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 March 31, 1998
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 of (I.R.S. Employer
incorporation or organization) Identification No.)
34 Broad Street, Charleston, South Carolina 29401
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (803) 529-5933
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 April 30, 1998
$.01 Par Value 13,607,822
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FIRST FINANCIAL HOLDINGS, INC.
INDEX
PART I - FINANCIAL INFORMATION PAGE NO.
Consolidated Statements of Financial Condition 1
at March 31, 1998 and September 30, 1997
Consolidated Statements of Income for the Three 2
Months Ended March 31, 1998 and 1997
Consolidated Statements of Income for the Six 3
Months Ended March 31, 1998 and 1997
Consolidated Statements of Cash Flows for the 4
Six Months Ended March 31, 1998 and 1997
Notes to Financial Statements 5-6
Management's Discussion and Analysis of Results 7-14
of Operations and Financial Condition
PART II - OTHER INFORMATION 15-16
SIGNATURES 17
EXHIBIT 3.5 18
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
March 31, September 30,
1998 1997
(Amounts in thousands)
(Unaudited)
ASSETS
Cash and cash equivalents $ 55,094 $ 48,034
Investments held to maturity (market value of
$7,167 and $14,345) 7,134 14,282
Investments available for sale, at fair value 40,435 40,826
Investment in capital stock of Federal Home
Loan Bank, at cost 24,304 21,851
Loans receivable, net 1,477,772 1,446,981
Loans held for sale 15,636 4,516
Mortgage-backed securities available for
sale, at fair value 185,603 148,963
Mortgage-backed securities held to maturity
(market value of $626 and $828) 615 818
Office properties and equipment, net 15,938 15,944
Real estate and other assets acquired in
settlement of loans 12,638 11,658
Other assets 22,996 21,079
Total assets $ 1,858,165 $1,774,952
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Deposit accounts $ 1,147,341 $1,123,988
Advances from Federal Home Loan Bank 475,077 419,577
Securities sold under agreements to
repurchase 61,567 58,896
Long-term debt 19,763 19,763
Accounts payable and other liabilities 36,225 41,200
Total liabilities 1,739,973 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
14,961,440 and 14,835,218 shares at
March 31, 1998 and September 30, 1997,
respectively 150 148
Additional paid-in capital 29,729 28,901
Retained income, substantially restricted 94,371 88,787
Unrealized net gain on securities available
for sale, net of income tax 1,494 1,156
Treasury stock at cost, 1,374,236 and
1,370,254 shares at March 31, 1998 and
September 30, 1997, respectively (7,552) (7,464)
Total stockholders' equity 118,192 111,528
Total liabilities and stockholders' equity $ 1,858,165 $1,774,952
The accompanying notes are an integral part of the statements.
<PAGE>
FIRST FINANCIAL HOLDINGS, INC.
CONSOLIDATED STATEMENTS OF INCOME
Three Months Ended
March 31,
1998 1997
(Amounts in
thousands,
except per share
amounts)
(Unaudited)
INTEREST INCOME
Interest on loans and mortgage-backed securities $ 32,364 $ 29,344
Interest and dividends on investments 913 1,006
Other 554 632
Total interest income 33,831 30,982
INTEREST EXPENSE
Interest on deposits 12,448 12,480
Interest on borrowed money 7,924 5,890
Total interest expense 20,372 18,370
NET INTEREST INCOME 13,459 12,612
Provision for loan losses 600 540
Net interest income after provision for loan
losses 12,859 12,072
OTHER INCOME
Net gain on sale of loans 315 66
Net gain on investment and mortgage-backed
securities 65
Loan servicing fees 323 357
Service charges and fees on deposit accounts 1,371 1,334
Real estate operations, net 47 (19)
Other 1,440 1,385
Total other income 3,561 3,123
NON-INTEREST EXPENSE
Salaries and employee benefits 5,462 4,982
Occupancy costs 898 862
Marketing 325 374
Depreciation, amortization, rental and 688
maintenance of equipment 680
FDIC insurance premiums 178 207
Merger-related expenses 28
Other 2,344 2,216
Total non-interest expense 9,915 9,329
Income before income taxes 6,505 5,866
Income tax expense 2,404 2,137
NET INCOME $ 4,101 $ 3,729
NET INCOME PER COMMON SHARE $ 0.30 $ 0.28
NET INCOME PER COMMON SHARE DILUTED $ 0.29 $ 0.27
The accompanying notes are an integral part of the statements.
<PAGE>
Six Months Ended
March 31,
1998 1997
(Amounts in
thousands,
except per share
amounts)
(Unaudited)
INTEREST INCOME
Interest on loans and mortgage-backed securities $ 64,456 $ 58,122
Interest and dividends on investments 1,905 2,347
Other 1,098 1,317
Total interest income 67,459 61,786
INTEREST EXPENSE
Interest on deposits 25,184 25,197
Interest on borrowed money 15,483 11,331
Total interest expense 40,667 36,528
NET INTEREST INCOME 26,792 25,258
Provision for loan losses 1,205 1,080
Net interest income after provision for loan
losses 25,587 24,178
OTHER INCOME
Net gain on sale of loans 392 118
Net gain on investment and mortgage-backed
securities 271 5
Loan servicing fees 654 700
Service charges and fees on deposit accounts 2,875 2,708
Real estate operations, net 33 (68)
Other 2,768 2,586
Total other income 6,993 6,049
NON-INTEREST EXPENSE
Salaries and employee benefits 10,961 10,091
Occupancy costs 1,744 1,735
Marketing 681 657
Depreciation, amortization, rental and
maintenance of equipment 1,370 1,405
FDIC insurance premiums 358 715
Merger-related expenses 317
Other 4,498 4,114
Total non-interest expense 19,929 18,717
Income before income taxes 12,651 11,510
Income tax expense 4,678 4,226
NET INCOME $ 7,973 $ 7,284
NET INCOME PER COMMON SHARE $ 0.59 $ 0.55
NET INCOME PER COMMON SHARE DILUTED $ 0.57 $ 0.53
The accompanying notes are an integral part of the statements.
<PAGE>
Six Months Ended
1998 1997
(Unaudited)
OPERATING ACTIVITIES
Net income $ 7,973 $ 7,284
Adjustments to reconcile net income to net cash
provided by operating activities
Depreciation 877 1,002
Gain on sale of loans, net (392) (118)
Gain on sale of investments and mortgage-backed
securities, net (271) (5)
(Gain) loss on sale of real estate owned, net (64) 17
Amortization of unearned discounts/premiums on
investments (159) 7
Decrease in deferred loan fees and discounts (557) (310)
(Increase) decrease in receivables and prepaid
expenses (1,917) 203
Provision for loan losses 1,205 1,080
Proceeds from sales of loans held for sale 59,702 19,149
Origination of loans held for sale (70,822) (23,884)
Decrease in accounts payable and other liabilities (5,190) (16,516)
Net cash used in operating activities (9,615) (12,091)
INVESTING ACTIVITIES
Proceeds from maturity of investments 11,974 15,100
Proceeds from sale of investments 1,497 3,994
Net redemption (purchase) of mutual funds available
for sale (5,175) 8,766
Purchase of investments (955)
Purchase of FHLB stock (2,453) (2,699)
Increase in loans, net (32,159) (45,559)
(Increase) decrease in credit card receivables 294 (618)
Purchase of loans and loan participations (53,268) (18,017)
Repayments on mortgage-backed securities 20,439 8,406
Purchase of mortgage-backed securities available for
sale (9,876) (30,182)
Sales of mortgage-backed securities 6,452 3,039
Proceeds from the sales of real estate owned 452 1,547
Net purchase of office properties and equipment (871) (603)
Net cash used in investing activities (62,694) (57,781)
FINANCING ACTIVITIES
Net increase in deposit accounts 23,353 1,163
Net proceeds of FHLB advances 55,500 53,980
Increase of securities sold under agreements to
repurchase 2,671 13,165
Proceeds from sale of common stock 830 506
Dividends paid (2,897) (2,277)
Treasury stock purchased (88) (1,510)
Net cash provided by financing activities 79,369 65,027
Net increase (decrease) in cash and cash
equivalents 7,060 (4,845)
Cash and cash equivalents at beginning of period 48,034 43,114
Cash and cash equivalents at end of period $ 55,094 $ 38,269
Supplemental disclosures:
Cash paid during the period for:
Interest $ 43,529 $ 37,797
Income taxes 5,120 3,614
Loans foreclosed 2,015 518
Loans securitized into mortgage-backed securities 53,226
Unrealized net gain on securities available for
sale, net of income tax 338 98
The accompanying notes are an integral part of the statements.
<PAGE>
FIRST FINANCIAL HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1998
(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 quarter and the six months ended
March 31, 1998 may not necessarily be 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 March 31,
1998 1997
Weighted average number of common shares
used in basic EPS 13,549,071 13,319,652
Effect of dilutive stock options 585,717 418,420
Weighted average number of common shares
and dilutive potential common shares used
in diluted EPS 14,134,788 13,738,072
Six Months Ended
March 31,
1998 1997
Weighted average number of common shares
used in basic EPS 13,587,204 13,346,238
Effect of dilutive stock options 509,194 384,305
Weighted average number of common shares
and dilutive potential common shares used
in diluted EPS 14,096,398 13,730,543
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 35 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 709 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 March 31, 1998 improved 10% to $4.1
million from net income of $3.7 million in the comparable quarter in
1997. Earnings per common share increased to $.30 for the current
quarter compared to $.28 in the March 1997 quarter. On a diluted basis,
earnings per common share increased to $.29 from $.27 in the comparable
period. All per share data reflects the Company's two-for-one stock
split which was effective March 27, 1998.
In the first six months of 1998, First Financial reported that it
earned $8.0 million compared with $7.3 million in the first six months
of 1997. Results for the six months included approximately $317
thousand in non-recurring before-tax expenses related to the acquisition
of Investors Savings Bank of South Carolina, Inc., which was completed
in November 1997. Year-to-date earnings per common share and diluted
earnings per common share improved to $.59 and $.57, respectively,
compared with $.55 and $.53 in 1997.
BALANCE SHEET ANALYSIS
Consolidated assets of the Company totaled $1.9 billion at March 31,
1998. During the six months ended March 31, 1998 assets increased $83.2
million, or 9.4% on an annualized basis.
Cash, Investment Securities and Mortgage-backed Securities
Cash, deposits in transit and interest-bearing deposits increased
$7.1 million during the six months and totaled $55.1 million at March
31, 1998. Investments held to maturity declined by $7.1 million and
investment in the capital stock of the Federal Home Loan Bank ("FHLB")
of Atlanta increased $2.5 million. Maturities of investments totaled
$12.0 million during the six months. Mortgage-backed securities totaled
$186 million at March 31, 1998, increasing $36.4 million during the six
month period. The Company's securitization of $53.2 million of single
family loans for mortgage-backed securities during the first quarter was
the principal factor leading to the growth in mortgage-backed
securities. During the six months ended March 31, 1998, purchases of
mortgage-backed securities totaled $9.9 million while sales and
repayments totaled $6.5 million and $20.4 million, respectively.
Loans Receivable
Loans receivable, including loans held for sale, totaled $1.5
billion at March 31, 1998, increasing $41.9 million from September 30,
1997. The Company purchased $22.9 million in adjustable-rate loans
during the first half of 1998 and swapped $53.2 million of fixed-rate
loans in a securitization transaction. The principal use of the
Company's funds is the origination of mortgage and other loans. The
Company originated $185.3 million (net of refinances) in mortgage loans,
$52.8 million in consumer loans and $18.0 million in commercial business
loans during the six months ending March 31, 1998. Included in mortgage
loan originations were $70.8 million in loans originated for sale. The
Company also originated or purchased $30.4 million in loans through its
regional correspondent originators.
Loans comprise the major portion of interest-earning assets of the
Company, accounting for 80% of assets at March 31, 1998. 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):
March 31, September 30,
1998 1997
Residential (1-4 family) $1,075,037 $ 1,044,045
Other residential 49,794 53,368
Land and lots 68,776 58,251
Commercial real estate 150,867 159,228
Consumer 156,087 145,133
Commercial business 34,276 34,472
Total gross loans $1,534,837 $ 1,494,497
Outstanding commitments to originate mortgage loans and to fund the
undisbursed portion of construction loans amounted to $68.2 million at
March 31, 1998. Unused lines of credit on equity loans, consumer loans,
credit cards and commercial loans totaled $139.5 million as of March 31,
1998.
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):
March 31, September 30,
1998 1997
Non-accrual loans $ 4,445 $ 6,609
Loans 90 days or more delinquent (1) 56 568
Renegotiated loans 6,215 6,776
Real estate and other assets acquired
in settlement of loans 12,638 11,658
Total $ 23,354 $ 25,611
As a percent of net loans and real
estate owned 1.55% 1.75%
As a percent of total assets 1.26% 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 six months of fiscal 1998 (amounts in
thousands).
Balance Balance
September 30, Charge- March 31,
1997 Additions offs Recoveries 1998
Real estate $ 9,003 $ 563 $ 876 $ 90 $ 8,780
Commercial 1,384 (724) 99 373 934
business
Consumer 1,716 1,361 850 129 2,356
Total $ 12,103 $ 1,200 $ 1,825 $ 592 $ 12,070
Net loan charge-offs of $1.2 million during the six months ended
March 31, 1998 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 $5.2 million at March 31, 1998,
$7.6 million at September 30, 1997 and $19.3 million at March 31, 1997.
Deposits and Borrowings
First Financial's deposit composition at March 31, 1998 is as
follows (amounts in thousands):
March 31, 1998
Balance % of Total
Checking accounts $ 153,024 13.34%
Passbook, statement and other
accounts 122,549 10.68
Money market accounts 154,138 13.43
Certificate accounts 717,630 62.55
Total deposits $1,147,341 100.00%
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 March 31, 1998, deposits as a percentage of
liabilities, declined to 66% from 68% at September 30, 1997.
Primarily as a result of growth in assets during the first half of
1998 and the utilization of FHLB advances as a primary source of funds,
total borrowings increased $58.2 million to total $556.4 million as of
March 31, 1998.
Stockholders' Equity
Stockholders' equity increased $6.7 million during the six months of
fiscal 1998 to total $118.2 million at March 31, 1998. The Company's
capital ratio, total capital to total assets, was 6.36% at March 31,
1998, compared to 6.28% at September 30, 1997. During the six months,
the Company's dividends to stockholders totaled $2.9 million, or 36.3%
of net income for the same 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 March 31, 1998, 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 March
31, 1998:
First Federal Peoples Federal
Percent Percent
of of
Amount Assets Amount Assets
(Amounts in thousands)
Tangible capital $80,722 6.32% $40,547 7.16%
Tangible capital requirement 19,162 1.50 8,493 1.50
Excess $61,560 4.82% $32,054 5.66%
Core capital $80,722 6.32% $40,547 7.16%
Core capital requirement 51,099 4.00 22,647 4.00
Excess $29,623 2.32% $17,900 3.16%
Risk-based capital(a) $87,977 10.30% $41,703 12.56%
Minimum risk-based capital
requirement(a) 68,347 8.00 26,560 8.00
Excess(a) $19,630 2.30% $15,143 4.56%
(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 six months the Company experienced a net cash
outflow from investing activities of $62.7 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 $9.6 million from operating
activities principally as a result of $70.8 million in loans originated
for sale offset by sales through March of 1998 totaling $59.7 million.
Financing activities resulted in cash inflows of $79.4 million,
consisting principally of $55.5 million in FHLB advances and $23.4
million in increased deposit account balances.
Parent Company Liquidity
As a holding company, First Financial conducts its business through
its subsidiaries. First Financial issued $20.3 million in senior notes
of the Company in September 1992 principally for the purpose of
acquiring Peoples Federal. Potential sources for First Financial's
payment of principal and interest on the notes include: (i) dividends
from First Federal and Peoples Federal; (ii) 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.
The senior notes became callable at par at the Company's option on
September 1, 1997. As of March 31, 1998, First Financial had cash
reserves and marketable securities of $14.4 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 March 31, 1998 (amounts in thousands):
March 31,
1998
Interest-earning assets maturing or repricing within one
year $ 838,917
Interest-bearing liabilities maturing or repricing within
one year 1,102,572
Cumulative gap $ (263,655)
Gap as a percent of total assets (14.19)%
The Company's one year gap as a percent of total assets changed from
(12.33)% to (14.19)% during the current six 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 MARCH 31, 1998 AND 1997
Net Interest Income
First Financial's net interest income for the three months ending
March 31, 1998 was $33.8 million compared with $31.0 million for the
comparable quarter in fiscal 1997. The gross interest margin declined
from 2.94% in the prior quarter to 2.79% in the current quarter and
reflects a decline of .13% 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 March 31,
1998 1997
Average Average
Average Yield/ Average Yield/
Balance Rate Balance Rate
Loans and mortgage-backed
securities $1,663,452 7.78% $ 1,491,057 7.94%
Investments and other
interest-earning assets 93,348 6.37 110,966 6.51
Total interest-earning assets $1,756,800 7.71% $ 1,602,023 7.84%
Deposits $1,131,888 4.46% $ 1,106,985 4.57%
Borrowings 546,866 5.87 414,342 5.76
Total interest-bearing
liabilities $1,678,754 4.92% $ 1,521,327 4.90%
Gross interest margin 2.79% 2.94%
Net interest margin 3.06% 3.15%
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 March 31
1998 versus 1997
Volume Rate Total
Interest income:
Loans and mortgage-backed securities $ 3,574 $ (554) $3,020
Investments and other interest-
earning assets (151) (20) (171)
Total interest income 3,423 (574) 2,849
Interest expense:
Deposits 275 (307) (32)
Borrowings 1,919 115 2,034
Total interest expense 2,194 (192) 2,002
Net interest income $ 1,229 $ (382) $ 847
Average balances of interest-earning assets increased $154.8
million, or 9.7%, in the March 1998 quarter compared with the March 1997
quarter, contributing to a $1.2 million increase in net interest income
due to changes in volume. However, a decline in the Company's net
interest margin from 3.15% in the March 1997 quarter to 3.06% in the
December 1998 quarter reduced net interest income by approximately $382
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 $600 thousand, compared to $540 thousand during the same
period in the previous year. Net charge-offs for the current quarter
totaled $362 thousand compared with $293 thousand in the comparable
quarter in fiscal 1997. Total loan loss reserves as of March 31, 1998
were $12.1 million, or .81% of the total net loan portfolio.
Other Income/Non-Interest Expenses
Total other income increased $438 thousand in the March 1998 quarter
over the comparable quarter in 1997. Sales of loans held for sale
increased $31.5 million between the two periods and increased net gains
to $315 thousand in the current quarter from net gains of $66 thousand
recorded in the March 1997 quarter. The Company also recorded net gains
of $65 thousand on investment and mortgage-backed securities sales in
the March 1998 quarter.
Non-interest expense increased $586 thousand, or 6.3%, during the
current quarter. The increase in the current quarter is primarily
attributable to higher personnel costs of $480 thousand and higher
general operating costs, offset partially by lower marketing and FDIC
insurance premium costs.
COMPARISON OF OPERATING RESULTS
SIX MONTHS ENDING March 31, 1998 AND 1997
Net Interest Income
First Financial's net interest income for the six months ending
March 31, 1998 was $26.8 million compared with $25.3 million for the
comparable six months in fiscal 1997. The gross interest margin
declined from 2.93% in the prior six months to 2.82% in the current six
months.
The following table summarizes rates, yields and average earning
asset and costing liability balances for the respective periods (amounts
in thousands):
Six Months Ended
March 31,
1998 1997
Average Average
Average Yield/ Average Yield/
Balance Rate Balance Rate
Loans and mortgage-backed
securities $ 1,645,324 7.82% $1,465,626 7.93%
Other interest-earning assets 94,559 6.37 120,999 6.32
Total interest-earning assets $ 1,739,883 7.74% $1,586,625 7.81%
Deposits $ 1,129,281 4.47% $1,107,085 4.55%
Borrowings 528,510 5.87 392,339 5.81
Total interest-bearing
liabilities $ 1,657,791 4.92% $1,499,424 4.88%
Gross interest margin 2.82% 2.93%
Net interest margin 3.08% 3.18%
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):
Six Months Ended March 31,
1998 versus 1997
Volume Rate Total
Interest income:
Loans and mortgage-backed securities $ 7,135 $ (801) $ 6,334
Investments and other interest-earning
assets (696) 35 (661)
Total interest income 6,439 (766) 5,673
Interest expense:
Deposit accounts 464 (477) (13)
Borrowings 4,032 120 4,152
Total interest expense 4,496 (357) 4,139
Net interest income $ 1,943 $ (409) $ 1,534
Provision for Loan Losses
During the current six months, First Financial's provision for loan
losses totaled $1.2 million, compared to $1.1 million during the same
period in the previous year. Net charge-offs for the current six months
totaled $1.2 million compared with $817 thousand in the comparable
period in fiscal 1997. Charge-offs in the current six months included
$679 thousand related to a $2.8 million multifamily loan.
Other Income/Non-interest Expense
Total other income improved $944 thousand in the current six months.
Fees on deposit accounts increased $167 thousand during the current six
months while brokerage fees and bank card fees increased $129 thousand
and $65 thousand, respectively, in the current period. The Company
recorded gains of $392 thousand on loan sales during the current six
months compared with gains of $118 thousand in the six months ended
March 31, 1997.
Non-interest expense increased $1.2 million or 6.5% during the
current six months. Non-interest expense in the current six months
included non-recurring expenses of $317 thousand related to the
Investors merger. Excluding the effect of non-recurring expenses
related to the merger, total non-interest expense increased $895
thousand or approximately 4.8%. The increase is attributable
principally to higher personnel costs, offset partially by a decline in
FDIC insurance premiums.
Income Tax Expense
During the first six months, the Company's effective tax rate was
37% compared to 36.7% in the comparable period. The actual tax
provision of $4.7 million resulted in an increase of $452 thousand from
the prior period.
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 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)
(3.5) Amendment to Registrant's Bylaws
(4) Indenture, dated September 10, 1992, with respect to the
Registrant's 9.375% Senior Notes, due September 1, 2001 (5)
(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 (5)
(10.3) Employment Agreement with A. Thomas Hood, as amended (6)
(10.4) Employment Agreement with Charles F. Baarcke, Jr. (7)
(10.5) Employment Agreement with John L. Ott, Jr. (7)
(10.6) 1990 Stock Option and Incentive Plan (8)
(10.7) 1994 Outside Directors Stock Options-for-Fees Plan (9)
(10.8) 1994 Employee Stock Purchase Plan (9)
(10.9) 1996 Performance Equity Plan for Non-Employee Directors (10)
(10.10) Employment Agreement with Susan E. Baham (6)
(10.11) 1997 Stock Option and Incentive Plan (11)
(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 Quarterly
Report on Form 10-Q for the quarter ended December 31,
1997
(5) Incorporated by reference to the Registrant's Registration
Statement on Form S-8 File No. 33-55067.
(6) Incorporated by reference to the Registrant's Annual
Report on Form 10-K for the year ended September 30, 1996.
(7) Incorporated by reference to the Registrant's Annual
Report on Form 10-K
(8) Incorporated by reference to the Registrant's Registration
Statement on Form S-8 File No. 33-57855.
(9) Incorporated by reference to the Registrant's Proxy
Statement for the Annual Meeting of Stockholders held on
January 25, 1995
(10) Incorporated by reference to the Registrant's Proxy
Statement for the Annual Meeting of Stockholders held on
January 22, 1997.
(11) 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 February 27, 1998 to
report on the two-for-one common stock split effected in the form of a
100 percent stock dividend which was payable on March 27, 1998.
<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: May 15, 1998 By: /s/ A. Thomas Hood
A. Thomas Hood
President and Chief Executive Officer
Duly Authorized Representative
<PAGE>
EXHIBIT 3.5
At their March 26, 1998, board meeting, the Board of Directors of
First Financial Holdings, Inc. amended Article III, Section 2 of the
First Financial Holdings, Inc. Bylaws to read as follows:
"SECTION 2. Number, Term and Election. The board of
directors shall consist of ten members and shall be divided into
three classes as nearly equal in number as possible. The members
of each class shall be elected for a term of three years and
until their successors are elected or qualified. One class shall
be elected by ballot annually. The board of directors shall be
classified in accordance with the provisions of the Corporation's
Certificate of Incorporation."
I, the undersigned Secretary of First Financial Holdings, Inc., do
hereby certify that the above amendment was adopted by unanimous vote at
the above-stated board meeting.
/s/ Phyllis B. Ainsworth
Phyllis B. Ainsworth, Corporate Secretary
May 11, 1998
<PAGE>
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<PERIOD-END> MAR-31-1998
<CASH> 36,462
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<COMMON> 150
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