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, 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 (I.R.S. Employer
of incorporation or organization) Identification No.)
34 Broad Street, Charleston, South Carolina 29401
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (843) 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, 1999
$.01 Par Value 13,509,936
<PAGE>
FIRST FINANCIAL HOLDINGS, INC.
INDEX
PART I - FINANCIAL INFORMATION PAGE NO.
Consolidated Statements of Financial Condition 1
at December 31, 1998 and September 30, 1998
Consolidated Statements of Income for the Three 2
Months Ended December 31, 1998 and 1997
Consolidated Statements of Cash Flows for the 3-4
Three Months Ended December 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
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,
1998 1998
(Amounts in thousands)
(Unaudited)
ASSETS
Cash and cash equivalents $ 56,803 $ 40,392
Investments held to maturity (market value of
$1,684 and $4,194) 1,649 4,148
Investments available for sale, at fair value 12,558 11,264
Investment in capital stock of Federal Home
Loan Bank, at cost 25,625 25,000
Loans receivable, net 1,546,053 1,550,567
Loans held for sale 23,451 14,473
Mortgage-backed securities held to maturity
(market value of $387 and $452) 379 444
Mortgage-backed securities available for sale,
at fair value 178,496 148,186
Accrued interest receivable 10,267 10,631
Office properties and equipment, net 18,041 15,836
Real estate and other assets acquired in
settlement of loans 6,071 5,871
Other assets 13,411 12,896
Total assets $ 1,892,804 $ 1,839,708
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Deposit accounts $ 1,190,361 $ 1,164,440
Advances from Federal Home Loan Bank 502,500 471,500
Securities sold under agreements to
repurchase 26,068 29,442
Other short-term borrowings 6,000 4,000
Advances by borrowers for taxes and
insurance 2,358 6,503
Outstanding checks 18,324 15,094
Accounts payable and other liabilities 24,127 23,566
Total liabilities 1,769,738 1,714,545
Stockholders' equity:
Serial preferred stock, authorized 3,000,000
shares--none issued
Common stock, $.01 par value, authorized
24,000,000 shares, issued 15,077,883 and
15,033,853 shares at December 31, 1998
and September 30, 1998, respectively 151 150
Additional paid-in capital 30,645 30,308
Retained income, substantially restricted 103,095 100,075
Accumulated other comprehensive income 917 2,195
Treasury stock at cost, 1,591,920 and
1,374,872 shares at December 31, 1998
and September 30, 1998, respectively (11,742) (7,565)
Total stockholders' equity 123,066 125,163
Total liabilities and stockholders' equity $ 1,892,804 $ 1,839,708
The accompanying notes are an integral part of the statements.
<PAGE>
FIRST FINANCIAL HOLDINGS, INC.
CONSOLIDATED STATEMENTS OF INCOME
Three Months Ended
December 31,
1998 1997
(Amounts in thousands,
except per share amounts)
(Unaudited)
INTEREST INCOME
Interest on loans and mortgage-backed
securities $ 33,506 $ 32,092
Interest and dividends on investments 693 992
Other 215 544
Total interest income 34,414 33,628
INTEREST EXPENSE
Interest on deposits 12,621 12,736
Interest on borrowed money 7,145 7,559
Total interest expense 19,766 20,295
NET INTEREST INCOME 14,648 13,333
Provision for loan losses 660 605
Net interest income after provision for loan
losses 13,988 12,728
OTHER INCOME
Net gain on sale of loans 329 77
Gain on investment securities 18 206
Loan servicing fees 312 331
Service charges and fees on deposit
accounts 1,640 1,504
Real estate operations, net 5 (14)
Other 1,259 1,205
Total other income 3,563 3,309
NON-INTEREST EXPENSE
Salaries and employee benefits 6,169 5,499
Occupancy costs 763 748
Marketing 334 356
Depreciation, amortization, rental and
maintenance of equipment 761 665
FDIC insurance premiums 169 180
Merger-related expenses 289
Other 2,187 2,154
Total non-interest expense 10,383 9,891
Income before income taxes 7,168 6,146
Income tax expense 2,509 2,274
NET INCOME $ 4,659 $ 3,872
NET INCOME PER COMMON SHARE $ 0.34 $ 0.29
NET INCOME PER COMMON SHARE, DILUTED $ 0.33 $ 0.28
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,
1998 1997
(Amounts in thousands)
(Unaudited)
OPERATING ACTIVITIES
Net income $ 4,659 $ 3,872
Adjustments to reconcile net income to net
cash provided by operating activities
Depreciation 558 499
Gain on sale of investments and mortgage-
backed securities, net (18) (206)
Gain on sale of real estate owned, net (23) (3)
Amortization of unearned discounts/premiums
on investments (26) 201
Decrease in deferred loan fees and
discounts (195) (383)
Increase in receivables and prepaid
expenses (151) (1,162)
Provision for loan losses 660 605
Write downs of real estate acquired in
settlement of loans 5
Proceeds from sales of loans held for sale 62,789 18,818
Origination of loans held for sale (72,096) (21,789)
Increase (decrease) in accounts payable and
other liabilities 462 (13,627)
Net cash used in operating activities (3,381) (13,170)
INVESTING ACTIVITIES
Proceeds from maturity of investments 4,484 3,904
Net purchase of investments available for sale (3,307) (1,650)
Purchase of FHLB stock (625) (1,953)
(Increase) decrease in loans, net 4,696 (31,699)
Increase in credit card receivables (675) (587)
Repayments on mortgage-backed securities 19,945 8,166
Purchase of mortgage-backed securities
available for sale (52,212) (4,135)
Sales of mortgage-backed securities 5,841
Proceeds from the sales of real estate owned 180 112
Net purchase of office properties and
equipment (2,763) (514)
Net cash used in investing activities (30,277) (22,515)
<PAGE>
FIRST FINANCIAL HOLDINGS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
Three Months Ended
December 31,
1998 1997
(Amounts in thousands)
(Unaudited)
FINANCING ACTIVITIES
Net increase in deposit accounts 25,921 3,351
Net proceeds of FHLB advances 31,000 38,500
Decrease in securities sold under agreements
to repurchase (3,374) (14,318)
Increase in other borrowed money 2,000
Proceeds from sale of common stock 338 391
Dividends paid (1,639) (1,473)
Treasury stock purchased (4,177) (79)
Net cash provided by financing activities 50,069 26,372
Net increase (decrease) in cash and cash
equivalents 16,411 (9,313)
Cash and cash equivalents at beginning of
period 40,392 48,034
Cash and cash equivalents at end of period $ 56,803 $ 38,721
Supplemental disclosures:
Cash paid (received) during the period for:
Interest $ 26,753 $ 24,918
Income taxes (4,850) 461
Loans foreclosed 359 134
Loans securitized into mortgage-backed
securities -- 53,226
Unrealized net gain (loss) on securities
available for sale, net of income tax (1,278) 763
The accompanying notes are an integral part of the statements.
<PAGE>
FIRST FINANCIAL HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 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 thrift 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") and First Southeast
Investor Services, Inc. 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 1998 amounts have been reclassified to
conform with the statement presentations for fiscal 1999.
The results of operations for the three months ended December 31,
1998 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
Basic and diluted earnings per share ("EPS") 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,
1998 1997
Weighted average number of common shares
used in basic EPS 13,621,634 13,489,344
Effect of dilutive stock options 408,152 568,664
Weighted average number of common shares
and dilutive potential common shares
used in diluted EPS 14,029,786 14,058,008
C. COMPREHENSIVE INCOME
Comprehensive income is the change in the Corporation's equity
during the period from transactions and other events and
circumstances from non-owner sources. Total comprehensive income is
comprised of net income and other comprehensive income and for the
three months ended December 31, 1998 and 1997 amounted to $3,381,000
and $4,635,000, respectively.
The Corporation's "other comprehensive income" for the three
months ended December 31, 1998 and 1997 and "accumulated other
comprehensive income" as of December 31, 1998 and 1997 are comprised
solely of unrealized gains and losses on certain investments in
debt and equity securities.
Other comprehensive income for the three months ended December
31, 1998 and 1997 follows (in thousands):
1998 1997
Unrealized holding gains (losses)
arising during period $ (1,278) $ 763
Less reclassification adjustment for
gains included in net income -- --
Net unrealized gains (losses) on
securities $ (1,278) $ 763
D. 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 trust and insurance services through
subsidiaries. The Company has a total of 36 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.
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
GENERAL
Net income for the quarter ended December 31, 1998 improved
20.3% to $4.7 million from net income of $3.9 million in the
comparable quarter in fiscal 1998. The Company completed its
acquisition of Investors on November 7, 1997, accounting for the
acquisition as a pooling of interests. The prior quarter's results
included approximately $289 thousand in non-recurring, before-tax
costs related to the merger with Investors.
Basic earnings per common share improved to $.34 in the quarter
ended December 31, 1998 from $.29 in the quarter ended December 31,
1997. Earnings per share on a diluted basis increased to $.33
compared with $.28 per share in the comparable quarter in fiscal
1998.
Returns on average assets and shareholders' equity were 1.00%
and 15.02%, respectively, in the quarter ended December 31, 1998
compared to the December 31, 1997 quarter's returns of .87% and
13.64%. Excluding the impact of the merger-related expense, returns
on average assets and shareholders' equity were .91% and 14.28% in
1997, respectively.
BALANCE SHEET ANALYSIS
Consolidated assets of the Company totaled $1.9 billion at
December 31, 1998. During the quarter assets increased $53.1
million, or 11.5% on an annualized basis.
Cash, Investment Securities and Mortgage-backed Securities
Cash, deposits in transit and interest-bearing deposits
increased $16.4 million during the three months and totaled $56.8
million at December 31, 1998. Investments held to maturity declined
by $2.5 million while investments available for sale increased $1.3
million. Maturities of investments totaled $4.5 million during the
quarter and purchases totaled $2.0 million. Mortgage-backed
securities totaled $178.9 million at December 31, 1998, increasing
$30.2 million during the first quarter of fiscal 1999. During the
quarter ended December 31, 1998, purchases of mortgage-backed
securities totaled $52.2 million while repayments totaled $19.9
million.
Loans Receivable
Loans receivable, including loans held for sale, totaled $1.6
billion at December 31, 1998, increasing $4.5 million from September 30,
1998. The principal use of the Company's funds is the
origination of mortgage and other loans. The Company originated
$120.9 million (net of refinances) in mortgage loans, $33.4 million
in consumer loans and $11.4 million in commercial business loans
during the three months ending December 31, 1998. Included in
mortgage loan originations were $72.1 million in loans originated
for sale. The Company also originated or purchased $21.8 million in
loans through its regional correspondent originators. Loan sales
during the quarter totaled $63.1 million. Due to current market
interest rates, prepayment speeds have increased in the Company's
existing loans and mortgage-backed securities.
Loans comprise the major portion of interest-earning assets of
the Company, accounting for 83% of assets at December 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):
December 31, September 30, December 31,
1998 1998 1997
Residential (1-4 family) $ 1,158,911 $ 1,135,765 $ 1,015,057
Other residential 39,058 43,161 51,936
Land and lots 85,709 83,857 68,481
Commercial real estate 126,766 141,182 152,026
Consumer 178,779 172,684 152,708
Commercial business 34,343 33,790 33,395
Total gross loans $ 1,623,566 $ 1,610,439 $ 1,473,603
Outstanding commitments to originate mortgage loans and to fund
the undisbursed portion of construction loans amounted to $86.4
million at December 31, 1998. Unused lines of credit on equity
loans, consumer loans, credit cards and commercial loans totaled
$158.5 million as of December 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):
December 31,September 30,December 31,
1998 1998 1997
Non-accrual loans $ 2,784 $ 2,647 $ 5,825
Loans 90 days or more
delinquent and accruing 45 50 68
Renegotiated loans 4,368 4,493 6,623
Real estate and other
assets acquired in
settlement of loans 6,071 5,871 11,716
Total $ 13,268 $ 13,061 $ 24,232
As a percent of net loans
and real estate owned 0.84% 0.83% 1.68%
As a percent of total
assets 0.70% 0.71% 1.35%
Problem assets declined approximately 45% from one year ago
principally due to the August 1998 sale of a shopping center
acquired by foreclosure.
Allowance for Loan Losses
The allowance for loan losses represents a reserve for inherent
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 1998
(amounts in thousands).
Balance Balance
September 30 December 31
1998 Additions Chargeoffs Recoveries 1998
Real estate $ 8,753 $ (89) $ 2 $ 4 $ 8,666
Commercial business 1,087 162 16 1,265
Consumer 2,941 587 247 39 3,320
Total $ 12,781 $ 660 $ 249 $ 59 $ 13,251
The Company's impaired loans totaled $3.0 million at December 31,
1998, $3.0 million at September 30, 1998 and $6.7 million at
December 31, 1997.
Deposits and Borrowings
First Financial's deposit composition at the indicated dates is
as follows (amounts in thousands):
December 31, 1998 September 30, 1998 December 31, 1997
% of % of % of
Balance Total Balance Total Balance Total
Checking accounts $ 184,899 15.53% $ 162,260 13.93 $ 146,834 13.03%
Statement and other
accounts 119,219 10.01 120,927 10.39 138,597 12.29
Money market accounts 162,189 13.63 153,479 13.18 127,496 11.31
Certificate accounts 724,054 60.83 727,774 62.50 714,412 63.37
Total deposits $1,190,361 100.00% $1,164,440 100.00% $1,127,339 100.00%
Deposits increased $25.9 million during the quarter ended
December 31, 1998, principally as a result of a $22.6 million
increase in checking balances. Total borrowings also increased
$29.6 million to $534.6 million as of December 31, 1998.
Stockholders' Equity
Stockholders' equity declined $2.1 million during the first
quarter of fiscal 1999 to total $123.1 million at December 31, 1998.
The Company's capital ratio, total capital to total assets, was
6.50% at December 31, 1998, compared to 6.80% at September 30, 1998.
During the quarter, the Company increased its quarterly cash
dividend to $.12 per share compared with $.105 per share in the most
recent period. During the quarter the Company repurchased 215,500
shares of its common stock as part of its recently announced stock
repurchase program to acquire up to 500,000 shares of its common
stock by June 30, 1999.
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, 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 regulatory capital
requirements for First Federal and Peoples Federal as well as their
capital positions at December 31, 1998:
First Federal Peoples Federal
Percent Percent
of of
Amount Assets Amount Assets
(Amounts in thousands)
Tangible capital $ 83,471 6.62% $ 41,784 6.66%
Tangible capital
requirement 18,916 1.50 9,409 1.50
Excess $ 64,555 5.12% $ 32,375 5.16%
Core capital $ 83,471 6.62% $ 41,784 6.66%
Core capital requirement 50,442 4.00 25,090 4.00
Excess $ 33,029 2.62% $ 16,694 2.66%
Risk-based capital(a) $ 91,628 10.62% $ 42,556 10.99%
Minimum risk-based
capital requirement(a) 69,007 8.00 30,983 8.00
Excess(a) $ 22,621 2.62% $ 11,573 2.99%
(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, 1998.
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 fiscal 1998, the FHLB of Atlanta instituted a general
policy of limiting borrowing capacity to 30% of assets, regardless
of the level of advances that could be supported by available
collateral for such advances. This new policy serves to define an
upper cap for FHLB advances for each of the banking subsidiaries.
As of December 31, 1998, based on asset size of each banking
subsidiary, additional borrowings of $64 million were available
under the current FHLB of Atlanta general policy.
During the current quarter the Company experienced a net cash
outflow from investing activities of $30.3 million, consisting
principally of $52.2 million in mortgage-backed securities
purchased, which were partially offset by repayment of $20.0 million
of mortgage-backed securities and a $4.7 million decline in net
loans receivable. The Company experienced cash outflows of $3.4
million from operating activities principally as a result of the
origination of loans held for sale which exceeded sales during the
quarter. Financing activities resulted in cash inflows of $50.1
million, consisting principally of $31.0 million in FHLB advances
and $25.9 million in increased deposit account balances offset
partially by $3.4 million in net repayments of securities sold under
agreements to repurchase and $4.2 million in stock repurchases.
Parent Company Liquidity
As a holding company, First Financial conducts its business
through its subsidiaries. Unlike the Associations, First Financial
is not subject to any regulatory liquidity requirements. Potential
sources for First Financial's payment of principal and interest on
its borrowings and for its stock repurchase program include (i)
dividends from First Federal and Peoples Federal; (ii) payments from
existing cash reserves and sales of marketable securities; (iii)
interest on its investment securities; and (iv) advances on a bank
line of credit. As of December 31, 1998, First Financial had cash
reserves and existing marketable securities of $3.4 million compared
with $2.3 million at September 30, 1998.
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, 1998.
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
static gap at December 31, 1998 (amounts in thousands):
December 31,
1998
Interest-earning assets maturing or repricing
within one year $ 789,178
Interest-bearing liabilities maturing or repricing
within one year 1,224,427
Cumulative gap $ (435,249)
Gap as a percent of total assets (23.00)%
The Company's one year gap as a percent of total assets changed
from (19.33)% to (23.00)% 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. Fixed-rate borrowings are
assumed to reprice at the earlier of maturity date or potential call
dates.
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, 1998 AND 1997
Net Interest Income
First Financial's net interest income for the three months
ending December 31, 1998 was $14.6 million compared with $13.3
million for the comparable quarter in fiscal 1998. The gross
interest margin increased from 2.82% in the prior quarter to 3.04%
in the current quarter and reflects a decline of .07% between the
two comparable periods in the Company's average yield on earning
assets and a decline of .29% in the Company's average cost of funds.
The following table summarizes rates, yields and average earning
asset and interest-bearing liability balances for the respective
quarters (amounts in thousands):
Quarter Ended December 31,
1998 1997
Average Average
Average Yield/ Average Yield/
Balance Rate Balance Rate
Loans and mortgage-
backed securities $ 1,735,791 7.72% $ 1,628,345 7.82%
Investments and other
interest-earning assets 58,050 6.21 95,801 6.36
Total interest-earning
assets $ 1,793,841 7.67% $ 1,724,146 7.74%
Deposits $ 1,176,605 4.25% $ 1,126,695 4.48%
Borrowings 516,029 5.51 510,520 5.88
Total interest-bearing
liabilities $ 1,692,634 4.63% $ 1,637,215 4.92%
Gross interest margin 3.04% 2.82%
Net interest margin 3.27% 3.09%
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
1998 versus 1997
Volume Rate Total
Interest income:
Loans and mortgage-backed
securities $ 1,872 $ (458) $ 1,414
Investments and other
interest-earning assets (593) (35) (628)
Total interest income 1,279 (493) 786
Interest expense:
Deposits 552 (667) (115)
Borrowings 79 (493) (414)
Total interest expense 631 (1,160) (529)
Net interest income $ 648 $ 667 $ 1,315
Average balances of interest-earning assets increased $69.7
million, or 4.0%, in the December 1998 quarter compared with the
December 1997 quarter, contributing to a $648 thousand increase in
net interest income due to changes in volume. An increase in the
Company's net interest margin from 3.09% in the December 1997
quarter to 3.27% in the December 1998 quarter positively influenced
net interest income by approximately $667 thousand. The Company's
net margin may decline in future quarters 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 $660 thousand, compared to $605 thousand during the
same period in the previous year. Net charge-offs for the current
quarter totaled $190 thousand compared with $876 thousand in the
comparable quarter in fiscal 1998. Total loan loss reserves as of
December 31, 1998 were $13.3 million, or .84% of the total net loan
portfolio compared with $11.8 million, or .83% of the total net loan
portfolio at December 31, 1997.
Other Income/Non-Interest Expenses
Other income, excluding investment securities transactions,
increased $442 thousand, or 14.24%, in the quarter ended December
31, 1998 compared to the December 31, 1997 quarter. Fees on deposit
accounts increased $136 thousand, or 9.0%, 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 1997 quarter. Net gains from
sales of fixed rate loans increased $252 thousand over gains in the
December 1997 quarter. Loans sales in the December 1998 quarter
totaled $63.1 million compared with sales of $18.9 million in the
comparable quarter in fiscal 1998. The Company recorded a gain of
$18 thousand on the sale of investment securities in the December
1998 quarter. Mortgage-backed securities gains of $206 thousand
were recorded in the prior quarter.
Non-interest expense increased $492 thousand, or 4.97%, during
the current quarter. Non-interest expense in the prior 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 $781 thousand, or
8.1%, in the current quarter. The increase in the current quarter
is primarily attributable to higher personnel costs and increased
equipment expenditures.
YEAR 2000
The Company recognizes the importance of ensuring that its
operations will not be adversely impacted by Year 2000 software or
hardware failures. The Company continues to work aggressively on
its comprehensive Year 2000 project. The awareness and assessment
phases of the project have been completed and the remediation,
validation and implementation phases are well underway. The
Company's core business systems (those systems which run on its
internal mainframe) are considered to be the most critical. The
Company's host hardware and operating systems software were upgraded
and compliant by September 30, 1998. The Company utilizes an
integrated banking application system from one vendor for most of
its critical banking applications. This vendor has met the
Company's expectations for delivery of Year 2000 compliant upgrades
to its applications and the Company is currently running these
systems in a "test" environment. Management expects these critical
banking applications will be moved from a test environment into
production before March 31, 1999. Item processing systems were
recently upgraded to be Year 2000 compliant. Throughout 1999, the
Company will continue to test for the Year 2000 and also will be
conducting tests with external entities as they become Year 2000
compliant.
As part of a comprehensive two year project, in June of 1998 the
Company selected software and hardware for new branch automation
systems. Installation of new teller systems, which are Year 2000
compliant, commenced in September 1998 and was completed by December
31, 1998. Upgrades to customer service platform systems will follow
by June 30, 1999. Capitalized costs for the new branch hardware,
software and a frame relay communications network are estimated to
total approximately $2.0 million.
The Company has budgeted approximately $300,000 in estimated
operating costs for Year 2000 readiness, with approximately $150,000
expensed to date. The costs of the Year 2000 project and the dates
scheduled by the Company for being compliant are based on
management's best estimates at this time. These costs are not
deemed to be material to the Company's financial position and are
being expensed as incurred.
The Company continues to remediate non-critical systems and to
evaluate the readiness of its vendors and its customers as a part of
its Year 2000 project plan. The Company is also developing a
comprehensive contingency plan which will outline options in the
event that any mission-critical application or system remediation
efforts are not successful. The Company will also complete a
comprehensive business resumption plan by March 31, 1999. The
Company and its subsidiaries are regulated by the OTS, and thus are
subject to supervisory reviews of Year 2000 conversion efforts.
Additionally, the vendor that provides the Company's integrated
banking application system is also subject to examinations of their
Year 2000 readiness by federal banking regulatory agencies.
Management presently believes that with modifications to
existing systems and, in certain circumstances, conversions to new
systems, the effects of the Year 2000 problem will be minimized.
There can be no assurance, however, that the systems of other
vendors upon which the Company's operations rely, including
essential utilities and telecommunications providers, will be Year
2000 compliant in a timely manner. If the Company's modifications
and conversions of its systems are not made, or are not completed on
a timely basis, or if the Company is subject to failure of a
critical vendor to be compliant, the Year 2000 Issue could have a
material impact on the operations of the Company, which in turn
could have a materially adverse effect on the Company's results of
operations and financial condition.
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, 1998.
<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 3. Quantitative and Qualitative Disclosures about Market Risk
Market risk reflects the risk of economic loss resulting from
adverse changes in market price and interest rates. This risk of
loss can be reflected in diminished current market values and/or
reduced potential net interest income in future periods.
The Corporation's market risk arises primarily from interest
rate risk inherent in its lending, deposit-taking and other funding
activities. The structure of the Corporation's loan, investment,
deposit and borrowing portfolios is such that a significant increase
in interest rates may adversely impact net market values and net
interest income. The Corporation does not maintain a trading
account nor is the Corporation subject to currency exchange risk or
commodity price risk. Responsibility for monitoring interest rate
risk rests with the Asset/Liability Management Committee ("ALCO"),
which is comprised of senior management. ALCO regularly reviews the
Corporation's interest rate risk position and adopts balance sheet
strategies that are intended to optimize net interest income while
maintaining market risk within a set of Board-approved guidelines.
As of December 31, 1998, Management believes that there have
been no significant changes in market risk as disclosed in the
Corporation's Annual Report on Form 10-K for the year ended
September 30, 1998.
Item 4. Submission of Matters to a Vote of Security Holders
At the 1999 First Financial Annual Meeting of Shareholders held
January 27, 1999, there were 12,431,605 shares present in person or
in proxy of the 13,599,525 shares of common stock entitled to vote
at the Annual Meeting.
Proposal I - Election of Directors. The shareholders elected Thomas
J. Johnson, James C. Murray, D. Kent Sharples and D. Van Smith as
directors of the Company for three year terms ending in 2002.
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
Thomas J. Johnson. 12,374,662 56,943
James C. Murray 12,376,647 54,957
D. Kent Sharples 12,377,417 54,187
D. Van Smith 12,374,157 57,447
The continuing directors for the Company are: A. Thomas Hood, A. L.
Hutchinson, Jr., Gary C. Banks, Jr., Paula Harper Bethea and Paul G.
Campbell, Jr.
<PAGE>
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)
(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, 1998
(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
None.
<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 16, 1999 By:/s/ A. Thomas Hood
A. Thomas Hood
President and Chief Executive Officer
Duly Authorized Representative
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