxable income ("AMTI") at a rate of 20%. The excess
of the tax bad debt reserve deduction using the percentage of taxable income
method over the deduction that would have been allowable under the experience
method is treated as a preference item for purposes of computing the AMTI. In
addition, only 90% of AMTI can be offset by net operating loss carryovers.
AMTI is increased by an amount equal to 75% of the amount by which the
Associations' adjusted current earnings exceeds its AMTI (determined without<PAGE>
regard to this preference and prior to reduction for net operating losses).
For taxable years beginning after December 31, 1986, and before January 1,
1996, an environmental tax of .12% of the excess of AMTI (with certain
modification) over $2.0 million is imposed on corporations, including the
Associations, whether or not an Alternative Minimum Tax ("AMT") is paid.
The Company may exclude from its income 100% of dividends received from
the Associations as members of the same affiliated group of corporations. The
corporate dividends-received deduction is generally 70% in the case of
dividends received from unaffiliated corporations with which the Company and
the Associations will not file a consolidated tax return, except that if the
Company or the Associations own more than 20% of the stock of a corporation
distributing a dividend, then 80% of any dividends received may be deducted.
The Internal Revenue Service is examining the Company's federal income
tax return for the year ended September 30, 1994.
Under the laws of South Carolina, the Associations are required to pay
an income tax at the rate of 6% of net income as defined in the statute. This
tax is imposed on financial institutions, such as savings and loan
associations, in lieu of the general state business corporation income tax.
Prior to fiscal 1990, First Federal utilized state net operating loss
carryforwards. During fiscal 1989, First Federal became subject to South
Carolina income taxes. Peoples Federal did not incur any South Carolina
income taxes through September 30, 1992 but became subject to South Carolina
taxes in fiscal 1993. Taxes accrued for fiscal 1996 include $906 thousand
payable to South Carolina.
For additional information see Note 14 of the Notes to Consolidated
Financial Statements.
Item 2. PROPERTIES
The Company's principal executive offices are located at 2440 Mall
Drive, North Charleston, South Carolina, in an office building partially
leased by First Federal. The building also serves as First Federal's
Operations Center. First Federal owns 16 of its branch offices, including its
home office at 34 Broad Street in downtown Charleston. A substantial portion
of its home office is now leased. The remaining seven branch offices are
leased properties on which First Federal has constructed banking offices.
These property leases expire by 2008. All of the leases include various
renewal or purchase options.
Peoples Federal conducts its executive and support service functions
from its 14,700 square foot Operations Center at 1601 Eleventh Avenue in
Conway, South Carolina. Approximately 65% of the building is leased to
others. Eight of Peoples Federal's branch offices are owned with two
facilities leased.
Peoples Federal leases space for certain insurance agency operations in
Charleston and in Florence. In addition, First Federal leases properties in
four locations for off-site ATM facilities. First Federal also has a business
partnership with Piggly Wiggly for ATM operations in five supermarket
locations. Both Associations also own land purchased for potential future
branch locations.
The Company evaluates on a continuing basis the suitability and adequacy
of all of its facilities, including branch offices and service facilities, and
has active programs of relocating, remodeling or closing any as necessary to
maintain efficient and attractive facilities. The Company believes its
present facilities are adequate for its operating purposes.
At September 30, 1996, the total book value of the premises and
equipment owned by the Company was $16.1 million. Reference is made to Note
16 of Notes to Consolidated Financial Statements for information relating to
minimum rental commitments under the Company s leases for office facilities,
and to Note 8 for further details on the Company's properties.
Item 3. LEGAL PROCEEDINGS
Periodically, there are various claims and lawsuits involving the
Associations and their subsidiaries mainly as defendants, such as claims to
enforce liens, condemnation proceedings on properties in which the
Associations hold security interests, claims involving the making and
servicing of real property loans and other issues incident to the
Association's business. In the opinion of management and the Company's legal
counsel, no material loss is expected from any of such pending claims or
lawsuits.
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of security holders during the
fourth quarter of the fiscal year ended September 30, 1996.
PART II
Item 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS
Stock Prices and Dividends:
High Low Cash
Dividend
Declared
1996
First Quarter $ 20.50 $ 18.00 $ 0.16
Second Quarter 22.75 19.25 0.16
Third Quarter 21.75 17.75 0.16
Fourth Quarter 20.25 17.50 0.16
1995
First Quarter $ 17.00 $ 13.00 $ 0.14
Second Quarter 19.75 13.75 0.14
Third Quarter 20.50 17.75 0.14
Fourth Quarter 22.50 18.00 0.14
The Company's common stock is traded in the over-the-counter market under
the Nasdaq symbol "FFCH." Trading information in newspapers is provided on
the Nasdaq National Market quotation page under the listing, "FSTFNHLD." As
of September 30, 1996, there were approximately 1,851 stockholders of record.
The Company has paid a cash dividend since February 1986. The amount of
the dividend to be paid is determined by the Board of Directors dependent upon
the Company's earnings, financial condition, capital position and such other
factors as the Board may deem relevant. The dividend rate has been increased
nine times with the most recent dividend paid in November, 1996, at $.18 per
share. Cash dividends declared amounted to approximately $4.1 million, $3.5
million and $3.1 million for fiscal 1996, 1995 and 1994, respectively. These
dividends amounted to 57.66%, 38.10% and 25.53% of net income.
Please refer to "Regulation-Federal Regulation of Savings Associations
Limitations on Capital Distributions" for information with respect to current
restrictions on the Associations' ability to pay dividends to the Company.
Item 6. Selected financial data
See Selected Consolidated Financial Data in Exhibit B to the Company s
definitive proxy statement for the Company's 1997 Annual Meeting of
Stockholders (the "Proxy Statement").
Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations
See Management's Discussion and Analysis of Financial Condition and
Results of Operations in Exhbit B to the Company s Proxy Statement.
Item 8. Financial statements and supplementary data.
See audited financial statements in Exhibit B to the Company s Proxy
Statement.
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure
The Company has not, within the 24 months before the date of the most
recent financial statements, changed its accountants.
PART III
Item 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information contained under the section captioned "Proposal I Election
of Directors" in the Company's Proxy Statement is incorporated herein by
reference.
The following table sets forth certain information with respect to the
executive officers of the Company and the Associations. The individuals
listed below are executive officers of the Company and the Associations, as
indicated.
Name Age (1) Position
A. Thomas Hood 50 President and Chief Executive Officer
of the Company and President and
Chief Executive Officer of First
Federal
John L. Ott, Jr. 48 Senior Vice President of the Company
and Senior Vice President/Retail
Banking Division of First Federal
Charles F. Baarcke, Jr. 49 Senior Vice President of the Company
and Senior Vice President/Lending
Division of First Federal
George N. Magrath, Jr. 43 President and Chief Executive Officer
of Peoples Federal
Susan E. Baham 46 Senior Vice President and Chief
Financial Officer of
the Company and First
Federal
_______________
(1) At September 30, 1996.
The following is a description of the principal occupation and
employment of the executive officers of the Company and the Associations
during at least the past five years.
A. Thomas Hood has been the President and Chief Executive Officer of the
Company since July 1, 1996. Mr. Hood had served as Executive Vice President
and Chief Operating Officer of the Company from February 1, 1995 through June
30, 1996. Mr. Hood has also served as Treasurer of the Company and its Chief
Financial Officer since 1984. Mr. Hood was named President and Chief
Executive Officer of First Federal effective February 1, 1995. Prior to that
time, he had been Executive Vice President and Treasurer of First Federal
since 1984. As President and Chief Executive Officer of the Company and of
First Federal, Mr. Hood is responsible for the daily business operations of
the Company and of First Federal under policies and procedures established by
the Board of Directors. Mr. Hood joined First Federal in 1975.
John L. Ott, Jr. is the Senior Vice President of the Company and First
Federal in which capacity he directs and coordinates all branch operations,
special savings and retirement programs and the sale of non-deposit investment
products. He joined First Federal in 1971 and prior to becoming Senior Vice
President of Retail Banking in 1985, he was the Senior Vice President for
Branch Operations.
Charles F. Baarcke, Jr. is the Senior Vice President of the Company and
First Federal. He is responsible for all lending operations, loan servicing
and sales. He joined First Federal in 1975 and prior to becoming Senior Vice
President in 1985, he was the Vice President of Lending Operations.
George N. Magrath, Jr., became the President and Chief Executive Officer
of Peoples Federal in 1993. Previously, Mr. Magrath was the Executive Vice
President of Peoples Federal and was responsible for general operations of<PAGE>
Peoples Federal. Prior to serving as Executive Vice President, Mr. Magrath
served as Senior Vice President, Lending.
Susan E. Baham became the Senior Vice President and Chief Financial
Officer of the Company and of First Federal on July 1, 1996. Previously, Mrs.
Baham served as Vice President and Chief Accounting Officer of the Company
since 1988 and as Vice President of Finance of First Federal since 1984. Mrs.
Baham is responsible for First Financial's treasury, finance, investor
relations and strategic planning functions.
Pursuant to the Company's Bylaws, officers are elected on an annual
basis. Directors of the Company are elected for a term of three years with
approximately one-third of the directors standing for election each year.
Item 11. EXECUTIVE COMPENSATION
The information contained under the Section captioned "Proposal I --
Election of Directors" in the Proxy Statement is incorporated herein by
reference.
Item 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
(a) Security Ownership of Certain Beneficial Owners
Information required by this item is incorporated herein by reference to
the Section captioned "Voting Securities and Principal Holders Thereof"
of the Proxy Statement.
(b) Security Ownership of Management
Information required by this item is incorporated herein by reference to
the Sections captioned "Proposal I -- Election of Directors" and "Voting
Securities and Principal Holders Thereof" of the Proxy Statement.
(c) Changes in Control
The Company is not aware of any arrangements, including any pledge by
any person of securities of the Company, the operation of which may at a
subsequent date result in a change of control of the Company.
Item 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information required by this item is incorporated herein by
reference to the Section captioned "Proposal I Election of Directors" and
"Voting Securities and Principal Holders Thereof" of the Proxy Statement.
PART IV
Item 14. Exhibits, financial statement schedules, and reports on form 8-K
1. Consolidated Financial Statements and Report of Independent Auditors - see
Item 8 for reference.
All other schedules have been omitted as the required information is
either inapplicable or included in the Notes to Consolidated Financial
Statements.
2. Exhibit
(3.1) Certificate of Incorporation, as amended, of Registrant (1)
(3.2) Bylaws, as amended, of Registrant (2)
(4) Indenture, dated September 10, 1992, with respect to the
Registrant's 9.375% Senior Notes, due September 1, 2001 (3)
(10.1) Acquisition Agreement dated as of December 9, 1991 by and among
the Registrant, First Federal Savings and Loan Association of
Charleston and Peoples Federal Savings and Loan Association of
Conway (3)
(10.3) Employment Agreement with A. Thomas Hood, as amended
(10.4) Employment Agreement with Charles F. Baarcke, Jr. (4)
(10.5) Employment Agreement with John L. Ott, Jr. (4)
(10.6) 1990 Stock Option and Incentive Plan (5)
(10.7) 1994 Outside Directors Stock Options-for-Fees Plan (6)
(10.8) 1994 Employee Stock Purchase Plan (6)
(10.9) 1996 Performance Equity Plan for Non-Employee Directors (7)
(10.10) Employment Agreement with Susan E. Baham
(22) Subsidiaries of the Registrant
(23) Consent of Independent Auditors
(1) Incorporated by reference to Exhibit 3 to the Registrant's Quarterly
Report on Form 10-Q for the quarter ended December 31, 1993
(2) Incorporated by reference to Exhibit 3 to the Registrant's Quarterly
Report on Form 10-Q for the quarter ended March 31, 1995
(3) Incorporated by reference to the Registrant's Registration Statement on
Form S-8 File No. 33-55067
(4) Incorporated by reference to the Registrant s Annual Report on Form 10-K
for the year ended September 30, 1995
(5) Incorporated by reference to the Registrant's Registration Statement on
Form S-8 File No. 33-57855
(6) Incorporated by reference to the Registrant's Proxy Statement for the
Annual Meeting of Stockholders held on January 25, 1995
(7) Incorporated by reference to the Registrant s Proxy Statement for the
Annual Meeting of Stockholders to be held on January 22, 1997.
3. Reports on Form 10-K
The Company filed an 8-K on September 23, 1996, announcing that its
Board of Directors had elected Mrs. Paula Harper Bethea, Director of Client
Relations and Development for Bethea, Jordan and Griffin, P.A. of Hilton Head,
South Carolina, to the Board of Directors. It was also announced that she
would serve on the Board of First Federal.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed
on its behalf by the undersigned, thereunto duly authorized.
FIRST FINANCIAL HOLDINGS, INC.
Date: December 24, 1996 By: /s/ A. Thomas Hood
A. Thomas Hood
President and Chief Executive
Officer (Duly Authorized
Representative)
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.
By: /s/ A. Thomas Hood By: /s/ D. Van Smith
A. Thomas Hood D. Van Smith
Director (Principal Director
Executive Officer)
Date: December 24, 1996 Date: December 24, 1996
By: /s/ Susan E. Baham By: /s/ Gary C. Banks, Jr.
Susan E. Baham Gary C. Banks, Jr.
Senior Vice President Director
(Principal Financial
Officer)
Date: December 24, 1996 Date: December 24, 1996
By: /s/ Joseph A. Baroody By: /s/ Paula Harper Bethea
Joseph A. Baroody Paula Harper Bethea
Director Director
Date: December 24, 1996 Date: December 24, 1996
By: /s/ Paul G. Campbell, Jr. By: /s/ A. L. Hutchinson, Jr.
Paul G. Campbell, Jr. A. L. Hutchinson, Jr.
Director Director
Date: December 24, 1996 Date: December 24, 1996
By: /s/ James C. Murray By: /s/ D. Kent Sharples
James C. Murray D. Kent Sharples
Director Director
Date: December 24, 1996 Date: December 24, 1996
By: /s/Thomas E. Thornhill
Thomas E. Thornhill
Director
Date: December 24, 1996
</TABLE>
Exhibit 10.3
Amendments to Employment Agreement
with A. Thomas Hood
The following amendments to the employment agreement of A. Thomas Hood were
effective September 27, 1996:
Original text:
Paragraph 2: WHEREAS, the Executive has heretofore been employed by the
Association as Executive Vice President/Treasurer and is experienced in all
phases of the business of the Association; and
Amended text:
Paragraph 2: WHEREAS, the Executive has heretofore been employed by the
Association as President and Chief Executive Officer, and is experienced in
all phases of the business of the Association; and
Original text:
Section 1. Employment. The Association agrees to continue Executive in its
employ, and Executive agrees to remain in the employ of the Association as
Executive Vice President/Treasurer of the Association for the period stated
herein in the paragraph entitled "Term" and upon the other terms and
conditions herein provided. The Executive shall render administrative and
management services to the Association such as are customarily performed by
persons situated in a similar executive capacity. He shall also promote, by
entertainment or otherwise, as and to the extent permitted by law, the
business of the Association. The Executive's other duties shall be such as
the Board of Directors may from time to time reasonably direct, including
normal duties as an officer of the Association, if elected as such and service
as a Director of the Association, if so elected. Executive agrees to perform
such services not inconsistent with his position as shall from time to time be
assigned to him by the Association's Board of Directors. The Executive may
voluntarily terminate his employment at any time. In the event of such
voluntary resignation (other than pursuant to a change in control), this
Agreement will be terminated and the compensation and benefits will be
terminated upon the effective date of the employment termination or such other
date as otherwise may be determined by the Board of Directors.
Amended text:
Section 1. Employment. The Association agrees to continue Executive in its
employ, and Executive agrees to remain in the employ of the Association as
President and Chief Executive Officer of the Association for the period stated
herein in the paragraph entitled "Term" and upon the other terms and
conditions herein provided. The Executive shall render administrative and
management services to the Association such as are customarily performed by
persons situated in a similar executive capacity. He shall also promote, by
entertainment or otherwise, as and to the extent permitted by law, the
business of the Association. The Executive's other duties shall be such as
the Board of Directors may from time to time reasonably direct, including
normal duties as an officer of the Association, if elected as such and service
as a Director of the Association, if so elected. Executive agrees to perform
such services not inconsistent with his position as shall from time to time be
assigned to him by the Association's Board of Directors. The Executive may
voluntarily terminate his employment at any time. In the event of such
voluntary resignation (other than pursuant to a change in control), this
Agreement will be terminated and the compensation and benefits will be
terminated upon the effective date of the employment termination or such other
date as otherwise may be determined by the Board of Directors.
Original text:
Section 2. Compensation. The Association agrees to pay the Executive during
the term of this Agreement, a salary at the initial rate of ONE HUNDRED FORTY
THREE THOUSAND SEVEN HUNDRED DOLLARS ($143,700), per annum, payable bi-
weekly; provided, that the rate of such salary shall be reviewed by the Board
of Directors of the Association not less often than annually and Executive
shall be entitled to receive annually an increase in such salary rate in an
amount at least equal to the average percentage increase, if any, granted to
the senior officers of the Association. Such rate of salary, or increased
rate of salary, if any, as the case may be, may be further increased from time
to time in such amounts as the Board in its discretion may decide subject to
the customary withholding tax and other employee taxes as required with
respect to compensation paid by a corporation to an employee. The Executive's
rate of salary may be decreased by the Board of Directors pursuant to a bona
fide renegotiation of duties or at such time as the Board deems it necessary
or advisable to effect an across-the-board reduction in salaries of the
Association's officers and employees. Service as a Director of the
Association, if the Executive is so elected, shall be without compensation in
addition to the foregoing.
Amended text:
Section 2. Compensation. The Association agrees to pay the Executive during
the term of this Agreement, a salary at the initial rate of ONE HUNDRED
SEVENTY-FIVE THOUSAND SIX HUNDRED TWENTY DOLLARS ($175,620), per annum,
payable bi-weekly; provided, that the rate of such salary shall be reviewed by
the Board of Directors of the Association not less often than annually and
Executive shall be entitled to receive annually an increase in such salary
rate in an amount at least equal to the average percentage increase, if any,
granted to the senior officers of the Association. Such rate of salary, or
increased rate of salary, if any, as the case may be, may be further increased
from time to time in such amounts as the Board in its discretion may decide
subject to the customary withholding tax and other employee taxes as required
with respect to compensation paid by a corporation to an employee. The
Executive's rate of salary may be decreased by the Board of Directors pursuant
to a bona fide renegotiation of duties or at such time as the Board deems it
necessary or advisable to effect an across-the-board reduction in salaries of
the Association's officers and employees. Service as a Director of the
Association, if the Executive is so elected, shall be without compensation in
addition to the foregoing.
Original text:
Section 5. Term. The period of the Executive's employment under this
Agreement shall be deemed to have commenced as of August 1, 1987, and shall
continue for a period of thirty-six (36) full calendar months thereafter and
any extensions thereafter. As of the date of this second amendment hereto,
the Executive's period of employment under this Agreement has been extended by
the Board of Directors through September 30, 1996. The said thirty-six (36)
month period of employment may be extended for an additional twelve (12) full
calendar months by action of the Board of Directors at the September, 1994
meeting of the Board of Directors and at each succeeding September meeting of
the Board of Directors.
Amended text:
Section 5. Term The period of the Executive's employment under this
Agreement shall be deemed to have commenced as of August 1, 1987, and shall
continue for a period of thirty-six (36) full calendar months thereafter and
any extensions thereafter. As of the date of this third amendment hereto, the
Executive's period of employment under this Agreement has been extended by the
Board of Directors through September 30, 1999. The said thirty-six (36) month
period of employment may be extended for an additional twelve (12) full
calendar months by action of the Board of Directors at the September, 1997
meeting of the Board of Directors and at each succeeding September meeting of
the Board of Directors.
Original text:
Section 11. Disability. If the Executive shall become disabled or
incapacitated to the extent that he is unable to perform the duties of
Executive Vice President/Treasurer, he shall be eligible to participate in the
Association's long-term disability plan as established by the Board of
Directors for employees and management personnel, or any other disability plan
which may be established by the Board of Directors for management personnel.
Upon returning to active full-time employment, the Executive's full
compensation as set forth in the paragraphs of this Agreement entitled
"Compensation" and "Discretionary Bonuses" shall be reinstated. In the event
that said Executive returns to active employment on other than a full-time
basis, then his compensation (as set forth in the paragraph of this Agreement
entitled "Compensation") shall be reduced in proportion to the time spent in
said employment. However, if he is again unable to perform the duties of
Executive Vice President/Treasurer hereunder due to illness or other
incapacity, he must have been engaged in active full-time employment for at
least twelve (12) consecutive months immediately prior to such later absence
or inability in order to qualify for the full or partial continuance of his
salary under the paragraph entitled "Disability."
Amended text:
Section 11. Disability. If the Executive shall become disabled or
incapacitated to the extent that he is unable to perform the duties of
President and Chief Executive Officer, he shall be eligible to participate in
the Association's long-term disability plan as established by the Board of
Directors for employees and management personnel, or any other disability plan
which may be established by the Board of Directors for management personnel.
Upon returning to active full-time employment, the Executive's full
compensation as set forth in the paragraphs of this Agreement entitled
"Compensation" and "Discretionary Bonuses" shall be reinstated. In the event
that said Executive returns to active employment on other than a full-time
basis, then his compensation (as set forth in the paragraph of this Agreement
entitled "Compensation") shall be reduced in proportion to the time spent in
said employment. However, if he is again unable to perform the duties of
President and Chief Executive Officer hereunder due to illness or other
incapacity, he must have been engaged in active full-time employment for at
least twelve (12) consecutive months immediately prior to such later absence
or inability in order to qualify for the full or partial continuance of his
salary under the paragraph entitled "Disability."
Exhibit 10.10
Employment Agreement
with Susan E. Baham
EMPLOYMENT AGREEMENT
THIS AGREEMENT entered into on the 1st day of October, 1993 and amended
on this 27th day of September, 1996, by and between FIRST FEDERAL SAVINGS AND
LOAN ASSOCIATION OF CHARLESTON, (the "Association"), FIRST FINANCIAL HOLDINGS,
INC. (the "Holding Company") and SUSAN E. BAHAM (the "Employee").
WHEREAS, the Employee has heretofore been employed by the Association as
Senior Vice President and Chief Financial Officer and is experienced in all
phases of the business of the Association; and
WHEREAS, the parties desire by this writing to set forth the continued
employment relationship of the Association and the Employee;
NOW THEREFORE, it is AGREED as follows:
1. Employment. The Employee is employed as the Senior Vice President
and Chief Financial Officer of the Association. The Employee shall render
administrative and management services to the Association such as are
customarily performed by persons situated in a similar executive capacity.
She shall also promote, by entertainment or otherwise, as and to the extent
permitted by law, the business of the Association. The Employee's other
duties shall be such as the Board of Directors may from time to time
reasonably direct, including normal duties as an officer of the Association.
2. Base Compensation. The Association agrees to pay the Employee during
the term of this Agreement a salary at the rate of $88,440 per annum, payable
in cash not less frequently than monthly. Such rate of salary, or increased
rate of salary, if any, as the case may be, shall be reviewed by the Board of
Directors of the Association no less often than annually.
3. Discretionary Bonuses. The Employee shall be entitled to participate
in an equitable manner with all other key management personnel of the
Association in discretionary bonuses authorized and declared by the Board of
Directors of the Association to its key management employees. No other
compensation provided for in this Agreement shall be deemed a substitute for
the Employee's right to participate in such discretionary bonuses when and as
declared by the Board of Directors. Any such bonus shall take into account
the Association's current financial condition, operations, and the Board of
Directors' evaluation of the performance of the Employee.
4. (a) Participation in Retirement and Medical Plans. The Employee
shall be entitled to participate in any plan of the Association relating to
pension, profit-sharing, or other retirement benefits and medical coverage or
reimbursement plans that the Association may adopt for the benefit of its
employees.
(b) Employee Benefits; Expenses. The Employee shall be eligible to
participate in any fringe benefits that may be or become applicable to the
Association's executive employees, including participation in a stock option
or incentive plan adopted by the Board of Directors, and any other benefits
that are commensurate with the responsibilities and functions to be performed
by the Employee under this Agreement. The Association shall reimburse
Employee for all out-of-pocket expenses that Employee shall incur in
connection with his services for the Association.
5. Term. The initial term of employment under this Agreement
commenced October 1, 1993 for a one year period. As of the date of this
amendment hereto, the Employee's period of employment under this Agreement has
been extended by the Board of Directors through September 30, 1996. The said
36-month period of employment may be extended for an additional 12 full
calendar months by action of the Board of Directors at the September, 1997
meeting of the Board of Directors and at each succeeding September meeting of
the Board of Directors.
6. Loyalty; Noncompetition. (a) The Employee shall devote her full
time and best efforts to the performance of her employment under this
Agreement. During the term of this Agreement, the Employee shall not, at any
time or place, either directly or indirectly, engage in any business or
activity in competition with the business affairs or interests of the
Association or be a director, officer or employee of or consultant to any
bank, savings and loan association, credit union or similar thrift, savings
bank or institution.
(b) Upon termination of this Agreement for any reason other than the
reasons set forth in paragraph 9 of this Agreement, for a period of three (3)
years from the termination of this Agreement, the employee shall not at any
time or place, either directly or indirectly, engage in any business or
activity in competition with the business affairs or interests of the
Association or be a director, officer or employee of or consultant to any
bank, savings and loan association, credit union or similar thrift, savings
bank or institution in an area within a fifty (50) mile radius of any office
of any subsidiary or affiliate of the Holding Company.
(c) During the term of this Agreement, nothing in the foregoing
subparagraphs in paragraph 6 shall apply to subsidiaries and affiliates of the
Holding Company or shall be determined to prevent or limit the right of
Employee to invest in the capital stock or other securities of any business
dissimilar from that of employer or solely as a passive investor in any
business.
(d) Directly or indirectly engaging in any business or activity in
competition with the business affairs or interests of the Association shall
include engaging in business as owner, partner, agent or employee of any
person, firm or corporation engaged in such business individually or as
beneficiary by interest in any partnership, corporation or other business
entity or in being interested directly or indirectly in any such business
conducted by any person, firm or corporation.
(e) In the event of violation by Employee of this agreement for
loyalty and noncompetition, the Employee will be subject to damages and
because of the relationship of employer and employee, it is hereby agreed
injunctive relief is necessary for employer to enforce these provisions of the
agreement to protect its business and good will.
7. Standards. The Employee shall perform her duties under this
Agreement in accordance with such reasonable standards expected of employees
with comparable positions in comparable organizations and as may be
established from time to time by the Boards of Directors of the Association
and the Holding Company and its subsidiaries.
8. Vacation and Sick Leave. At such reasonable times as the Board of
Directors of the Association shall in its discretion permit, the Employee
shall be entitled, without loss of pay, to absent herself voluntarily from the
performance of her employment under this Agreement, all such voluntary
absences to count as vacation time; provided that:
(a) The Employee shall be entitled to any annual vacation in
accordance with the policies as periodically established by the Board of
Directors for senior management officials of the Association, which shall in
no event be less than the current policies of the Association.
(b) The timing of vacations shall be scheduled in a reasonable
manner by the Employee. The Employee shall not be entitled to receive any
additional compensation from the Association on account of her failure to take
a vacation; nor shall he be entitled to accumulate unused vacation from one
fiscal year to the next except to the extent authorized by the Board of
Directors for senior management officials of the Association.
(c) In addition to the aforesaid paid vacations, the Employee shall
be entitled without loss of pay, to absent herself voluntarily from the
performance of her employment with the Association for such additional period
of time and for such valid and legitimate reasons as the Board of Directors in
its discretion may determine. Further, the Board of Directors shall be
entitled to grant to the Employee a leave or leaves of absence with or without
pay at such time or times and upon such terms and conditions as the Board in
its discretion may determine.
(d) In addition, the Employee shall be entitled to an annual sick
leave as established by the Board of Directors for senior management officials
of the Association. In the event any sick leave time shall not have been used
during any year, such leave shall accrue to subsequent years only to the
extent authorized by the Board of Directors. Upon termination of her
employment, the Employee shall not be entitled to receive any additional
compensation from the Association for unused sick leave.
9. Termination and Termination Pay.
This Agreement shall be terminated upon the following occurrences:
(a) The death of the Employee during the term of this Agreement, in
which event the Employee's estate shall be entitled to receive the
compensation due the Employee through the last day of the calendar month in
which her death shall have occurred.
(b) This Agreement may be terminated at any time by a decision of
the Board of Directors of the Association for conduct not constituting
termination for "Just Cause," or by the Employee upon sixty (60) days written
notice to the Association, as the case may be. In the event this Agreement is
terminated by the Board of Directors without Just Cause, the Association shall
be obligated to continue to pay the Employee her salary up to the date of
termination of the term (including any renewal term) of this Agreement. In
the event this Agreement is terminated by the Employee, the compensation and
benefits will be terminated upon the effective date of the employment
termination or as may otherwise be determined by the Board of Directors.
(c) The Association reserves the right to terminate this Agreement
at any time for Just Cause. Termination for "Just Cause" shall mean
termination for personal dishonesty, incompetence, willful misconduct, breach
of a fiduciary duty involving personal profit, intentional failure to perform
stated duties, willful violation of any law, rule or regulation (other than a
law, rule or regulation relating to a traffic violation or similar offense),
final cease-and-desist order, termination under the provisions of
subparagraphs (d) and (e) below, or material breach of any provision of this
Agreement. Subject to the provisions of paragraph 12 hereof, in the event
this Agreement is terminated for Just Cause, the Association shall only be
obligated to continue to pay the Employee her salary up to the date of
termination.
(d) (i) If the Employee is suspended and/or temporarily prohibited
from participating in the conduct of the Association's affairs by a notice
served under Section 8(e)(3) or (g)(1) of the Federal Deposit Insurance Act
("FDIA") (12 U.S.C. 1818(e)(3) and (g)(1)), the Association's obligations
under the Agreement shall be suspended as of the date of service, unless
stayed by appropriate proceedings. If the charges in the notice are
dismissed, the Association may in its discretion (a) pay the Employee all or
part of the compensation withheld while its contract obligations were
suspended and (b) reinstate (in whole or in part) any of its obligations that
were suspended.
(ii) If the Employee is removed and/or permanently prohibited
from participating in the conduct of the Association's affairs by an order
issued under Section 8(e)(4) or (g)(1) of the FDIA (12 U.S.C. 1818(e)(4) or
(g)(1)), all obligations of the Association under the Agreement shall
terminate as of the effective date of the order, but vested rights of the
contracting parties shall not be affected.
(e) If the Association is in default (as defined in Section 3(x)(1)
of the FDIA), all obligations under this Agreement shall terminate as of the
date of default, but this paragraph shall not affect any vested rights of the
parties.
(f) All obligations under this Agreement may be terminated: (i) by
the Director of the Office of Thrift Supervision (the "Director") or his or
her designee at the time the Federal Deposit Insurance Corporation or the
Resolution Trust Corporation enters into an agreement to provide assistance to
or on behalf of the Association under the authority contained in Section 13(c)
of the FDIA or (ii) by the Director, or his or her designee at the time the
Director or such designee approves a supervisory merger to resolve problems<PAGE>
related to operation of the Association or when the Association is determined
by the Director to be in an unsafe or unsound condition. Any rights of the
parties that have already vested, however, shall not be affected by such
action.
(g) If, after a "Change of Control" (as hereinafter defined) of the
Association or the Holding Company, the Association shall terminate the
employment of the Employee during the period of employment under this
Agreement for any reason other than Just Cause, as defined in paragraph 9(c),
or otherwise change the present capacity or circumstances in which the
Employee is employed as set forth in paragraph 1 of this Agreement, or cause a
reduction in the Employee's responsibilities or authority or compensation or
other benefits provided under this Agreement without the Employee's written
consent, then the Association shall pay to the Employee and provide the
Employee, or to his beneficiaries, dependents and estate, as the case may be,
with the following:
(i) The Association shall promptly pay to the Employee an amount
equal to the product of 2.99 times the Employee's "base amount" as defined in
Section 280G(b)(3) of the Internal Revenue Code of 1986, as amended.
(ii) During the period of 36 calendar months beginning with
the event of termination, the Employee, her dependents, beneficiaries and
estate shall continue to be covered under all employee benefit plans of the
Association, including without limitation the Association's pension plan, life
insurance and health insurance as if the Employee was still employed during
such period under this Agreement.
(iii) If and to the extent that benefits or service credit
for benefits provided by paragraph 9(g)(ii) shall not be payable or provided
under any such plans to the Employee, her dependents, beneficiaries and
estate, by reason of her no longer being an employee of the Association as a
result of termination of employment, the Association shall itself pay or
provide for payment of such benefits and service credit for benefits to the
Employee, her dependents, beneficiaries and estate. Any such payment relating
to retirement shall commence on a date selected by the Employee which must be
a date on which payments under the Association's qualified pension plan or
successor plan may commence.
(iv) If the Employee elects to have benefits commence prior
to the normal retirement age under the qualified pension plan or any successor
plan maintained by the Association and thereby incurs an actuarial reduction
in his monthly benefits under such plan, the Association shall itself pay or<PAGE>
provide for payment to the Employee of the difference between the amount that
would have been paid if the benefits commenced at normal retirement age and
the actuarially reduced amount paid upon the early commencement of benefits.
(v) The Association shall pay all legal fees and expenses which
the Employee may incur as a result of the Association's contesting the
validity or enforceability of this Agreement that results in a legal judgement
in her favor or legal settlement and the Employee shall be entitled to receive
interest thereon for the period of any delay in payment from the date such
payment was due at the rate determined by adding two hundred basis points to
the six month Treasury Bill rate.
(vi) The Employee shall not be required to mitigate the
amount of any payment provided for in this Agreement by seeking other
employment or otherwise nor shall any amounts received from other employment
or otherwise by the Employee offset in any manner the obligations of the
Association hereunder.
10. Change of Control. A "Change of Control" shall be deemed to
have occurred, if:
(i) Any person becomes the beneficial owner, directly or
indirectly, of 25% or more of the outstanding shares of any class of voting
stock issued by the Association or the Holding Company;
(ii) Any person becomes the beneficial owner, directly or
indirectly, of 10% or more, but less than 25%, of the outstanding shares of
any class of voting stock issued by the Association or the Holding Company, if
the Board of Directors of the Association or the Holding Company, or the
Office of Thrift Supervision ("OTS"), or other appropriate regulatory
authority, has made a determination that such beneficial ownership constitutes
or will constitute control of the Association or the Holding Company;
(iii) Any person (other than the persons named as proxies
solicited on behalf of the Board of Directors of the Association or the
Holding Company) holds revocable or irrevocable proxies as to the election or
removal of two or more directors of the Association or the Holding Company, or
for 25% or more of the total number of voting shares of the Association or the
Holding Company;
(iv) The OTS or other appropriate regulatory authority has given
the required approval of non-objection to the acquisition or control of the
Association or the Holding Company by any person;
(v) Any person has commenced a tender or exchange offer, or
entered into an agreement or received an option, to acquire beneficial
ownership of 25% or more of the total number of voting shares of the
Association or the Holding Company, whether or not the required approval or
non-objection for such acquisition has been received from the OTS, or other
appropriate regulatory authority, if the Association's or the Holding
Company's Board of Directors has made a determination that such action
constitutes or will constitute a Change in Control; or
(vi) During any period of 24 consecutive months, individuals who
at the beginning of such period constitute the Association's or the Holding
Company's Board of Directors cease for any reason to constitute at least a
majority of the Board, unless the election of each director who was not a
director at the beginning of such period has been approved in advance by
directors representing at least two-thirds of the directors then in office who
were directors at the beginning of the period.
11. Disability. If the Employee shall become disabled or
incapacitated to the extent that she is unable to perform the duties of Senior
Vice President and Chief Financial Officer, she shall be eligible to
participate in the Association's long-term disability plan as established by
the Board of Directors for employees and management personnel, or any other
disability plan which may be established by the Board of Directors for
management personnel. Upon returning to active full-time employment, the
Employee's full compensation as set forth in the paragraphs of this Agreement
entitled "Compensation" and "Discretionary Bonuses" shall be reinstated. In
the event that said Employee returns to active employment on other than a
full-time basis, then her compensation (as set forth in the paragraph of this
Agreement entitled "Compensation") shall be reduced in proportion to the time
spent in said employment. However, if she is again unable to perform the
duties of Senior Vice President and Chief Financial Officer hereunder due to
illness or other incapacity, she must have been engaged in active full-time
employment for at least twelve (12) consecutive months immediately prior to
such later absence or inability in order to qualify for the full or partial
continuance of her salary under the paragraph entitled "Disability."
12. Expenses to Enforce Agreement. In the event any dispute shall
arise between the Employee and the Association or the Holding Company as to
the terms or interpretation of this Agreement, whether instituted by formal
legal proceedings or otherwise, including any action taken by Employee in
defending against any action taken by the Association or the Holding Company,
the prevailing party shall be reimbursed for all costs and expenses, including
reasonable attorney's fees, arising from such dispute, proceedings or actions.
Such reimbursement shall be paid within 10 days of the furnishing to the non-
prevailing party of written evidence, which may be in the form of a cancelled
check or receipt, among other things, of any costs or expenses incurred by the
prevailing party. Any such request for reimbursement shall be made no more
frequently than at 60-day intervals.
13. Successor and Assigns. (a) This Agreement shall inure to the
benefit of and be binding upon any corporate or other successor of the
Association and the Holding Company which shall acquire, directly or
indirectly, by merger, consolidation, purchase or otherwise, all or
substantially all of the assets of the Association.
(b) Since the Association is contracting for the unique and
personal skills of the Employee, the Employee shall be precluded from
assigning or delegating her rights or duties hereunder without first obtaining
the written consent of the Association.
14. Amendments. No amendments or additions to this Agreement shall be
binding unless in writing and signed by the parties hereto, except as herein
otherwise provided.
15. Applicable Law. This Agreement shall be governed in all respects
whether as to validity, construction, capacity, performance or otherwise, by
the laws of South Carolina, except to the extent that Federal law shall be
deemed to apply. This Agreement is intended to comply with the requirements of
12 CFR Section 563.39 and to the extent it conflicts with the provisions of
that Section, Section 563.39 shall control. Any payments made to the employee
pursuant to this Agreement, or otherwise, shall be subject to and conditioned
upon compliance with 12 U.S.C. Section 1828(k) and any regulations promulgated
thereunder.
16. Severability. The provisions of this Agreement shall be deemed
severable and the invalidity or unenforceability of any provision shall not
affect the validity or enforceability of the other provisions hereof.
IN WITNESS WHEREOF, the parties have executed this Agreement on the day
and year first hereinabove written.
FIRST FEDERAL SAVINGS AND LOAN
ASSOCIATION OF CHARLESTON
ATTEST:
/s/ Phyllis B. Ainsworth BY /s/ D. Van Smith
Phyllis B. Ainsworth D. Van Smith
Chairman of the Board
ATTEST: FIRST FINANCIAL HOLDINGS, INC.
/S/ Phyllis B. Ainsworth BY /s/ D. Van Smith
Phyllis B. Ainsworth D. Van Smith
Chairman of the Board
/s/Rebecca F. DuBose /s/ Susan E. Baham
Witness Susan E. Baham
EXHIBIT 22
Subsidiaries of the Registrant
PARENT
First Financial Holdings, Inc.
Percentage Jurisdiction or State
Subsidiaries (a) of Ownership of Incorporation
First Federal Savings and Loan 100% United States
Association of Charleston
Peoples Federal Savings and 100% United States
and Loan Association
Charleston Financial Services (b) 100% South Carolina
The Carolopolis Corporation (b) 100% South Carolina
First Southeast Insurance
Services, Inc.(c) 100% South Carolina
Coastal Carolina Corporation (c) 100% South Carolina
(a) The operations of the Company's wholly-owned subsidiaries are included
in the Company's consolidated financial statements.
(b) Second-tier subsidiaries of the Registrant. Wholly-owned by First
Federal.
(c) Became second-tier subsidiaries of the Registrant on October 9, 1992.
Wholly-owned by Peoples Federal.
EXHIBIT 23
INDEPENDENT ACCOUNTANTS CONSENT
The Board of Directors
First Financial Holdings, Inc.
We consent to incorporation by reference in registration statements No. 33-
55067 and 33-57855 on Form S-8s of First Financial Holdings, Inc. of our
report dated October 25, 1996, relating to the consolidated balance sheets 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, which report appears in the September 30, 1996 annual
financial statements as filed with the Proxy of First Financial Holdings, Inc.
KPMG PEAT MARWICK LLP
Greenville, South Carolina
December 27, 1996
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