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, 1997
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 Identification No.)
organization)
34 Broad Street, Charleston, South Carolina 29401
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (803) 529-5800
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days.
YES X NO
APPLICABLE ONLY TO CORPORATE ISSUERS: Indicate the number of shares
outstanding of each of the issuer's classes of common stock, as of the latest
practicable date.
Class Outstanding Shares at
Common Stock January 31, 1998
$.01 Par Value 6,769,153
<PAGE>
FIRST FINANCIAL HOLDINGS, INC.
INDEX
PART I - FINANCIAL INFORMATION PAGE NO.
Consolidated Statements of Financial Condition 1
at December 31, 1997 and September 30, 1997
Consolidated Statements of Income for the Three 2
Months Ended December 31, 1997 and 1996
Consolidated Statements of Cash Flows for the 3-4
Three Months Ended December 31, 1997 and 1996
Notes to Financial Statements 5-6
Management's Discussion and Analysis of Results 7-13
of Operations and Financial Condition
PART II - OTHER INFORMATION 14
SIGNATURES 16
SCHEDULES OMITTED
All schedules other than those indicated above are omitted because of
the absence of the conditions under which they are required or because the
information is included in the Financial Statements and related notes.
<PAGE>
FIRST FINANCIAL HOLDINGS, INC.
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
December 31, September 30,
1997 1997
(Amounts in thousands)
(Unaudited)
ASSETS
Cash and cash equivalents $ 38,721 $ 48,034
Investments held to maturity (market value of
$11,117 and $14,345) 11,086 14,282
Investments available for sale, at fair value 41,522 40,826
Investment in capital stock of Federal Home Loan
Bank, at cost 23,804 21,851
Loans receivable, net 1,425,724 1,446,981
Loans held for sale 7,410 4,516
Mortgage-backed securities held to maturity
(market value of $666 and $828) 655 818
Mortgage-backed securities available for sale, at
fair value 193,979 148,963
Office properties and equipment, net 15,959 15,944
Real estate and other assets acquired in
settlement of loans 11,716 11,658
Other assets 22,749 21,079
Total assets $1,793,325 $1,774,952
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Deposit accounts $1,127,339 $1,123,988
Advances from Federal Home Loan Bank 458,077 419,577
Securities sold under agreements to repurchase 44,578 58,896
Long-term debt 19,763 19,763
Accounts payable and other liabilities 28,060 41,200
Total liabilities 1,677,817 1,663,424
Stockholders' equity:
Serial preferred stock, authorized 3,000,000
shares--
none issued
Common stock, $.01 par value, authorized
24,000,000 shares, issued and outstanding
7,447,562 and 7,417,609 shares at
December 31, 1997 and September 30, 1997,
respectively 74 74
Additional paid-in capital 29,366 28,975
Retained income, substantially restricted 91,692 88,787
Unrealized net gain on securities available for
sale, net of income tax 1,919 1,156
Treasury stock at cost, 686,937 and 685,127
shares at December 31, 1997 and September 30,
1997, respectively (7,543) (7,464)
Total stockholders' equity 115,508 111,528
Total liabilities and stockholders' equity $1,793,325 $1,774,952
The accompanying notes are an integral part of the statements.
FIRST FINANCIAL HOLDINGS, INC.
CONSOLIDATED STATEMENTS OF INCOME
Three Months Ended
December 31,
1997 1996
(Amounts in thousands,
except per share amounts)
(Unaudited)
INTEREST INCOME
Interest on loans and mortgage-backed
securities $ 32,092 $ 28,778
Interest and dividends on investments 992 1,341
Other 544 685
Total interest income 33,628 30,804
INTEREST EXPENSE
Interest on deposits 12,736 12,717
Interest on borrowed money 7,559 5,441
Total interest expense 20,295 18,158
NET INTEREST INCOME 13,333 12,646
Provision for loan losses 605 540
Net interest income after provision for loan
losses 12,728 12,106
OTHER INCOME
Net gain on sale of loans 77 52
Gain on investment securities 206 5
Loan servicing fees 331 343
Service charges and fees on deposit accounts 1,504 1,374
Real estate operations, net (14) (49)
Other 1,328 1,201
Total other income 3,432 2,926
NON-INTEREST EXPENSE
Salaries and employee benefits 5,499 5,109
Occupancy costs 846 873
Marketing 356 283
Depreciation, amortization, rental and
maintenance of equipment 690 717
FDIC insurance premiums 180 508
Merger-related expenses 289
Other 2,154 1,898
Total non-interest expense 10,014 9,388
Income before income taxes 6,146 5,644
Income tax expense 2,274 2,089
NET INCOME $ 3,872 $ 3,555
NET INCOME PER COMMON SHARE $ 0.57 $ 0.53
NET INCOME PER COMMON SHARE, DILUTED $ 0.55 $ 0.52
The accompanying notes are an integral part of the statements.
<PAGE>
FIRST FINANCIAL HOLDINGS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
Three Months Ended
December 31,
1997 1996
(Amounts in thousands)
(Unaudited)
OPERATING ACTIVITIES
Net income $ 3,872 $ 3,555
Adjustments to reconcile net income to net cash
provided by operating activities
Depreciation 499 524
Gain on sale of loans, net (77) (52)
Gain on sale of investments and mortgage-
backed securities, net (206) (5)
(Gain) loss on sale of real estate owned, net (3) 24
Amortization of unearned discounts/premiums on
investments 201 33
Decrease in deferred loan fees and discounts (383) (206)
(Increase) decrease in receivables and prepaid
expenses (1,162) 719
Provision for loan losses 605 540
Write downs of real estate acquired in
settlement of loans 5 7
Proceeds from sales of loans held for sale 18,895 9,787
Origination of loans held for sale (21,789) (12,106)
Decrease in accounts payable and other
liabilities (13,627) (17,477)
Net cash used in operating activities (13,170) (14,657)
INVESTING ACTIVITIES
Proceeds from maturity of investments 3,904 9,000
Proceeds from sale of investments 3,995
Net redemption (purchase) of mutual funds
available for sale (1,650) 7,760
Purchase of investments (955)
Purchase of FHLB stock (1,953) (2,350)
Increase in loans, net (23,788) (23,998)
Increase in credit card receivables (587) (1,284)
Purchase of loans and loan participations (7,911) (9,886)
Repayments on mortgage-backed securities 8,166 3,521
Purchase of mortgage-backed securities available
for sale (4,135) (20,225)
Sales of mortgage-backed securities 5,841
Proceeds from the sales of real estate owned 112 1,369
Net purchase of office properties and equipment (514) (455)
Net cash used in investing activities (22,515) (33,508)
Three Months Ended
December 31,
1997 1996
(Amounts in thousands)
(Unaudited)
FINANCING ACTIVITIES
Net increase (decrease) in deposit accounts 3,351 (755)
Net proceeds of FHLB advances 38,500 47,000
Increase (decrease) of securities sold under
agreements to repurchase (14,318) 6,523
Proceeds from sale of common stock 391 109
Dividends paid (1,473) (1,142)
Treasury stock purchased (79) (1,508)
Net cash provided by financing activities 26,372 50,227
Net increase (decrease) in cash and cash
equivalents (9,313) 2,062
Cash and cash equivalents at beginning of period 48,034 43,114
Cash and cash equivalents at end of period $ 38,721 $ 45,176
Supplemental disclosures:
Cash paid during the period for:
Interest $ 24,918 $ 22,358
Income taxes 461 506
Loans foreclosed 134 358
Loans securitized into mortgage-backed
securities 53,226
Unrealized net gain on securities available
for sale, net of income tax 763 676
The accompanying notes are an integral part of the statements.
<PAGE>
FIRST FINANCIAL HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1997
(Unaudited)
A. BASIS OF PRESENTATION AND ACCOUNTING POLICIES
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.
The significant accounting policies followed by First Financial for
interim financial reporting are consistent with the accounting policies
followed for annual financial reporting. The unaudited consolidated
financial statements and notes are presented in accordance with the
instructions for Form 10-Q. The information contained in the footnotes
included in First Financial's latest annual report on Form 10-K should be
referred to in connection with the reading of these unaudited interim
consolidated financial statements. Certain fiscal 1997 amounts have been
reclassified to conform with the statement presentations for fiscal 1998.
The results of operations for the three months ended December 31, 1997 is
not necessarily indicative of the results of operations that may be expected
in future periods. This report may contain certain forward-looking
statements with respect to financial conditions, results of operations and
business of First Financial. These forward-looking statements involve
certain risks and uncertainties, including, but not limited to, timing of
certain business initiatives of the Company, the Company's interest rate risk
position and future regulatory actions of the office of Thrift Supervision
and the Federal Deposit Insurance Corporation. It is important to note that
the Company's actual results may differ materially and adversely from those
discussed in forward-looking statements.
B. EARNINGS PER SHARE
Effective with periods ended December 31, 1997, First Financial has
implemented Statement of Financial Accounting Standards ("SFAS") No. 128,
"Earnings per Share." This Statement simplifies the standards for computing
earnings per share previously found in Accounting Principles Board ("APB")
Opinion No. 15, "Earnings per Share" ("EPS"), and makes them comparable to
international EPS standards. It replaces the presentation of primary EPS
with basic EPS. It also requires dual presentation of basic and diluted EPS
on the face of the income statement for all entities with complex capital
structures and requires a reconciliation of the numerator and denominator of
the diluted EPS computation. Basic EPS excludes dilution and is computed by
dividing income available to common shareholders by the weighted-average
number of common shares outstanding for the period. Diluted EPS reflects the
potential dilution that could occur if securities or other contracts to issue
common stock were exercised or converted into common stock or resulted in the
issuance of common stock that then shared in the earnings of the entity.
Diluted EPS is computed similarly to fully diluted EPS pursuant to APB
Opinion No. 15.
Basic and diluted earnings per share have been computed based upon net
income as presented in the accompanying statements of income divided by the
weighted average number of common shares outstanding or assumed to be
outstanding as summarized below:
Quarter Ended December 31,
1997 1996
Weighted average number of common shares used
in basic EPS 6,744,672 6,686,123
Effect of dilutive stock options 284,332 175,382
Weighted average number of common shares and
dilutive potential common shares used in
diluted EPS 7,029,004 6,861,505
C. NATURE OF OPERATIONS
First Financial is a multiple savings and loan holding company
headquartered in Charleston, South Carolina. First Financial conducts its
operations principally in South Carolina with lending functions also in North
Carolina. The thrift subsidiaries, First Federal and Peoples Federal,
provide a wide range of traditional banking services and also offer
investment and insurance services through subsidiaries. The Company has a
total of 34 offices in South Carolina located in the Charleston Metropolitan
area and Horry, Georgetown and Florence counties, a loan origination office
in coastal North Carolina and a private banking office in Hilton Head, South
Carolina.
D. MERGERS AND ACQUISITIONS
On November 7, 1997, First Financial completed the acquisition of Investors
Savings Bank of South Carolina, Inc. ("Investors") in a transaction accounted
for as a pooling of interests. Under the terms of the agreement, Investors
shareholders received 1.36 shares of First Financial common stock in exchange
for each share of Investors stock held, which resulted in the issuance of 354
thousand shares. Based on the last reported sales price of the Company's
common stock on November 7, 1997, such shares had an aggregate value of
approximately $14.4 million. At the time of the acquisition, Investors had
assets of approximately $62.7 million, deposits of $55.0 million and
stockholders equity of $7.3 million.
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
GENERAL
Net income for the quarter ended December 31, 1997 improved 9% to $3.9
million from net income of $3.6 million in the comparable quarter in 1996.
The Company completed its acquisition of Investors on November 7, 1997,
accounting for the acquisition as a pooling of interests. All prior
financial information has been restated to include the effect of Investors'
operations. The quarter's results included approximately $289 thousand in
non-recurring, before-tax costs related to the merger with Investors.
Earnings per common share improved to $.57 in the quarter ended December
31, 1997 from $.53 in the quarter ended December 31, 1996. Earnings per
share on a diluted basis increased to $.55 compared with $.52 per share in
the comparable quarter in 1996.
BALANCE SHEET ANALYSIS
Consolidated assets of the Company totaled $1.8 billion at December 31,
1997. During the quarter assets increased $18.4 million, or 4.1% on an
annualized basis.
Cash, Investment Securities and Mortgage-backed Securities
Cash, deposits in transit and interest-bearing deposits declined $9.3
million during the three months and totaled $38.7 million at December 31,
1997. Investments held to maturity declined by $3.2 million while
investments available for sale increased $696 thousand. Maturities of
investments totaled $3.9 million during the quarter. Mortgage-backed
securities totaled $194.6 million at December 31, 1997, increasing $44.9
million during the first quarter of fiscal 1998. The Company's
securitization of $53.2 million of single family loans for mortgage-backed
securities during the quarter was the principal factor leading to the growth
in mortgage-backed securities. During the quarter ended December 31, 1997,
purchases of mortgage-backed securities totaled $4.1 million while sales and
repayments totaled $5.8 million and $8.2 million, respectively.
Loans Receivable
Loans receivable, including loans held for sale, totaled $1.4 billion at
December 31, 1997, declining $18.4 million from September 30, 1997
principally due to the $53.2 million securitization discussed above. The
principal use of the Company's funds is the origination of mortgage and other
loans. The Company originated $90.7 million (net of refinances) in mortgage
loans, $22.7 million in consumer loans and $8.4 million in commercial
business loans during the three months ending December 31, 1997. Included in
mortgage loan originations were $21.8 million in loans originated for sale.
The Company also purchased $7.9 million in loans from correspondent
originators.
Loans comprise the major portion of interest-earning assets of the Company,
accounting for 80% of assets at December 31, 1997. 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,
1997 1997
Residential (1-4 family) $ 1,015,057 $ 1,044,045
Other residential 51,936 53,368
Land and lots 68,481 58,251
Commercial real estate 152,026 159,228
Consumer 152,708 145,133
Commercial business 33,395 34,472
Total gross loans $ 1,473,603 $ 1,494,497
Outstanding commitments to originate mortgage loans and to fund the
undisbursed portion of construction loans amounted to $55.6 million at
December 31, 1997. Unused lines of credit on equity loans, consumer loans,
credit cards and commercial loans totaled $139.3 million as of December 31,
1997.
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):
December 31, September 30,
1997 1997
Non-accrual loans $ 5,825 $ 6,609
Loans 90 days or more delinquent (1) 68 568
Renegotiated loans 6,623 6,776
Real estate and other assets acquired in
settlement of loans 11,716 11,658
Total $ 24,232 $ 25,611
As a percent of net loans and real estate owned 1.68% 1.75%
As a percent of total assets 1.35% 1.44%
(1) The Company continues to accrue interest on these loans.
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 provides a summary of activity in the allowance for
loan losses for the first quarter of fiscal 1997 (amounts in thousands).
Balance Balance
September 30, December 31,
1997 Additions Chargeoffs Recoveries 1997
Real estate $ 9,003 $ 264 $ 764 $ 59 $ 8,562
Commercial business 1,384 (455) 99 368 1,198
Consumer 1,716 796 506 66 2,072
Total $ 12,103 $ 605 $ 1,369 $ 493 $ 11,832
Net loan charge-offs of $876 thousand during the quarter ended December
31, 1997 included $679 thousand related to a $2.8 million multifamily loan on
which the company had maintained an $800 thousand specific reserve.
The Company's impaired loans totaled $6.7 million at December 31, 1997,
$7.6 million at September 30, 1997 and $7.2 million at December 31, 1996.
Deposits and Borrowings
First Financial's deposit composition at December 31, 1997 is as follows
(amounts in thousands):
December 31, 1997
Balance % of Total
Checking accounts $ 146,834 13.03
Passbook, statement and other accounts 138,597 12.29
Money market accounts 127,496 11.31
Certificate accounts 714,412 63.37
Total deposits $1,127,339 100.00%
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, 1997, deposits as a percentage of liabilities,
declined to 67% from 68% at September 30, 1997.
Primarily as a result of growth in assets during the quarter and the
utilization of FHLB advances as a primary source of funds, total borrowings
increased $24.2 million to total $522.4 million as of December 31, 1997.
Stockholders' Equity
Stockholders' equity increased $4.0 million during the first quarter of
fiscal 1998 to total $115.5 million at December 31, 1997. The Company's
capital ratio, total capital to total assets, was 6.44% at December 31, 1997,
compared to 6.28% at September 30, 1997. During the quarter, the Company
increased its quarterly cash dividend to $.21 per share compared with $.18
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, 1997, 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, 1997:
First Federal Peoples Federal
Percent
Percent of
Amount of Assets Amount Assets
(Amounts in thousands)
Tangible capital $ 79,419 6.50% $39,923 7.17%
Tangible capital
requirement 18,325 1.50 8,351 1.50
Excess $ 61,094 5.00% $31,572 5.67%
Core capital $ 79,419 6.50% $39,923 7.17%
Core capital requirement 36,651 3.00 16,701 3.00
Excess $ 42,768 3.50% $23,222 4.17%
Risk-based capital(a) $ 86,195 10.43% $43,370 13.54%
Minimum risk-based capital
requirement(a) 66,086 8.00 25,631 8.00
Excess(a) $ 20,109 2.43% $17,739 5.54%
(a) Based on total risk-weighted assets.
For a complete discussion of capital issues, refer to "Capital
Requirements" and "Limitations on Capital Distributions" in the Company's 10-
K for the fiscal year ending September 30, 1997.
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 4.00% of net
withdrawable savings and borrowings payable in one year. The liquidity
ratios of the Associations, based on revised regulations issued by the Office
of Thrift Supervision in November 1997, substantially exceed the required
levels.
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 Associations 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 $22.5 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
and mortgage-backed securities. The Company experienced cash outflows of
$13.2 million from operating activities principally as a result of a $13.6
million decrease in accounts payable and other liabilities. Financing
activities resulted in cash inflows of $26.4 million, consisting principally
of $38.5 million in FHLB advances offset partially by $14.3 million in net
repayments of 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, 1997, First
Financial had cash reserves and marketable securities of $13.2 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 10-K for the fiscal
year ending September 30, 1997.
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
December 31, 1997 (amounts in thousands):
December 31, 1997
Interest-earning assets maturing or repricing within one
year $ 818,102
Interest-bearing liabilities maturing or repricing
within one year 1,072,019
Cumulative gap $ (253,917)
Gap as a percent of total assets (14.16)%
The Company's one year gap as a percent of total assets changed from
(12.33)% to (14.16)% during the current three months. 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.
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.
COMPARISON OF OPERATING RESULTS
QUARTERS ENDING DECEMBER 31, 1997 AND 1996
Net Interest Income
First Financial's net interest income for the three months ending
December 31, 1997 was $13.3 million compared with $12.6 million for the
comparable quarter in fiscal 1997. The gross interest margin declined from
2.92% in the prior quarter to 2.82% in the current quarter and reflects a
decline of .08% between the two comparable periods in the Company's average
yield on earning assets and an increase of .02% in the Company's average cost
of funds.
The following table summarizes rates, yields and average earning asset
and costing liability balances for the respective quarters (amounts in
thousands):
Quarter Ended December 31,
1997 1996
Average Average
Average Yield/ Average Yield/
Balance Rate Balance Rate
Loans and mortgage-backed
securities $1,628,345 7.82% $1,440,707 7.96%
Investments and other
interest-earning assets 95,801 6.36 128,056 6.30
Total interest-earning assets $1,724,146 7.74% $1,568,763 7.82%
Deposits $1,126,695 4.48% $1,107,355 4.58%
Borrowings 510,520 5.88 370,401 5.83
Total interest-bearing
liabilities $1,637,215 4.92% $1,477,756 4.90%
Gross interest margin 2.82% 2.92%
Net interest margin 3.09% 3.22%
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
1997 versus 1996
Volume Rate Total
Interest income:
Loans and mortgage-backed securities $ 3,816 $ (502) $ 3,314
Investments and other interest-
earning assets (509) 19 (490)
Total interest income 3,307 (483) 2,824
Interest expense:
Deposits 257 (238) 19
Borrowings 2,071 47 2,118
Total interest expense 2,328 (191) 2,137
Net interest income $ 979 $ (292) $ 687
Average balances of interest-earning assets increased $155.4 million, or
9.9%, in the December 1997 quarter compared with the December 1996 quarter,
contributing to a $979 thousand increase in net interest income due to
changes in volume. However, a decline in the Company's net interest margin
from 3.22% in the December 1996 quarter to 3.09% in the December 1997 quarter
reduced net interest income by approximately $292 thousand and served to
offset a portion of the increase due to volume changes. There can be no
assurance that the Company's net margin will not decline further based on the
current spread between short and long-term treasury interest rates, the
likelihood that prepayments of higher yielding earning assets may increase
under current interest rates, the Company's current asset/liability structure
and competitive forces within its markets.
Provision for Loan Losses
During the current quarter, First Financial's provision for loan losses
totaled $605 thousand, compared to $540 thousand during the same period in
the previous year. Net charge-offs for the current quarter totaled $876
thousand compared with $519 thousand in the comparable quarter in fiscal
1997. Total loan loss reserves as of December 31, 1997 were $11.8 million,
or .83% of the total net loan portfolio.
Other Income/Non-Interest Expenses
Fees on deposit accounts increased $130 thousand, or 9.5%, 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 1996 quarter. The Company recorded a gain of
$206 thousand on the sale of mortgage-backed securities during the current
quarter compared with securities gains of $5 thousand in the prior quarter.
Non-interest expense increased $626 thousand, or 6.7%, during the current
quarter. Non-interest expense in the current quarter included non-recurring
expenses of approximately $289 thousand related to the Investors merger.
Non-interest expense, excluding the effect of non-recurring expenses,
increased $337 thousand, or 3.6%, in the current quarter. The increase in
the current quarter is primarily attributable to higher personnel costs and
increased marketing expenditures, offset partially by a decline in FDIC
insurance costs. Annual FDIC insurance costs declined to 18 basis points on
the assessment base effective in the first quarter of fiscal 1997 and then
further declined to 6.5 basis points effective January 1, 1997. The
Associations are currently subject to a FICO assessment of 6.3 basis points
on an annual basis, which resulted in expense of $180 thousand recorded in
the December 1997 quarter compared with $508 thousand in the December 1996
quarter.
IMPACT OF REGULATORY AND ACCOUNTING ISSUES
For a comprehensive discussion of regulatory and accounting issues, refer
to "Regulatory and Accounting Issues" in the Company's 10-K for the fiscal
year ending September 30, 1997.
<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
At the 1998 First Financial Annual Meeting of Shareholders held January
28, 1998, there were 5,668,178 shares present in person or in proxy of the
6,751,538 shares of common stock entitled to vote at the Annual Meeting.
Proposal I - Election of Directors. The shareholders elected Gary C. Banks,
Jr., Paula Harper Bethea and Paul G. Campbell, Jr. as directors of the
Company for three year terms ending in 2001. Pursuant to Regulation 14 of
the Securities and Exchange Act of 1934, as amended, management solicited
proxies for the Annual Meeting and there were no solicitations in opposition
to management's nominees. The director nominees received the following
votes:
For Withheld
Gary C. Banks, Jr. 5,586,458 82,720
Paula Harper Bethea 5,630,275 38,903
Paul G. Campbell, Jr. 5,630,951 38,227
The continuing directors for the Company are: A. Thomas Hood, A. L.
Hutchinson, Jr., James C. Murray, D. Kent Sharples, D. Van Smith and Thomas
E. Thornhill.
Proposal II - Approval of 1997 Stock Option and Incentive Plan. On October
23, 1997, the Board of Directors of the Company adopted, subject to
shareholder approval, the First Financial Holdings, Inc. 1997 Stock Option
Plan. The shareholder vote was as follows:
Number of
Votes
For 5,027,748
Against 504,040
Abstain 51,556
Broker Nonvotes 85,834
Proposal III - Ratification of an Amendment to the Certificate of
Incorporation. On November 25, 1997, the Board of Directors adopted an
amendment to the Company's Certificate of Incorporation to increase the
number of authorized shares of common stock from 12,000,000 to 24,000,000.
The shareholders ratified this amendment with the following vote:
Number of
Votes
For 5,424,132
Against 212,587
Abstain 32,458
Broker Nonvotes None
Item 6 - Exhibits and Report on Form 8-K.
Exhibits
(3.1)Certificate of Incorporation, as amended, of Registrant (1)
(3.2)Bylaws, as amended, of Registrant (2)
(3.3)Amendment to Registrant s Bylaws (3)
(3.4)Amendment to Registrant's Certificate of Incorporation
(4)Indenture, dated September 10, 1992, with respect to the
Registrant's 9.375% Senior Notes, due September 1, 2001 (4)
(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 (4)
(10.3)Employment Agreement with A. Thomas Hood, as amended (5)
(10.4)Employment Agreement with Charles F. Baarcke, Jr. (6)
(10.5)Employment Agreement with John L. Ott, Jr. (6)
(10.6)1990 Stock Option and Incentive Plan (7)
(10.7)1994 Outside Directors Stock Options-for-Fees Plan (8)
(10.8)1994 Employee Stock Purchase Plan (8)
(10.9)1996 Performance Equity Plan for Non-Employee Directors (9)
(10.10)Employment Agreement with Susan E. Baham (5)
(10.11)1997 Stock Option and Incentive Plan (10)
(22)Subsidiaries of the Registrant (3)
(27)Financial Data Schedule
- -------------
(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 Registrant's Annual Report on Form 10-K
for the year ended September 30, 1997
(4) Incorporated by reference to the Registrant's Registration Statement
on Form S-8 File No. 33-55067.
(5) Incorporated by reference to the Registrant s Annual Report on Form
10-K for the year ended September 30, 1996.
(6) Incorporated by reference to the Registrant's Annual Report on Form
10-K
(7) Incorporated by reference to the Registrant's Registration Statement
on Form S-8 File No. 33-57855.
(8) Incorporated by reference to the Registrant's Proxy Statement for
the Annual Meeting of Stockholders held on January 25, 1995
(9) Incorporated by reference to the Registrant's Proxy Statement for
the Annual Meeting of Stockholders held on January 22, 1997.
(10) Incorporated by reference to the Registrant s Preliminary Proxy
Statement for the Annual Meeting of Stockholders to be held on
January 28, 1998.
Reports on Form 8-K
The Company filed a Form 8-K under Item 5 on November 13, 1997 to report
on the November 7, 1997 completion of its acquisition of Investors.
<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 17, 1998 By: /s/ A. Thomas Hood
A. Thomas Hood
President and Chief Executive Officer
Duly Authorized Representative
<PAGE>
Exhibit 3.4
CERTIFICATE OF AMENDMENT
OF
CERTIFICATE OF INCORPORATION
First Financial Holdings, Inc., a corporation organized and existing
under and by virtue of the General Corporation Law of the State of Delaware,
does hereby certify:
1. That at a meeting of the Board of Directors of First Financial
Holdings, Inc., resolutions were duly adopted setting forth a proposed
amendment of the Certificate of Incorporation of said corporation,
declaring said amendment to be advisable and calling a meeting of the
shareholders of said corporation for consideration thereof. The
resolution setting forth the proposed amendment is as follows:
RESOLVED, that the Certificate of Incorporation of First
Financial Holdings, Inc. be amended by changing the first
sentence of Article V of the Certificate of Incorporation to
read as follows:
"The aggregate number of shares of all classes of capital
stock which the Corporation has authority to issue is
27,000,000, of which 24,000,000 are to be shares of common
stock, $.01 par value per share, and of which 3,000,000 are to
be shares of serial preferred stock, $.01 par value per
share."
The remaining text of Article V of the Certificate of
Incorporation would remain unchanged.
2. That thereafter, pursuant to resolution of its Board of Directors, the
1998 Annual Meeting of Shareholders of First Financial Holdings, Inc.
was duly called and held, upon notice in accordance with Section 222
of the General Corporation law of the State of Delaware at which
meeting the necessary number of shares as required by statute were
voted in favor of the amendment.
3. That said amendment was duly adopted in accordance with the provision
of Section 242 of the General Corporation Law of the State of
Delaware.
IN WITNESS Whereof, said First Financial Holdings, Inc. has caused this
certificate to be signed by A. Thomas Hood, its President, and Phyllis B.
Ainsworth, its Secretary, its authorized officers, this 29th day of January,
1998.
By /s/ A. Thomas Hood
A. Thomas Hood, President
(CORPORATE SEAL)
By /s/ Phyllis B. Ainsworth
Phyllis B. Ainsworth, Secretary
<TABLE> <S> <C>
<ARTICLE> 9
<MULTIPLIER> 1000
<S> <C> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> SEP-30-1998
<PERIOD-END> DEC-31-1997
<CASH> 30,131
<INT-BEARING-DEPOSITS> 8,590
<FED-FUNDS-SOLD> 0
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 235,501
<INVESTMENTS-CARRYING> 35,545
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<ALLOWANCE> 11,832
<TOTAL-ASSETS> 1,793,325
<DEPOSITS> 1,127,339
<SHORT-TERM> 502,655
<LIABILITIES-OTHER> 0
<LONG-TERM> 19,763
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0
<COMMON> 0
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<INTEREST-INVEST> 992
<INTEREST-OTHER> 544
<INTEREST-TOTAL> 33,628
<INTEREST-DEPOSIT> 12,736
<INTEREST-EXPENSE> 20,295
<INTEREST-INCOME-NET> 13,333
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<EXPENSE-OTHER> 2,443
<INCOME-PRETAX> 6,146
<INCOME-PRE-EXTRAORDINARY> 3,872
<EXTRAORDINARY> 0
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<NET-INCOME> 3,872
<EPS-PRIMARY> .57
<EPS-DILUTED> .55
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<LOANS-PAST> 68
<LOANS-TROUBLED> 6,623
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