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, 1999
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 Identification
incorporation or organization) No.)
34 Broad Street, Charleston, South Carolina 29401
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (843) 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 January 31, 2000
$.01 Par Value 13,367,203
<PAGE>
FIRST FINANCIAL HOLDINGS, INC.
INDEX
PART I - FINANCIAL INFORMATION PAGE NO.
Consolidated Statements of Financial Condition 1
at December 31, 1999 and September 30, 1999
Consolidated Statements of Income for the Three 2
Months Ended December 31, 1999 and 1998
Consolidated Statements of Cash Flows for the 4
Three Months Ended December 31, 1999 and 1998
Notes to Consolidated Financial Statements 5-6
Management's Discussion and Analysis of Results 7-15
of Operations and Financial Condition
PART II - OTHER INFORMATION 16-17
SIGNATURES 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>
<TABLE>
<CAPTION>
FIRST FINANCIAL HOLDINGS, INC.
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
<S> <C> <C>
December 31, September 30,
1999 1999
(Dollar amounts in thousands)
(Unaudited)
ASSETS
Cash and cash equivalents $ 73,743 $ 60,151
Investment securities held to maturity (fair
value of $256 and $258) 249 249
Investment securities available for sale, at
fair value 6,209 7,569
Investment in capital stock of Federal Home Loan
Bank, at cost 34,025 29,925
Loans receivable, net 1,804,416 1,735,608
Loans held for sale 3,584 6,542
Mortgage-backed securities available for sale,
at fair value 170,785 181,217
Mortgage-backed securities held to maturity
(fair value of $28 and $31) 25 28
Accrued interest receivable 11,576 11,495
Office properties and equipment, net 23,808 21,969
Real estate and other assets acquired in
settlement of loans 6,139 5,685
Other assets 22,367 10,314
Total assets $ 2,156,926 $ 2,070,752
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Deposit accounts $ 1,236,069 $ 1,219,848
Advances from Federal Home Loan Bank 672,500 594,500
Securities sold under agreements to repurchase 73,943 73,991
Other short-term borrowings 8,750 8,750
Advances by borrowers for taxes and insurance 2,129 6,945
Outstanding checks 15,222 11,509
Accounts payable and other liabilities 20,421 29,328
Total liabilities $ 2,029,034 $ 1,944,871
Stockholders' equity:
Serial preferred stock, authorized 3,000,000
shares--none issued
Common stock, $.01 par value, authorized
24,000,000 shares, issued 15,244,809 and 15,234,462
shares at December 31, 1999
and September 30, 1999, respectively 153 152
Additional paid-in capital 31,802 31,687
Retained income, substantially restricted 115,811 112,914
Accumulated other comprehensive loss (2,633) (1,631)
Treasury stock at cost, 1,881,449
shares at December 31, 1999 and September 30, 1999 (17,241) (17,241)
Total stockholders' equity 127,892 125,881
Total liabilities and stockholders' equity $ 2,156,926 $ 2,070,752
The accompanying notes are an integral part of the statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
FIRST FINANCIAL HOLDINGS, INC.
CONSOLIDATED STATEMENTS OF INCOME
Three Months Ended
December 31,
1999 1998
(Dollar amounts in thousands,
except per share amounts)
(Unaudited)
<S> <C> <C>
INTEREST INCOME
Interest on loans and mortgage-backed $ 37,029 $ 33,506
securities
Interest and dividends on investment 741 693
securities
Other 227 215
Total interest income 37,997 34,414
INTEREST EXPENSE
Interest on deposits 12,433 12,621
Interest on borrowed money 9,947 7,145
Total interest expense 22,380 19,766
NET INTEREST INCOME 15,617 14,648
Provision for loan losses 840 660
Net interest income after provision for loan 14,777 13,988
losses
OTHER INCOME
Net gain on sale of loans 41 329
Gain on investment and mortgage-backed 18
securities
Loan servicing fees 331 312
Service charges and fees on deposit accounts 1,912 1,640
Real estate operations, net 44 5
Other 1,783 1,259
Total other income 4,111 3,563
NON-INTEREST EXPENSE
Salaries and employee benefits 7,008 6,169
Occupancy costs 906 763
Marketing 339 334
Depreciation, amortization, rental and 874 761
maintenance of equipment
FDIC insurance premiums 203 169
Other 2,278 2,187
Total non-interest expense 11,608 10,383
Income before income taxes 7,280 7,168
Income tax expense 2,513 2,509
NET INCOME $ 4,767 $ 4,659
NET INCOME PER COMMON SHARE $ 0.36 $ 0.34
NET INCOME PER COMMON SHARE DILUTED $ 0.35 $ 0.33
The accompanying notes are an integral part of the statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
FIRST FINANCIAL HOLDINGS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
<S> <C> <C>
Three Months Ended
December 31,
1999 1998
(Dollar amounts in thousands)
(Unaudited)
OPERATING ACTIVITIES
Net income $ 4,767 $ 4,659
Adjustments to reconcile net income to net
cash provided by operating activities
Depreciation 650 558
Gain on sale of investments and mortgage- (18)
backed securities, net
Gain on sale of real estate owned, net (21) (23)
Amortization of unearned discounts/premiums (64) (26)
on investments, net
Increase (decrease) in deferred loan fees and 205 (195)
discounts
Increase in receivables and prepaid expenses (12,134) (151)
Provision for loan losses 840 660
Proceeds from sales of loans held for sale 13,834 62,789
Origination of loans held for sale (10,876) (72,096)
Increase (decrease) in accounts payable and (9,370) 462
other liabilities
Net cash used in operating activities $ (12,169) $ (3,381)
INVESTING ACTIVITIES
Proceeds from maturity of investments $ 1,500 $ 4,484
Net purchase of investments available for sale (3,307)
Purchase of FHLB stock (4,100) (625)
(Increase) decrease in loans, net (70,432) 4,021
Repayments on mortgage-backed securities 8,717 19,945
Purchase of mortgage-backed securities available (52,212)
for sale
Proceeds from the sales of real estate owned 146 180
Net purchase of office properties and equipment (2,489) (2,763)
Net cash used in investing activities $ (66,658) $ (30,277)
FINANCING ACTIVITIES
Net increase in deposit accounts $ 16,221 $ 25,921
Net proceeds of FHLB advances 78,000 31,000
Decrease in securities sold under agreements to (48) (3,374)
repurchase
Increase in other borrowed money 2,000
Proceeds from sale of common stock 116 338
Dividends paid (1,870) (1,639)
Treasury stock purchased (4,177)
Net cash provided by financing activities 92,419 50,069
Net increase in cash and cash equivalents 13,592 16,411
Cash and cash equivalents at beginning of period 60,151 40,392
Cash and cash equivalents at end of period $ 73,743 $ 56,803
Supplemental disclosures:
Cash paid (received) during the period for:
Interest $ 28,554 $ 26,753
Income taxes (1,016) (4,850)
Loans foreclosed 491 359
Loans securitized into mortgage-backed - -
securities
Unrealized net gain loss on securities (1,002) (1,278)
available for sale, net of income tax
The accompanying notes are an integral part of the statements.
</TABLE>
<PAGE>
FIRST FINANCIAL HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1999
(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
1999 amounts have been reclassified to conform with the statement presentations
for fiscal 2000.
The results of operations for the three months ended December 31, 1999 are
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, Year 2000
initiatives 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,
1999 1998
Weighted average number of common shares used
in basic EPS 13,355,663 13,621,634
Effect of dilutive stock options 270,824 408,152
Weighted average number of common shares and dilutive
potential common shares used in diluted EPS 13,626,487 14,029,786
C. COMPREHENSIVE INCOME (LOSS)
Comprehensive income (loss) 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, 1999 and 1998
amounted to $3,765,000 and $3,381,000, respectively.
The Corporation's "other comprehensive income" for the three months ended
December 31, 1999 and 1998 and "accumulated other comprehensive income" as of
December 31, 1999 and 1998 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, 1999 and
1998 follows (in thousands):
Three Months Ended
December 31,
1999 1998
Unrealized holding losses arising during (1,002) (1,278)
period
Less reclassification adjustment for gains -- --
included in net income
Net unrealized losses on securities (1,002) (1,278)
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 39 offices in South Carolina
located in the Charleston Metropolitan area and Horry, Georgetown, Florence and
Beaufort counties, and a loan origination office in coastal Brunswick County,
North Carolina.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
GENERAL
Net income for the quarter ended December 31, 1999 improved 2.3% to $4.8
million from net income of $4.7 million in the comparable quarter in 1998.
Basic earnings per common share increased to $.36 for the current quarter
compared to $.34 in the December 1998 quarter. On a diluted basis, earnings per
common share increased to $.35 from $.33 in the comparable period.
BALANCE SHEET ANALYSIS
Consolidated assets of the Company totaled approximately $2.2 billion at
December 31, 1999. During the quarter ended December 31, 1999 assets increased
$86.2 million, or 16.6% on an annualized basis.
Cash, Investment Securities and Mortgage-backed Securities
Cash and cash equivalents increased $13.6 million, or approximately 22.6%
during the quarter. Cash balances were maintained at higher than historical
levels by the banking subsidiaries as a contingency in preparation for any Year
2000-related customer withdrawals. The Company s investments and mortgage-
backed securities declined by $7.7 million during the quarter primarily from
maturities of investments and from repayments of mortgage-backed securities.
Loans Receivable
Loans receivable, including loans held for sale, totaled $1.8 billion at
December 31, 1999, increasing $65.9 million from September 30, 1999. The
principal use of the Company's funds is the origination of mortgage and other
loans. The Company originated $92.0 million (net of refinances) in mortgage
loans, $43.5 million in consumer loans and $20.0 million in commercial business
loans during the three months ending December 31, 1999. The Company also
originated or purchased $5.6 million in loans through its regional correspondent
originators. Growth in net loans receivable approximated 15.1% on an annualized
basis during the quarter. Due to higher market interest rates, the Company
originated more portfolio loans and less agency-qualifying fixed-rate loans
which are generally sold into the secondary market.
The following table summarizes the composition of the Company's gross loan
portfolio (amounts in thousands):
December 31, September 30, December 31,
1999 1999 1998
Residential (1-4 family) $ 1,328,208 $ 1,296,523 $ 1,158,911
Other residential 46,051 46,254 39,058
Land and lots 85,949 87,367 85,709
Commercial real estate 123,972 123,121 126,766
Consumer 239,374 217,115 178,779
Commercial business 49,440 42,721 34,343
Total gross loans $ 1,872,994 $ 1,813,101 $ 1,623,566
Outstanding commitments to originate mortgage loans and to fund the
undisbursed portion of construction loans amounted to $67.5 million at December
31, 1999. Unused lines of credit on equity loans, consumer loans, credit cards
and commercial loans totaled $198.1 million as of December 31, 1999.
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,
1999 1999 1998
Non-accrual loans $ 5,010 $ 4,466 $ 2,784
Loans 90 days or more
delinquent (1) 20 20 45
Renegotiated loans 2,721 2,724 4,368
Real estate and other assets
acquired in settlement of loans 6,139 5,685 6,071
Total $ 13,890 $ 12,895 $ 13,268
As a percent of net loans and 0.77% 0.74% 0.84%
real estate owned
As a percent of total assets 0.64% 0.62% 0.70%
(1) The Company continues to accrue interest on these loans.
Allowance for Loan Losses
The allowance for loan losses represents a reserve for probable 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.
Following is a summary of the reserve for loan losses for the quarter ended
December 31, 1999 and December 31, 1998 (amounts in thousands):
1999 1998
Balance at beginning of year $ 14,570 $ 12,781
Provision charged to operations 840 660
Recoveries of loans previously charged-off 150 59
Loan losses charged to reserves (774) (249)
Balance at end of period $ 14,786 $ 13,251
Net charge-offs totaled $624 thousand in the current quarter compared to $190
thousand in the comparable quarter in fiscal 1999. Consumer net charge-offs
increased to $519 thousand compared with $208 thousand in the prior period,
principally as a result of higher charge-offs from manufactured housing loans.
The Company's impaired loans totaled $5.0 million at December 31, 1999, $4.5
million at September 30, 1999 and $3.0 million at December 31, 1998.
Deposits and Borrowings
First Financial's deposit composition at the indicated dates is as follows
(amounts in thousands):
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C>
December 31, 1999 September 30, 1999 December 31, 1998
% of % of % of
Balance Total Balance Total Balance Total
Checking accounts $ 200,557 16.22% $ 184,652 15.14% $ 184,899 15.53%
Passbook, statement and 119,128 9.64 124,362 10.19 119,219 10.01
other accounts
Money market account 176,719 14.30 180,328 14.78 162,189 13.63
Certificate accounts 739,665 59.84 730,506 59.89 724,054 60.83
Total deposits $ 1,236,069 100.00% $ 1,219,848 100.00% $ 1,190,361 100.00%
</TABLE>
Deposits increased $16.2 million during the quarter ended December 31, 1999,
principally as a result of growth in checking accounts and certificates of
deposit. A substantial portion of the growth in assets during the quarter was
funded through increases in Federal Home Loan Bank of Atlanta advances, which
increased $78.0 million during the quarter ended December 31, 1999.
Stockholders' Equity
Stockholders' equity increased $2.0 million during the first quarter of
fiscal 2000 to total $127.9 million at December 31, 1999. The Company's capital
ratio, total capital to total assets, was 5.93% at December 31, 1999, compared
to 6.08% at September 30, 1999. During the quarter, the Company increased its
dividend to stockholders to $.14 compared with $.12 per share in the first
quarter of fiscal 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,
1999, 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, 1999:
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
First Federal Peoples Federal
Percent
Percent of
Amount of Assets Amount Assets
(Amounts in thousands)
Tangible capital $ 91,128 6.29% $ 46,123 6.46%
Tangible capital requirement 21,722 1.50 10,717 1.50
Excess $ 69,406 4.79% $ 35,406 4.96%
Core capital $ 91,128 6.29% $ 46,123 6.46%
Core capital requirement 57,925 4.00 28,578 4.00
Excess $ 33,203 2.29% $ 17,545 2.46%
Risk-based capital(a) $ 100,126 10.35% $ 47,589 10.53%
Minimum risk-based capital requirement(a) 77,359 8.00 36,150 8.00
Excess(a) $ 22,767 2.35% $ 11,439 2.53%
(a) Based on total risk-weighted assets.
</TABLE>
For a complete discussion of capital issues, refer to "Capital Requirements"
and "Limitations on Capital Distributions" in the Company's 10-K for the fiscal
year ending September 30, 1999.
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, exceed the required levels.
The Associations' primary sources of funds consist of retail and commercial
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 is 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 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 $66.7 million, consisting principally of loans
originated and purchased for investment,, which were partially offset by
maturities of investment and mortgage-backed securities. Included in investing
activities was $2.5 million in net purchases of office properties and equipment.
The Company had two branch offices in Hilton Head, South Carolina, under
construction during the quarter and also made additional investments in
potential branch sites. The Company experienced cash outflows of $12.2 million
from operating activities and cash inflows of $92.4 million from financing
activities. Financing activities consisted principally of $78.0 million in FHLB
advances and $16.2 million in increased deposit account balances.
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 future funding
needs 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, 1999, First Financial had cash reserves and existing
marketable securities of $1.8 million compared with $1.6 million at September
30, 1999.
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,
1999.
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, 1999 (amounts in thousands):
December 31,
1999
Interest-earning assets maturing or repricing $ 736,190
within one year
Interest-bearing liabilities maturing or repricing 1,417,553
within one year
Cumulative gap $ (681,363)
Gap as a percent of total assets (31.59)%
The Company's one year gap as a percent of total assets changed from (31.25)%
to (31.59)% 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, 1999 AND 1998
Net Interest Income
First Financial's net interest income for the three months ending December
31, 1999 was $15.6 million compared with $14.6 million for the comparable
quarter in fiscal 1999. The gross interest margin declined from 3.04% in the
prior quarter to 2.91% in the current quarter. The net yield on earning assets
also declined to 3.10% from 3.27% in the prior quarter. Beginning in June of
1999, the Federal Reserve Open Market Committee has raised short-term interest
rates in four stages totaling one hundred basis points. Because of the short-
term nature of the Company s liability funding, the average cost of interest-
bearing liabilities remained relatively flat when comparing the two periods,
after declining in certain intervening quarters. The average yield on interest-
earning assets declined from 7.67% in the quarter ended December 31, 1998 to
7.53% in the current quarter, indicating the Company's lag in repricing of
interest-earning assets compared to the repricing of interest-earning
liabilities. During the quarter ended December 31, 1999, the Company also
maintained higher average cash balances as a Year 2000 contingency.
The following table summarizes rates, yields and average earning asset and
interest-bearing liability balances for the respective quarters (amounts in
thousands):
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
Quarter Ended December 31,
1999 1998
Average Average Average Average
Balance Yield/ Balance Yield/
Rate Rate
Loans and mortgage-backed securities $ 1,963,043 7.55% $ 1,735,791 7.72%
Investments and other interest-earning
assets 55,055 6.96 58,050 6.21
Total interest-earning assets $ 2,018,098 7.53% $ 1,793,841 7.67%
Deposits $ 1,228,077 4.02% $ 1,176,605 4.25%
Borrowings 693,749 5.69 516,029 5.51
Total interest-bearing liabilities $ 1,921,826 4.62% $ 1,692,634 4.63%
Gross interest margin 2.91% 3.04%
Net interest margin 3.10% 3.27%
</TABLE>
The following rate/volume analysis depicts the increase (decrease) in net
interest income attributable to interest rate and volume fluctuations compared
to the prior period (amounts in thousands):
<TABLE>
<CAPTION>
Quarter Ended December 31
<S> <C> <C> <C>
1999 versus 1998
Volume Rate Total
Interest income:
Loans and mortgage-backed securities $ 4,289 $ (766) $ 3,523
Investments and other interest-earning assets (48) 108 60
Total interest income $ 4,241 $ (658) $ 3,583
Interest expense:
Deposits $ 526 $ (714) $ (188)
Borrowings 2,559 243 2,802
Total interest expense 3,085 (471) 2,614
Net interest income $ 1,156 $ (187) $ 969
</TABLE>
Average balances of interest-earning assets increased $224.3 million, or
12.5%, in the December 1999 quarter compared with the December 1998 quarter,
contributing to a $1.2 million increase in net interest income due to changes
in volume. A decline in the Company's net interest margin from 3.27% in the
December 1998 quarter to 3.10% in the December 1999 quarter reduced net interest
income by approximately $187 thousand. There can be no assurance that the
Company's net margin will not decline based on the current spread between short
and long-term treasury 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 $840 thousand, compared to $660 thousand during the same period in the
previous year. Net charge-offs for the current quarter totaled $624 thousand
compared with $190 thousand in the comparable quarter in fiscal 1999. The
increase in charge-offs in the December 1999 quarter was principally
attributable to higher consumer loan losses. Total loan loss reserves as of
December 31, 1999 were $14.8 million, or .82% of the total net loan portfolio
compared with $13.3 million, or .84% of the total net loan portfolio at December
31, 1998.
Other Income/Non-Interest Expenses
Other income increased $548 thousand, or 15.4%, in the December 1999 quarter
compared to the December 31, 1998 quarter. Proceeds from the sales of loans
held for sale totaled $13.8 million in the December 1999 quarter, resulting in
gains of $41 thousand on sales. Loan sales of $62.8 million in the comparable
quarter in fiscal 1999 resulted in gains of $329 thousand. Fees on deposit
accounts improved by 16.6% to $1.9 million in the quarter ended December 31,
1999 as compared with the quarter ended December 31, 1998. Brokerage and
insurance fees improved $277 thousand, or approximately 48%, during the current
quarter compared to the comparable quarter ended December 31, 1998.
Non-interest expense increased $1.2 million, or 11.8%, during the current
quarter. Included in the increase in the current quarter is higher personnel
costs which increased $839 thousand and higher occupancy and equipment expenses
which increased $143 thousand and $113 thousand, respectively, in the current
period. The increase in personnel costs was principally due to expansion of
customer services, the staffing of two additional retail offices, and increased
staffing and overtime costs related to Year 2000 initiatives.
Income Tax Expense
During the first quarter of fiscal 2000 and 1999 the Company's effective tax
rate approximated 35%. The actual tax provision was $2.5 million in both
periods.
Year 2000 Readiness Disclosure
The Company continues to monitor its performance in relationship to its
comprehensive project concerning the impact of the Year 2000. "Year 2000
Readiness" is the ability of the Company's internal computer systems (hardware,
software and embedded microchips) to process data involving dates or portions of
dates before, during and after January 1, 2000, including leap year
calculations, without malfunction. A comprehensive discussion of the Company's
Year 2000 project is included in the Company s Annual Report on Form 10-K for
the year ended September 30, 1999. Year 2000 compliance is critical to the
Company's results of operations and financial condition.
The Company is pleased to report that its hardware and software systems and
those of its critical vendors performed as expected over the end of the year and
have continued to process well in Year 2000. There are additional critical
dates associated with the Year 2000 project including the following: February
29, 2000; March 31, 2000; December 31, 2000; and January 1, 2001. The Company
will continue to test its automated systems and confirm critical vendor
performance as these dates approach.
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, 1999.
<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, 1999, 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, 1999.
Item 4 - Submission of Matters to a Vote of Security Holders
At the 2000 First Financial Annual Meeting of Shareholders held January 26,
2000, there were 11,103,823 shares present in person or in proxy of the
13,355,789 shares of common stock entitled to vote at the Annual Meeting.
Proposal I - Election of Directors. The shareholders elected A. Thomas Hood and
A. L. Hutchinson, Jr. as directors of the Company for three year terms ending in
2003. 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
A. Thomas Hood. 11,001,529 102,294
A. L. Hutchinson, Jr. 11,001,791 102,032
The continuing directors for the Company are: Gary C. Banks, Jr., Paula
Harper Bethea and Paul G. Campbell, Jr., Thomas J. Johnson, James C. Murray, D.
Kent Sharples and D. Van Smith.
Proposal II Ratification of the amendment to the 1994 Employee Stock Purchase
Plan extending the termination date to July 27, 2004, as adopted by the Board of
Directors on May 27, 1999. The shareholders approved the ratification of the
amendment with the totals votes as follows:
For 10,804,263
Withheld 299,560
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)
(3.4) Amendment to Registrant's Certificate of Incorporation (3)
(3.6) Amendment to Registrant s Bylaws (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)
(10.12) Investors Savings Bank of South Carolina, Inc. Incentive Stock
Option Plan (12)
(10.13) Borrowing Agreement with Bankers Bank (13)
(10.14) Amendment to the 1994 Employee Stock Purchase Plan (14)
(22) Subsidiaries of the Registrant (4)
(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 Quarterly Report on
Form 10-Q for the quarter ended December 31, 1997
(4)Incorporated by reference to the Registrant's Annual Report on
Form 10-K for the year ended September 30, 1999
(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 for the year ended September 30, 1995.
(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.
(12)Incorporated by reference to the Registrant's Registration Statement
on Form S-8 File No. 333-45033.
(13)Incorporated by reference to the Registrant's Quarterly Report on
Form 10-Q for the quarter ended June 30, 1998.
(14)Incorporated by reference to the Registrant's Proxy Statement for
the Annual Meeting of Stockholders held on January 26, 2000.
Reports on Form 8-K
None
<PAGE>
FIRST FINANCIAL HOLDINGS, INC.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
First Financial Holdings, Inc.
Date: February 14, 2000 By: /s/ Susan E. Baham
Susan E. Baham
Senior Vice President and
Chief Financial Officer
<TABLE> <S> <C>
<ARTICLE> 9
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> SEP-30-2000
<PERIOD-END> DEC-31-1999
<CASH> 63,232
<INT-BEARING-DEPOSITS> 10,511
<FED-FUNDS-SOLD> 0
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 176,994
<INVESTMENTS-CARRYING> 34,299
<INVESTMENTS-MARKET> 34,309
<LOANS> 1,822,786
<ALLOWANCE> 14,786
<TOTAL-ASSETS> 2,156,926
<DEPOSITS> 1,236,069
<SHORT-TERM> 755,193
<LIABILITIES-OTHER> 0
<LONG-TERM> 0
0
0
<COMMON> 153
<OTHER-SE> 127,739
<TOTAL-LIABILITIES-AND-EQUITY> 2,156,926
<INTEREST-LOAN> 37,029
<INTEREST-INVEST> 741
<INTEREST-OTHER> 227
<INTEREST-TOTAL> 37,997
<INTEREST-DEPOSIT> 12,433
<INTEREST-EXPENSE> 22,380
<INTEREST-INCOME-NET> 15,617
<LOAN-LOSSES> 840
<SECURITIES-GAINS> 0
<EXPENSE-OTHER> 2,278
<INCOME-PRETAX> 7,280
<INCOME-PRE-EXTRAORDINARY> 4,767
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 4,767
<EPS-BASIC> .36
<EPS-DILUTED> .35
<YIELD-ACTUAL> 3.10
<LOANS-NON> 5,010
<LOANS-PAST> 20
<LOANS-TROUBLED> 2,721
<LOANS-PROBLEM> 7,751
<ALLOWANCE-OPEN> 14,570
<CHARGE-OFFS> 774
<RECOVERIES> 150
<ALLOWANCE-CLOSE> 14,786
<ALLOWANCE-DOMESTIC> 14,786
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
