-----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, WlX+C+WGVvYM1/nPWsW9Zf+mBq22yxYBF3VNiKc0F1qar4t0wu7WqsEgrJ+mu1HC fO7bOqCMH7afku+xab2oAw== 0000787075-96-000024.txt : 19961231 0000787075-96-000024.hdr.sgml : 19961231 ACCESSION NUMBER: 0000787075-96-000024 CONFORMED SUBMISSION TYPE: 10-K405 PUBLIC DOCUMENT COUNT: 6 CONFORMED PERIOD OF REPORT: 19960930 FILED AS OF DATE: 19961227 SROS: NASD 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-K405 SEC ACT: 1934 Act SEC FILE NUMBER: 000-17122 FILM NUMBER: 96687036 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-K405 1 UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-K X ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the Fiscal Year Ended September 30, 1996 OR TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 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: (803)529-5800 Securities registered pursuant to Section 12(b) of the Act: None Securities registered pursuant to Section 12(g) of the Act: Common Stock, par value $.01 per share (Title of Class) 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 [ ] Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [X] As of December 13, 1996, there were issued and outstanding 6,311,022 shares of the Registrant's common stock. The registrant's common stock is traded over-the-counter and is listed on the National Association of Securities Dealers Automated Quotation ("Nasdaq") National Stock Market under the symbol "FFCH." The aggregate market value of the common stock held by nonaffiliates of the registrant, based on the closing sales price of the registrant's common stock as quoted on the Nasdaq Stock Market on December 13, 1996, was $146,731,262 (6,311,022 shares at $23.25 per share). It is assumed for purposes of this calculation that none of the registrant's officers, directors and 5% stockholders are affiliates. DOCUMENTS INCORPORATED BY REFERENCE Portions of the Proxy Statement for the 1997 Annual Meeting of Stockholders. (Part II and Part III) PART I Item 1. BUSINESS GENERAL First Financial Holdings, Inc. ("First Financial" or the "Company") was incorporated in the State of Delaware on September 3, 1987, for the purpose of becoming a savings and loan holding company for First Federal Savings and Loan Association of Charleston ("First Federal"). On January 27, 1988, the stockholders of First Federal approved the reorganization of First Federal into the holding company form of ownership. The reorganization was completed on June 30, 1988, on which date First Federal became the wholly-owned subsidiary of the Company and stockholders of First Federal exchanged their shares of First Federal Common Stock for shares of the Company's Common Stock. Prior to completion of the reorganization, the Company had no assets or liabilities and engaged in no business activities. Subsequent to the holding company reorganization, the Company has not engaged in any significant activity other than holding the stock of First Federal and certain passive investment activities. On October 9, 1992, the Company consummated the acquisition of Peoples Federal Savings and Loan Association, Conway, South Carolina ("Peoples Federal") upon the voluntary supervisory conversion of Peoples Federal from a federal mutual to a federal stock savings and loan association, resulting in Peoples Federal being held as a wholly-owned subsidiary of First Financial. As a result of the acquisition of Peoples Federal, First Financial became a multiple savings and loan holding company for First Federal and Peoples Federal (together, the "Associations"). First Federal, chartered in 1934, is the largest financial institution headquartered in the Charleston, South Carolina metropolitan area and the second largest thrift institution in South Carolina. First Federal is a federally-chartered stock savings and loan association that conducts its business through its home office in the city's historic district, twenty branch offices in the three surrounding counties and two full-service offices in Georgetown, South Carolina. During 1996 First Federal relocated its Highway 61 office to Magwood Road at the Highway 61 Expressway. Peoples Federal was chartered in 1914 and is a federal stock savings and loan association headquartered in Conway, South Carolina. Peoples Federal is the result of a merger of Peoples Federal of Conway and Peoples Federal of Florence in 1982. Peoples Federal conducts its business through ten branch offices, a loan production office in Sunset Beach, North Carolina and its main office in Conway. Branches are located in the Myrtle Beach/Grand Strand area (4), Florence (3), Conway (2) and Loris (1). During 1996 Peoples Federal opened its first in-store branch in a Wal-Mart superstore located in Surfside Beach, South Carolina. The business of the Company consists primarily of acting as financial intermediary by attracting savings deposits from the general public and using such funds, together with borrowings and other funds, to originate first mortgage loans on residential properties located in its primary market areas. The Company also makes construction and consumer and other non-mortgage loans and invests in mortgage-backed securities, federal government and agency obligations, money market obligations and certain corporate obligations. Through subsidiaries of the Associations, the Company also engages in property and casualty insurance, brokerage of investment products and certain data processing activities. None of the subsidiary activities is considered to constitute a business segment. First Federal and Peoples Federal are members of the Federal Home Loan Bank ("FHLB") System and their savings deposits are insured by the Federal Deposit Insurance Corporation ("FDIC") under the Savings Association Insurance Fund ("SAIF") up to applicable limits. The Associations are subject to comprehensive regulation, examination and supervision by the Office of Thrift Supervision ("OTS") and the FDIC. The Associations are subject to capital requirements under OTS regulations, and must satisfy three minimum capital requirements: core capital, tangible capital and risk-based capital. For more information regarding the Associations' compliance with capital requirements, see "Regulation of the Associations -- Capital Requirements" contained herein and Note 17 of Notes to Consolidated Financial Statements, which are contained in the Company's annual meeting proxy statement. LENDING ACTIVITIES General At September 30, 1996, the Company s net loan portfolio totaled approximately $1.3 billion, or 82.79% of the Company's total assets. The Company s principal lending activity is the origination of loans secured by single-family residential real estate. Prior to fiscal 1993, the Company s lending activities also included the origination of significant amounts of income property loans secured by multi-family and non-residential real estate. In that year, First Federal curtailed loans made on nonresidential properties primarily due to adverse changes in market conditions and increased levels of nonperforming assets arising from this type of lending. Peoples Federal had curtailed such lending before its acquisition by the Company in early fiscal 1993. Thus, in the period since 1992, the Company has shifted its focus to concentrate on single-family residential mortgage lending and consumer lending. The Company also offers commercial business loans of the type traditionally offered by commercial banks. Although federal regulations allow the Company to originate loans nationwide, the Company has originated substantially all of its loans in its primary market areas of Charleston, Dorchester, Berkeley, Georgetown, Horry and Florence counties in South Carolina and Brunswick County in North Carolina. Since 1995 the Company also has had a correspondent lending program allowing for the purchase of loans originated by unaffiliated mortgage lenders and brokers in South Carolina and North Carolina. Loans originated by these lenders and brokers are subject to the same underwriting standards as those used by the Company in its own lending and are accepted for purchase only after approval by the Company s underwriters. Purchases under this program totaled $37.9 million in fiscal 1996. The Company makes both fixed-rate and adjustable-rate loans and generally retains the servicing on loans originated. A large percentage of single-family loans are made pursuant to certain guidelines which will permit the sale of such loans in the secondary market to government agencies or private investors. The Company s primary single-family product is the conventional loan. However, loans are also originated which are either partially guaranteed by the Veterans Administration ("VA") or fully insured by the Federal Housing Administration ("FHA"). Set forth below is selected data relating to the aggregate composition of the Company s loan and mortgage-backed securities portfolios on the dates indicated.
At September 30, 1996 1995 1994 1993 1992 % of % of % of % of % of Port- Port- Port- Port- Port- Amount folio Amount folio Amount folio Amount folio Amount folio (dollar amounts in thousands) TYPE OF LOAN Conventional real estate loans: Loans on existing property $1,125,230 87.9% $ 928,084 85.7% $818,564 85.0% $818,320 84.6% $599,670 79.2% Construction loans 46,727 3.7 39,116 3.6 40,827 4.2 23,989 2.5 26,242 3.5 Commercial business loans 26,634 2.1 27,825 2.6 25,403 2.7 29,189 3.0 38,269 5.1 Consumer loans: Home equity 47,633 3.7 47,015 4.3 51,486 5.3 58,109 6.0 61,595 8.1 Mobile homes 21,925 1.7 25,027 2.3 28,276 2.9 31,476 3.2 33,622 4.4 Credit Cards 10,453 0.8 9,146 0.8 8,115 0.8 7,354 0.8 7,554 1.0 Savings account loans 5,430 0.4 5,262 0.5 4,677 0.5 4,751 0.5 1,991 0.3 Other consumer loans 34,844 2.7 28,131 2.6 19,096 2.0 15,872 1.6 8,650 1.1 Total gross loans receivable 1,318,876 103.0 1,109,606 102.4 996,444 103.4 989,060 102.2 777,593 102.7 Allowance for loan losses (11,202) (0.9) (10,637) (1.0) (10,728) (1.1) (10,742) (1.1) (4,837) (0.7) Loans in process (26,652) (2.0) (14,282) (1.3) (20,213) (2.1) (7,742) (0.8) (12,201) (1.6) Deferred loan fees and discounts (912) (0.1) (1,320) (0.1) (2,137) (0.2) (2,969) (0.3) (3,107) (0.4) Loans receivable,net $1,280,110 100.0% $1,083,367 100.0% $963,366 100.0% $ 967,607 100.0% $757,448 100.0% TYPE OF SECURITY Real estate: Single-family residential $ 843,890 65.9% $ 644,706 59.5% $551,826 57.3% $ 498,858 51.6% $311,853 41.2% 2- to 4-family 59,379 4.7 53,736 5.0 31,604 3.3 32,087 3.3 29,762 3.9 Other dwelling units 56,629 4.4 57,269 5.3 59,310 6.2 61,898 6.4 56,331 7.5 Commercial, industrial, or land 212,059 16.6 211,489 19.5 216,651 22.5 249,466 25.8 227,966 30.1 Commercial business loans 26,634 2.1 27,825 2.6 25,403 2.6 29,189 3.0 38,269 5.1 Consumer loans: Home equity 47,633 3.7 47,015 4.3 51,486 5.3 58,109 6.0 61,595 8.1 Mobile homes 21,925 1.7 25,027 2.3 28,276 2.9 31,476 3.2 33,622 4.4 Credit Cards 10,453 0.8 9,146 0.8 8,115 0.8 7,354 0.8 7,554 1.0 Savings account loans 5,430 0.4 5,262 0.5 4,677 0.5 4,751 0.5 1,991 0.3 Other consumer 34,844 2.7 28,131 2.6 19,096 2.0 15,872 1.6 8,650 1.1 Total gross loans receivable 1,318,876 103.0 1,109,606 102.4 996,444 103.4 989,060 102.2 777,593 102.7 Allowance for loan losses (11,202) (0.9) (10,637) (1.0) (10,728) (1.1) (10,742) (1.1) (4,837) (0.7) Loans in process (26,652) (2.0) (14,282) (1.3) (20,213) (2.1) (7,742) (0.8) (12,201) (1.6) Deferred loan fees and discounts (912) (0.1)% (1,320) (0.1) (2,137) (0.2) (2,969) (0.3) (3,107) (0.4) Loans receivable, net $1,280,110 100.0% $1,083,367 100.0% $963,366 100.0% $ 967,607 100.0% $757,448 100.0%
The Company's total loan originations during 1996 increased $136.1 million, or 53.8%, from 1995. Management believes the increase is due principally to moderately lower mortgage interest rates which resulted in an increase in refinancing activity and the strong housing markets in which the Company operates. During fiscal 1995, loans originated declined by $11.9 million over 1994 originations. The following table shows, at September 30, 1996, the dollar amount of adjustable-rate loans and fixed-rate loans in the Company's portfolio based on their contractual terms to maturity. The amounts in the table do not include adjustments for undisbursed amounts in loans in process, deferred loan fees and discounts or allowances for loan losses. Demand loans, loans having no stated schedule of repayments and no stated maturity, and overdrafts are reported as due in one year or less. Contractual principal repayments of loans do not necessarily reflect the actual term of the Company's loan portfolios. The average life of mortgage loans is substantially less than their contractual terms because of loan prepayments and because of enforcement of due-on-sale clauses, which gives the Company the right to declare a loan immediately due and payable if, among other things, the borrower sells the real property subject to the mortgage. The average life of mortgage loans tends to increase when current market rates on mortgage loans substantially exceed rates on existing mortgage loans. Correspondingly, when market rates on mortgages decline below rates on existing mortgage loans, the average life of these loans tends to be reduced.
Over Over Ten Over One Over Two Three toOver Five to Over Within to Two to Three Five to Then Fifteen Fifteen Consolidated One Year Years Years Years Years Years Years Total (dollars in thousands) Real estate mortgages: Adjustable-rate $ 4,786 $ 4,158 $ 1,865 $ 8,027 $ 22,039 $ 57,850 $569,924 $ 668,649 Fixed-rate 28,831 9,681 13,271 21,928 35,835 113,864 279,898 503,308 Consumer loans: Adjustable-rate 41,768 202 411 1,475 7,164 5,581 3,853 60,454 Fixed-rate 18,237 5,008 6,774 15,642 12,464 1,507 199 59,831 Commercial business loans: Adjustable-rate 13,548 2,251 986 1,678 726 19,189 Fixed-rate 5,138 1,330 428 519 30 7,445 Total $112,308 $ 22,630 $ 23,735 $ 49,269 $ 77,502 $178,832 $854,600 $ 1,318,876
Residential Mortgage Lending At September 30, 1996, the Company s real estate loans totaled approximately $1.2 billion, or 88.86% of gross loans receivable. One- to four-family residential mortgage loans totaled $903.3 million or 77.07% of the Company's real estate loans and 68.49% of total gross loans receivable. The Company offers adjustable-rate ("ARM") and fixed-rate mortgage loans with terms ranging from 10 years to 30 years. The ARMs currently offered by the Company have up to 30-year terms and interest rates which adjust annually or every three, five or seven years in accordance with a designated index. ARMS may be originated with a 1% or 2% cap on any increase or decrease in the interest rate per year, with a 4%, 5% or 6% limit on the amount which the interest rate can increase or decrease over the life of the loan. The Company emphasizes the origination of ARMs rather than long-term, fixed-rate mortgage loans for inclusion in its portfolios. In order to encourage the origination of ARMs with interest rates which adjust annually, the Company, like many of its competitors, may offer a rate of interest on such loans below the fully-indexed rate for the initial period of the loan. The Company presently offers single-family ARMs indexed to the one year constant maturity treasury index. While these loans are expected to adjust more quickly to changes in market interest rates, they may not adjust as rapidly as changes occur in the Company s cost of funds. Included in the Company s single-family ARMs are loans originated in the past which reprice to spreads over cost of funds indices. The Company underwrites ARMs based on the fully-indexed rate. The Company s fixed-rate residential mortgage loans have terms ranging from 10 to 30 years and require level monthly payments sufficient to amortize principal over the life of the loan. The Company originates residential mortgage loans with loan-to-value ratios up to 95%. Generally, on mortgage loans exceeding 80% loan-to-value ratio, the Company requires private mortgage insurance which protects the Company against losses of at least 20% of the mortgage loan amount. All property securing real estate loans made by the Company is appraised either by appraisers regularly employed by the Company or by independent appraisers selected by the Company. Loans are usually made pursuant to certain guidelines which will permit the sale of such loans in the secondary market. The Company offers various other residential lending programs, including bi-weekly mortgage loans and two-step mortgage loans originated principally for first-time home buyers. The Company also offers, as part of its Community Reinvestment Act program, more flexible underwriting criteria to broaden the availability of mortgage loans in the communities it serves. The majority of the Company's residential construction loans are made to finance the construction of individual owner-occupied houses up to 90% loan-to-value. These construction loans are generally structured to be converted to permanent loans at the end of the construction phase. Loan proceeds are disbursed in increments as construction progresses and as inspections warrant. As part of its residential lending program, the Company also offers construction loans with 75% loan-to-value ratios to qualified builders. These construction loans are generally at a competitive fixed rate of interest for one- or two-year periods. The Company also offers lot loans intended for residential use. Such loans may be on a fixed-rate or adjustable- rate basis. Commercial Real Esate, Multifamily and Land Lending At September 30, 1996, the Company s commercial real estate portfolio totaled $173.7 million, or 13.17% of total gross loans and 14.82% of real estate loans. Its multi-family portfolio totaled $56.6 million, or 4.29% of total gross loans and 4.83% of total real estate loans. Loans made with land as security totaled $38.4 million, or 2.91% of total gross loans and 3.27% of total real estate loans. The Company originates both short-term construction and permanent loans secured by industrial warehouses, medical and professional office buildings, multi-family apartment projects and mid-rise office buildings located in its primary lending areas of Charleston, Dorchester, Berkeley, Georgetown, Horry and Florence counties. Approximately 98% of the existing commercial and multi-family real estate loans were made in these counties. Because of market conditions, since 1993 the Company has limited growth in loans made on commercial real estate, multi-family properties and on land acquisition and development projects and placed greater emphasis on single-family real estate lending. Interest rates charged on permanent commercial real estate loans are determined by market conditions existing at the time of the loan commitment. Such loans are generally made on an adjustable-rate basis, ranging from one- half to two percent above the prime lending rate. Permanent commercial real estate loans generally have been made for terms of ten years with provisions for interest rate adjustments semi-annually or annually and payments based on 30-year amortizations. Payment adjustments occur annually. In the past the Company originated a substantial portion of its commercial real estate loans at rates generally two to three percent above its prevailing cost of funds. As such loans reach call or loan review dates or refinance, it is the Company's current policy to negotiate most of these loans to new terms based on the prime lending rate as the index. Commercial and multi-family mortgage lending generally involves greater risk than single-family lending. Such lending typically involves larger loan balances to single borrowers or groups of related borrowers than single-family lending. Furthermore, the repayment of loans secured by income-producing properties is typically dependent upon the successful operation of the related real estate project. If the cash flow from the property is reduced (for example, if leases are not obtained or renewed), the borrower s ability to repay the Company s loans may be impaired. These risks can be affected significantly by supply and demand in the market for the type of property securing the loan and by general economic conditions, and commercial and multi-family loans may thus be subject, to a greater extent than single-family property loans to adverse conditions in the economy. Consumer Lending Federal regulations permit the Company to make secured and unsecured consumer loans up to 35% of their assets. In addition, the Associations have lending authority above the 35% category for certain consumer loans, such as home equity loans, property improvement loans, mobile home loans and loans secured by savings accounts. The Company's gross consumer loans totaled $120.3 million at September 30, 1996, or 9.12% of gross loans receivable. The largest component of consumer lending is comprised of single-family home equity lines of credit and other equity loans, currently totaling $47.6 million, or 39.60% of all consumer loans. Remaining consumer loans primarily consist of loans secured by mobile homes, boats, automobiles and credit cards. Commercial Business Lending The Company is permitted under federal law to make secured or unsecured loans for commercial, corporate business and agricultural purposes including issuing letters of credit. The aggregate amount of such loans outstanding generally may not exceed 10% of an institution's assets. The Company s commercial business loans are generally made on a secured basis with terms that usually do not exceed five years. Most of the Company s commercial business loans to date have interest rates that change at periods ranging from 30 days to one year based on the Company s prime lending rate. Some loans have fixed interest rates determined at the time of takedown. At September 30, 1996, the Company s commercial business loans outstanding were $26.6 million, which represented 2.02% of total gross loans receivable. Loan Sales and Servicing While the Company originates adjustable-rate loans for its own portfolio, fixed-rate loans are generally made on terms that will permit their sale in the secondary market. The Company participates in secondary market activities by selling whole loans and participations in loans to the Federal National Mortgage Association ("FNMA"), the Federal Home Loan Mortgage Corporation ("FHLMC"), as well as other institutional investors. This practice enables the Company to satisfy the demand for such loans in its local communities, to meet asset and liability objectives of management and to develop a source of fee income through loan servicing. At September 30, 1996, the Company was servicing loans for others of $216.1 million. Based on the current level of market interest rates and other factors, the Company presently intends to sell selected current originations of conforming 30-year and 15-year conventional fixed-rate mortgage loans. The Company s policy with respect to the sale of fixed-rate loans is dependent to a large extent on the general level of market interest rates. Sales of fixed-rate residential loans totaled $6.9 million in 1996, $1.5 million in 1995 and $79.2 million in 1994. At September 30, 1996, the Company had $1.4 million in loans held for sale. Loan Solicitation, Processing and Underwriting The Company actively solicits loan applications from existing customers, local real estate agents, builders, real estate developers, and various other persons. Upon receipt of a loan application from a prospective borrower, a credit report is ordered to verify specific information relating to the loan applicant's employment, income and credit standing. An appraisal of the real estate intended to secure the proposed loan is undertaken by an independent appraiser, who is approved by the Company in accordance with current regulations and its respective policies, or by an in-house appraiser. As soon as the required information is obtained and the appraisal is completed, the loan is submitted to the Company s loan underwriting officers who make a recommendation to the Associations Loan Committees for approval or disapproval. One program offered by First Federal, the Quick Close Mortgage, eliminates the requirement for a standard appraisal and substitutes an internal property evaluation performed by First Federal personnel. This program is only available to loans with loan to value ratios of 90% or less and for loan originations retained in First Federal's portfolio. Stringent underwriting standards also apply. When considering loans with a higher degree of risk, additional collateral may be obtained or mortgage insurance or other guarantees may be considered necessary by the Company. Loans over a specified dollar limit are also subject to additional approval of the Associations Board of Directors. All related party transactions are processed according to regulatory guidelines and normal underwriting guidelines. The Loan Committees and full Boards of Directors of the Associations review and approve all related party loans. Certain risks are inherent with loan portfolios which contain commercial real estate, multi-family, commercial business and consumer loans. While these types of loans provide benefits to the Company s asset/liability management programs and reduce exposure to interest rate changes, such loans may entail significant additional credit risks compared to residential mortgage lending. Commercial real estate and multi-family loans may involve large loan balances to single borrowers or groups of related borrowers. In addition, the payment experience on loans secured by income-producing properties is typically dependent on the successful operation of the properties and thus may be subject to a greater extent to adverse conditions in the local or regional real estate market or in the general economy. Construction loans also involve additional risks attributable to the fact that loan funds are advanced upon the security of the project under construction. Consumer loans have historically tended to have a higher rate of default than residential mortgage loans. There are, due to the nature of ARMs, unquantifiable risks resulting from increased costs to the borrower as a result of periodic repricing. Despite the benefits of ARMs to the Company s asset/liability management program, they pose additional risks, primarily because as interest rates rise, the underlying payment by the borrower rises, increasing the potential for default. At the same time, the marketability of the underlying property may be adversely affected by higher interest rates. All of the above risk factors are present in the Company's loan portfolio and could have an impact on future delinquency and charge-off rates and levels. Limits on Loan Concentrations The Associations permissible lending limits for loans to one borrower is the greater of $500,000 or 15% of unimpaired capital and surplus (except for loans fully secured by certain readily marketable collateral, in which case this limit is increased to 25% of unimpaired capital and surplus). At September 30, 1996, First Federal's and Peoples Federal's lending limits under this restriction were $11.8 million and $4.5 million, respectively. A broader limitation (the lesser of $30 million or 30% of unimpaired capital and surplus) is provided under certain circumstances and subject to OTS approval for loans to develop domestic residential housing units. In addition, the Associations may provide purchase money financing for the sale of any asset without regard to the loans to one borrower limitation so long as no new funds are advanced and the Associations are not placed in a more detrimental position than if they had held the asset. Loan Origination and Other Fees In addition to interest earned on loans, the Company receives loan origination fees or "points" for originating loans. Loan points are a percentage of the principal amount of the mortgage loan charged to the borrower for originating the loan. Loan origination fees received, if any, are offset by the deferral of certain direct expenses associated with loans originated. The net fees or costs are recognized as yield adjustments by applying the interest method according to SFAS No. 91, "Accounting for Nonrefundable Fees and Costs Associated with Originating or Acquiring Loans and Initial Direct Costs of Leases." The Company also receives other fees and charges relating to existing loans, which include late charges and fees collected in connection with a change in borrower or other loan modifications. These fees and charges have not constituted a material source of loan fee income. NON-PERFORMING ASSETS AND RISK ELEMENTS Loan Delinquencies When a borrower fails to make a required payment on a loan, the Company attempts to cure the default by contacting the borrower. The Company contacts the borrower after a payment is past due less than 20 days, and a late charge is assessed on the loan. In most cases, defaults are cured promptly. If the delinquency on a mortgage loan continues 60 to 90 days and is not cured through normal collection procedures or an acceptable arrangement is not worked out with the borrower, the Company will institute measures to remedy the default, including commencing a foreclosure action. The Company may accept voluntary deeds of the secured property in lieu of foreclosure. The Company s mortgage loans are generally secured by the use of a mortgage instrument. Notice of default under these loans is required to be recorded and mailed. If the default is not cured within three months, a notice of sale is posted, mailed and advertised, and a sale is then conducted. Problem Assets and Asset Classifications Loans are reviewed on a regular basis and are placed on a non-accrual status when, in the opinion of management, the collection of accrued interest is doubtful. Generally, consumer loans and commercial business loans are placed on non-accrual status when the loans are more than 90 days delinquent. Unsecured consumer loans are charged off when the loan becomes over 120 days delinquent. Real estate loans are placed on non-accrual status when management determines that the interest may not be collectible. Renegotiated loans are loans which the Company has agreed to modify the terms of the loan. Such modifications may include changing the interest rate charged and/or other concessions. Real estate acquired by the Company as a result of foreclosure or by deed in lieu of foreclosure is classified as real estate acquired in settlement of loans until such time as it is sold. When such real property is acquired, it is recorded at fair value. Any write-down of the property is charged to the allowance for loan losses. The following table sets forth information with respect to the Company s problem assets at the dates indicated.
At September 30, 1996 1995 1994 1993 1992 (dollar amounts in thousands) Non-accrual loans $ 8,129 $ 7,709 $ 4,454 $ 8,965 $ 9,577 Accruing loans 90 days or more 1,278 816 740 1,458 2,216 delinquent Renegotiated loans 8,049 11,103 13,129 9,001 7,210 Real estate and other assets acquired in settlement of loans 2,326 3,144 3,290 5,480 7,951 $ 19,782 $ 22,772 $ 21,613 $ 24,904 $ 26,954 As a percent of loans receivable and real estate and other assets acquired in settlement of loans 1.54% 2.10% 2.24% 2.56% 3.52% As a percent of total assets 1.28 1.67 1.74 1.98 2.73 Allowance for loan losses as a percent of problem assets 56.63% 46.71% 49.64% 43.13% 17.95%
The Company's problem assets as a percentage of total assets over the past five years have declined from 2.73% at September 30, 1992 to 1.28% as of September 30, 1996. Although problem asset totals may include loans which are considered to be earning assets, there generally exists more than normal risk associated with the severity of delinquency or the renegotiated terms of these loans. For further discussion of the Company s problem assets, see "Management's Discussion and Analysis of Financial Condition and Results of Operations -- Asset Quality" and Note 7 of the Notes to Consolidated Financial Statements. ALLOWANCE FOR LOAN LOSSES The Company s allowance for loan losses totaled $11.2 million at September 30, 1996. Management periodically evaluates the adequacy of the allowance based upon historical delinquency rates, the size of the Company s loan portfolios and various other factors. See Note 7 of Notes to the Consolidated Financial Statements for information concerning the Associations' provision and allowance for loan losses. For a discussion of changes in the Company's allowance for loan losses, see "Management's Discussion and Analysis of Financial Condition and Results of Operations--Allowance for Loan Losses." In the Spring of 1993 management learned of the initial recommendations of the United States Department of Defense to close numerous Naval facilities in the Charleston Metropolitan Area. The Base Realignment and Closure Commission subsequently voted to include the Charleston Naval Station and the Charleston Naval Shipyard in its final list of military facilities to be closed. The Commission also voted to consolidate the East Coast Naval Electronics Systems Engineering Center in the Charleston area. The provision for loan losses of $3.7 million in fiscal 1993 partially reflected increased reserves for the potential impact on the loan portfolio of the military base closures in the Charleston metropolitan area. The total allowance for loan losses also increased in fiscal 1993 by $4.6 million for the allowance on loans acquired in the Peoples Federal acquisition. In April of 1996 most of the net reductions in employment related to military downsizing were completed. Although there were adverse affects on Charleston and the surrounding counties related to military reductions over the past three years, the Charleston economy has been positively affected by recent business expansion. While the Company believes it has established its allowance for loan losses in accordance with generally accepted accounting principles at September 30, 1996, there can be no assurance that regulators, when reviewing the Associations portfolios in the future, will not request the Associations to increase significantly their allowance for loan losses, thereby adversely affecting the Company's financial condition and earnings. The following table sets forth the breakdown of the Company's allowance for loan losses by loan category at the dates indicated. Management believes that the allowance can be allocated by category only on an approximate basis. The allocation of the allowance to each category is not necessarily indicative of future losses and does not restrict the use of the allowance to absorb losses in any category. At September 30, 1996 1995 1994 1993 1992 (dollar amounts in thousands) Allowance for loan losses applicable to: Real estate loans $ 8,987 $ 8,875 $ 9,074 $ 9,189 $ 3,036 Commercial loans 925 715 750 648 698 Consumer loans 1,290 1,047 904 905 1,103 Total $ 11,202 $ 10,637 $ 10,728 $ 10,742 $ 4,837 Percent of loans to total net loans: Real estate loans 88.7% 87.0% 85.9% 84.9% 80.0% Commercial business Loans 2.0 2.5 2.6 3.0 5.0 Consumer loans 9.3 10.5 11.5 12.1 15.0 Total 100.0% 100.0% 100.0% 100.0% 100.0% OTS Asset Classification System OTS regulations include a classification system for problem assets, including assets that previously had been treated as "scheduled items." Under this classification system, problem assets for insured institutions are classified as "substandard," "doubtful" or "loss," depending on the presence of certain characteristics discussed below. An asset is considered "substandard" if inadequately protected by the current net worth and paying capacity of the obligor or of the collateral pledged, if any. "Substandard" assets include those assets characterized by the "distinct possibility" that the institution will sustain "some loss" if the deficiencies are not corrected. Assets classified as "doubtful" have all of the weaknesses inherent in those classified "substandard" with the added characteristic that the weaknesses present make "collection or liquidation in full," on the basis of currently existing facts, conditions, and values, "highly questionable and improbable." Assets classified "loss" are those considered "uncollectible" and of such little value that their continuance as assets without the establishment of a specific loss reserve is not warranted. When an institution classifies problem assets as either substandard or doubtful, it is required to establish general allowances for loan losses in an amount deemed prudent by management. General allowances represent loss allowances which have been established to recognize the inherent risks associated with lending activities, but which, unlike specific allowances, have not been allocated to particular problem assets. When an institution classifies problem assets as "loss," it is required either to establish a specific allowance for losses equal to 100% of the amount of the asset so classified or to charge off such amount. An institution's determination as to the classification of its assets and the amount of its valuation allowances is subject to review by the OTS, which can order the establishment of additional general or specific loss allowances. The Company has classified $30.9 million in assets as substandard and $1.6 million as loss, respectively, as of September 30, 1996. The OTS classification of assets regulation also provides for a "special mention" designation, in addition to the "substandard," "doubtful" and "loss" classifications. "Special mention" assets are defined as those that do not currently expose an institution to a sufficient degree of risk to warrant classification as either "substandard," "doubtful" or "loss" but do possess credit deficiencies or potential weaknesses deserving management's close attention which, if not corrected, could weaken the asset and increase such risk in the future. The designation "special mention" shall be made by either the institution or its examiner. The Company had $18.8 million of assets designated "special mention" as of September 30, 1996. Management periodically reviews its loan portfolio, and has, in the opinion of management, appropriately classifed and established allowances against all assets requiring classification under the regulation. INVESTMENT ACTIVITIES The Associations are required under federal regulations to maintain a minimum amount of liquid assets which may be invested in specified short-term securities and are also permitted to invest in other types of securities. Investment decisions are made by authorized officers of the Company and the Associations within policies established by the Company's and the Associations' Boards of Directors. At September 30, 1996, the Company's investment and mortgage-backed securities portfolio totaled approximately $192.5 million, which included stock in the FHLB of Atlanta of $15.6 million. Investment securities include U.S. Government and agency obligations and corporate bonds approximating $57.2 million and $12.7 million, respectively. At September 30, 1996 there were seven investments in mutual funds totaling approximately $24.1 million. Mortgage-backed securites totaled $83.0 million as of September 30, 1996. See Note 1 of Notes to Consolidated Financial Statements for a discussion of the Company's accounting for investment and mortgage-backed securities. See Notes 3, 4 and 5 of Notes to Consolidated Financial Statements for additional information regarding investment and mortgage-backed securities and FHLB of Atlanta stock. Objectives of the investment policies of the Company are achieved through investing in U.S. Government, federal agency, corporate debt securities, mortgage-backed securities, short-term money market instruments, mutual funds, loans and other investments as authorized by OTS regulations and specifically approved by the Boards of Directors of the Company and the Associations. Investment portfolio guidelines specifically identify those securities eligible for purchase and describe the operations and reporting requirements of the Investment Committees which execute investment policy. The primary objective of the Company in its management of the investment portfolio is to maintain a portfolio of high quality, highly liquid investments with returns competitive with short-term treasury or agency securities and highly rated corporate securities. As members of the FHLB System, the Associations are required to maintain an investment in the common stock of the FHLB of Atlanta. See "Regulation of the Associations -- Federal Home Loan Bank System." The stock of the FHLB of Atlanta is redeemable at par value. Securities may differ in terms of default risk, interest risk, liquidity risk and expected rate of return. Default risk is the risk that an issuer will be unable to make interest payments, or to repay the principal amount on schedule. The Company primarily invests in U.S. Government and federal agency obligations. U.S. Government obligations are regarded as free of default risk. The issues of most government agencies are backed by the strength of the agency itself plus a strong implication that in the event of financial difficulty, the agency would be assisted by the federal government. The credit quality of corporate debt varies widely. The Company only invests in commercial paper and corporate debt securities which are rated in either one of the three highest categories by two nationally recognized investment rating services. The Company adopted SFAS 115 effective September 30, 1993. Accordingly, investments are classified as either held to maturity, available for sale or as trading securities. At September 30, 1996 the Company had no "trading" securities. The Company's investment in mortgage-backed securities serve several primary functions. First, the Company has securitized whole loans for mortgage-backed securities issued by federal agencies to use as collateral for certain of its borrowings and to secure public agency deposits. Second, the Company previously securitized loans with federal agencies to reduce its credit risk exposure and to reduce regulatory risk-based capital requirements. Third, the Company acquires mortgage-backed securities from time to time to meet earning asset growth objectives and provide additional interest income when necessary to augment reduced loan originations and replace loan portfolio runoff. The following tables sets forth the carrying value of the Company's investment and mortgage-backed securities portfolio, excluding stock in the FHLB of Atlanta, maturities and average yields at September 30, 1996. The fair value of the Company's investment securities portfolio, excluding stock in the FHLB of Atlanta, was $176.8 million on that date. Investment and Mortgage-backed Securities Portfolio
As of September 30, 1996 1995 1994 Amortized Fair Amortized Fair Amortized Fair Cost Value Cost Value Cost Value (dollar amounts in thousands) Securities Held to Maturity U.S. Treasury and U.S. Government agencies and corporations $ 27,487 $ 27,417 $ 46,853 $ 47,028 $ 51,432 $ 50,636 Corporate debt and other securities 21,301 21,659 16,565 16,338 Mortgage-backed securities of FNMA, FHLMC and GNMA 18,361 18,844 22,483 22,291 Total securities held to maturity $ 27,487 $ 27,417 $ 86,515 $ 87,531 $ 90,480 $ 89,265 Maturity and Yield Schedule as of September 30, 1996 Weighted Carrying Average Value Yield U.S. Treasury and U.S. Government agencies and corporations: Within 1 year $ 14,513 6.15% After 1 but within 5 years 12,974 6.16% Total securities held to maturity $ 27,487 6.15% As of September 30, 1996 1995 1994 Amortized Fair Amortized Fair Amortized Fair Cost Value Cost Value Cost Value (dollar amounts in thousands) Securities Available for Sale U.S. Treasury and U.S. Government agencies and corporations $ 29,755 $ 29,668 $ 15,792 $ 15,874 $ 16,270 $ 15,700 Corporate debt and other securities 12,417 12,689 Equity securities Asset Management Fund-Adjustable Rate Mortgage Portfolio 9,000 8,932 9,000 8,932 9,000 8,815 Federated Adjustable Rate Mortgage Fund 10,000 9,709 10,000 9,689 10,000 9,618 Other mutual funds and other 5,561 5,436 5,656 5,336 4,000 3,764 Mortgage-backed securities of FNMA, FHLMC and GNMA 82,152 82,991 82,260 82,765 86,116 83,137 Total securities available for sale $ 148,885 $ 149,425 $ 122,708 $ 122,596 $ 125,386 $ 121,034 Maturity and Yield Schedule as of September 30, 1996 Weighted Carrying Average Value Yield U.S. Treasury and U.S. Government agencies and corporations: Within 1 year 4,012 6.54% After 1 but within 5 years 20,662 5.93% After 5 but within 10 years 4,994 8.11% 29,668 6.38% Corporate debt and other securities: Within 1 year 2,254 6.42% After 1 but within 5 years 8,406 8.14% After 5 but within 10 years 2,029 7.24% 12,689 7.69% Equity securities Within 1 year 24,077 5.81% Mortgage-backed securities of FNMA, FHLMC and GNMA: Within 1 year 16 6.00% After 1 but within 5 years 6,010 6.78% After 5 but within 10 years 6,095 7.93% After 10 years 70,870 7.58% 82,991 7.55% 149,425 7.05%
SOURCES OF FUNDS Deposits are the primary source of funds for lending and investing activities. The amortization and scheduled payment of loans and maturities of investment securities provide a stable source of funds, while deposit fluctuations and loan prepayments are significantly influenced by the overall interest rate environment and other market conditions. FHLB advances and short-term borrowings provide supplemental liquidity sources based on specific needs or if management determines that these are the best sources of funds to meet current requirements. Deposits The Company offers a number of deposit accounts including passbook savings accounts, NOW/checking, commercial checking, money market accounts, Individual Retirement Accounts ("IRA") and certificate accounts which generally range in maturity from three months to five years. Deposit account terms vary, with the principal differences being the minimum balance required, the time period the funds must remain on deposit and the interest rate. For a schedule of the dollar amounts in each major category of the Company s deposit accounts, see Note 10 of Notes to Consolidated Financial Statements. The following table sets forth the dollar amount of deposits in the various types of savings accounts offered by the Company on the dates indicated.
Balance at Balance at Balance at September 30, % of September 30, % of September 30, % of 1996 Deposits 1995 Deposits 1994 Deposits (dollar amounts in thousands) NOW and checking accounts $ 123,907 11.67% $ 117,149 10.90% $ 112,270 10.56% Passbook and regular savings 119,509 11.26 125,588 11.69 150,693 14.17 Money market deposit accounts 131,393 12.38 131,225 12.22 140,511 13.22 Savings certificates 6 mos. or less 99,782 9.40 105,785 9.85 74,631 7.02 Savings certificates greater than 6 mos. 382,756 36.05 406,108 37.80 406,564 38.25 Jumbo certificates 68,218 6.42 54,339 5.06 52,693 4.96 IRA accounts(1) 136,052 12.82 134,119 12.48 125,633 11.82 Total $ 1,061,617 100.00% $ 1,074,313 100.00% $ 1,062,995 100.00% (1) Balances include different account types of varying maturities that have not been included in other categories above.
The Associations are subject to short-term fluctuations in deposit flows as well as to internal shifts in deposits among the various deposit products as customers move their funds to obtain a better yield. The Asset and Liability Committees of the Associations manage the mix, maturity and pricing of assets and liabilities in order to minimize the impact on earnings as changes in interest rates occur. The Associations' deposits are obtained primarily from residents of South Carolina. Management estimates that less than 2% of deposits at September 30, 1996, are obtained from customers residing outside of South Carolina. The principal methods used by the Company to attract deposit accounts include the offering of a wide variety of services and accounts, competitive interest rates, and convenient office locations and service hours. The Company utilizes traditional marketing methods to attract new customers and savings deposits, including mass media advertising and direct mail. The Company also provides customers access to the convenience of automated teller machines ("ATMs") through a proprietary ATM network and access to regional and national ATM networks. The Company also enjoys an excellent reputation for providing products and services to meet the needs of market segments, such as seniors. For example, 50-Plus Club members benefit from a number of advantageous programs, such as exclusive travel packages, special events and classic movies. Savings Deposit Activity The following table sets forth the savings activities of the Company for the periods indicated. For the Year Ended September 30, 1996 1995 1994 (dollars in thousands) Net increase (decrease) before $ (49,993) $ (23,161) $ (18,479) interest credited Interest credited 37,297 34,479 30,255 Net increase $ (12,696) $ 11,318 $ 1,776 Jumbo Certificates of Deposit The following table indicates the amount of the Company s jumbo certificates of deposit by time remaining until maturity as of September 30, 1996. Jumbo certificates of deposit require minimum deposits of $100,000 and have negotiable interest rates. Maturity Period At September 30, 1996 (dollar amounts in thousands) Three months or less $ 31,783 Over three through six months 16,210 Over six through twelve months 16,053 Over twelve months 4,172 Total $ 68,218 Borrowings The Company relies upon advances from the FHLB of Atlanta to supplement their supply of lendable funds and to meet deposit withdrawal requirements. The FHLB of Atlanta has served as the Company s primary borrowings source. Advances from the FHLB of Atlanta are typically secured by the Company s stock in the FHLB of Atlanta and a portion of the Company s first mortgage loans. Interest rates on advances vary from time to time in response to general economic conditions. At September 30, 1996, the Company had advances totaling $312.4 million from the FHLB of Atlanta at an average rate of 5.61%. At September 30, 1996, the maturity of the Associations' FHLB advances ranged from one to sixteen years. Substantially all of the advances mature within one year. For more information on borrowings, see Note 11 of Notes to Consolidated Financial Statements. The Associations have periodically entered into transactions to sell securities under agreements to repurchase ("reverse repurchase agreements") through broker-dealers. Reverse repurchase agreements evidence indebtedness of the Company arising from the sale of securities that the Company is obligated to repurchase at specified prices and dates. At the date of repurchase, the Company will, in some cases, enter into another reverse repurchase agreement to fund the repurchase of the maturing agreement. For regulatory and accounting purposes these reverse repurchase agreements are deemed to be borrowings collateralized by the securities sold. At September 30, 1996, the Company had $16.8 million of outstanding reverse repurchase agreements secured by mortgage-backed securities. The agreements had a weighted average interest rate of 5.69% at September 30, 1996, and mature within three months. For more information on borrowings, see Note 12 of Notes to Consolidated Financial Statements. The following table sets forth certain information regarding short-term borrowings by the Company at the end of and during the periods indicated:
At or For the Year Ended September 30, 1996 1995 1994 (dollar amounts in thousands) Weighted Average Rate Paid On (at end of period): FHLB advances 5.61% 5.88% 5.03% Securities sold under agreements to repurchase 5.69% 5.89% 5.20% Maximum Amount of Borrowings Outstanding (during period): FHLB advances 312,402 $107,853 82,962 Securities sold under agreements to repurchase 43,860 45,217 13,098 Approximate Average Amount of Short-term Borrowings With Respect To: FHLB advances 215,396 78,982 57,002 Securities sold under agreements to repurchase 38,757 26,769 4,769 Approximate Weighted Average Rate Paid On (during period): FHLB advances 5.70% 5.92% 5.23% Securities sold under agreements to repurchase 5.70% 6.08% 4.40% Long-term Debt On September 17, 1992, the Company issued $20.3 million aggregate principal amount of Senior Notes ("Notes") due September 1, 2002. The Notes bear interest at 9-3/8% per year. The Company received net proceeds of approximately $19.0 million, $16.5 million of which was used to complete the acquisition of Peoples Federal on October 9, 1992. The Company has agreed to prepay, at a price of 100% of the principal plus accrued interest to the date of prepayment, up to $1.0 million of the Notes tendered by noteholders for prepayment during the period from the date of issuance through September 1, 1993, and thereafter in any twelve-month period ending September 1, subject to certain limitations. The Company's obligation to prepay Notes tendered for prepayment is not cumulative. Although the Company is obligated to prepay in any prepayment period up to $1.0 million of the Notes annually, it is not required to establish a sinking fund or otherwise set aside funds for that purpose. The ability of the Company to prepay the Notes depends, to a substantial degree, upon interest income generated by the Company's investment assets, the availability of alternative credit sources, and the payment of dividends and other fees to the Company by the Associations. Notes totaling $487 thousand were redeemed on September 1, 1993. None have been redeemed since that time. See Note 13 of Notes to Consolidated Financial Statements for additional information on the Notes. The principal expense of the Company is the interest due annually on the Notes which approximates $1.9 million, assuming certain noteholder options to elect prepayment of the Notes are not exercised. Payments of interest and principal on the Notes are dependent upon the ability of First Federal and Peoples Federal to pay dividends to the Company. Dividend and other capital distributions by the subsidiaries are restricted by regulation and may require regulatory approval. For further information, see "Regulation of the Associations - Dividend Limitations." ASSET AND LIABILITY MANAGEMENT Management believes that the analysis and management of interest rate risk is crucial to the long-term profitability of the Company as well as the savings and loan industry generally. See "Management's Discussion and Analysis of Financial Condition and Results of Operations -- Liquidity and Asset and Liability Management" for a further discussion of the Associations' asset/liability management strategies and for the Company's interest rate sensitivity analysis table at September 30, 1996. Rate/Volume Analysis For the Company's rate/volume analysis and interest rate margin, see "Management's Discussion and Analysis of Financial Condition and Results of Operations -- Net Interest Income." For additional information regarding the Company's yields and costs and changes in net interest income, refer to "Management's Discussion and Analysis of Financial Condition and Results of Operations -- Net Interest Income." SUBSIDIARY ACTIVITIES The Associations are permitted under OTS regulations to invest up to 2% of their assets in service corporations, with an additional investment of 1% of assets where such investment is primarily for community, inner-city and community development purposes. At September 30, 1996, First Federal and Peoples Federal were authorized to invest up to $21.7 million and $8.9 million, respectively, in the stock of, or loans to, service corporations (based upon the 2% limitation). At September 30, 1996, First Federal's investment in stock and secured and unsecured loans in its service corporations was $521,615. At September 30, 1996, Peoples Federal's investment in its service corporations was $1.4 million. First Federal has two wholly-owned subsidiaries: Charleston Financial Services Incorporated on January 28, 1977, its primary operations include the conversion of computer information to a microfiche format, the sale of data processing consulting services and software and the operation of a full- service brokerage subsidiary, Link Investment Services, Inc. At September 30, 1996, First Federal's investment in and advances to this subsidiary totaled $138,663. Operations of Charleston Financial Services resulted in a net loss of $25,868 for the year ended September 30, 1996. The Carolopolis Corporation The Carolopolis Corporation was incorporated in 1976 for the principal purpose of land acquisition and development and construction of various projects for resale. Development activities began in 1981 and ended in 1989. The Carolopolis Corporation has been inactive for a number of years until 1996 when a lower tier corporation of Carolopolis was formed to operate and market for resale a commercial real estate property acquired through foreclosure by First Federal. First Federal's investment in the Carolopolis Corporation on September 30, 1996 was $383,341 and a loss of $197,013 was incurred during 1996. Peoples Federal has two wholly-owned subsidiaries, only one of which is active: First Southeast Insurance Services, Inc. This subsidiary, formerly known as the Magrath Insurance Agency, was purchased by Peoples Federal in 1986. In 1988, the agency purchased two smaller insurance agencies. During 1995 an additional agency in Lake City, South Carolina, was purchased as well as the Adams Insurance Agency in Charleston, previously owned by a subsidiary of First Federal. Total insurance premiums during fiscal year 1996 approximated $8.5 million. In terms of premium dollars, the insurance agency is approximately 60% commercial lines and 40% personal lines. The agency represents several companies for both commercial and personal insurance products. Peoples Federal's investment in First Southeast Insurance Services, Inc. on September 30, 1996 was $1.4 million. Operations of this subsidiary resulted in income of $151,020 in 1996. COMPETITION First Federal was the second largest and Peoples Federal the fifth largest of savings associations headquartered in South Carolina at September 30, 1996, based on asset size as reported by the OTS. The Company faces strong competition in the attraction of savings deposits and in the origination of real estate and other loans. The Company s most direct competition for savings deposits has historically come from commercial banks and from other savings institutions located throughout South Carolina. The Company also faces competition for savings from credit unions and competition for investors' funds from short-term money market securities and other corporate and government securities. In the more recent past, money market, stock, and fixed-income mutual funds have attracted an increasing share of household savings and are significant competitors of the Company. The Company's competition for real estate and other loans comes principally from commercial banks, other thrift institutions, mortgage banking companies, insurance companies, developers, and other institutional lenders. The Company competes for loans principally through the interest rates and loan fees charged and the efficiency and quality of the services provided borrowers, developers, real estate brokers, and home builders. PERSONNEL As of September 30, 1996, the Company had 540 full-time equivalent employees. The Company provides its full-time employees and certain part-time employees with a comprehensive program of benefits, including medical and dental benefits, life insurance, long-term disability coverage, a profit- sharing plan and a 401(k) plan. The employees are not represented by a collective bargaining agreement. The Company believes its employee relations are excellent. REGULATION The Associations are subject to extensive regulation, examination and supervision by the OTS as their chartering agency, and the FDIC, as the insurer of its deposits. The activities of federal savings institutions are governed by the Home Owners' Loan Act, as amended (the "HOLA") and, in certain respects, the Federal Deposit Insurance Act ("FDIA") and the regulations issued by the OTS and the FDIC to implement these statutes. These laws and regulations delineate the nature and extent of the activities in which federal savings associations may engage. Lending activities and other investments must comply with various statutory and regulatory capital requirements. In addition, the Associations' relationship with their depositors and borrowers are also regulated to a great extent, especially in such matters as the ownership of deposit accounts and the form and content of the Associations' mortgage documents. The Associations must file reports with the OTS and the FDIC concerning their activities and financial condition in addition to obtaining regulatory approvals prior to entering into certain transactions such as mergers with, or acquisitions of, other financial institutions. There are periodic examinations by the OTS and the FDIC to review the Associations' compliance with various regulatory requirements. The regulatory structure also gives the regulatory authorities extensive discretion in connection with their supervisory and enforcement activities and examination policies, including policies with respect to the classification of assets and the establishment of adequate loan loss reserves for regulatory purposes. Any change in such policies, whether by the OTS, the FDIC or Congress, could have a material adverse impact on the Company, the Associations and their operations. The Company, as a savings and loan holding company, also is required to file certain reports with, and otherwise comply with the rules and regulations of, the OTS. Federal Regulation of Savings Associations Office of Thrift Supervision The OTS is an office in the Department of the Treasury subject to the general oversight of the Secretary of the Treasury. The OTS generally possesses the supervisory and regulatory duties and responsibilities formerly vested in the Federal Home Loan Bank Board. Among other functions, the OTS issues and enforces regulations affecting federally-insured savings associations and regularly examines these institutions. Federal Deposit Insurance Corporation The FDIC is an independent federal agency established originally to insure the deposits, up to prescribed statutory limits, of federally-insured banks and to preserve the safety and soundness of the banking industry. In 1989 the FDIC also became the insurer, up to the prescribed limits, of the deposit accounts held at federally-insured savings associations and established two separate funds: the Bank Insurance Fund ("BIF") and the SAIF. As insurer of deposits, the FDIC has examination, supervisory and enforcement authority over all savings associations. The Associations' accounts are insured by the SAIF. The FDIC insures deposits at the Associations to the maximum extent permitted by law. The Associations currently pay deposit insurance premiums to the FDIC based on a risk-based assessment system established by the FDIC for all SAIF-member institutions. Under applicable regulations, institutions are assigned to one of three capital groups that are based solely on the level of an institution's capital -- "well capitalized," "adequately capitalized," and "undercapitalized" -- which are defined in the same manner as the regulations establishing the prompt corrective action system, as discussed below. These three groups are then divided into three subgroups which reflect varying levels of supervisory concern, from those which are considered to be healthy to those which are considered to be of substantial supervisory concern. The matrix so created results in nine assessment risk classifications, with rates currently ranging from .23% on SAIF assessable deposits for well capitalized, financially sound institutions with only a few minor weaknesses to .31% on SAIF assessable deposits for undercapitalized institutions that pose a substantial risk of loss to the SAIF unless effective corrective action is taken. The FDIC is authorized to raise assessment rates in certain circumstances. Assessments expensed for the year ended September 30, 1996, totalled $2.6 million. Until the second half of 1995, the matrix for assessing SAIF-member institutions deposit premiums was applied to BIF-member institutions. As a result of the BIF having reached its designated reserve ratio, effective January 1, 1996, the FDIC substantially reduced deposit insurance premiums for well-capitalized, well-managed, financial institutions that are members of the BIF. Under the new assessment schedule, rates were reduced to a range of 0 to .27%, with approximately 92% of BIF members paying the statutory minimum annual assessment rate of $2,000. Pursuant to the Deposit Insurance Fund ("DIF"), which was enacted on September 30, 1996, the FDIC imposed a special one-time assessment on each depository institution with SAIF-assessable deposits so that the SAIF may achieve its designated reserve ratio. First Federal's and Peoples Federal's assessments amounted to $5.1 million and $1.8 million and were expensed during the quarter ended September 30, 1996. Beginning January 1, 1997, the assessment schedule for SAIF members will be the same as that for BIF members. In addition, beginning January 1, 1997, SAIF members will be charged an assessment of 0.064% of SAIF-assessable deposits for the purpose of paying interest on the obligations issued by the Financing Corporation ("FICO") in the 1980s to help fund the thrift industry cleanup. BIF-assessable deposits will be charged an assessment to help pay interest on the FICO bonds at a rate of approximately 0.013% until the earlier of December 31, 1999 or the date upon which the last savings association ceases to exist, after which time the assessment will be the same for all insured deposits. The DIF Act provides for the merger of the BIF and the SAIF into the Deposit Insurance Fund on January 1, 1999, but only if no insured depository institution is a savings association on that date. The DIF contemplates the development of a common charter for all federally-chartered depository institutions and the abolition of separate charters for national banks and federal savings associations. It is not known what form the common charter may take and what effect, if any, the adoption of a new charter would have on the operation of the Associations. The FDIC may terminate the deposit insurance of any insured depository institution if it determines after a hearing that the institution has engaged or is engaging in unsafe or unsound practices, is in an unsafe or unsound condition to continue operations, or has violated any applicable law, regulation, order or any condition imposed by an agreement with the FDIC. It also may suspend deposit insurance temporarily during the hearing process for the permanent termination of insurance, if the institution has no tangible capital. If insurance of accounts is terminated, the accounts at the institution at the time of termination, less subsequent withdrawals, shall continue to be insured for a period of six months to two years, as determined by the FDIC. Management is aware of no existing circumstances that could result in termination of the deposit insurance of the Associations. Federal Home Loan Bank System The FHLB System, consisting of 12 FHLBs, is under the jurisdiction of the Federal Housing Finance Board ("FHFB"). The designated duties of the FHFB are to: supervise the FHLBs; ensure that the FHLBs carry out their housing finance mission; ensure that the FHLBs remain adequately capitalized and able to raise funds in the capital markets; and ensure that the FHLBs operate in a safe and sound manner. The Associations, as members of the FHLB-Atlanta, are required to acquire and hold shares of capital stock in the FHLB-Atlanta in an amount equal to the greater of (i) 1.0% of the aggregate outstanding principal amount of residential mortgage loans, home purchase contracts and similar obligations at the beginning of each year, or (ii) 1/20 of its advances (borrowings) from the FHLB of Atlanta. First Federal and Peoples Federal were in compliance with this requirement with an investment in FHLB-Atlanta stock of $9.6 million and $6.0 million at September 30, 1996, respectively. Among other benefits, the FHLB provides a central credit facility primarily for member institutions. It is funded primarily from proceeds derived from the sale of consolidated obligations of the FHLB System. It makes advances to members in accordance with policies and procedures established by the FHFB and the Board of Directors of the FHLB-Atlanta. First Federal and Peoples Federal had FHLB advances totaling $192.4 million and $120.0 million, respectively, at September 30, 1996. Prompt Corrective Action Under the FDIA, each federal banking agency is required to implement a system of prompt corrective action for institutions that it regulates. The federal banking agencies have promulgated substantially similar regulations to implement this system of prompt corrective action. Under the regulations, an institution shall be deemed to be (i) "well-capitalized" if it has a total risk-based capital ratio of 10.0% or more, has a risk-based capital ratio of 6.0% or more, has a leverage ratio of 5.0% or more and is not subject to specified requirements to meet and maintain a specific capital level for any capital measure; (ii) "adequately capitalized" if it has a total risk-based capital ratio of 8.0% or more, a risk-based capital ratio of 4.0% or more and a leverage ratio of 4.0% or more (3.0% under certain circumstances) and does not meet the definition of "well capitalized," (iii) "undercapitalized" if it has a total risk-based capital ratio that is less than 8.0%, a risk-based capital ratio that is less than 4.0% or a leverage ratio that is less than 4.0% (3.0% under certain circumstances), (iv) "significantly undercapitalized" if it has a total risk-based capital ratio that is less than 6.0%, a risk-based capital ratio that is less than 3.0% or a leverage ratio that is less than 3.0% and (v) "critically undercapitalized" if it has a ratio of tangible equity to total assets that is equal to or less than 2.0%. A federal banking agency may, after notice and an opportunity for a hearing, reclassify a well-capitalized institution as adequately capitalized and may require an adequately capitalized institution or an undercapitalized institution to comply with supervisory actions as if it were in the next lower category if the institution is in an unsafe or unsound condition or has received in its most recent examination, and has not corrected, a less than satisfactory rating for asset quality, management, earnings or liquidity. (The OTS may not, however, reclassify a significantly undercapitalized institution as critically undercapitalized.) An institution generally must file a written capital restoration plan that meets specified requirements, as well as a performance guaranty by each company that controls the institution, with the appropriate federal banking agency within 45 days of the date that the institution receives notice or is deemed to have notice that it is undercapitalized, significantly undercapitalized or critically undercapitalized. Immediately upon becoming undercapitalized, an institution shall become subject to the various mandatory and discretionary restrictions on its operations. At September 30, 1996, the Associations were categorized as "well- capitalized" institutions under the prompt corrective action regulations of the OTS. Standards for Safety and Soundness The FDIA requires the federal banking regulatory agencies to prescribe, by regulation, standards for all insured depository institutions relating to: (i) internal controls, information systems and internal audit systems; (ii) loan documentation; (iii) credit underwriting; (iv) interest rate risk exposure; (v) asset growth; and (vi) compensation, fees and benefits. The federal banking agencies adopted regulations and Interagency Guidelines Prescribing Standards for Safety and Soundness ("Guidelines") to implement safety and soundness standards required by the FDIA. The Guidelines set forth the safety and soundness standards that the federal banking agencies use to identify and address problems at insured depository institutions before capital becomes impaired. The agencies also proposed asset quality and earnings standards which, if adopted in final, would be added to the Guidelines. If the OTS determines that the Associations fail to meet any standard prescribed by the Guidelines, the agency may require the Associations to submit to the agency an acceptable plan to achieve compliance with the standard, as required by the FDIA. OTS regulations establish deadlines for the submission and review of such safety and soundness compliance plans. Qualified Thrift Lender Test All savings associations are required to meet a qualified thrift lender ("QTL") test to avoid certain restrictions on their operations. A savings institution that fails to become or remain a QTL shall either become a national bank or be subject to the following restrictions on its operations: (1) the association may not make any new investment or engage in activities that would not be permissible for national banks; (2) the association may not establish any new branch office where a national bank located in the savings institution's home state would not be able to establish a branch office; (3) the association shall not be eligible to obtain new advances from any FHLB; and (4) the payment of dividends by the association shall be subject to the rules regarding the statutory and regulatory dividend restrictions applicable to national banks. Also, beginning three years after the date on which the savings institution ceases to be a QTL, the savings institution would be prohibited from retaining any investment or engaging in any activity not permissible for a national bank and would be required to repay any outstanding advances to any FHLB. In addition, within one year of the date on which a savings association controlled by a company ceases to be a QTL, the company must register as a bank holding company and become subject to the rules applicable to such companies. A savings institution may requalify as a QTL if it thereafter complies with the QTL test. Currently, the QTL test requires that either an institution qualify as a domestic building and loan association under the Code or that 65% of an institution's "portfolio assets" (as defined) consist of certain housing and consumer-related assets on a monthly average basis in nine out of every 12 months. Assets that qualify without limit for inclusion as part of the 65% requirement are loans made to purchase, refinance, construct, improve or repair domestic residential housing and manufactured housing; home equity loans; mortgage-backed securities (where the mortgages are secured by domestic residential housing or manufactured housing); FHLB stock; and direct or indirect obligations of the FDIC; and loans for educational purposes, loans to small businesses and loans made through credit cards. In addition, the following assets, among others, may be included in meeting the test subject to an overall limit of 20% of the savings institution's portfolio assets: 50% of residential mortgage loans originated and sold within 90 days of origination; 100% of consumer loans; and stock issued by the FHLMC or the FNMA. Portfolio assets consist of total assets minus the sum of (i) goodwill and other intangible assets, (ii) property used by the savings institution to conduct its business, and (iii) liquid assets up to 20% of the institution's total assets. At September 30, 1996, the qualified thrift investments of First Federal and Peoples Federal exceeded 65% of their respective portfolio assets as required by regulation. Liquidity Requirements Under OTS regulations, each savings institution is required to maintain an average daily balance of liquid assets (cash, certain time deposits and savings accounts, bankers' acceptances, and specified U.S. Government, state or federal agency obligations and certain other investments) equal to a monthly average of no less than a specified percentage (currently 5%) of its net withdrawable accounts plus short-term borrowings. OTS regulations also require each savings institution to maintain an average daily balance of short-term liquid assets at a specified percentage (currently 1.0%) of the total of its net withdrawable savings accounts and borrowings payable in one year or less. Monetary penalties may be imposed for failure to meet liquidity requirements. At September 30, 1996, liquidity ratios of the Associations exceeded regulatory requirements. Capital Requirements Under OTS regulations a savings association 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. OTS capital regulations establish a 3% core capital or leverage ratio (defined as the ratio of core capital to adjusted total assets). Core capital is defined to include common stockholders' equity, non-cumulative perpetual preferred stock and any related surplus, and minority interests in equity accounts of consolidated subsidiaries, less (i) any intangible assets except for certain qualifying intangible assets; (ii) certain mortgage servicing rights; and (iii) equity and debt investments in subsidiaries that are not "includable subsidiaries," which is defined as subsidiaries engaged solely in activities not impermissible for a national bank, engaged in activities impermissible for a national bank but only as an agent for its customers, or engaged solely in mortgage-banking activities. In calculating adjusted total assets, adjustments are made to total assets to give effect to the exclusion of certain assets from capital and to account appropriately for the investments in and assets of both includable and nonincludable subsidiaries. Institutions that fail to meet the core capital requirement would be required to file with the OTS a capital plan that details the steps they will take to reach compliance. In addition, the OTS' prompt corrective action regulation provides that a savings institution that has a leverage ratio of less than 4% (3% for institutions receiving the highest CAMEL examination rating) will be deemed to be "undercapitalized" and may be subject to certain restrictions. See "-- Prompt Corrective Action." As required by federal law, the OTS has proposed a rule revising its minimum core capital requirement to be no less stringent than that imposed on national banks. The OTS has proposed that only those savings associations rated a composite one (the highest rating) under the CAMEL rating system for savings associations will be permitted to operate at or near the regulatory minimum leverage ratio of 3%. All other savings associations will be required to maintain a minimum leverage ratio of 4% to 5%. the OTS will assess each individual savings association through the supervisory process on a case-by- case basis to determine the applicable requirement. No assurance can be given as to the final form of any such regulation, the date of its effectiveness or the requirement applicable to the Associations. Savings associations also must maintain "tangible capital" not less than 1.5% of the Association's adjusted total assets. "Tangible capital" is defined, generally, as core capital minus any "intangible assets" other than purchased mortgage servicing rights. Each savings institution must maintain total risk-based capital equal to least 8% of risk-weighted assets. Total risk-based capital consists of the sum of core and supplementary capital, provided that supplementary capital cannot exceed core capital, as previously defined. Supplementary capital includes (i) permanent capital instruments such as cumulative perpetual preferred stock, perpetual subordinated debt and mandatory convertible subordinated debt, (ii) maturing capital instruments such as subordinated debt, intermediate-term preferred stock and mandatory convertible subordinated debt, subject to an amortization schedule, and (iii) general valuation loan and lease loss allowances up to 1.25% of risk-weighted assets. The risk-based capital regulation assigns each balance sheet asset held by a savings institution to one of four risk categories based on the amount of credit risk associated with that particular class of assets. Assets not included for purposes of calculating capital are not included in calculating risk-weighted assets. The categories range from 0% for cash and securities that are backed by the full faith and credit of the U.S. Government to 100% for repossessed assets or assets more than 90 days past due. Qualifying residential mortgage loans (including multi-family mortgage loans) are assigned a 50% risk weight. Consumer, commercial, home equity and residential construction loans are assigned a 100% risk weight, as are nonqualifying residential mortgage loans and that portion of land loans and nonresidential construction loans which do not exceed an 80% loan-to-value ratio. The book value of assets in each category is multiplied by the weighting factor (from 0% to 100% assigned to that category). These products are then totaled to arrive at total risk-weighted assets. Off-balance sheet items are included in risk-weighted assets by converting them to an approximate balance sheet "credit equivalent amount" based on a conversion schedule. These credit equivalent amounts are then assigned to risk categories in the same manner as balance sheet assets and included risk-weighted assets. The OTS has incorporated an interest rate risk component into its regulatory capital rule. Under the rule, savings associations with "above normal" interest rate risk exposure would be subject to a deduction from total capital for purposes of calculating their risk-based capital requirements. A savings association's interest rate risk is measured by the decline in the net portfolio value of its assets (i.e., the difference between incoming and outgoing discounted cash flows from assets, liabilities and off-balance sheet contracts) that would result from a hypothetical 200 basis point increase or decrease in market interest rates divided by the estimated economic value of the association's assets, as calculated in accordance with guidelines set forth by the OTS. A savings association whose measured interest rate risk exposure exceeds 2% must deduct an interest rate risk component in calculating its total capital under the risk-based capital rule. The interest rate risk component is an amount equal to one-half of the difference between the institution's measured interest rate risk and 2%, multiplied by the estimated economic value of the association's assets. That dollar amount is deducted from an association's total capital in calculating compliance with its risk- based capital requirement. Under the rule, there is a two quarter lag between the reporting date of an institution's financial data and the effective date for the new capital requirement based on that data. A savings association with assets of less than $300 million and risk-based capital ratios in excess of 12% is not subject to the interest rate risk component, unless the OTS determines otherwise. The rule also provides that the Director of the OTS may waive or defer an association's interest risk component if its believes that the OTS-calculated interest rate risk component overstates its interest rate risk exposure. In addition, certain "well-capitalized" institutions may obtain authorization to use their own interest rate risk exposure model to calculate their interest rate risk component in lieu of the OTS-calculated amount. The OTS has postponed the date that the interest rate risk component will first be deducted from an institution's total capital until savings associations become familiar with the process for requesting an adjustment to its interest rate risk component. Refer to Note 17 of Notes to Consolidated Financial Statements for a summary of all applicable capital requirements of First Federal and Peoples Federal. Limitations on Capital Distributions OTS regulations impose uniform limitations on the ability of all savings associations to engage in various distributions of capital such as dividends, stock repurchases and cash-out mergers. In addition, OTS regulations require the Associations to give the OTS 30 days' advance notice of any proposed declaration of dividends, and the OTS has the authority under its supervisory powers to prohibit the payment of dividends. The regulation utilizes a three-tiered approach which permits various levels of distributions based primarily upon a savings association's capital level. A Tier 1 savings association has capital in excess of its fully phased-in capital requirement (both before and after the proposed capital distribution). A Tier 1 savings association may make (without application but upon prior notice to, and no objection made by, the OTS) capital distributions during a calendar year up to 100% of its net income to date during the calendar year plus one-half its surplus capital ratio (i.e., the amount of capital in excess of its fully phased-in requirement) at the beginning of the calendar year or the amount authorized for a Tier 2 association. Capital distributions in excess of such amount require advance notice to the OTS. A Tier 2 savings association has capital equal to or in excess of its minimum capital requirement but below its fully phased-in capital requirement (both before and after the proposed capital distribution). Such an association may make (without application) capital distributions up to an amount equal to 75% of its net income during the previous four quarters depending on how close the association is to meeting its fully phased-in capital requirement. Capital distributions exceeding this amount require prior OTS approval. Tier 3 associations are savings associations with capital below the minimum capital requirement (either before or after the proposed capital distribution). Tier 3 associations may not make any capital distributions without prior approval from the OTS. The Associations currently meet the criteria to be designated Tier 1 associations and, consequently, could at their option (after prior notice to, and no objection made by, the OTS) distribute up to 100% of their net income during the calendar year plus 50% of their surplus capital ratio at the beginning of the calendar year less any distributions previously paid during the year. Investment Rules Under the HOLA, savings institutions are generally subject to the national bank limit on loans to one borrower. Generally, this limit is 15% of the Associations' unimpaired capital and surplus, plus an additional 10% of unimpaired capital and surplus, if such loan is secured by readily-marketable collateral, which is defined to include certain financial instruments and bullion. The OTS by regulation has amended the loans to one borrower rule to permit savings associations meeting certain requirements, including capital requirements, to extend loans to one borrower in additional amounts under circumstances limited essentially to loans to develop or complete residential housing units. At September 30, 1996, First Federal's and Peoples Federal's limit on loans to one borrower was $11.8 million and $4.5 million, respectively. At September 30, 1996, the largest aggregate amount of loans by First Federal and Peoples Federal to any one borrower, including related entities, was approximately $11.1 million and $3.4 million, respectively, and were secured by multi-family real estate and a golf course facility, respectively. Activities of Associations and Their Subsidiaries When a savings association establishes or acquires a subsidiary or elects to conduct any new activity through a subsidiary that the association controls, the savings association shall notify the FDIC and the OTS 30 days in advance and provide the information each agency may, by regulation, require. Savings associations also must conduct the activities of subsidiaries in accordance with existing regulations and orders. The OTS may determine that the continuation by a savings association of its ownership control of, or its relationship to, the subsidiary constitutes a serious risk to the safety, soundness or stability of the association or is inconsistent with sound banking practices or with the purposes of the FDIA. Based upon that determination, the FDIC or the OTS has the authority to order the savings association to divest itself of control of the subsidiary. The FDIC also may determine by regulation or order that any specific activity poses a serious threat to the SAIF. If so, it may require that no SAIF member engage in that activity directly. Transactions with Affiliates Savings associations must comply with Sections 23A and 23B of the Federal Reserve Act ("Sections 23A and 23B") relative to transactions with affiliates in the same manner and to the same extent as if the savings association were a Federal Reserve member bank. A savings and loan holding company, its subsidiaries and any other company under common control are considered affiliates of the subsidiary savings association under the HOLA. Generally, Sections 23A and 23B: (i) limit the extent to which the insured association or its subsidiaries may engage in certain covered transactions with an affiliate to an amount equal to 10% of such institution's capital and surplus and place an aggregate limit on all such transactions with affiliates to an amount equal to 20% of such capital and surplus, and (ii) require that all such transactions be on terms substantially the same, or at least as favorable to the institution or subsidiary, as those provided to a non- affiliate. The term "covered transaction" includes the making of loans, purchase of assets, issuance of a guaranty and similar other types of transactions. Three additional rules apply to savings associations under FIRREA: (i) a savings association may not make any loan or other extension of credit to an affiliate unless that affiliate is engaged only in activities permissible for bank holding companies; (ii) a savings association may not purchase or invest in securities issued by an affiliate (other than securities of a subsidiary); and (iii) the OTS may, for reasons of safety and soundness, impose more stringent restrictions on savings associations but may not exempt transactions from or otherwise abridge Section 23A or 23B. Exemptions from Section 23A or 23B may be granted only by the Federal Reserve Board, as is currently the case with respect to all FDIC-insured banks. The Associations have not been significantly affected by the rules regarding transactions with affiliates. The Associations' authority to extend credit to executive officers, directors and 10% shareholders, as well as entities controlled by such persons, is currently governed by Sections 22(g) and 22(h) of the Federal Reserve Act, and Regulation O thereunder. Among other things, these regulations require that such loans be made on terms and conditions substantially the same as those offered to unaffiliated individuals and not involve more than the normal risk of repayment. Regulation O also places individual and aggregate limits on the amount of loans the Associations may make to such persons based, in part, on the each of the Associations' capital position, and requires certain board approval procedures to be followed. The OTS regulations, with certain minor variances, apply Regulation O to savings institutions. Regulation of the Company First Financial is a multiple savings and loan holding company within the meaning of the HOLA. As such, the Company is registered with the OTS and is subject to OTS regulations, examinations, supervision and reporting requirements. The Company is required to file certain reports with and otherwise comply with the regulations of the OTS and the Securities and Exchange Commission. As subsidiaries of a savings and loan holding company, the Associations are subject to certain restrictions in their dealings with the Company and with other companies affiliated with the Company and also are subject to regulatory requirements and provisions as federal institutions. Company Acquisitions The HOLA and OTS regulations issued thereunder generally prohibit a savings and loan holding company, without prior OTS approval, from acquiring more than 5% of the voting stock of any other savings association or savings and loan holding company or controlling the assets thereof. They also prohibit, among other things, any director or officer of a savings and loan holding company, or any individual who owns or controls more than 25% of the voting shares of such holding company, from acquiring control of any savings association not a subsidiary of such savings and loan holding company, unless the acquisition is approved by the OTS. Company Activities There generally are more restrictions on the activities of a multiple savings and loan holding company than a unitary savings and loan holding company. Specifically, if either federally insured subsidiary savings association fails to meet the QTL test, the activities of the Company and any of its subsidiaries (other than the Associations or other federally insured subsidiary savings associations) would thereafter be subject to further restrictions. The HOLA provides that, among other things, no multiple savings and loan holding company or subsidiary thereof which is not an insured association shall commence or continue for more than two years after becoming a multiple savings and loan association holding company or subsidiary thereof, any business activity other than: (i) furnishing or performing management services for a subsidiary insured institution, (ii) conducting an insurance agency or escrow business, (iii) holding, managing, or liquidating assets owned by or acquired from a subsidiary insured institution, (iv) holding or managing properties used or occupied by a subsidiary insured institution, (v) acting as trustee under deeds of trust, (vi) those activities previously directly authorized by regulation as of March 5, 1987 to be engaged in by multiple holding companies or (vii) those activities authorized by the Federal Reserve Board as permissible for bank holding companies, unless the OTS by regulation, prohibits or limits such activities for savings and loan holding companies. Those activities described in (vii) above also must be approved by the OTS prior to being engaged in by a multiple holding company. Qualified Thrift Lender Test The HOLA requires any savings and loan holding company that controls a savings association that fails the QTL test, as explained under "-- Federal Regulation of Savings Associations -- Qualified Thrift Lender Test," must, within one year after the date on which the association ceases to be a QTL, to register as and be deemed a bank holding company subject to all applicable laws and regulations. FEDERAL AND STATE TAXATION The Company and the Associations report their income on a fiscal year basis using the accrual method of accounting and are subject to federal income taxation in the same manner as other corporations with some exceptions, including particularly the Associations' reserve for bad debts discussed below. The following discussion of tax matters is intended only as a summary and does not purport to be a comprehensive description of the tax rules applicable to the Associations or the Company. Savings institutions such as the Associations which meet certain definitional tests primarily relating to their assets and the nature of their business ("qualifying thrifts") are permitted to establish a reserve for bad debts and to make annual additions thereto, which additions may, within specified formula limits, be deducted in arriving at their taxable income. The Associations' deduction with respect to "qualifying loans," which are generally loans secured by certain interests in real property, may be computed using an amount based on the Associations' actual loss experience, or a percentage equal to 8% of the Associations' taxable income, computed with certain modifications and reduced by the amount of any permitted additions to the non-qualifying reserve. The Associations' deduction with respect to non- qualifying loans must be computed under the experience method which essentially allows a deduction based on the Associations' actual loss experience over a period of several years. Each year the Associations select the most favorable way to calculate the deduction attributable to an addition to the tax bad debt reserve. The Associations currently satisfy the qualifying thrift definitional tests. If the Associations failed to satisfy such tests in any taxable year, they would be unable to make additions to their bad debt reserves. Instead, the Associations would be required to deduct bad debts as they occur and would additionally be required to recapture their bad debt reserve deductions ratably over a multi-year period. Among other things, the qualifying thrift definitional tests require the Associations to hold at least 60% of their assets as "qualifying assets." Qualifying assets generally include cash, obligations of the United States or any agency or instrumentality thereof, certain obligations of a state or political subdivision thereof, loans secured by interests in improved residential real property or by savings accounts, student loans and property used by the Associations in the conduct of their banking business. The Associations' ratios of qualifying assets to total assets exceeded 60% through September 30, 1996. Although there can be no assurance that the Associations will continue to satisfy the 60% test, management believes that this level of qualifying assets can be maintained by the Associations. The amount of the addition to the reserve for loan losses on qualifying real property loans under the percentage-of-taxable-income method cannot exceed the amount necessary to increase the balance of the reserve for losses on qualifying real property loans at the close of the taxable year to 6% of the balance of the qualifying real property loans outstanding. Also, if the qualifying thrift uses the percentage of taxable income method, then the qualifying thrift's aggregate addition to its reserve for losses on qualifying real property loans cannot, when added to the addition to the reserve for losses on nonqualifying loans, exceed the amount by which: (i) 12% of the amount that the total deposits or withdrawable accounts of depositors of the qualifying thrift at the close of the taxable year exceeds (ii) the sum of the qualifying thrift's surplus, undivided profits and reserves at the beginning of such year. The Associations do not expect this overall limitation to restrict the Associations' deduction for additions to its bad debt reserve for the year ended September 30, 1996. At September 30, 1996, First Federal's and Peoples Federal's total bad debt reserve for tax purposes was approximately $11.3 million and $11.7 million, respectively. Recently enacted legislation will affect the Associations' tax bad debt reserves beginning with the fiscal year ending September 30, 1997. The Small Business Job Protection Act of 1996, signed into law on August 20, 1996, contains a provision that repeals the thrift bad debt reserve method under section 593, effective for taxable years beginning after December 31, 1995. As a result, all thrifts, including the Associations, will be required to change from the reserve method of section 593 to either the specific charge- off method of section 166 (available to all thrifts) or the experience method (available only to thrifts that qualify as "small banks," i.e., under $500 million in assets measured on a controlled group basis) to compute the tax bad debt deduction. Under enacted legislation, the change in accounting method that eliminates the reserve method triggers bad debt reserve recapture for post- 1987 reserves over a six-year period. At September 30, 1996, the Associations' post-1987 reserves amounted to $1.5 million. Pre-1988 reserves would be subject to recapture if the institution makes distributions in excess of accumulated earnings and profits or makes a distribution in a partial or complete liquidation. A special provision suspends recapture of post-1987 reserves for up to two years if, during those years, the institution satisfies a "residential loan requirement." This requirement would be met if the principal amount of the institution's residential loan originations exceeds a base year amount, which is determined by reference to the average of the institution's loan originations during the six taxable years ending before January 1, 1996. However, notwithstanding this special provision, recapture would be required to begin no later than the first taxable year beginning after December 31, 1997. The enacted legislation differs significantly from prior law, which triggered recapture upon a thrift institution's conversion to a bank or upon failure to satisfy the tax law definition of a thrift. In addition, under prior law, a converted thrift only recaptured the portion of the reserve attributable to use of the percentage of taxable income method. There was no recapture of bank reserves if the converted thrift used the experience method and continued to qualify as a small bank as defined above. To the extent that the Associations make "nondividend distributions" to the Company that are considered as made: (i) from the reserve for losses on qualifying real property loans, to the extent the reserve for such losses exceeds the amount that would have been allowed under the experience method; or (ii) from the supplemental reserve for losses on loans ("Excess Distributions"), then an amount based on the amount distributed will be included in the Associations' taxable income. The enacted legislation amends the definition of Excess Distributions to mean "nondividend distributions" from the base year reserves on qualifying and nonqualifying property loans and the supplemental reserve for losses on loans. Nondividend distributions include distributions in excess of the Associations' current and accumulated earnings and profits, distributions in redemption of stock and distributions in partial or complete liquidation. However, dividends paid out of the Associations' current or accumulated earnings and profits, as calculated for federal income tax purposes, will not be considered to result in a distribution from the Associations' bad debt reserve. Thus, any dividends to the Company that would reduce amounts appropriated to the Associations' bad debt reserve and deducted for federal income tax purposes would create a tax liability for the Associations. The amount of additional taxable income attributable to an Excess Distribution is an amount that, when reduced by the tax attributable to the income, is equal to the amount of the distribution. Thus, if, the Associations make a "nondividend distribution," then approximately one and one-half times the amount so used would be includable in gross income for federal income tax purposes, assuming a 35% corporate income tax rate (exclusive of state and local taxes). See "REGULATION" for limits on the payment of dividends by the Associations. The Associations do not intend to pay dividends that would result in a recapture of any portion of their tax bad debt reserves. The Internal Revenue Code of 1986, as amended (the "Code") imposes a tax on alternative minimum taxable income ("AMTI") at a rate of 20%. The excess of the tax bad debt reserve deduction using the percentage of taxable income method over the deduction that would have been allowable under the experience method is treated as a preference item for purposes of computing the AMTI. In addition, only 90% of AMTI can be offset by net operating loss carryovers. AMTI is increased by an amount equal to 75% of the amount by which the Associations' adjusted current earnings exceeds its AMTI (determined without regard to this preference and prior to reduction for net operating losses). For taxable years beginning after December 31, 1986, and before January 1, 1996, an environmental tax of .12% of the excess of AMTI (with certain modification) over $2.0 million is imposed on corporations, including the Associations, whether or not an Alternative Minimum Tax ("AMT") is paid. The Company may exclude from its income 100% of dividends received from the Associations as members of the same affiliated group of corporations. The corporate dividends-received deduction is generally 70% in the case of dividends received from unaffiliated corporations with which the Company and the Associations will not file a consolidated tax return, except that if the Company or the Associations own more than 20% of the stock of a corporation distributing a dividend, then 80% of any dividends received may be deducted. The Internal Revenue Service is examining the Company's federal income tax return for the year ended September 30, 1994. Under the laws of South Carolina, the Associations are required to pay an income tax at the rate of 6% of net income as defined in the statute. This tax is imposed on financial institutions, such as savings and loan associations, in lieu of the general state business corporation income tax. Prior to fiscal 1990, First Federal utilized state net operating loss carryforwards. During fiscal 1989, First Federal became subject to South Carolina income taxes. Peoples Federal did not incur any South Carolina income taxes through September 30, 1992 but became subject to South Carolina taxes in fiscal 1993. Taxes accrued for fiscal 1996 include $906 thousand payable to South Carolina. For additional information see Note 14 of the Notes to Consolidated Financial Statements. Item 2. PROPERTIES The Company's principal executive offices are located at 2440 Mall Drive, North Charleston, South Carolina, in an office building partially leased by First Federal. The building also serves as First Federal's Operations Center. First Federal owns 16 of its branch offices, including its home office at 34 Broad Street in downtown Charleston. A substantial portion of its home office is now leased. The remaining seven branch offices are leased properties on which First Federal has constructed banking offices. These property leases expire by 2008. All of the leases include various renewal or purchase options. Peoples Federal conducts its executive and support service functions from its 14,700 square foot Operations Center at 1601 Eleventh Avenue in Conway, South Carolina. Approximately 65% of the building is leased to others. Eight of Peoples Federal's branch offices are owned with two facilities leased. Peoples Federal leases space for certain insurance agency operations in Charleston and in Florence. In addition, First Federal leases properties in four locations for off-site ATM facilities. First Federal also has a business partnership with Piggly Wiggly for ATM operations in five supermarket locations. Both Associations also own land purchased for potential future branch locations. The Company evaluates on a continuing basis the suitability and adequacy of all of its facilities, including branch offices and service facilities, and has active programs of relocating, remodeling or closing any as necessary to maintain efficient and attractive facilities. The Company believes its present facilities are adequate for its operating purposes. At September 30, 1996, the total book value of the premises and equipment owned by the Company was $16.1 million. Reference is made to Note 16 of Notes to Consolidated Financial Statements for information relating to minimum rental commitments under the Company s leases for office facilities, and to Note 8 for further details on the Company's properties. Item 3. LEGAL PROCEEDINGS Periodically, there are various claims and lawsuits involving the Associations and their subsidiaries mainly as defendants, such as claims to enforce liens, condemnation proceedings on properties in which the Associations hold security interests, claims involving the making and servicing of real property loans and other issues incident to the Association's business. In the opinion of management and the Company's legal counsel, no material loss is expected from any of such pending claims or lawsuits. Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS No matters were submitted to a vote of security holders during the fourth quarter of the fiscal year ended September 30, 1996. PART II Item 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS Stock Prices and Dividends: High Low Cash Dividend Declared 1996 First Quarter $ 20.50 $ 18.00 $ 0.16 Second Quarter 22.75 19.25 0.16 Third Quarter 21.75 17.75 0.16 Fourth Quarter 20.25 17.50 0.16 1995 First Quarter $ 17.00 $ 13.00 $ 0.14 Second Quarter 19.75 13.75 0.14 Third Quarter 20.50 17.75 0.14 Fourth Quarter 22.50 18.00 0.14 The Company's common stock is traded in the over-the-counter market under the Nasdaq symbol "FFCH." Trading information in newspapers is provided on the Nasdaq National Market quotation page under the listing, "FSTFNHLD." As of September 30, 1996, there were approximately 1,851 stockholders of record. The Company has paid a cash dividend since February 1986. The amount of the dividend to be paid is determined by the Board of Directors dependent upon the Company's earnings, financial condition, capital position and such other factors as the Board may deem relevant. The dividend rate has been increased nine times with the most recent dividend paid in November, 1996, at $.18 per share. Cash dividends declared amounted to approximately $4.1 million, $3.5 million and $3.1 million for fiscal 1996, 1995 and 1994, respectively. These dividends amounted to 57.66%, 38.10% and 25.53% of net income. Please refer to "Regulation-Federal Regulation of Savings Associations Limitations on Capital Distributions" for information with respect to current restrictions on the Associations' ability to pay dividends to the Company. Item 6. Selected financial data See Selected Consolidated Financial Data in Exhibit B to the Company s definitive proxy statement for the Company's 1997 Annual Meeting of Stockholders (the "Proxy Statement"). Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations See Management's Discussion and Analysis of Financial Condition and Results of Operations in Exhbit B to the Company s Proxy Statement. Item 8. Financial statements and supplementary data. See audited financial statements in Exhibit B to the Company s Proxy Statement. Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure The Company has not, within the 24 months before the date of the most recent financial statements, changed its accountants. PART III Item 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT The information contained under the section captioned "Proposal I Election of Directors" in the Company's Proxy Statement is incorporated herein by reference. The following table sets forth certain information with respect to the executive officers of the Company and the Associations. The individuals listed below are executive officers of the Company and the Associations, as indicated. Name Age (1) Position A. Thomas Hood 50 President and Chief Executive Officer of the Company and President and Chief Executive Officer of First Federal John L. Ott, Jr. 48 Senior Vice President of the Company and Senior Vice President/Retail Banking Division of First Federal Charles F. Baarcke, Jr. 49 Senior Vice President of the Company and Senior Vice President/Lending Division of First Federal George N. Magrath, Jr. 43 President and Chief Executive Officer of Peoples Federal Susan E. Baham 46 Senior Vice President and Chief Financial Officer of the Company and First Federal _______________ (1) At September 30, 1996. The following is a description of the principal occupation and employment of the executive officers of the Company and the Associations during at least the past five years. A. Thomas Hood has been the President and Chief Executive Officer of the Company since July 1, 1996. Mr. Hood had served as Executive Vice President and Chief Operating Officer of the Company from February 1, 1995 through June 30, 1996. Mr. Hood has also served as Treasurer of the Company and its Chief Financial Officer since 1984. Mr. Hood was named President and Chief Executive Officer of First Federal effective February 1, 1995. Prior to that time, he had been Executive Vice President and Treasurer of First Federal since 1984. As President and Chief Executive Officer of the Company and of First Federal, Mr. Hood is responsible for the daily business operations of the Company and of First Federal under policies and procedures established by the Board of Directors. Mr. Hood joined First Federal in 1975. John L. Ott, Jr. is the Senior Vice President of the Company and First Federal in which capacity he directs and coordinates all branch operations, special savings and retirement programs and the sale of non-deposit investment products. He joined First Federal in 1971 and prior to becoming Senior Vice President of Retail Banking in 1985, he was the Senior Vice President for Branch Operations. Charles F. Baarcke, Jr. is the Senior Vice President of the Company and First Federal. He is responsible for all lending operations, loan servicing and sales. He joined First Federal in 1975 and prior to becoming Senior Vice President in 1985, he was the Vice President of Lending Operations. George N. Magrath, Jr., became the President and Chief Executive Officer of Peoples Federal in 1993. Previously, Mr. Magrath was the Executive Vice President of Peoples Federal and was responsible for general operations of Peoples Federal. Prior to serving as Executive Vice President, Mr. Magrath served as Senior Vice President, Lending. Susan E. Baham became the Senior Vice President and Chief Financial Officer of the Company and of First Federal on July 1, 1996. Previously, Mrs. Baham served as Vice President and Chief Accounting Officer of the Company since 1988 and as Vice President of Finance of First Federal since 1984. Mrs. Baham is responsible for First Financial's treasury, finance, investor relations and strategic planning functions. Pursuant to the Company's Bylaws, officers are elected on an annual basis. Directors of the Company are elected for a term of three years with approximately one-third of the directors standing for election each year. Item 11. EXECUTIVE COMPENSATION The information contained under the Section captioned "Proposal I -- Election of Directors" in the Proxy Statement is incorporated herein by reference. Item 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT (a) Security Ownership of Certain Beneficial Owners Information required by this item is incorporated herein by reference to the Section captioned "Voting Securities and Principal Holders Thereof" of the Proxy Statement. (b) Security Ownership of Management Information required by this item is incorporated herein by reference to the Sections captioned "Proposal I -- Election of Directors" and "Voting Securities and Principal Holders Thereof" of the Proxy Statement. (c) Changes in Control The Company is not aware of any arrangements, including any pledge by any person of securities of the Company, the operation of which may at a subsequent date result in a change of control of the Company. Item 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS The information required by this item is incorporated herein by reference to the Section captioned "Proposal I Election of Directors" and "Voting Securities and Principal Holders Thereof" of the Proxy Statement. PART IV Item 14. Exhibits, financial statement schedules, and reports on form 8-K 1. Consolidated Financial Statements and Report of Independent Auditors - see Item 8 for reference. All other schedules have been omitted as the required information is either inapplicable or included in the Notes to Consolidated Financial Statements. 2. Exhibit (3.1) Certificate of Incorporation, as amended, of Registrant (1) (3.2) Bylaws, as amended, of Registrant (2) (4) Indenture, dated September 10, 1992, with respect to the Registrant's 9.375% Senior Notes, due September 1, 2001 (3) (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 (3) (10.3) Employment Agreement with A. Thomas Hood, as amended (10.4) Employment Agreement with Charles F. Baarcke, Jr. (4) (10.5) Employment Agreement with John L. Ott, Jr. (4) (10.6) 1990 Stock Option and Incentive Plan (5) (10.7) 1994 Outside Directors Stock Options-for-Fees Plan (6) (10.8) 1994 Employee Stock Purchase Plan (6) (10.9) 1996 Performance Equity Plan for Non-Employee Directors (7) (10.10) Employment Agreement with Susan E. Baham (22) Subsidiaries of the Registrant (23) Consent of Independent Auditors (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 the Registrant's Registration Statement on Form S-8 File No. 33-55067 (4) Incorporated by reference to the Registrant s Annual Report on Form 10-K for the year ended September 30, 1995 (5) Incorporated by reference to the Registrant's Registration Statement on Form S-8 File No. 33-57855 (6) Incorporated by reference to the Registrant's Proxy Statement for the Annual Meeting of Stockholders held on January 25, 1995 (7) Incorporated by reference to the Registrant s Proxy Statement for the Annual Meeting of Stockholders to be held on January 22, 1997. 3. Reports on Form 10-K The Company filed an 8-K on September 23, 1996, announcing that its Board of Directors had elected Mrs. Paula Harper Bethea, Director of Client Relations and Development for Bethea, Jordan and Griffin, P.A. of Hilton Head, South Carolina, to the Board of Directors. It was also announced that she would serve on the Board of First Federal. SIGNATURES Pursuant to the requirements of Section 13 or 15(d) 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: December 24, 1996 By: /s/ A. Thomas Hood A. Thomas Hood President and Chief Executive Officer (Duly Authorized Representative) Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated. By: /s/ A. Thomas Hood By: /s/ D. Van Smith A. Thomas Hood D. Van Smith Director (Principal Director Executive Officer) Date: December 24, 1996 Date: December 24, 1996 By: /s/ Susan E. Baham By: /s/ Gary C. Banks, Jr. Susan E. Baham Gary C. Banks, Jr. Senior Vice President Director (Principal Financial Officer) Date: December 24, 1996 Date: December 24, 1996 By: /s/ Joseph A. Baroody By: /s/ Paula Harper Bethea Joseph A. Baroody Paula Harper Bethea Director Director Date: December 24, 1996 Date: December 24, 1996 By: /s/ Paul G. Campbell, Jr. By: /s/ A. L. Hutchinson, Jr. Paul G. Campbell, Jr. A. L. Hutchinson, Jr. Director Director Date: December 24, 1996 Date: December 24, 1996 By: /s/ James C. Murray By: /s/ D. Kent Sharples James C. Murray D. Kent Sharples Director Director Date: December 24, 1996 Date: December 24, 1996 By: /s/Thomas E. Thornhill Thomas E. Thornhill Director Date: December 24, 1996
EX-10.3 2 Exhibit 10.3 Amendments to Employment Agreement with A. Thomas Hood The following amendments to the employment agreement of A. Thomas Hood were effective September 27, 1996: Original text: Paragraph 2: WHEREAS, the Executive has heretofore been employed by the Association as Executive Vice President/Treasurer and is experienced in all phases of the business of the Association; and Amended text: Paragraph 2: WHEREAS, the Executive has heretofore been employed by the Association as President and Chief Executive Officer, and is experienced in all phases of the business of the Association; and Original text: Section 1. Employment. The Association agrees to continue Executive in its employ, and Executive agrees to remain in the employ of the Association as Executive Vice President/Treasurer of the Association for the period stated herein in the paragraph entitled "Term" and upon the other terms and conditions herein provided. The Executive shall render administrative and management services to the Association such as are customarily performed by persons situated in a similar executive capacity. He shall also promote, by entertainment or otherwise, as and to the extent permitted by law, the business of the Association. The Executive's other duties shall be such as the Board of Directors may from time to time reasonably direct, including normal duties as an officer of the Association, if elected as such and service as a Director of the Association, if so elected. Executive agrees to perform such services not inconsistent with his position as shall from time to time be assigned to him by the Association's Board of Directors. The Executive may voluntarily terminate his employment at any time. In the event of such voluntary resignation (other than pursuant to a change in control), this Agreement will be terminated and the compensation and benefits will be terminated upon the effective date of the employment termination or such other date as otherwise may be determined by the Board of Directors. Amended text: Section 1. Employment. The Association agrees to continue Executive in its employ, and Executive agrees to remain in the employ of the Association as President and Chief Executive Officer of the Association for the period stated herein in the paragraph entitled "Term" and upon the other terms and conditions herein provided. The Executive shall render administrative and management services to the Association such as are customarily performed by persons situated in a similar executive capacity. He shall also promote, by entertainment or otherwise, as and to the extent permitted by law, the business of the Association. The Executive's other duties shall be such as the Board of Directors may from time to time reasonably direct, including normal duties as an officer of the Association, if elected as such and service as a Director of the Association, if so elected. Executive agrees to perform such services not inconsistent with his position as shall from time to time be assigned to him by the Association's Board of Directors. The Executive may voluntarily terminate his employment at any time. In the event of such voluntary resignation (other than pursuant to a change in control), this Agreement will be terminated and the compensation and benefits will be terminated upon the effective date of the employment termination or such other date as otherwise may be determined by the Board of Directors. Original text: Section 2. Compensation. The Association agrees to pay the Executive during the term of this Agreement, a salary at the initial rate of ONE HUNDRED FORTY THREE THOUSAND SEVEN HUNDRED DOLLARS ($143,700), per annum, payable bi- weekly; provided, that the rate of such salary shall be reviewed by the Board of Directors of the Association not less often than annually and Executive shall be entitled to receive annually an increase in such salary rate in an amount at least equal to the average percentage increase, if any, granted to the senior officers of the Association. Such rate of salary, or increased rate of salary, if any, as the case may be, may be further increased from time to time in such amounts as the Board in its discretion may decide subject to the customary withholding tax and other employee taxes as required with respect to compensation paid by a corporation to an employee. The Executive's rate of salary may be decreased by the Board of Directors pursuant to a bona fide renegotiation of duties or at such time as the Board deems it necessary or advisable to effect an across-the-board reduction in salaries of the Association's officers and employees. Service as a Director of the Association, if the Executive is so elected, shall be without compensation in addition to the foregoing. Amended text: Section 2. Compensation. The Association agrees to pay the Executive during the term of this Agreement, a salary at the initial rate of ONE HUNDRED SEVENTY-FIVE THOUSAND SIX HUNDRED TWENTY DOLLARS ($175,620), per annum, payable bi-weekly; provided, that the rate of such salary shall be reviewed by the Board of Directors of the Association not less often than annually and Executive shall be entitled to receive annually an increase in such salary rate in an amount at least equal to the average percentage increase, if any, granted to the senior officers of the Association. Such rate of salary, or increased rate of salary, if any, as the case may be, may be further increased from time to time in such amounts as the Board in its discretion may decide subject to the customary withholding tax and other employee taxes as required with respect to compensation paid by a corporation to an employee. The Executive's rate of salary may be decreased by the Board of Directors pursuant to a bona fide renegotiation of duties or at such time as the Board deems it necessary or advisable to effect an across-the-board reduction in salaries of the Association's officers and employees. Service as a Director of the Association, if the Executive is so elected, shall be without compensation in addition to the foregoing. Original text: Section 5. Term. The period of the Executive's employment under this Agreement shall be deemed to have commenced as of August 1, 1987, and shall continue for a period of thirty-six (36) full calendar months thereafter and any extensions thereafter. As of the date of this second amendment hereto, the Executive's period of employment under this Agreement has been extended by the Board of Directors through September 30, 1996. The said thirty-six (36) month period of employment may be extended for an additional twelve (12) full calendar months by action of the Board of Directors at the September, 1994 meeting of the Board of Directors and at each succeeding September meeting of the Board of Directors. Amended text: Section 5. Term The period of the Executive's employment under this Agreement shall be deemed to have commenced as of August 1, 1987, and shall continue for a period of thirty-six (36) full calendar months thereafter and any extensions thereafter. As of the date of this third amendment hereto, the Executive's period of employment under this Agreement has been extended by the Board of Directors through September 30, 1999. The said thirty-six (36) month period of employment may be extended for an additional twelve (12) full calendar months by action of the Board of Directors at the September, 1997 meeting of the Board of Directors and at each succeeding September meeting of the Board of Directors. Original text: Section 11. Disability. If the Executive shall become disabled or incapacitated to the extent that he is unable to perform the duties of Executive Vice President/Treasurer, he shall be eligible to participate in the Association's long-term disability plan as established by the Board of Directors for employees and management personnel, or any other disability plan which may be established by the Board of Directors for management personnel. Upon returning to active full-time employment, the Executive's full compensation as set forth in the paragraphs of this Agreement entitled "Compensation" and "Discretionary Bonuses" shall be reinstated. In the event that said Executive returns to active employment on other than a full-time basis, then his compensation (as set forth in the paragraph of this Agreement entitled "Compensation") shall be reduced in proportion to the time spent in said employment. However, if he is again unable to perform the duties of Executive Vice President/Treasurer hereunder due to illness or other incapacity, he must have been engaged in active full-time employment for at least twelve (12) consecutive months immediately prior to such later absence or inability in order to qualify for the full or partial continuance of his salary under the paragraph entitled "Disability." Amended text: Section 11. Disability. If the Executive shall become disabled or incapacitated to the extent that he is unable to perform the duties of President and Chief Executive Officer, he shall be eligible to participate in the Association's long-term disability plan as established by the Board of Directors for employees and management personnel, or any other disability plan which may be established by the Board of Directors for management personnel. Upon returning to active full-time employment, the Executive's full compensation as set forth in the paragraphs of this Agreement entitled "Compensation" and "Discretionary Bonuses" shall be reinstated. In the event that said Executive returns to active employment on other than a full-time basis, then his compensation (as set forth in the paragraph of this Agreement entitled "Compensation") shall be reduced in proportion to the time spent in said employment. However, if he is again unable to perform the duties of President and Chief Executive Officer hereunder due to illness or other incapacity, he must have been engaged in active full-time employment for at least twelve (12) consecutive months immediately prior to such later absence or inability in order to qualify for the full or partial continuance of his salary under the paragraph entitled "Disability." EX-10.10 3 Exhibit 10.10 Employment Agreement with Susan E. Baham EMPLOYMENT AGREEMENT THIS AGREEMENT entered into on the 1st day of October, 1993 and amended on this 27th day of September, 1996, by and between FIRST FEDERAL SAVINGS AND LOAN ASSOCIATION OF CHARLESTON, (the "Association"), FIRST FINANCIAL HOLDINGS, INC. (the "Holding Company") and SUSAN E. BAHAM (the "Employee"). WHEREAS, the Employee has heretofore been employed by the Association as Senior Vice President and Chief Financial Officer and is experienced in all phases of the business of the Association; and WHEREAS, the parties desire by this writing to set forth the continued employment relationship of the Association and the Employee; NOW THEREFORE, it is AGREED as follows: 1. Employment. The Employee is employed as the Senior Vice President and Chief Financial Officer of the Association. The Employee shall render administrative and management services to the Association such as are customarily performed by persons situated in a similar executive capacity. She shall also promote, by entertainment or otherwise, as and to the extent permitted by law, the business of the Association. The Employee's other duties shall be such as the Board of Directors may from time to time reasonably direct, including normal duties as an officer of the Association. 2. Base Compensation. The Association agrees to pay the Employee during the term of this Agreement a salary at the rate of $88,440 per annum, payable in cash not less frequently than monthly. Such rate of salary, or increased rate of salary, if any, as the case may be, shall be reviewed by the Board of Directors of the Association no less often than annually. 3. Discretionary Bonuses. The Employee shall be entitled to participate in an equitable manner with all other key management personnel of the Association in discretionary bonuses authorized and declared by the Board of Directors of the Association to its key management employees. No other compensation provided for in this Agreement shall be deemed a substitute for the Employee's right to participate in such discretionary bonuses when and as declared by the Board of Directors. Any such bonus shall take into account the Association's current financial condition, operations, and the Board of Directors' evaluation of the performance of the Employee. 4. (a) Participation in Retirement and Medical Plans. The Employee shall be entitled to participate in any plan of the Association relating to pension, profit-sharing, or other retirement benefits and medical coverage or reimbursement plans that the Association may adopt for the benefit of its employees. (b) Employee Benefits; Expenses. The Employee shall be eligible to participate in any fringe benefits that may be or become applicable to the Association's executive employees, including participation in a stock option or incentive plan adopted by the Board of Directors, and any other benefits that are commensurate with the responsibilities and functions to be performed by the Employee under this Agreement. The Association shall reimburse Employee for all out-of-pocket expenses that Employee shall incur in connection with his services for the Association. 5. Term. The initial term of employment under this Agreement commenced October 1, 1993 for a one year period. As of the date of this amendment hereto, the Employee's period of employment under this Agreement has been extended by the Board of Directors through September 30, 1996. The said 36-month period of employment may be extended for an additional 12 full calendar months by action of the Board of Directors at the September, 1997 meeting of the Board of Directors and at each succeeding September meeting of the Board of Directors. 6. Loyalty; Noncompetition. (a) The Employee shall devote her full time and best efforts to the performance of her employment under this Agreement. During the term of this Agreement, the Employee shall not, at any time or place, either directly or indirectly, engage in any business or activity in competition with the business affairs or interests of the Association or be a director, officer or employee of or consultant to any bank, savings and loan association, credit union or similar thrift, savings bank or institution. (b) Upon termination of this Agreement for any reason other than the reasons set forth in paragraph 9 of this Agreement, for a period of three (3) years from the termination of this Agreement, the employee shall not at any time or place, either directly or indirectly, engage in any business or activity in competition with the business affairs or interests of the Association or be a director, officer or employee of or consultant to any bank, savings and loan association, credit union or similar thrift, savings bank or institution in an area within a fifty (50) mile radius of any office of any subsidiary or affiliate of the Holding Company. (c) During the term of this Agreement, nothing in the foregoing subparagraphs in paragraph 6 shall apply to subsidiaries and affiliates of the Holding Company or shall be determined to prevent or limit the right of Employee to invest in the capital stock or other securities of any business dissimilar from that of employer or solely as a passive investor in any business. (d) Directly or indirectly engaging in any business or activity in competition with the business affairs or interests of the Association shall include engaging in business as owner, partner, agent or employee of any person, firm or corporation engaged in such business individually or as beneficiary by interest in any partnership, corporation or other business entity or in being interested directly or indirectly in any such business conducted by any person, firm or corporation. (e) In the event of violation by Employee of this agreement for loyalty and noncompetition, the Employee will be subject to damages and because of the relationship of employer and employee, it is hereby agreed injunctive relief is necessary for employer to enforce these provisions of the agreement to protect its business and good will. 7. Standards. The Employee shall perform her duties under this Agreement in accordance with such reasonable standards expected of employees with comparable positions in comparable organizations and as may be established from time to time by the Boards of Directors of the Association and the Holding Company and its subsidiaries. 8. Vacation and Sick Leave. At such reasonable times as the Board of Directors of the Association shall in its discretion permit, the Employee shall be entitled, without loss of pay, to absent herself voluntarily from the performance of her employment under this Agreement, all such voluntary absences to count as vacation time; provided that: (a) The Employee shall be entitled to any annual vacation in accordance with the policies as periodically established by the Board of Directors for senior management officials of the Association, which shall in no event be less than the current policies of the Association. (b) The timing of vacations shall be scheduled in a reasonable manner by the Employee. The Employee shall not be entitled to receive any additional compensation from the Association on account of her failure to take a vacation; nor shall he be entitled to accumulate unused vacation from one fiscal year to the next except to the extent authorized by the Board of Directors for senior management officials of the Association. (c) In addition to the aforesaid paid vacations, the Employee shall be entitled without loss of pay, to absent herself voluntarily from the performance of her employment with the Association for such additional period of time and for such valid and legitimate reasons as the Board of Directors in its discretion may determine. Further, the Board of Directors shall be entitled to grant to the Employee a leave or leaves of absence with or without pay at such time or times and upon such terms and conditions as the Board in its discretion may determine. (d) In addition, the Employee shall be entitled to an annual sick leave as established by the Board of Directors for senior management officials of the Association. In the event any sick leave time shall not have been used during any year, such leave shall accrue to subsequent years only to the extent authorized by the Board of Directors. Upon termination of her employment, the Employee shall not be entitled to receive any additional compensation from the Association for unused sick leave. 9. Termination and Termination Pay. This Agreement shall be terminated upon the following occurrences: (a) The death of the Employee during the term of this Agreement, in which event the Employee's estate shall be entitled to receive the compensation due the Employee through the last day of the calendar month in which her death shall have occurred. (b) This Agreement may be terminated at any time by a decision of the Board of Directors of the Association for conduct not constituting termination for "Just Cause," or by the Employee upon sixty (60) days written notice to the Association, as the case may be. In the event this Agreement is terminated by the Board of Directors without Just Cause, the Association shall be obligated to continue to pay the Employee her salary up to the date of termination of the term (including any renewal term) of this Agreement. In the event this Agreement is terminated by the Employee, the compensation and benefits will be terminated upon the effective date of the employment termination or as may otherwise be determined by the Board of Directors. (c) The Association reserves the right to terminate this Agreement at any time for Just Cause. Termination for "Just Cause" shall mean termination for personal dishonesty, incompetence, willful misconduct, breach of a fiduciary duty involving personal profit, intentional failure to perform stated duties, willful violation of any law, rule or regulation (other than a law, rule or regulation relating to a traffic violation or similar offense), final cease-and-desist order, termination under the provisions of subparagraphs (d) and (e) below, or material breach of any provision of this Agreement. Subject to the provisions of paragraph 12 hereof, in the event this Agreement is terminated for Just Cause, the Association shall only be obligated to continue to pay the Employee her salary up to the date of termination. (d) (i) If the Employee is suspended and/or temporarily prohibited from participating in the conduct of the Association's affairs by a notice served under Section 8(e)(3) or (g)(1) of the Federal Deposit Insurance Act ("FDIA") (12 U.S.C. 1818(e)(3) and (g)(1)), the Association's obligations under the Agreement shall be suspended as of the date of service, unless stayed by appropriate proceedings. If the charges in the notice are dismissed, the Association may in its discretion (a) pay the Employee all or part of the compensation withheld while its contract obligations were suspended and (b) reinstate (in whole or in part) any of its obligations that were suspended. (ii) If the Employee is removed and/or permanently prohibited from participating in the conduct of the Association's affairs by an order issued under Section 8(e)(4) or (g)(1) of the FDIA (12 U.S.C. 1818(e)(4) or (g)(1)), all obligations of the Association under the Agreement shall terminate as of the effective date of the order, but vested rights of the contracting parties shall not be affected. (e) If the Association is in default (as defined in Section 3(x)(1) of the FDIA), all obligations under this Agreement shall terminate as of the date of default, but this paragraph shall not affect any vested rights of the parties. (f) All obligations under this Agreement may be terminated: (i) by the Director of the Office of Thrift Supervision (the "Director") or his or her designee at the time the Federal Deposit Insurance Corporation or the Resolution Trust Corporation enters into an agreement to provide assistance to or on behalf of the Association under the authority contained in Section 13(c) of the FDIA or (ii) by the Director, or his or her designee at the time the Director or such designee approves a supervisory merger to resolve problems related to operation of the Association or when the Association is determined by the Director to be in an unsafe or unsound condition. Any rights of the parties that have already vested, however, shall not be affected by such action. (g) If, after a "Change of Control" (as hereinafter defined) of the Association or the Holding Company, the Association shall terminate the employment of the Employee during the period of employment under this Agreement for any reason other than Just Cause, as defined in paragraph 9(c), or otherwise change the present capacity or circumstances in which the Employee is employed as set forth in paragraph 1 of this Agreement, or cause a reduction in the Employee's responsibilities or authority or compensation or other benefits provided under this Agreement without the Employee's written consent, then the Association shall pay to the Employee and provide the Employee, or to his beneficiaries, dependents and estate, as the case may be, with the following: (i) The Association shall promptly pay to the Employee an amount equal to the product of 2.99 times the Employee's "base amount" as defined in Section 280G(b)(3) of the Internal Revenue Code of 1986, as amended. (ii) During the period of 36 calendar months beginning with the event of termination, the Employee, her dependents, beneficiaries and estate shall continue to be covered under all employee benefit plans of the Association, including without limitation the Association's pension plan, life insurance and health insurance as if the Employee was still employed during such period under this Agreement. (iii) If and to the extent that benefits or service credit for benefits provided by paragraph 9(g)(ii) shall not be payable or provided under any such plans to the Employee, her dependents, beneficiaries and estate, by reason of her no longer being an employee of the Association as a result of termination of employment, the Association shall itself pay or provide for payment of such benefits and service credit for benefits to the Employee, her dependents, beneficiaries and estate. Any such payment relating to retirement shall commence on a date selected by the Employee which must be a date on which payments under the Association's qualified pension plan or successor plan may commence. (iv) If the Employee elects to have benefits commence prior to the normal retirement age under the qualified pension plan or any successor plan maintained by the Association and thereby incurs an actuarial reduction in his monthly benefits under such plan, the Association shall itself pay or provide for payment to the Employee of the difference between the amount that would have been paid if the benefits commenced at normal retirement age and the actuarially reduced amount paid upon the early commencement of benefits. (v) The Association shall pay all legal fees and expenses which the Employee may incur as a result of the Association's contesting the validity or enforceability of this Agreement that results in a legal judgement in her favor or legal settlement and the Employee shall be entitled to receive interest thereon for the period of any delay in payment from the date such payment was due at the rate determined by adding two hundred basis points to the six month Treasury Bill rate. (vi) The Employee shall not be required to mitigate the amount of any payment provided for in this Agreement by seeking other employment or otherwise nor shall any amounts received from other employment or otherwise by the Employee offset in any manner the obligations of the Association hereunder. 10. Change of Control. A "Change of Control" shall be deemed to have occurred, if: (i) Any person becomes the beneficial owner, directly or indirectly, of 25% or more of the outstanding shares of any class of voting stock issued by the Association or the Holding Company; (ii) Any person becomes the beneficial owner, directly or indirectly, of 10% or more, but less than 25%, of the outstanding shares of any class of voting stock issued by the Association or the Holding Company, if the Board of Directors of the Association or the Holding Company, or the Office of Thrift Supervision ("OTS"), or other appropriate regulatory authority, has made a determination that such beneficial ownership constitutes or will constitute control of the Association or the Holding Company; (iii) Any person (other than the persons named as proxies solicited on behalf of the Board of Directors of the Association or the Holding Company) holds revocable or irrevocable proxies as to the election or removal of two or more directors of the Association or the Holding Company, or for 25% or more of the total number of voting shares of the Association or the Holding Company; (iv) The OTS or other appropriate regulatory authority has given the required approval of non-objection to the acquisition or control of the Association or the Holding Company by any person; (v) Any person has commenced a tender or exchange offer, or entered into an agreement or received an option, to acquire beneficial ownership of 25% or more of the total number of voting shares of the Association or the Holding Company, whether or not the required approval or non-objection for such acquisition has been received from the OTS, or other appropriate regulatory authority, if the Association's or the Holding Company's Board of Directors has made a determination that such action constitutes or will constitute a Change in Control; or (vi) During any period of 24 consecutive months, individuals who at the beginning of such period constitute the Association's or the Holding Company's Board of Directors cease for any reason to constitute at least a majority of the Board, unless the election of each director who was not a director at the beginning of such period has been approved in advance by directors representing at least two-thirds of the directors then in office who were directors at the beginning of the period. 11. Disability. If the Employee shall become disabled or incapacitated to the extent that she is unable to perform the duties of Senior Vice President and Chief Financial Officer, she shall be eligible to participate in the Association's long-term disability plan as established by the Board of Directors for employees and management personnel, or any other disability plan which may be established by the Board of Directors for management personnel. Upon returning to active full-time employment, the Employee's full compensation as set forth in the paragraphs of this Agreement entitled "Compensation" and "Discretionary Bonuses" shall be reinstated. In the event that said Employee returns to active employment on other than a full-time basis, then her compensation (as set forth in the paragraph of this Agreement entitled "Compensation") shall be reduced in proportion to the time spent in said employment. However, if she is again unable to perform the duties of Senior Vice President and Chief Financial Officer hereunder due to illness or other incapacity, she must have been engaged in active full-time employment for at least twelve (12) consecutive months immediately prior to such later absence or inability in order to qualify for the full or partial continuance of her salary under the paragraph entitled "Disability." 12. Expenses to Enforce Agreement. In the event any dispute shall arise between the Employee and the Association or the Holding Company as to the terms or interpretation of this Agreement, whether instituted by formal legal proceedings or otherwise, including any action taken by Employee in defending against any action taken by the Association or the Holding Company, the prevailing party shall be reimbursed for all costs and expenses, including reasonable attorney's fees, arising from such dispute, proceedings or actions. Such reimbursement shall be paid within 10 days of the furnishing to the non- prevailing party of written evidence, which may be in the form of a cancelled check or receipt, among other things, of any costs or expenses incurred by the prevailing party. Any such request for reimbursement shall be made no more frequently than at 60-day intervals. 13. Successor and Assigns. (a) This Agreement shall inure to the benefit of and be binding upon any corporate or other successor of the Association and the Holding Company which shall acquire, directly or indirectly, by merger, consolidation, purchase or otherwise, all or substantially all of the assets of the Association. (b) Since the Association is contracting for the unique and personal skills of the Employee, the Employee shall be precluded from assigning or delegating her rights or duties hereunder without first obtaining the written consent of the Association. 14. Amendments. No amendments or additions to this Agreement shall be binding unless in writing and signed by the parties hereto, except as herein otherwise provided. 15. Applicable Law. This Agreement shall be governed in all respects whether as to validity, construction, capacity, performance or otherwise, by the laws of South Carolina, except to the extent that Federal law shall be deemed to apply. This Agreement is intended to comply with the requirements of 12 CFR Section 563.39 and to the extent it conflicts with the provisions of that Section, Section 563.39 shall control. Any payments made to the employee pursuant to this Agreement, or otherwise, shall be subject to and conditioned upon compliance with 12 U.S.C. Section 1828(k) and any regulations promulgated thereunder. 16. Severability. The provisions of this Agreement shall be deemed severable and the invalidity or unenforceability of any provision shall not affect the validity or enforceability of the other provisions hereof. IN WITNESS WHEREOF, the parties have executed this Agreement on the day and year first hereinabove written. FIRST FEDERAL SAVINGS AND LOAN ASSOCIATION OF CHARLESTON ATTEST: /s/ Phyllis B. Ainsworth BY /s/ D. Van Smith Phyllis B. Ainsworth D. Van Smith Chairman of the Board ATTEST: FIRST FINANCIAL HOLDINGS, INC. /S/ Phyllis B. Ainsworth BY /s/ D. Van Smith Phyllis B. Ainsworth D. Van Smith Chairman of the Board /s/Rebecca F. DuBose /s/ Susan E. Baham Witness Susan E. Baham EX-22 4 EXHIBIT 22 Subsidiaries of the Registrant PARENT First Financial Holdings, Inc. Percentage Jurisdiction or State Subsidiaries (a) of Ownership of Incorporation First Federal Savings and Loan 100% United States Association of Charleston Peoples Federal Savings and 100% United States and Loan Association Charleston Financial Services (b) 100% South Carolina The Carolopolis Corporation (b) 100% South Carolina First Southeast Insurance Services, Inc.(c) 100% South Carolina Coastal Carolina Corporation (c) 100% South Carolina (a) The operations of the Company's wholly-owned subsidiaries are included in the Company's consolidated financial statements. (b) Second-tier subsidiaries of the Registrant. Wholly-owned by First Federal. (c) Became second-tier subsidiaries of the Registrant on October 9, 1992. Wholly-owned by Peoples Federal. EX-23 5 EXHIBIT 23 INDEPENDENT ACCOUNTANTS CONSENT The Board of Directors First Financial Holdings, Inc. We consent to incorporation by reference in registration statements No. 33- 55067 and 33-57855 on Form S-8s of First Financial Holdings, Inc. of our report dated October 25, 1996, relating to the consolidated balance sheets of First Financial Holdings, Inc. and subsidiaries as of September 30, 1996 and 1995, and the related consolidated statements of operations, stockholders' equity and cash flows for each of the years in the three-year period ended September 30, 1996, which report appears in the September 30, 1996 annual financial statements as filed with the Proxy of First Financial Holdings, Inc. KPMG PEAT MARWICK LLP Greenville, South Carolina December 27, 1996 EX-27 6
9 1000 YEAR SEP-30-1996 SEP-30-1996 27,687 6,437 0 0 149,425 43,107 43,037 1,291,312 11,202 1,546,149 1,061,617 329,207 0 19,763 70 0 0 94,725 1,546,149 103,111 5,306 2,701 111,118 49,659 65,997 45,121 1,823 74 14,479 11,146 7,028 0 0 7,028 1.11 1.11 3.19 8,129 1,278 8,049 17,456 10,637 1,744 486 11,202 11,202 0 0
-----END PRIVACY-ENHANCED MESSAGE-----