-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, GGt0gQrxXjpFRzvhyii08GScTt7DzqydzIbg1ujzM0665DtAVs3tWIK3VEUtuM+7 AbbtiaO5qs7R3D8wFEkKuA== 0000787075-00-000006.txt : 20000218 0000787075-00-000006.hdr.sgml : 20000218 ACCESSION NUMBER: 0000787075-00-000006 CONFORMED SUBMISSION TYPE: 10-Q/A PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19991231 FILED AS OF DATE: 20000217 FILER: COMPANY DATA: COMPANY CONFORMED NAME: FIRST FINANCIAL HOLDINGS INC /DE/ CENTRAL INDEX KEY: 0000787075 STANDARD INDUSTRIAL CLASSIFICATION: SAVINGS INSTITUTION, FEDERALLY CHARTERED [6035] IRS NUMBER: 570866076 STATE OF INCORPORATION: DE FISCAL YEAR END: 0930 FILING VALUES: FORM TYPE: 10-Q/A SEC ACT: SEC FILE NUMBER: 000-17122 FILM NUMBER: 547969 BUSINESS ADDRESS: STREET 1: 34 BROAD STREET STREET 2: SUITE 10 CITY: CHARLESTON STATE: SC ZIP: 29401 BUSINESS PHONE: 8035295800 MAIL ADDRESS: STREET 1: 34 BROAD STREET CITY: CHARLESTON STATE: SC ZIP: 29401 10-Q/A 1 10-Q FOR QUARTER 12/31/1999 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 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.
FIRST FINANCIAL HOLDINGS, INC. CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION 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.
FIRST FINANCIAL HOLDINGS, INC. CONSOLIDATED STATEMENTS OF INCOME Three Months Ended December 31, 1999 1998 (Dollar amounts in thousands, except per share amounts) (Unaudited) 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.
FIRST FINANCIAL HOLDINGS, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS 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.
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):
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%
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:
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.
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):
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%
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 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
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. 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 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 EX-27 2
9 1000 3-MOS SEP-30-2000 DEC-31-1999 63,232 10,511 0 0 176,994 34,299 34,309 1,822,786 14,786 2,156,926 1,236,069 755,193 0 0 0 0 153 127,739 2,156,926 37,029 741 227 37,997 12,433 22,380 15,617 840 0 2,278 7,280 4,767 0 0 4,767 .36 .35 3.10 5,010 20 2,721 7,751 14,570 774 150 14,786 14,786 0 0
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