UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the Quarterly period ended December 31, 1996
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from __________ to __________
Commission File Number: 0-17122
FIRST FINANCIAL HOLDINGS, INC.
(Exact name of registrant as specified in its charter)
Delaware 57-0866076
(State or other jurisdiction (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, (803) 529-5800
including area code
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period
that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days. YES X NO
APPLICABLE ONLY TO CORPORATE ISSUERS: Indicate the number of
shares outstanding of each of the issuer's classes of common stock, as
of the latest practicable date.
Class Outstanding Shares at
Common Stock January 31, 1997
$.01 Par Value 6,305,326
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FIRST FINANCIAL HOLDINGS, INC.
INDEX
PART I - FINANCIAL INFORMATION PAGE NO.
Consolidated Statements of Financial Condition 1
at December 31, 1996 and September 30, 1996
Consolidated Statements of Income for the Three 2
Months Ended December 31, 1996 and 1995
Consolidated Statements of Cash Flows for the 3
Three Months Ended December 31, 1996 and 1995
Notes to Financial Statements 5-9
Management's Discussion and Analysis of Results 10
of Operations and Financial Condition
PART II - OTHER INFORMATION 19
SIGNATURES 21
EXHIBITS
SCHEDULES OMITTED
All schedules other than those indicated above are omitted because
of the absence of the conditions under which they are required or
because the information is included in the Financial Statements and
related notes.
<TABLE>
<CAPTION>
FIRST FINANCIAL HOLDINGS, INC.
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
December 31, September 30,
1996 1996
(Amounts in thousands)
(Unaudited)
ASSETS
<S> <C> <C>
Cash and cash equivalents $ 36,079 $ 34,124
Investments held to maturity (market value of $23,417 and $27,417) 23,484 27,487
Investments available for sale, at fair value 49,982 66,434
Investment in capital stock of Federal Home Loan Bank, at cost 17,970 15,620
Loans receivable, net 1,313,542 1,278,757
Loans held for sale 3,672 1,353
Mortgage-backed securities available for sale, at fair value 100,332 82,991
Accrued interest receivable 9,896 9,799
Office properties and equipment, net 16,070 16,125
Real estate and other assets acquired in settlement of loans 1,419 2,326
Other assets 9,828 11,133
Total assets $ 1,582,274 $ 1,546,149
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Deposit accounts $ 1,059,889 $ 1,061,617
Advances from Federal Home Loan Bank 359,402 312,402
Securities sold under agreements to repurchase 23,328 16,805
Long-term debt 19,763 19,763
Advances by borrowers for taxes and insurance 3,053 7,341
Other 20,534 33,426
Total liabilities 1,485,969 1,451,354
Stockholders' equity:
Serial preferred stock, authorized 3,000,000 shares--
none issued
Common stock, $.01 par value, authorized 12,000,000 shares,
issued and outstanding 6,985,412 and 6,974,645 shares at
December 31, 1996 and September 30, 1996, respectively 70 70
Additional paid-in capital 24,652 24,543
Retained income, substantially restricted 78,013 75,780
Unrealized net gain on securities available for sale,
net of income tax 1,017 341
Treasury stock at cost, 684,271 and 617,096 shares at December 31, 1996
and September 30, 1996, respectively (7,447) (5,939)
Total stockholders' equity 96,305 94,795
Total liabilities and stockholders' equity $ 1,582,274 $ 1,546,149
The accompanying notes are an integral part of the statements.
</TABLE>
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<TABLE>
<CAPTION>
FIRST FINANCIAL HOLDINGS, INC.
CONSOLIDATED STATEMENTS OF INCOME
Three Months Ended
December 31,
1996 1995
(Amounts in thousands,
except per share amounts)
(Unaudited)
<S> <C> <C>
INTEREST INCOME
Interest on loans and mortgage-backed securities $ 27,793 $ 24,593
Interest and dividends on investments 1,207 1,316
Other 685 647
Total interest income 29,685 26,556
INTEREST EXPENSE
Interest on deposits 12,115 12,854
Interest on borrowed money 5,441 3,090
Total interest expense 17,556 15,944
NET INTEREST INCOME 12,129 10,612
Provision for loan losses 525 305
Net interest income after provision for loan losses 11,604 10,307
OTHER INCOME
Net gain on sale of loans 52
Loan servicing fees 296 302
Service charges and fees on deposit accounts 1,323 1,145
Commissions on insurance 428 454
Brokerage fees 123 48
Bank card fees 318 238
Real estate operations, net (49) (89)
Other 326 249
Total other income 2,817 2,347
NON-INTEREST EXPENSE
Salaries and employee benefits 4,930 4,291
Occupancy costs 852 794
Marketing 278 333
Depreciation, amortization, rental and maintenance of equipment 664 605
FDIC insurance premiums 476 654
Other 1,857 2,049
Total non-interest expense 9,057 8,726
Income before income taxes 5,364 3,928
Income tax expense 1,989 1,423
NET INCOME $ 3,375 $ 2,505
NET INCOME PER COMMON SHARE $ 0.53 $ 0.40
Cash dividends $ 0.18 $ 0.16
Weighted average shares outstanding 6,337 6,308
The accompanying notes are an integral part of the statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
FIRST FINANCIAL HOLDINGS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
Three Months Ended
December 31,
1996 1995
(Amounts in thousands)
(Unaudited)
<S> <C> <C>
OPERATING ACTIVITIES
Net income $ 3,375 $ 2,505
Adjustments to reconcile net income to net cash provided by operating
activities
Depreciation 511 446
Gain on sale of loans, net (52)
Gain on sale of investments, net (5) (5)
Gain on sale of property and equipment, net (1)
(Gain) loss on sale of real estate owned, net 24 (28)
Amortization of unearned discounts/premiums on investments 33 101
Increase (decrease) in deferred loan fees and discounts (206) 33
Decrease in receivables and prepaid expenses 1,259 65
Provision for loan losses 525 305
Write downs of real estate acquired in settlement of loans 7
Proceeds from sales of loans held for sale 9,787
Origination of loans held for sale (12,106) (12,592)
Decrease in accounts payable and accrued expenses (13,242) (2,884)
Net cash used in operating activities (10,090) (12,055)
INVESTING ACTIVITIES
Proceeds from maturity of investments 9,000 7,026
Proceeds from sale of investments 3,995 3,977
Net redemption of mutual funds available for sale 7,760 500
Purchase of investments (8,378)
Purchase of FHLB stock (2,350) (556)
Increase in loans, net (24,228) (31,445)
Increase in credit card receivables (1,284) (1,189)
Purchase of loans and loan participations (9,886) (4,417)
Repayments on mortgage-backed securities 3,489 3,874
Purchase of mortgage-backed securities available for sale (20,225) (1,436)
Proceeds from the sales of real estate owned 1,263 674
Net purchase of office properties and equipment (455) (670)
Net cash used in investing activities (32,921) (32,040)
FINANCING ACTIVITIES
Net decrease in deposit accounts (1,728) (17,125)
Net proceeds of FHLB advances 47,000 72,054<PAGE>
Increase (decrease) of securities sold under agreements to
repurchase 6,523 (1,494)
Decrease in funds held for others (4,288) (3,348)
Proceeds from sale of common stock 109 100
Dividends paid (1,142) (1,009)
Treasury stock purchased (1,508) (10)
Net cash provided by financing activities 44,966 49,168
Net increase in cash and cash equivalents 1,955 5,073
Cash and cash equivalents at beginning of period 34,124 24,486
Cash and cash equivalents at end of period $ 36,079 $ 29,559
Supplemental disclosures:
Cash paid during the period for:
Interest $ 21,841 $ 20,145
Income taxes 506 308
Loans foreclosed 358 389
Unrealized net gain on securities available for sale,
net of income tax 676 1,631
Transfers of securities held to maturity to available for sale 50,185
The accompanying notes are an integral part of the statements.
</TABLE>
<PAGE>
FIRST FINANCIAL HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 1 - Summary of Significant Accounting Policies
Consolidation
The unaudited consolidated financial statements include the accounts
of First Financial Holdings, Inc. ("the Company") and its wholly-owned
subsidiaries, First Federal Savings and Loan Association of Charleston
and Peoples Federal Savings and Loan Association of Conway and all of
their subsidiaries. All significant intercompany items related to the
consolidated subsidiaries have been eliminated.
Earnings per Share
Earnings per share are computed by dividing earnings by the weighted
average number of shares outstanding during the period. The weighted
average shares outstanding amounted to 6,336,674 for the quarter ended
December 31, 1996 as compared to 6,307,817 for the quarter ended December
31, 1995.
Adoption of SFAS 114 and SFAS 118
The Company adopted Statement of Financial Accounting Standards
( SFAS ) No. 114, "Accounting by Creditors for Impairment of a Loan"
("SFAS 114"), on October 1, 1995. SFAS 114 requires that all creditors
value all specifically reviewed loans for which it is probable that the
creditor will be unable to collect all amounts due according to the terms
of the loan agreement at the loan s fair value. Fair value may be
determined based upon the present value of expected cash flows, market
price of the loan, if available, or the value of the underlying
collateral. Expected cash flows are required to be discounted at the
loan's effective interest rate.
SFAS 114 was amended by SFAS 118, "Accounting by Creditors for
Impairment of a Loan -- Income Recognition and Disclosures," to allow a
creditor to use existing methods for recognizing interest income on an
impaired loan and by requiring additional disclosures about how a
creditor recognizes interest income related to impaired loans.
A loan is also considered impaired if its terms are modified in a
troubled debt restructuring after October 1, 1995. For these accruing
impaired loans, cash receipts are typically applied to principal and
interest receivable in accordance with the terms of the restructured loan
agreement. Interest income is recognized on these loans using the
accrual method of accounting.
Investments in Debt and Equity Securities
The Company's investments in debt securities principally consist of
U.S. Treasury securities and mortgage-backed securities purchased by the
Company or created when the Company exchanges pools of loans for
mortgage-backed securities. The Company adopted SFAS 115, "Accounting
for Certain Investments in Debt and Equity Securities" ("SFAS 115"), as
of September 30, 1993. In accordance with SFAS 115, the Company classifies
its investments in debt securities as held to maturity securities, trading
securities and available for sale securities as applicable.
Debt securities are designated as held to maturity if the Company
has the positive intent and the ability to hold the securities to
maturity. Held to maturity securities are carried at amortized cost,
adjusted for the amortization of any related premiums or the accretion of
any related discounts into interest income using a methodology which
approximates a level yield of interest over the estimated remaining
period until maturity. Unrealized losses on held to maturity securities,
reflecting a decline in value judged by the Company to be other than
temporary, are charged to income in the Consolidated Statements of
Operations.
Debt and equity securities that are purchased and held principally
for the purpose of selling in the near term are reported as trading
securities. Trading securities are carried at fair value with unrealized
holding gains and losses included in earnings.
The Company classifies debt and equity securities as available for
sale when at the time of purchase it determines that such securities may
be sold at a future date or if the Company does not have the intent or
ability to hold such securities to maturity.
Securities designated as available for sale are recorded at fair
value. Changes in the fair value of debt and equity securities available
for sale are included in stockholders' equity as unrealized gains or
losses, net of the related tax effect. Unrealized losses on available
for sale securities, reflecting a decline in value judged to be other
than temporary, are charged to income in the Consolidated Statements of
Operations. Realized gains or losses on available for sale securities
are computed on the specific identification basis.
In November 1995, the FASB issued a Special Report as an aid in
understanding and implementing SFAS 115. The Special Report included
guidance that caused the Company to reassess the appropriateness of the
classifications of all securities held and account for any resulting
reclassifications at fair value in accordance with SFAS 115. During the
first quarter of fiscal 1996, the Company reclassified $32,161 of
investment securities and $18,024 of mortgage-backed securities from held
to maturity to available for sale.
Securities Sold Under Agreements to Repurchase
The Company enters into sales of securities under agreements to
repurchase ("reverse repurchase agreements"). Fixed coupon reverse
repurchase agreements are treated as financings. The obligations to
repurchase securities sold are reflected as a liability and the
securities underlying the agreements continue to be reflected as assets
in the Consolidated Statements of Financial Condition.
Loans Receivable and Loans Held for Sale
The Company's real estate loan portfolio consists primarily of long-
term loans secured by first mortgages on single-family residences, other
residential property, commercial property and land. The adjustable-rate
mortgage loan is the Company's primary loan product for portfolio lending
purposes. The Company's consumer loans include lines of credit, auto
loans, marine loans, mobile home loans and loans on various other types
of consumer products. The Company also makes shorter term commercial
business loans on a secured and unsecured basis.
Fees are charged for originating loans at the time the loan is
granted. Loan origination fees received, if any, are deferred and offset
by the deferral of certain direct expenses associated with loans
originated. The net deferred fees or costs are recognized as yield
adjustments by applying the interest method.
Interest on loans is accrued and credited to income based on the
principal amount and contract rate on the loan. The accrual of interest
is discontinued when, in the opinion of management, there is an
indication that the borrower may be unable to meet future payments as
they become due, generally when a loan is ninety days past due. When
interest accrual is discontinued, all unpaid accrued interest is
reversed. While a loan is on non-accrual status, interest is recognized
only as cash is received. Loans are returned to accrual status only when
the loan is reinstated and ultimate collectibility of future interest is
no longer in doubt.
Mortgage loans originated and intended for sale in the secondary
market are carried at the lower of cost or estimated market value in the
aggregate. Net unrealized losses are provided for in a valuation
allowance by charges to operations.
Allowance for Loan Losses
The Company provides for loan losses on the allowance method.
Accordingly, all loan losses are charged to the related allowance and all
recoveries are credited to the allowance. Additions to the allowance for
loan losses are provided by charges to operations based on various
factors which, in management's judgment, deserve current recognition in
estimating losses. Such factors considered by management include the
fair value of the underlying collateral, growth and composition of the
loan portfolios, the relationship of the allowance for loan losses to
outstanding loans, loss experience, delinquency trends and economic
conditions. Management evaluates the carrying value of loans
periodically and the allowances are adjusted accordingly. While
management uses the best information available to make evaluations,
future adjustments to the allowances may be necessary if economic
conditions differ substantially from the assumptions used in making the
evaluations. The allowance for loan losses is subject to periodic
evaluation by various regulatory authorities and may be subject to
adjustment upon their examination.
The Company considers a loan to be impaired when, based upon current
information and events, it believes it is probable that the Company will
be unable to collect all amounts due according to the contractual terms
of the loan agreement on a timely basis. The Company s impaired loans
include loans identified as impaired through review of the non-
homogeneous portfolio and troubled debt restructurings. Specific
valuation allowances are established on impaired loans for the difference
between the loan amount and the fair value less estimated selling costs.
Impaired loans may be left on accrual status during the period the
Company is pursuing repayment of the loan. Such loans are placed on non-
accrual status at the point either: (1) they become 90 days delinquent;
or (2) the Company determines the borrower is incapable of, or has ceased
efforts toward, continuing performance under the terms of the loan.
Impairment losses are recognized through an increase in the allowance for
loan losses and a corresponding charge to the provision for loan losses.
Adjustments to impairment losses due to changes in the fair value of the
collateral properties for impaired loans are included in provision for
loan losses. When an impaired loan is either sold, transferred to real
estate owned or written down, any related valuation allowance is charged
off.
Increases to the allowance for loan losses are charged by recording
a provision for loan losses. Charge-offs to the allowance are made when
all, or a portion, of the loan is confirmed as a loss based upon
management s review of the loan or through possession of the underlying
security or through a troubled debt restructuring transaction.
Recoveries are credited to the allowance.
Office Properties and Equipment
Office properties and equipment are stated at cost less accumulated
depreciation and amortization. Depreciation is provided generally on the
straight-line method over the estimated life of the related asset for
financial reporting purposes. Estimated lives range up to thirty years
for buildings and improvements and up to ten years for furniture,
fixtures and equipment. Maintenance and repairs are charged to expense
as incurred. Improvements, which extend the useful lives of the
respective assets, are capitalized. Accelerated depreciation is utilized
on certain assets for income tax purposes.
Real Estate
Real estate acquired through foreclosure is initially recorded at
the lower of cost or estimated fair value. Subsequent to the date of
acquisition, it is carried at the lower of cost or fair value, adjusted
for net selling costs. Fair values of real estate owned are reviewed
regularly and writedowns are recorded when it is determined that the
carrying value of real estate exceeds the fair value less estimated costs
to sell. Costs relating to the development and improvement of such
property are capitalized, whereas those costs relating to holding the
property are charged to expense.
Risk Management Instruments
Risk management instruments are utilized to modify the interest rate
characteristics of related assets or liabilities or hedge against changes
in interest rates or other exposures as part of the Company s asset and
liability management process. Instruments must be designated as hedges
and must be effective throughout the hedge period.
Gains and losses associated with futures and forward contracts used
as effective hedges of existing risk positions or anticipated
transactions are deferred as an adjustment to the carrying value of the
related asset and liability and recognized in income over the remaining
term of the related asset or liability.
The Company also utilizes forward delivery contracts and options for
the sale of mortgage-backed securities to reduce the interest rate risk
inherent in mortgage loans held for sale and the commitments made to
borrowers for mortgage loans which have not been funded. These financial
instruments are considered in the Company s valuation of its mortgage
loans held for sale which are carried at the lower of cost or market.
Risks and Uncertainties
In the normal course of its business the Company encounters two
significant types of risk: economic and regulatory. There are three
main components of economic risk: interest rate risk, credit risk and
market risk. The Company is subject to interest rate risk to the degree
that its interest-bearing liabilities mature or reprice at different
speeds, or on different bases, than its interest-earning assets. Credit
risk is the risk of default on the Company s loan portfolio that results
from borrowers' inability or unwillingness to make contractually required
payments. Market risk reflects changes in the value of collateral
underlying loans receivable, the valuation of real estate held by the
Company, and the valuation of loans held for sale, mortgage-backed
securities available for sale, purchased mortgage servicing rights, and
capitalized servicing fees receivable.
The Company is subject to the regulations of various government
agencies. These regulations can and do change significantly from period
to period. The Company also undergoes periodic examinations by the
regulatory agencies, which may subject it to further changes with respect
to asset valuations, amounts of required loss allowances and operating
restrictions resulting from the regulators' judgments based on
information available to them at the time of their examination.
In preparing the consolidated financial statements, management is
required to make estimates and assumptions that affect the reported
amounts of assets and liabilities and disclosure of contingent assets and
liabilities as of the dates of the Consolidated Statements of Financial
Condition and the Consolidated Statements of Operations for the periods
covered. Actual results could differ significantly from those estimates
and assumptions.
Income Taxes
Because some income and expense items are recognized in different
periods for financial reporting purposes and for purposes of computing
currently payable income taxes, a provision or credit for deferred income
taxes is made for such temporary differences at currently enacted income
tax rates applicable to the period in which realization or settlement is
expected. As changes in tax laws or rates are enacted, deferred tax
assets and liabilities are adjusted through the provision for income
taxes.
Reclassifications
Certain amounts previously presented in the consolidated financial
statements for prior periods have been reclassified to conform to current
classifications. All such reclassifications had no effect on the prior
periods' net income or retained income as previously reported.
<PAGE>
FIRST FINANCIAL HOLDINGS, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION
BASIS OF CONSOLIDATIONS AND PRESENTATION
The unaudited consolidated financial statements include the accounts
of First Financial Holdings, Inc., ("First Financial, or the Company")
and its wholly-owned subsidiaries, First Federal Savings and Loan
Association of Charleston ("First Federal") and Peoples Federal Savings
and Loan Association of Conway ("Peoples Federal") (together, the
"Associations"). All significant intercompany items related to the
consolidated subsidiaries have been eliminated.
GENERAL
The Company recorded net income of $3.4 million, or $.53 per share,
for the first quarter of fiscal 1997, compared with $2.5 million, or $.40
per share earned in the first quarter of fiscal 1996. Growth in net
interest income was the most significant factor in the improvement. Net
interest income in the December 1996 quarter totaled $12.1 million
compared with $10.6 million one year ago. The increase was primarily
attributable to an increase of $167.9 million in average earning assets
in the current quarter compared with the December 1995 quarter. The net
interest margin in the first quarter of fiscal 1997 was 3.20% compared
with 3.15% in the comparable quarter in fiscal 1996.
Excluding earlier one-time gains and accounting changes, net income
in the first quarter of 1997 set a record for First Financial.
Annualized return on equity increased to 14.13% from 10.77% in the quarter
ended December 31, 1995. The Company's efficiency ratio also improved to
60.63% from 66.90% in the year earlier period.
BALANCE SHEET ANALYSIS
Consolidated assets of the Company totaled $1.6 billion at December
31, 1996. During the quarter assets increased $36.1 million, or 9.3% on
an annualized basis, principally as a result of growth of $37.1 million
in net loans receivable and loans held for sale.
Cash, Investment Securities and Mortgage-backed Securities
Cash, deposits in transit and interest-bearing deposits increased
$2.0 million during the three months and totaled $36.1 million at
December 31, 1996. Investments held to maturity declined by $4.0 million
while investments available for sale declined $16.5 million. Maturities
and sales of investments totaled $20.8 million during the quarter.
Mortgage-backed securities totaled $100.3 million at December 31, 1996,
increasing $17.3 million during the first quarter of 1997. Purchases of
mortgage-backed securities totaled $20.2 million during the quarter.
Loans Receivable
Loans receivable, including loans held for sale, totaled $1.3 billion
at December 31, 1996, increasing $37.1 million from September 30, 1996.
The principal use of the Company's funds is the origination of mortgage
and other loans. The Company originated $60.9 million (net of refinances)
in mortgage loans, $12.4 million in consumer loans and $5.8 million in
commercial business loans during the three months ending December 31, 1996.
Included in mortgage loan originations were $12.1 million in loans
originated for sale. The Company also purchased $9.9 million in loans
from correspondent originators.
Loans comprise the major portion of interest-earning assets of the
Company, accounting for 83% of assets at December 31, 1996. The
Company s loan portfolio consists of real estate mortgage and
construction loans, home equity and other consumer loans, credit card
receivables and commercial business loans. Management believes it
continues to reduce the risk elements of its loan portfolio through
strategies focusing on residential mortgage and consumer loan production.
The following table summarizes the composition of the Company's gross
loan portfolio (amounts in thousands):
December 31, September 30, December 31,
1996 1996 1995
Residential (1-4 family) $ 936,193 $ 903,269 $ 748,172
Other residential 55,292 56,629 56,685
Land and lots 41,989 38,367 27,163
Commercial real estate 169,892 173,692 186,932
Consumer 123,363 120,285 116,490
Commercial business 27,735 26,634 28,844
Total gross loans $ 1,354,464 $ 1,318,876 $ 1,164,286
As the above table indicates, gross loan balances increased $35.6
million during the current quarter principally due to growth in 1-4
family residential loans. These loans currently comprise 69% of total
gross loans, increasing from 64% one year ago. Outstanding commitments
to originate mortgage loans and to fund the undisbursed portion of
construction loans amounted to $46.8 million at December 31, 1996,
compared to $47.1 million at September 30, 1996. Unused lines of credit
on equity loans, consumer loans, credit cards and commercial loans
totaled $113.9 million as of December 31, 1996 compared to $ 116.6
million at September 30, 1996.
The Company originates the majority of its loans in its primary
market area located in the coastal region of South Carolina. In an
effort to expand mortgage lending operations and improve earning asset
growth the Company began originating mortgage loans in other markets in
1995. The Company utilizes its existing mortgage loan products and
programs in establishing correspondent relationships with other lenders.
Asset Quality
The following table summarizes the Company's problem assets for the
periods indicated (amounts in thousands):
<TABLE>
<CAPTION>
December 31, September 30, December 31,
1996 1996 1995
<S> <C> <C> <C>
Non-accrual loans $ 7,737 $ 8,129 $ 7,013
Loans 90 days or more delinquent (1) 1,035 1,278 465
Renegotiated loans 8,220 8,049 10,936
Real estate and other assets acquired in
settlement of loans 1,419 2,326 2,910
Total $ 18,411 $ 19,782 $ 21,324
As a percent of net loans and real
estate owned 1.40% 1.54% 1.88%
As a percent of total assets 1.16% 1.28% 1.51%
_______________
(1) The Company continues to accrue interest on these loans.
</TABLE>
Non-accruing loans and loans contractually delinquent 90 days or
more are comprised of the following types of loans (amounts in
thousands):
December 31, September 30, December
1996 1996 1995
[S] [C] [C] [C]
Residential (1-4 family) $ 3,018 $ 3,190 $ 1,960
Other residential 2,995 2,928
Land and lots 1,504 1,514 1,254
Commercial real estate 322 607 2,260
Consumer 644 512 189
Commercial business 289 656 1,815
Total $ 8,772 $ 9,407 $ 7,478
Allowance for Loan Losses
The allowance for loan losses represents a reserve for potential
losses existing in the loan portfolio. The adequacy of the allowance
for loan losses is evaluated at least quarterly based, among other
factors, on a continuous review of the Company's loan portfolio, with
particular emphasis on adversely classified loans.
The following table sets forth the allocation of the Company's
allowance for loan losses (excluding mortgage-backed securities) at
December 31, 1996 and September 30, 1996 (amounts in thousands). The
allocation of the allowance for loan losses set forth in the table
should not be interpreted as an indication that charge-offs will
necessarily occur in these amounts or proportions or that the allocation
indicates future charge-off trends.
<TABLE>
<CAPTION>
December 31, 1996 September 30, 1996
% of % of
Gross Loan Allowance Gross Loan Allowance
Allowance Balance to Balance Allowance Balance to Balance
<C> <C> <C> <C> <C> <C> <C>
Residential loans:
1-4 family $ 1,931 $ 936,193 .21% $ 1,872 $ 903,269 .21%
Other 2,523 55,292 4.56 2,465 56,629 4.35
Land and lot loans 1,294 41,989 3.08 1,410 38,367 3.68
Commercial real estate 3,216 169,892 1.89 3,240 173,692 1.87
Commercial business 679 27,735 2.45 925 26,634 3.47
Consumer loans 1,565 123,363 1.27 1,290 120,285 1.07
Total $ 11,208 $ 1,354,464 .83 $ 11,202 $ 1,318,876 .85
</TABLE>
The following table provides a summary of activity in the
allowance for loan losses for the first quarter of fiscal 1997 (amounts
in thousands).
<TABLE>
<CAPTION>
Balance Balance
September 30, December
1996 Additions Chargeoffs Recoveries 31, 1996
<S> <C> <C> <C> <C> <C>
Real estate $ 8,987 $ (16) $ 12 $ 5 $ 8,964
Commercial business 925 76 323 1 679
Consumer 1,290 465 213 23 1,565
Total $ 11,202 $ 525 $ 548 $ 29 $ 11,208
</TABLE>
The Company's impaired loans totaled $7.1 million at December 31, 1996,
$6.3 million at September 30, 1996 and $3.6 million at December 31, 1995.
Included in the allowance for loan losses at December 31, 1996 is $759
thousand related to $2.8 million of impaired loans. The remainder of the
impaired loans are recorded at or below fair value.
Deposits and Borrowings
First Financial's deposit composition at the indicated dates is as
follows (amounts in thousands):
<TABLE>
<CAPTION>
December 31, 1996 September 30, 1996 December 31, 1995
% of % of
Balance Total Balance Total Balance % of Total
<S> <C> <C> <C> <C> <C> <C>
Checking accounts $ 128,121 12.09% $ 123,907 11.67% $ 119,999 11.35%
Passbook, statement and
other accounts 116,412 10.98 119,509 11.26 122,070 11.55
Money market accounts 133,332 12.58 131,393 12.38 128,804 12.18
Certificate accounts 682,024 64.35 686,808 64.69 686,315 64.92
Total deposits $ 1,059,889 100.00% $ 1,061,617 100.00% $ 1,057,188 100.00%
</TABLE>
Checking and other transaction account balances have increased as the
Company has emphasized growth in these types of products. While
deposits remain a primary, highly stable source of funds for the
Company, deposits have declined as a percentage of liabilities over
recent years. At December 31, 1996, deposits as a percentage of
liabilities, declined to 71% from 80% at December 31, 1995.
Primarily as a result of growth in loans receivable during the
quarter and the utilization of FHLB advances as a primary source of
funds, total borrowings increased $53.5 milllion to total $402.5 million
as of December 31, 1996. Approximately $348.0 million in FHLB advances
mature within one year from December 31, 1996.
Stockholders' Equity
Stockholders' equity increased $1.5 million during the first quarter
of fiscal 1997 to total $96.3 million at December 31, 1996. The
Company's capital ratio, total capital to total assets, was 6.09% at
December 31, 1996, compared to 6.13% at September 30, 1996. During the
current quarter, the Company repurchased approximately 67,000 shares of
common stock at an average price of $22.45. The Company has now
repurchased approximately 93,000 shares under its current stock
repurchase program which will end March 31, 1997. During the quarter,
the Company increased its cash dividend to $.18 per share compared with
$.16 per share in the most recent period.
Regulatory Capital
Under current Office of Thrift Supervision ("OTS") regulations,
savings associations must satisfy three minimum capital requirements:
core capital, tangible capital and risk-based capital. Savings
associations must meet all of the standards in order to comply with the
capital requirements. At December 31, 1996, both subsidiaries were
categorized as "well capitalized" under the Prompt Corrective Action
regulations adopted by the OTS pursuant to the Federal deposit Insurance
Corporation Improvement Act of 1991 ("FDICIA"). To remain in this
status, the Associations must maintain core and risk-based capital
ratios of at least 5.0% and 10.0%, respectively.
The following table summarizes the capital requirements for First
Federal and Peoples Federal as well as their capital positions at
December 31, 1996:
<TABLE>
<CAPTION>
First Federal Peoples Federal
Percent of Percent of
Amount Assets Amount Assets
(Amounts in thousands)
<S> <C> <C> <C> <C>
Tangible capital $ 74,144 6.67% $ 27,759 6.08%
Tangible capital requirement 16,674 1.50 6,852 1.50
Excess $ 57,470 5.17% $ 20,907 4.58%
Core capital $ 74,144 6.67% $ 27,759 6.08%
Core capital requirement 33,348 3.00 13,703 3.00
Excess $ 40,796 3.67% $ 14,056 3.08%
Risk-based capital(a) $ 80,677 10.43% $ 29,921 11.74%
Minimum risk-based capital
requirement(a) 61,865 8.00 20,395 8.00
Excess(a) $ 18,812 2.43% $ 9,526 3.74%
____________________________
(a) Based on total risk-weighted assets.
</TABLE>
For a complete discussion of capital issues, refer to "Capital
Requirements" and "Limitations on Capital Distributions" in the Company's
10K for the fiscal year ending September 30, 1996.
LIQUIDITY AND ASSET AND LIABILITY MANAGEMENT
Liquidity
The Associations are subject to federal regulations which require
the maintenance of a daily average balance of liquid assets equal to
5.00% of net withdrawable savings and borrowings payable in one year.
First Federal had an average liquidity ratio of 5.31% for the current
three months compared to 6.48% for the comparable period in fiscal 1996.
Peoples Federal's average liquidity ratio was 7.71% during the present
three months compared with 7.55% in the prior period.
The Associations' primary sources of funds consist of retail
deposits, borrowings from the FHLB, principal repayments on loans and
mortgage-backed securities, securities sold under agreements to
repurchase and the sale of loans. Each of the Association's sources of
liquidity are subject to various uncertainties beyond the control of the
Associations. As a measure of protection, the Association's have back-
up sources of funds available, including excess FHLB borrowing capacity
and excess liquidity in securities available for sale.
During the current quarter the Company experienced a net cash
outflow from investing activities of $32.9 million, consisting
principally of loans originated and purchased for investment, and
mortgage-backed securities purchased, which were partially offset by
sales and maturities of investment securities. The Company experienced
cash outflows of $10.1 million from operating activities principally as
a result of a $13.2 million decrease in accounts payable and accrued
expenses. Financing activities resulted in cash inflows of $45.0
million, consisting principally of $47.0 million in FHLB advances and
$6.5 million in securities sold under agreements to repurchase.
Parent Company Liquidity
As a holding company, First Financial conducts its business through
its subsidiaries. First Financial issued $20.3 million in senior notes
of the Company in September 1992 principally for the purpose of
acquiring Peoples Federal. Potential sources for First Financial's
payment of principal and interest on the notes include: (i) dividends
from First Federal and Peoples Federal; (ii) payments from existing cash
reserves and sales of marketable investment securities; and (iii)
interest on investment assets.
The Company has agreed to prepay, at a price of 100% of the
principal plus accrued interest to the date of prepayment, up to $1.0
million of the notes tendered by noteholders for prepayment during the
period of issuance through September 1, 1993, and thereafter in any
twelve month period ending September 1, subject to certain limitations.
As of December 31, 1996, First Financial had cash reserves and
marketable securities of $12.3 million.
First Federal's and Peoples Federal's ability to pay dividends and
make other capital contributions to First Financial is restricted by
regulation and may require regulatory approval. First Federal's and
Peoples Federal's ability to make distributions may also depend on each
institution's ability to meet minimum regulatory capital requirements in
effect during the period. For a complete discussion of capital
distribution regulations, refer to "Limitations on Capital Distributions"
in the Company's 10K for the fiscal year ending September 30, 1996.
Asset/Liability Management
The Company's Asset and Liability Committees establish policies and
monitor results to control interest rate sensitivity. Although the
Company utilizes measures such as static gap, which is simply the
measurement of the difference between interest-sensitive assets and
interest-sensitive liabilities repricing for a particular time period,
just as important a process is the evaluation of how particular assets
and liabilities are impacted by changes in interest rates or selected
indices as they reprice. Asset/liability modeling is performed by the
Company to assess varying interest rate and balance mix assumptions.
These projections enable the Company to adjust its strategies to lessen
the impact of significant interest rate fluctuations.
The following table is a summary of First Financial's one year gap
at indicated dates (amounts in thousands):
<TABLE>
<CAPTION>
December 31, September 30, December 31,
1996 1996 1995
<S> <C> <C> <C>
Interest-earning assets maturing or repricing
within one year $ 828,587 $ 843,281 $ 875,261
Interest-bearing liabilities maturing or
repricing within one year 1,052,443 1,008,920 934,621
Cumulative gap $ (223,856) $ (165,639) $ (59,360)
Gap as a percent of total assets (14.15)% (10.71)% (4.19)%
</TABLE>
The Company's one year gap as a percent of total assets changed
from (10.71)% to (14.15)% during the current three months. One year
ago, the Company's one year gap as a percent of total assets was
(4.19)%. The respective ratios and dollars repricing as shown in the
above table do not take into effect prepayments to mortgage, consumer
and other loans and mortgage-backed securities. The trend in the one
year static gap is indicative of the retention of selected fixed-rate
loans by the Company throughout the period. In addition, the Company
extended maturities of interest-sensitive assets through origination of
loans which have a fixed rate of interest for three, five, or seven
years and then adjust annually thereafter to a treasury index.
A negative gap indicates that cumulative interest-sensitive
liabilities exceed cumulative interest-sensitive assets and suggests
that net interest income would decline if market interest rates
increased. A positive gap would suggest the reverse. This relationship
is not always ensured due to the repricing attributes of both interest
sensitive assets and interest sensitive liabilities. The Company
has a variety of methods available to adjust its interest sensitivity
and expects to increase the average maturity of its interest-
sensitive liabilities throughout the remainder of fiscal 1997.
COMPARISON OF OPERATING RESULTS
QUARTERS ENDING DECEMBER 31, 1996 AND 1995
Net Interest Income
First Financial's net interest income for the three months ending
December 31, 1996 was $12.1 million compared with $10.6 million for the
comparable quarter in fiscal 1996. The gross interest margin increased
from 2.82% in the prior quarter to 2.91% in the current quarter and
reflects an decline of .11% between the two comparable periods in the
Company's average cost of funds which was only partially offset by a
.02% decline in the Company's yield on earning assets.
The following table summarizes rates, yields and average earning
asset and costing liability balances for the respective quarters
(amounts in thousands):
<TABLE>
<CAPTION>
Quarter Ended December 31,
1996 1995
Average Average
Average Yield/ Average Yield/
Balance Rate Balance Rate
<S> <C> <C> <C> <C>
Loans and mortgage-backed securities $ 1,396,552 7.93% $ 1,222,060 7.98%
Investments and other interest-earning
assets 119,025 6.34 125,613 6.20
Total interest-earning assets $ 1,515,577 7.80% $ 1,347,673 7.82%
Deposits $ 1,060,396 4.56% $ 1,069,886 4.77%
Borrowings 370,401 5.83 197,003 6.23
Total interest-bearing liabilities $ 1,430,797 4.89% $ 1,266,889 5.00%
Gross interest margin 2.91% 2.82%
Net interest margin 3.20% 3.15%
</TABLE>
The following rate/volume analysis depicts the increase (decrease)
in net interest income attributable to interest rate and volume
fluctuations compared to the prior period (amounts in thousands):
Quarter Ended December 31
1996 versus 1995
Volume Rate Total
Interest income:
Loans and mortgage-backed securities $ 3,390 $ (190) $ 3,200
Investments and other interest-
earning assets (111) 40 (71)
Total interest income 3,279 (150) 3,129
Interest expense:
Deposits (124) (615) (739)
Borrowings 2,560 (209) 2,351
Total interest expense 2,436 (824) 1,612
Net interest income $ 843 $ 674 $ 1,517
Total interest income for the current quarter of $29.7 million
represents growth of $3.1 million from the comparative quarter in fiscal
1996. Average balances of earning assets increased $167.9 million
during the current quarter compared to the December 1995 quarter.
Average yields on loans and mortgage-backed securities declined by 5
basis points and the average yield on all other earning assets increased
14 basis points.
Total interest expense increased $1.6 million during the current
quarter, with average interest-bearing liability balances increasing by
$163.9 million. The average cost of deposits declined 21 basis points
while the average cost of borrowings declined 40 basis points. The
Company's overall cost of funds improved by 11 basis points to 4.89%
from 5.00% in the prior period.
Provision for Loan Losses
During the current quarter, First Financial's provision for loan
losses totaled $525 thousand, compared to $305 thousand during the same
period in the previous year. Net charge-offs for the current quarter
totaled $519 thousand compared with $142 thousand in the comparable
quarter in fiscal 1996. Total loan loss reserves as of December 31,
1996 and 1995 were $11.2 million and $10.8 million, respectively. Loan
loss reserves as a percentage of the total net loan portfolio, excluding
mortgage-backed securities, were .85% and .96% at December 31, 1996 and
1995, respectively.
Other Income/Non-Interest Expenses
Fees on deposit accounts increased $178 thousand during the current
quarter, reflecting increased balances in checking and other transaction
accounts at the Company and changes to service charge pricing structure
since the December 1995 quarter. Other income increased $206 thousand,
or 20.8%, in the current quarter. Bank card fee income increased $80
thousand in the first quarter and commissions on sales of alternative
investment products increased $75 thousand.
Non-interest expense increased $331 thousand during the current
quarter. Non-interest expense as a percentage of average assets
declined from 2.51% in the December 31, 1995 quarter to 2.32% in the
current quarter. Other expense in the prior quarter included a non-
recurring expense of approximately $348 thousand related to a checking
account loss. Non-interest expense, excluding the effect of this non-
recurring item, increased $679 thousand in the current quarter. The
increase in the current quarter is primarily attributable to staff
additions related the opening of a new branch office in Surfside Beach,
South Carolina and to the expansion of Link Investment Services.
Under the Deposit Insurance Funds Act of 1996, a special assessment
was charged to the Associations and other institutions with deposits
insured by the Savings Association Insurance Fund ("SAIF"). This $7.0
million expense was recorded in the quarter ended September 30, 1996 and
is discussed under "Federal Deposit Insurance Corporation" ("FDIC")in the
Company's Form 10-K for the year ended September 30, 1996. FDIC premium
expense declined $178 thousand in the current quarter compared with the
comparable quarter in fiscal 1996. Both Associations benefited from
lowered assessments in the December 1996 quarter, which declined 5
basis points from a rate of 23 basis points to 18 basis points, on an
annualized basis. Effective January 1, 1997, annual insurance
assessments, which now include a new Financing Corporation assessment,
will approximate 6.5 basis points. Based on outstanding
deposit balances at December 31, 1996, deposit insurance costs would
approximate $517 thousand for the remaining nine months of fiscal 1997,
compared with $1.8 million if calculated under the premium rate in effect
during the comparable nine-month period in fiscal 1996.
Income Tax Expense
During the current quarter, the Company's effective tax rate was
37.1% compared to 36.2% in the comparable quarter. The actual tax
provision of $2.0 million resulted in an increase of $566 thousand from
the prior period.
IMPACT OF REGULATORY AND ACCOUNTING ISSUES
For a comprehensive discussion of regulatory and accounting issues,
refer to "Federal Regulation of Saving Associations" in the Company's 10K
for the fiscal year ending September 30, 1996.
<PAGE>
FIRST FINANCIAL HOLDINGS, INC.
OTHER INFORMATION
Item 1 - Legal Proceedings
Periodically, there are various claims and lawsuits involving the
Associations and their subsidiaries mainly as defendants, such as claims
to enforce liens, condemnation proceedings on properties in which the
Associations hold security interests, claims involving the making and
servicing of real property loans and other issues incident to the
Association's business. In the opinion of management and the Company's
legal counsel, no material loss is expected from any of such pending
claims or lawsuits.
Item 4 - Submission of Matters to a Vote of Security Holders
The following proposals were submitted to the Company's stockholders
at the annual meeting on January 22, 1997. The proposals were approved
by a vote of the stockholders.
Proposal I: Election of Directors
Paula Harper Bethea
A. Thomas Hood
A. L. Hutchinson, Jr.
Thomas E. Thornhill<PAGE>
Proposal II: Ratification of Performance Equity Plan for Non-Employee
Directors
Item 6 - Exhibits and Report on Form 8-K.
Exhibits
(3.1) Certificate of Incorporation, as amended, of Registrant (1)
(3.2) Bylaws, as amended, of Registrant (2)
(4) Indenture, dated September 10, 1992, with respect to the
Registrant's 9.375% Senior Notes, due September 1, 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 (8)
(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 (8)
(22) Subsidiaries of the Registrant (8)
___________________
(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<PAGE>
(7) Incorporated by reference to the Registrant s Proxy Statement for
the Annual Meeting of Stockholders to be held on January 22, 1997.
(8) Incorporated by reference to the Registrant's Annual Report on Form
10-K for the year ended September 30, 1996.
There were no reports on Form 8-K filed during the quarter ended
December 31, 1996.
<PAGE>
FIRST FINANCIAL HOLDINGS, INC.
SIGNATURES
Pursuant to the requirements of the Securities and Exchange Act of
1934, the registrant has duly caused this report to be signed on its
behalf by the undersigned thereunto duly authorized.
First Financial Holdings, Inc.
Date: February 13, 1997 By: /s/ A. Thomas Hood
A. Thomas Hood
President and Chief
Executive Officer
Duly Authorized
Representative
<TABLE> <S> <C>
<ARTICLE> 9
<MULTIPLIER> 1000
<S> <C> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> SEP-30-1997
<PERIOD-END> DEC-30-1996
<CASH> 25,518
<INT-BEARING-DEPOSITS> 10,561
<FED-FUNDS-SOLD> 0
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 150,314
<INVESTMENTS-CARRYING> 41,454
<INVESTMENTS-MARKET> 41,387
<LOANS> 1,328,422
<ALLOWANCE> 11,208
<TOTAL-ASSETS> 1,582,274
<DEPOSITS> 1,059,889
<SHORT-TERM> 382,730
<LIABILITIES-OTHER> 0
<LONG-TERM> 19,763
0
0
<COMMON> 70
<OTHER-SE> 96,235
<TOTAL-LIABILITIES-AND-EQUITY> 1,582,274
<INTEREST-LOAN> 27,793
<INTEREST-INVEST> 1,207
<INTEREST-OTHER> 685
<INTEREST-TOTAL> 29,685
<INTEREST-DEPOSIT> 12,115
<INTEREST-EXPENSE> 17,556
<INTEREST-INCOME-NET> 12,129
<LOAN-LOSSES> 525
<SECURITIES-GAINS> 5
<EXPENSE-OTHER> 1,857
<INCOME-PRETAX> 5,364
<INCOME-PRE-EXTRAORDINARY> 3,375
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 3,375
<EPS-PRIMARY> .53
<EPS-DILUTED> .53
<YIELD-ACTUAL> 320
<LOANS-NON> 7,737
<LOANS-PAST> 1,035
<LOANS-TROUBLED> 8,220
<LOANS-PROBLEM> 16,992
<ALLOWANCE-OPEN> 11,202
<CHARGE-OFFS> 548
<RECOVERIES> 29
<ALLOWANCE-CLOSE> 11,208
<ALLOWANCE-DOMESTIC> 11,208
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
