-----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, AbRfg7R45zkF/cb+Oiin7zvWCfHhG0QcZQCrK+Q27Nx4U8KqxDQf/MkAiAQIyVLk 6lN1eP2ZCyI1AV5R85opww== 0000787075-98-000005.txt : 19980218 0000787075-98-000005.hdr.sgml : 19980218 ACCESSION NUMBER: 0000787075-98-000005 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19971231 FILED AS OF DATE: 19980217 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-Q SEC ACT: SEC FILE NUMBER: 000-17122 FILM NUMBER: 98542153 BUSINESS ADDRESS: STREET 1: 34 BROAD STREET STREET 2: SUITE 10 CITY: CHARLESTON STATE: SC ZIP: 29401 BUSINESS PHONE: 8035295800 MAIL ADDRESS: STREET 1: 34 BROAD STREET CITY: CHARLESTON STATE: SC ZIP: 29401 10-Q 1 10-Q FOR QUARTER 12/31/97 UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the Quarterly period ended December 31, 1997 OR TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from to Commission File Number: 0-17122 FIRST FINANCIAL HOLDINGS, INC. (Exact name of registrant as specified in its charter) Delaware 57-0866076 (State or other jurisdiction (I.R.S. Employer of incorporation or Identification No.) organization) 34 Broad Street, Charleston, South Carolina 29401 (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code (803) 529-5800 Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. YES X NO APPLICABLE ONLY TO CORPORATE ISSUERS: Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date. Class Outstanding Shares at Common Stock January 31, 1998 $.01 Par Value 6,769,153 FIRST FINANCIAL HOLDINGS, INC. INDEX PART I - FINANCIAL INFORMATION PAGE NO. Consolidated Statements of Financial Condition 1 at December 31, 1997 and September 30, 1997 Consolidated Statements of Income for the Three 2 Months Ended December 31, 1997 and 1996 Consolidated Statements of Cash Flows for the 3-4 Three Months Ended December 31, 1997 and 1996 Notes to Financial Statements 5-6 Management's Discussion and Analysis of Results 7-13 of Operations and Financial Condition PART II - OTHER INFORMATION 14 SIGNATURES 16 SCHEDULES OMITTED All schedules other than those indicated above are omitted because of the absence of the conditions under which they are required or because the information is included in the Financial Statements and related notes. FIRST FINANCIAL HOLDINGS, INC. CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION December 31, September 30, 1997 1997 (Amounts in thousands) (Unaudited) ASSETS Cash and cash equivalents $ 38,721 $ 48,034 Investments held to maturity (market value of $11,117 and $14,345) 11,086 14,282 Investments available for sale, at fair value 41,522 40,826 Investment in capital stock of Federal Home Loan Bank, at cost 23,804 21,851 Loans receivable, net 1,425,724 1,446,981 Loans held for sale 7,410 4,516 Mortgage-backed securities held to maturity (market value of $666 and $828) 655 818 Mortgage-backed securities available for sale, at fair value 193,979 148,963 Office properties and equipment, net 15,959 15,944 Real estate and other assets acquired in settlement of loans 11,716 11,658 Other assets 22,749 21,079 Total assets $1,793,325 $1,774,952 LIABILITIES AND STOCKHOLDERS' EQUITY Liabilities: Deposit accounts $1,127,339 $1,123,988 Advances from Federal Home Loan Bank 458,077 419,577 Securities sold under agreements to repurchase 44,578 58,896 Long-term debt 19,763 19,763 Accounts payable and other liabilities 28,060 41,200 Total liabilities 1,677,817 1,663,424 Stockholders' equity: Serial preferred stock, authorized 3,000,000 shares-- none issued Common stock, $.01 par value, authorized 24,000,000 shares, issued and outstanding 7,447,562 and 7,417,609 shares at December 31, 1997 and September 30, 1997, respectively 74 74 Additional paid-in capital 29,366 28,975 Retained income, substantially restricted 91,692 88,787 Unrealized net gain on securities available for sale, net of income tax 1,919 1,156 Treasury stock at cost, 686,937 and 685,127 shares at December 31, 1997 and September 30, 1997, respectively (7,543) (7,464) Total stockholders' equity 115,508 111,528 Total liabilities and stockholders' equity $1,793,325 $1,774,952 The accompanying notes are an integral part of the statements. FIRST FINANCIAL HOLDINGS, INC. CONSOLIDATED STATEMENTS OF INCOME Three Months Ended December 31, 1997 1996 (Amounts in thousands, except per share amounts) (Unaudited) INTEREST INCOME Interest on loans and mortgage-backed securities $ 32,092 $ 28,778 Interest and dividends on investments 992 1,341 Other 544 685 Total interest income 33,628 30,804 INTEREST EXPENSE Interest on deposits 12,736 12,717 Interest on borrowed money 7,559 5,441 Total interest expense 20,295 18,158 NET INTEREST INCOME 13,333 12,646 Provision for loan losses 605 540 Net interest income after provision for loan losses 12,728 12,106 OTHER INCOME Net gain on sale of loans 77 52 Gain on investment securities 206 5 Loan servicing fees 331 343 Service charges and fees on deposit accounts 1,504 1,374 Real estate operations, net (14) (49) Other 1,328 1,201 Total other income 3,432 2,926 NON-INTEREST EXPENSE Salaries and employee benefits 5,499 5,109 Occupancy costs 846 873 Marketing 356 283 Depreciation, amortization, rental and maintenance of equipment 690 717 FDIC insurance premiums 180 508 Merger-related expenses 289 Other 2,154 1,898 Total non-interest expense 10,014 9,388 Income before income taxes 6,146 5,644 Income tax expense 2,274 2,089 NET INCOME $ 3,872 $ 3,555 NET INCOME PER COMMON SHARE $ 0.57 $ 0.53 NET INCOME PER COMMON SHARE, DILUTED $ 0.55 $ 0.52 The accompanying notes are an integral part of the statements. FIRST FINANCIAL HOLDINGS, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS Three Months Ended December 31, 1997 1996 (Amounts in thousands) (Unaudited) OPERATING ACTIVITIES Net income $ 3,872 $ 3,555 Adjustments to reconcile net income to net cash provided by operating activities Depreciation 499 524 Gain on sale of loans, net (77) (52) Gain on sale of investments and mortgage- backed securities, net (206) (5) (Gain) loss on sale of real estate owned, net (3) 24 Amortization of unearned discounts/premiums on investments 201 33 Decrease in deferred loan fees and discounts (383) (206) (Increase) decrease in receivables and prepaid expenses (1,162) 719 Provision for loan losses 605 540 Write downs of real estate acquired in settlement of loans 5 7 Proceeds from sales of loans held for sale 18,895 9,787 Origination of loans held for sale (21,789) (12,106) Decrease in accounts payable and other liabilities (13,627) (17,477) Net cash used in operating activities (13,170) (14,657) INVESTING ACTIVITIES Proceeds from maturity of investments 3,904 9,000 Proceeds from sale of investments 3,995 Net redemption (purchase) of mutual funds available for sale (1,650) 7,760 Purchase of investments (955) Purchase of FHLB stock (1,953) (2,350) Increase in loans, net (23,788) (23,998) Increase in credit card receivables (587) (1,284) Purchase of loans and loan participations (7,911) (9,886) Repayments on mortgage-backed securities 8,166 3,521 Purchase of mortgage-backed securities available for sale (4,135) (20,225) Sales of mortgage-backed securities 5,841 Proceeds from the sales of real estate owned 112 1,369 Net purchase of office properties and equipment (514) (455) Net cash used in investing activities (22,515) (33,508) Three Months Ended December 31, 1997 1996 (Amounts in thousands) (Unaudited) FINANCING ACTIVITIES Net increase (decrease) in deposit accounts 3,351 (755) Net proceeds of FHLB advances 38,500 47,000 Increase (decrease) of securities sold under agreements to repurchase (14,318) 6,523 Proceeds from sale of common stock 391 109 Dividends paid (1,473) (1,142) Treasury stock purchased (79) (1,508) Net cash provided by financing activities 26,372 50,227 Net increase (decrease) in cash and cash equivalents (9,313) 2,062 Cash and cash equivalents at beginning of period 48,034 43,114 Cash and cash equivalents at end of period $ 38,721 $ 45,176 Supplemental disclosures: Cash paid during the period for: Interest $ 24,918 $ 22,358 Income taxes 461 506 Loans foreclosed 134 358 Loans securitized into mortgage-backed securities 53,226 Unrealized net gain on securities available for sale, net of income tax 763 676 The accompanying notes are an integral part of the statements. FIRST FINANCIAL HOLDINGS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 1997 (Unaudited) A. BASIS OF PRESENTATION AND ACCOUNTING POLICIES The unaudited consolidated financial statements include the accounts of First Financial Holdings, Inc, ("First Financial", or the "Company") and its wholly-owned subsidiaries, First Federal Savings and Loan Association of Charleston ("First Federal") and Peoples Federal Savings and Loan Association of Conway ("Peoples Federal") (together, the "Associations"). All significant intercompany items related to the consolidated subsidiaries have been eliminated. The significant accounting policies followed by First Financial for interim financial reporting are consistent with the accounting policies followed for annual financial reporting. The unaudited consolidated financial statements and notes are presented in accordance with the instructions for Form 10-Q. The information contained in the footnotes included in First Financial's latest annual report on Form 10-K should be referred to in connection with the reading of these unaudited interim consolidated financial statements. Certain fiscal 1997 amounts have been reclassified to conform with the statement presentations for fiscal 1998. The results of operations for the three months ended December 31, 1997 is not necessarily indicative of the results of operations that may be expected in future periods. This report may contain certain forward-looking statements with respect to financial conditions, results of operations and business of First Financial. These forward-looking statements involve certain risks and uncertainties, including, but not limited to, timing of certain business initiatives of the Company, the Company's interest rate risk position and future regulatory actions of the office of Thrift Supervision and the Federal Deposit Insurance Corporation. It is important to note that the Company's actual results may differ materially and adversely from those discussed in forward-looking statements. B. EARNINGS PER SHARE Effective with periods ended December 31, 1997, First Financial has implemented Statement of Financial Accounting Standards ("SFAS") No. 128, "Earnings per Share." This Statement simplifies the standards for computing earnings per share previously found in Accounting Principles Board ("APB") Opinion No. 15, "Earnings per Share" ("EPS"), and makes them comparable to international EPS standards. It replaces the presentation of primary EPS with basic EPS. It also requires dual presentation of basic and diluted EPS on the face of the income statement for all entities with complex capital structures and requires a reconciliation of the numerator and denominator of the diluted EPS computation. Basic EPS excludes dilution and is computed by dividing income available to common shareholders by the weighted-average number of common shares outstanding for the period. Diluted EPS reflects the potential dilution that could occur if securities or other contracts to issue common stock were exercised or converted into common stock or resulted in the issuance of common stock that then shared in the earnings of the entity. Diluted EPS is computed similarly to fully diluted EPS pursuant to APB Opinion No. 15. Basic and diluted earnings per share have been computed based upon net income as presented in the accompanying statements of income divided by the weighted average number of common shares outstanding or assumed to be outstanding as summarized below: Quarter Ended December 31, 1997 1996 Weighted average number of common shares used in basic EPS 6,744,672 6,686,123 Effect of dilutive stock options 284,332 175,382 Weighted average number of common shares and dilutive potential common shares used in diluted EPS 7,029,004 6,861,505 C. NATURE OF OPERATIONS First Financial is a multiple savings and loan holding company headquartered in Charleston, South Carolina. First Financial conducts its operations principally in South Carolina with lending functions also in North Carolina. The thrift subsidiaries, First Federal and Peoples Federal, provide a wide range of traditional banking services and also offer investment and insurance services through subsidiaries. The Company has a total of 34 offices in South Carolina located in the Charleston Metropolitan area and Horry, Georgetown and Florence counties, a loan origination office in coastal North Carolina and a private banking office in Hilton Head, South Carolina. D. MERGERS AND ACQUISITIONS On November 7, 1997, First Financial completed the acquisition of Investors Savings Bank of South Carolina, Inc. ("Investors") in a transaction accounted for as a pooling of interests. Under the terms of the agreement, Investors shareholders received 1.36 shares of First Financial common stock in exchange for each share of Investors stock held, which resulted in the issuance of 354 thousand shares. Based on the last reported sales price of the Company's common stock on November 7, 1997, such shares had an aggregate value of approximately $14.4 million. At the time of the acquisition, Investors had assets of approximately $62.7 million, deposits of $55.0 million and stockholders equity of $7.3 million. ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS GENERAL Net income for the quarter ended December 31, 1997 improved 9% to $3.9 million from net income of $3.6 million in the comparable quarter in 1996. The Company completed its acquisition of Investors on November 7, 1997, accounting for the acquisition as a pooling of interests. All prior financial information has been restated to include the effect of Investors' operations. The quarter's results included approximately $289 thousand in non-recurring, before-tax costs related to the merger with Investors. Earnings per common share improved to $.57 in the quarter ended December 31, 1997 from $.53 in the quarter ended December 31, 1996. Earnings per share on a diluted basis increased to $.55 compared with $.52 per share in the comparable quarter in 1996. BALANCE SHEET ANALYSIS Consolidated assets of the Company totaled $1.8 billion at December 31, 1997. During the quarter assets increased $18.4 million, or 4.1% on an annualized basis. Cash, Investment Securities and Mortgage-backed Securities Cash, deposits in transit and interest-bearing deposits declined $9.3 million during the three months and totaled $38.7 million at December 31, 1997. Investments held to maturity declined by $3.2 million while investments available for sale increased $696 thousand. Maturities of investments totaled $3.9 million during the quarter. Mortgage-backed securities totaled $194.6 million at December 31, 1997, increasing $44.9 million during the first quarter of fiscal 1998. The Company's securitization of $53.2 million of single family loans for mortgage-backed securities during the quarter was the principal factor leading to the growth in mortgage-backed securities. During the quarter ended December 31, 1997, purchases of mortgage-backed securities totaled $4.1 million while sales and repayments totaled $5.8 million and $8.2 million, respectively. Loans Receivable Loans receivable, including loans held for sale, totaled $1.4 billion at December 31, 1997, declining $18.4 million from September 30, 1997 principally due to the $53.2 million securitization discussed above. The principal use of the Company's funds is the origination of mortgage and other loans. The Company originated $90.7 million (net of refinances) in mortgage loans, $22.7 million in consumer loans and $8.4 million in commercial business loans during the three months ending December 31, 1997. Included in mortgage loan originations were $21.8 million in loans originated for sale. The Company also purchased $7.9 million in loans from correspondent originators. Loans comprise the major portion of interest-earning assets of the Company, accounting for 80% of assets at December 31, 1997. The Company s loan portfolio consists of real estate mortgage and construction loans, home equity and other consumer loans, credit card receivables and commercial business loans. Management believes it continues to reduce the risk elements of its loan portfolio through strategies focusing on residential mortgage and consumer loan production. The following table summarizes the composition of the Company's gross loan portfolio (amounts in thousands): December 31, September 30, 1997 1997 Residential (1-4 family) $ 1,015,057 $ 1,044,045 Other residential 51,936 53,368 Land and lots 68,481 58,251 Commercial real estate 152,026 159,228 Consumer 152,708 145,133 Commercial business 33,395 34,472 Total gross loans $ 1,473,603 $ 1,494,497 Outstanding commitments to originate mortgage loans and to fund the undisbursed portion of construction loans amounted to $55.6 million at December 31, 1997. Unused lines of credit on equity loans, consumer loans, credit cards and commercial loans totaled $139.3 million as of December 31, 1997. The Company originates the majority of its loans in its primary market area located in the coastal region of South Carolina. In an effort to expand mortgage lending operations and improve earning asset growth the Company began originating mortgage loans in other markets in 1995. The Company utilizes its existing mortgage loan products and programs in establishing correspondent relationships with other lenders. Asset Quality The following table summarizes the Company's problem assets for the periods indicated (amounts in thousands): December 31, September 30, 1997 1997 Non-accrual loans $ 5,825 $ 6,609 Loans 90 days or more delinquent (1) 68 568 Renegotiated loans 6,623 6,776 Real estate and other assets acquired in settlement of loans 11,716 11,658 Total $ 24,232 $ 25,611 As a percent of net loans and real estate owned 1.68% 1.75% As a percent of total assets 1.35% 1.44% (1) The Company continues to accrue interest on these loans. Allowance for Loan Losses The allowance for loan losses represents a reserve for potential losses existing in the loan portfolio. The adequacy of the allowance for loan losses is evaluated at least quarterly based, among other factors, on a continuous review of the Company's loan portfolio, with particular emphasis on adversely classified loans. The following table provides a summary of activity in the allowance for loan losses for the first quarter of fiscal 1997 (amounts in thousands). Balance Balance September 30, December 31, 1997 Additions Chargeoffs Recoveries 1997 Real estate $ 9,003 $ 264 $ 764 $ 59 $ 8,562 Commercial business 1,384 (455) 99 368 1,198 Consumer 1,716 796 506 66 2,072 Total $ 12,103 $ 605 $ 1,369 $ 493 $ 11,832 Net loan charge-offs of $876 thousand during the quarter ended December 31, 1997 included $679 thousand related to a $2.8 million multifamily loan on which the company had maintained an $800 thousand specific reserve. The Company's impaired loans totaled $6.7 million at December 31, 1997, $7.6 million at September 30, 1997 and $7.2 million at December 31, 1996. Deposits and Borrowings First Financial's deposit composition at December 31, 1997 is as follows (amounts in thousands): December 31, 1997 Balance % of Total Checking accounts $ 146,834 13.03 Passbook, statement and other accounts 138,597 12.29 Money market accounts 127,496 11.31 Certificate accounts 714,412 63.37 Total deposits $1,127,339 100.00% While deposits remain a primary, highly stable source of funds for the Company, deposits have declined as a percentage of liabilities over recent years. At December 31, 1997, deposits as a percentage of liabilities, declined to 67% from 68% at September 30, 1997. Primarily as a result of growth in assets during the quarter and the utilization of FHLB advances as a primary source of funds, total borrowings increased $24.2 million to total $522.4 million as of December 31, 1997. Stockholders' Equity Stockholders' equity increased $4.0 million during the first quarter of fiscal 1998 to total $115.5 million at December 31, 1997. The Company's capital ratio, total capital to total assets, was 6.44% at December 31, 1997, compared to 6.28% at September 30, 1997. During the quarter, the Company increased its quarterly cash dividend to $.21 per share compared with $.18 per share in the most recent period. Regulatory Capital Under current Office of Thrift Supervision ("OTS") regulations, savings associations must satisfy three minimum capital requirements: core capital, tangible capital and risk-based capital. Savings associations must meet all of the standards in order to comply with the capital requirements. At December 31, 1997, both subsidiaries were categorized as "well capitalized" under the Prompt Corrective Action regulations adopted by the OTS pursuant to the Federal deposit Insurance Corporation Improvement Act of 1991 ("FDICIA"). To remain in this status, the Associations must maintain core and risk-based capital ratios of at least 5.0% and 10.0%, respectively. The following table summarizes the capital requirements for First Federal and Peoples Federal as well as their capital positions at December 31, 1997: First Federal Peoples Federal Percent Percent of Amount of Assets Amount Assets (Amounts in thousands) Tangible capital $ 79,419 6.50% $39,923 7.17% Tangible capital requirement 18,325 1.50 8,351 1.50 Excess $ 61,094 5.00% $31,572 5.67% Core capital $ 79,419 6.50% $39,923 7.17% Core capital requirement 36,651 3.00 16,701 3.00 Excess $ 42,768 3.50% $23,222 4.17% Risk-based capital(a) $ 86,195 10.43% $43,370 13.54% Minimum risk-based capital requirement(a) 66,086 8.00 25,631 8.00 Excess(a) $ 20,109 2.43% $17,739 5.54% (a) Based on total risk-weighted assets. For a complete discussion of capital issues, refer to "Capital Requirements" and "Limitations on Capital Distributions" in the Company's 10- K for the fiscal year ending September 30, 1997. LIQUIDITY AND ASSET AND LIABILITY MANAGEMENT Liquidity The Associations are subject to federal regulations which require the maintenance of a daily average balance of liquid assets equal to 4.00% of net withdrawable savings and borrowings payable in one year. The liquidity ratios of the Associations, based on revised regulations issued by the Office of Thrift Supervision in November 1997, substantially exceed the required levels. The Associations' primary sources of funds consist of retail deposits, borrowings from the FHLB, principal repayments on loans and mortgage-backed securities, securities sold under agreements to repurchase and the sale of loans. Each of the Association's sources of liquidity are subject to various uncertainties beyond the control of the Associations. As a measure of protection, the Associations have back-up sources of funds available, including excess FHLB borrowing capacity and excess liquidity in securities available for sale. During the current quarter the Company experienced a net cash outflow from investing activities of $22.5 million, consisting principally of loans originated and purchased for investment, and mortgage-backed securities purchased, which were partially offset by sales and maturities of investment and mortgage-backed securities. The Company experienced cash outflows of $13.2 million from operating activities principally as a result of a $13.6 million decrease in accounts payable and other liabilities. Financing activities resulted in cash inflows of $26.4 million, consisting principally of $38.5 million in FHLB advances offset partially by $14.3 million in net repayments of securities sold under agreements to repurchase. Parent Company Liquidity As a holding company, First Financial conducts its business through its subsidiaries. First Financial issued $20.3 million in senior notes of the Company in September 1992 principally for the purpose of acquiring Peoples Federal. Potential sources for First Financial's payment of principal and interest on the notes include: (i) dividends from First Federal and Peoples Federal; (ii) payments from existing cash reserves and sales of marketable investment securities; and (iii) interest on investment assets. The Company has agreed to prepay, at a price of 100% of the principal plus accrued interest to the date of prepayment, up to $1.0 million of the notes tendered by noteholders for prepayment during the period of issuance through September 1, 1993, and thereafter in any twelve month period ending September 1, subject to certain limitations. As of December 31, 1997, First Financial had cash reserves and marketable securities of $13.2 million. First Federal's and Peoples Federal's ability to pay dividends and make other capital contributions to First Financial is restricted by regulation and may require regulatory approval. First Federal's and Peoples Federal's ability to make distributions may also depend on each institution's ability to meet minimum regulatory capital requirements in effect during the period. For a complete discussion of capital distribution regulations, refer to "Limitations on Capital Distributions" in the Company's 10-K for the fiscal year ending September 30, 1997. Asset/Liability Management The Company's Asset and Liability Committees establish policies and monitor results to control interest rate sensitivity. Although the Company utilizes measures such as static gap, which is simply the measurement of the difference between interest-sensitive assets and interest-sensitive liabilities repricing for a particular time period, just as important a process is the evaluation of how particular assets and liabilities are impacted by changes in interest rates or selected indices as they reprice. Asset/liability modeling is performed by the Company to assess varying interest rate and balance mix assumptions. These projections enable the Company to adjust its strategies to lessen the impact of significant interest rate fluctuations. The following table is a summary of First Financial's one year gap at December 31, 1997 (amounts in thousands): December 31, 1997 Interest-earning assets maturing or repricing within one year $ 818,102 Interest-bearing liabilities maturing or repricing within one year 1,072,019 Cumulative gap $ (253,917) Gap as a percent of total assets (14.16)% The Company's one year gap as a percent of total assets changed from (12.33)% to (14.16)% during the current three months. The respective ratios and dollars repricing as shown in the above table do not take into effect prepayments to mortgage, consumer and other loans and mortgage-backed securities. A negative gap indicates that cumulative interest-sensitive liabilities exceed cumulative interest-sensitive assets and suggests that net interest income would decline if market interest rates increased. A positive gap would suggest the reverse. This relationship is not always ensured due to the repricing attributes of both interest-sensitive assets and interest-sensitive liabilities. COMPARISON OF OPERATING RESULTS QUARTERS ENDING DECEMBER 31, 1997 AND 1996 Net Interest Income First Financial's net interest income for the three months ending December 31, 1997 was $13.3 million compared with $12.6 million for the comparable quarter in fiscal 1997. The gross interest margin declined from 2.92% in the prior quarter to 2.82% in the current quarter and reflects a decline of .08% between the two comparable periods in the Company's average yield on earning assets and an increase of .02% in the Company's average cost of funds. The following table summarizes rates, yields and average earning asset and costing liability balances for the respective quarters (amounts in thousands): Quarter Ended December 31, 1997 1996 Average Average Average Yield/ Average Yield/ Balance Rate Balance Rate Loans and mortgage-backed securities $1,628,345 7.82% $1,440,707 7.96% Investments and other interest-earning assets 95,801 6.36 128,056 6.30 Total interest-earning assets $1,724,146 7.74% $1,568,763 7.82% Deposits $1,126,695 4.48% $1,107,355 4.58% Borrowings 510,520 5.88 370,401 5.83 Total interest-bearing liabilities $1,637,215 4.92% $1,477,756 4.90% Gross interest margin 2.82% 2.92% Net interest margin 3.09% 3.22% The following rate/volume analysis depicts the increase (decrease) in net interest income attributable to interest rate and volume fluctuations compared to the prior period (amounts in thousands): Quarter Ended December 31 1997 versus 1996 Volume Rate Total Interest income: Loans and mortgage-backed securities $ 3,816 $ (502) $ 3,314 Investments and other interest- earning assets (509) 19 (490) Total interest income 3,307 (483) 2,824 Interest expense: Deposits 257 (238) 19 Borrowings 2,071 47 2,118 Total interest expense 2,328 (191) 2,137 Net interest income $ 979 $ (292) $ 687 Average balances of interest-earning assets increased $155.4 million, or 9.9%, in the December 1997 quarter compared with the December 1996 quarter, contributing to a $979 thousand increase in net interest income due to changes in volume. However, a decline in the Company's net interest margin from 3.22% in the December 1996 quarter to 3.09% in the December 1997 quarter reduced net interest income by approximately $292 thousand and served to offset a portion of the increase due to volume changes. There can be no assurance that the Company's net margin will not decline further based on the current spread between short and long-term treasury interest rates, the likelihood that prepayments of higher yielding earning assets may increase under current interest rates, the Company's current asset/liability structure and competitive forces within its markets. Provision for Loan Losses During the current quarter, First Financial's provision for loan losses totaled $605 thousand, compared to $540 thousand during the same period in the previous year. Net charge-offs for the current quarter totaled $876 thousand compared with $519 thousand in the comparable quarter in fiscal 1997. Total loan loss reserves as of December 31, 1997 were $11.8 million, or .83% of the total net loan portfolio. Other Income/Non-Interest Expenses Fees on deposit accounts increased $130 thousand, or 9.5%, during the current quarter, reflecting increased balances in checking and other transaction accounts at the Company and changes to service charge pricing structure since the December 1996 quarter. The Company recorded a gain of $206 thousand on the sale of mortgage-backed securities during the current quarter compared with securities gains of $5 thousand in the prior quarter. Non-interest expense increased $626 thousand, or 6.7%, during the current quarter. Non-interest expense in the current quarter included non-recurring expenses of approximately $289 thousand related to the Investors merger. Non-interest expense, excluding the effect of non-recurring expenses, increased $337 thousand, or 3.6%, in the current quarter. The increase in the current quarter is primarily attributable to higher personnel costs and increased marketing expenditures, offset partially by a decline in FDIC insurance costs. Annual FDIC insurance costs declined to 18 basis points on the assessment base effective in the first quarter of fiscal 1997 and then further declined to 6.5 basis points effective January 1, 1997. The Associations are currently subject to a FICO assessment of 6.3 basis points on an annual basis, which resulted in expense of $180 thousand recorded in the December 1997 quarter compared with $508 thousand in the December 1996 quarter. IMPACT OF REGULATORY AND ACCOUNTING ISSUES For a comprehensive discussion of regulatory and accounting issues, refer to "Regulatory and Accounting Issues" in the Company's 10-K for the fiscal year ending September 30, 1997. FIRST FINANCIAL HOLDINGS, INC. OTHER INFORMATION Item 1 - Legal Proceedings Periodically, there are various claims and lawsuits involving the Associations and their subsidiaries mainly as defendants, such as claims to enforce liens, condemnation proceedings on properties in which the Associations hold security interests, claims involving the making and servicing of real property loans and other issues incident to the Association's business. In the opinion of management and the Company's legal counsel, no material loss is expected from any of such pending claims or lawsuits. Item 4 - Submission of Matters to a Vote of Security Holders At the 1998 First Financial Annual Meeting of Shareholders held January 28, 1998, there were 5,668,178 shares present in person or in proxy of the 6,751,538 shares of common stock entitled to vote at the Annual Meeting. Proposal I - Election of Directors. The shareholders elected Gary C. Banks, Jr., Paula Harper Bethea and Paul G. Campbell, Jr. as directors of the Company for three year terms ending in 2001. Pursuant to Regulation 14 of the Securities and Exchange Act of 1934, as amended, management solicited proxies for the Annual Meeting and there were no solicitations in opposition to management's nominees. The director nominees received the following votes: For Withheld Gary C. Banks, Jr. 5,586,458 82,720 Paula Harper Bethea 5,630,275 38,903 Paul G. Campbell, Jr. 5,630,951 38,227 The continuing directors for the Company are: A. Thomas Hood, A. L. Hutchinson, Jr., James C. Murray, D. Kent Sharples, D. Van Smith and Thomas E. Thornhill. Proposal II - Approval of 1997 Stock Option and Incentive Plan. On October 23, 1997, the Board of Directors of the Company adopted, subject to shareholder approval, the First Financial Holdings, Inc. 1997 Stock Option Plan. The shareholder vote was as follows: Number of Votes For 5,027,748 Against 504,040 Abstain 51,556 Broker Nonvotes 85,834 Proposal III - Ratification of an Amendment to the Certificate of Incorporation. On November 25, 1997, the Board of Directors adopted an amendment to the Company's Certificate of Incorporation to increase the number of authorized shares of common stock from 12,000,000 to 24,000,000. The shareholders ratified this amendment with the following vote: Number of Votes For 5,424,132 Against 212,587 Abstain 32,458 Broker Nonvotes None Item 6 - Exhibits and Report on Form 8-K. Exhibits (3.1)Certificate of Incorporation, as amended, of Registrant (1) (3.2)Bylaws, as amended, of Registrant (2) (3.3)Amendment to Registrant s Bylaws (3) (3.4)Amendment to Registrant's Certificate of Incorporation (4)Indenture, dated September 10, 1992, with respect to the Registrant's 9.375% Senior Notes, due September 1, 2001 (4) (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 (4) (10.3)Employment Agreement with A. Thomas Hood, as amended (5) (10.4)Employment Agreement with Charles F. Baarcke, Jr. (6) (10.5)Employment Agreement with John L. Ott, Jr. (6) (10.6)1990 Stock Option and Incentive Plan (7) (10.7)1994 Outside Directors Stock Options-for-Fees Plan (8) (10.8)1994 Employee Stock Purchase Plan (8) (10.9)1996 Performance Equity Plan for Non-Employee Directors (9) (10.10)Employment Agreement with Susan E. Baham (5) (10.11)1997 Stock Option and Incentive Plan (10) (22)Subsidiaries of the Registrant (3) (27)Financial Data Schedule - ------------- (1) Incorporated by reference to Exhibit 3 to the Registrant's Quarterly Report on Form 10-Q for the quarter ended December 31, 1993 (2) Incorporated by reference to Exhibit 3 to the Registrant's Quarterly Report on Form 10-Q for the quarter ended March 31, 1995 (3) Incorporated by reference to Registrant's Annual Report on Form 10-K for the year ended September 30, 1997 (4) Incorporated by reference to the Registrant's Registration Statement on Form S-8 File No. 33-55067. (5) Incorporated by reference to the Registrant s Annual Report on Form 10-K for the year ended September 30, 1996. (6) Incorporated by reference to the Registrant's Annual Report on Form 10-K (7) Incorporated by reference to the Registrant's Registration Statement on Form S-8 File No. 33-57855. (8) Incorporated by reference to the Registrant's Proxy Statement for the Annual Meeting of Stockholders held on January 25, 1995 (9) Incorporated by reference to the Registrant's Proxy Statement for the Annual Meeting of Stockholders held on January 22, 1997. (10) Incorporated by reference to the Registrant s Preliminary Proxy Statement for the Annual Meeting of Stockholders to be held on January 28, 1998. Reports on Form 8-K The Company filed a Form 8-K under Item 5 on November 13, 1997 to report on the November 7, 1997 completion of its acquisition of Investors. FIRST FINANCIAL HOLDINGS, INC. SIGNATURES Pursuant to the requirements of the Securities and Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. First Financial Holdings, Inc. Date: February 17, 1998 By: /s/ A. Thomas Hood A. Thomas Hood President and Chief Executive Officer Duly Authorized Representative Exhibit 3.4 CERTIFICATE OF AMENDMENT OF CERTIFICATE OF INCORPORATION First Financial Holdings, Inc., a corporation organized and existing under and by virtue of the General Corporation Law of the State of Delaware, does hereby certify: 1. That at a meeting of the Board of Directors of First Financial Holdings, Inc., resolutions were duly adopted setting forth a proposed amendment of the Certificate of Incorporation of said corporation, declaring said amendment to be advisable and calling a meeting of the shareholders of said corporation for consideration thereof. The resolution setting forth the proposed amendment is as follows: RESOLVED, that the Certificate of Incorporation of First Financial Holdings, Inc. be amended by changing the first sentence of Article V of the Certificate of Incorporation to read as follows: "The aggregate number of shares of all classes of capital stock which the Corporation has authority to issue is 27,000,000, of which 24,000,000 are to be shares of common stock, $.01 par value per share, and of which 3,000,000 are to be shares of serial preferred stock, $.01 par value per share." The remaining text of Article V of the Certificate of Incorporation would remain unchanged. 2. That thereafter, pursuant to resolution of its Board of Directors, the 1998 Annual Meeting of Shareholders of First Financial Holdings, Inc. was duly called and held, upon notice in accordance with Section 222 of the General Corporation law of the State of Delaware at which meeting the necessary number of shares as required by statute were voted in favor of the amendment. 3. That said amendment was duly adopted in accordance with the provision of Section 242 of the General Corporation Law of the State of Delaware. IN WITNESS Whereof, said First Financial Holdings, Inc. has caused this certificate to be signed by A. Thomas Hood, its President, and Phyllis B. Ainsworth, its Secretary, its authorized officers, this 29th day of January, 1998. By /s/ A. Thomas Hood A. Thomas Hood, President (CORPORATE SEAL) By /s/ Phyllis B. Ainsworth Phyllis B. Ainsworth, Secretary EX-27 2
9 1000 3-MOS SEP-30-1998 DEC-31-1997 30,131 8,590 0 0 235,501 35,545 35,587 1,444,966 11,832 1,793,325 1,127,339 502,655 0 19,763 74 0 0 115,434 1,793,325 32,092 992 544 33,628 12,736 20,295 13,333 605 206 2,443 6,146 3,872 0 0 3,872 .57 .55 3.09 5,825 68 6,623 12,516 12,103 1,369 493 11,832 11,832 0 0
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