-----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, SxvlWcIuZ5WmPMR8ToiT3kwW6+QWBmG1wWSt63FmMA2ACk0G43ue0f+A1fVirxPl adixAMgWZzgPPvflf5vqTA== 0000787075-99-000021.txt : 19990825 0000787075-99-000021.hdr.sgml : 19990825 ACCESSION NUMBER: 0000787075-99-000021 CONFORMED SUBMISSION TYPE: 10-Q/A PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19990630 FILED AS OF DATE: 19990824 FILER: COMPANY DATA: COMPANY CONFORMED NAME: FIRST FINANCIAL HOLDINGS INC /DE/ CENTRAL INDEX KEY: 0000787075 STANDARD INDUSTRIAL CLASSIFICATION: SAVINGS INSTITUTION, FEDERALLY CHARTERED [6035] IRS NUMBER: 570866076 STATE OF INCORPORATION: DE FISCAL YEAR END: 0930 FILING VALUES: FORM TYPE: 10-Q/A SEC ACT: SEC FILE NUMBER: 000-17122 FILM NUMBER: 99698577 BUSINESS ADDRESS: STREET 1: 34 BROAD STREET STREET 2: SUITE 10 CITY: CHARLESTON STATE: SC ZIP: 29401 BUSINESS PHONE: 8035295800 MAIL ADDRESS: STREET 1: 34 BROAD STREET CITY: CHARLESTON STATE: SC ZIP: 29401 10-Q/A 1 10-Q FOR QTR END 6/30/1999 AMEND #2 TO REMOVE INCORRECT CONSOLIDATED STATEMENTS OF INCOME FOR THREE MONTHS 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 June 30, 1999 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from to Commission File Number: 0-17122 FIRST FINANCIAL HOLDINGS, INC. (Exact name of registrant as specified in its charter) Delaware 57-0866076 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 34 Broad Street, Charleston, South Carolina 29401 (Address of principal executive (Zip Code) offices) Registrant's telephone number, (803) 529-5933 including area code 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 July 31, 1999 $.01 Par Value 13,339,604 FIRST FINANCIAL HOLDINGS, INC. INDEX PART I - FINANCIAL INFORMATION PAGE NO. Consolidated Statements of Financial Condition 1 at June 30, 1999 and September 30, 1998 Consolidated Statements of Income for the Three 2 Months Ended June 30, 1999 and 1998 Consolidated Statements of Income for the Nine 3 Months Ended June 30, 1999 and 1998 Consolidated Statements of Cash Flows for the 4 Nine months Ended June 30, 1999 and 1998 Notes to Consolidated Financial Statements 5-6 Management's Discussion and Analysis of Results 7-15 of Operations and Financial Condition PART II - OTHER INFORMATION 16-17 SIGNATURES 18 SCHEDULES OMITTED All schedules other than those indicated above are omitted because of the absence of the conditions under which they are required or because the information is included in the Financial Statements and related notes. FIRST FINANCIAL HOLDINGS, INC. CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION June 30, September 30, 1999 1998 (Amounts in thousands) (Unaudited) ASSETS Cash and cash equivalents $ 54,698 $ 40,392 Investments held to maturity (market value of $1,260 and $4,194) 1,249 4,148 Investments available for sale, at fair value 8,614 11,264 Investment in capital stock of Federal Home Loan Bank, at cost 29,175 25,000 Loans receivable, net 1,658,626 1,550,567 Loans held for sale 15,588 14,473 Mortgage-backed securities available for sale, at fair value 192,404 148,186 Mortgage-backed securities held to maturity (market value of $33 and $452) 29 444 Accrued interest receivable 10,915 10,631 Office properties and equipment, net 19,729 15,836 Real estate and other assets acquired in settlement of loans 5,806 5,871 Other assets 9,537 12,896 Total assets $2,006,370 $ 1,839,708 LIABILITIES AND STOCKHOLDERS' EQUITY Liabilities: Deposit accounts $1,208,050 $ 1,164,440 Advances from Federal Home Loan Bank 579,500 471,500 Securities sold under agreements to repurchase 44,079 29,442 Other short-term borrowings 6,750 4,000 Advances by borrowers for taxes and insurance 5,362 6,503 Outstanding checks 16,009 15,094 Accounts payable and other liabilities 24,215 23,566 Total liabilities 1,883,965 1,714,545 Stockholders' equity: Serial preferred stock, authorized 3,000,000 shares--none issued Common stock, $.01 par value, authorized 24,000,000 shares, issued 15,220,240 and 15,033,853 shares at June 30, 1999 and September 30, 1998, respectively 152 150 Additional paid-in capital 31,555 30,308 Retained income, substantially restricted 109,441 100,075 Accumulated other comprehensive income (loss) (1,505) 2,195 Treasury stock at cost, 1,881,258 and 1,374,872 shares at June 30, 1999 and September 30, 1998, respectively (17,238) (7,565) Total stockholders' equity 122,405 125,163 Total liabilities and stockholders' equity $2,006,370 $ 1,839,708 The accompanying notes are an integral part of the statements. FIRST FINANCIAL HOLDINGS, INC. CONSOLIDATED STATEMENTS OF INCOME Three Months Ended June 30, 1999 1998 (Amounts in thousands, except per share amounts) (Unaudited) INTEREST INCOME Interest on loans and mortgage-backed securities $ 34,700 $ 33,057 Interest and dividends on investments 720 919 Other 217 437 Total interest income 35,637 34,413 INTEREST EXPENSE Interest on deposits 12,058 12,587 Interest on borrowed money 8,031 7,982 Total interest expense 20,089 20,569 NET INTEREST INCOME 15,548 13,844 Provision for loan losses 760 600 Net interest income after provision for loan losses 14,788 13,244 OTHER INCOME Net gain on sale of loans 285 289 Net gain (loss) on sale of investment and mortgage-backed securities (6) 200 Loan servicing fees 275 297 Service charges and fees on deposit accounts 1,643 1,434 Real estate operations, net (17) (324) Other 1,607 1,365 Total other income 3,787 3,261 NON-INTEREST EXPENSE Salaries and employee benefits 6,540 5,576 Occupancy costs 788 894 Marketing 412 376 Depreciation, amortization, rental and maintenance of equipment 831 702 FDIC insurance premiums 177 175 Other 2,227 2,710 Total non-interest expense 10,975 10,433 Income before income taxes 7,600 6,072 Income tax expense 2,659 1,869 NET INCOME $ 4,941 $ 4,203 NET INCOME PER COMMON SHARE $ 0.37 $ 0.31 NET INCOME PER COMMON SHARE DILUTED $ 0.36 $ 0.30 The accompanying notes are an integral part of the statements. FIRST FINANCIAL HOLDINGS, INC. CONSOLIDATED STATEMENTS OF INCOME Nine Months Ended June 30, 1999 1998 (Amounts in thousands, except per share amounts) (Unaudited) INTEREST INCOME Interest on loans and mortgage-backed securities $ 101,491 $ 97,513 Interest and dividends on investments 2,111 2,824 Other 591 1,535 Total interest income 104,193 101,872 INTEREST EXPENSE Interest on deposits 36,820 37,771 Interest on borrowed money 22,482 23,465 Total interest expense 59,302 61,236 NET INTEREST INCOME 44,891 40,636 Provision for loan losses 2,005 1,805 Net interest income after provision for loan losses 42,886 38,831 OTHER INCOME Net gain on sale of loans 1,266 681 Net gain on sale of investment and mortgage-backed securities 12 471 Loan servicing fees 881 951 Service charges and fees on deposit accounts 4,819 4,309 Real estate operations, net (12) (291) Other 4,316 4,133 Total other income 11,282 10,254 NON-INTEREST EXPENSE Salaries and employee benefits 19,080 16,537 Occupancy costs 2,342 2,638 Marketing 1,078 1,057 Depreciation, amortization, rental and maintenance of equipment 2,436 2,072 FDIC insurance premiums 540 533 Merger-related expenses 317 Other 6,798 7,208 Total non-interest expense 32,274 30,362 Income before income taxes 21,894 18,723 Income tax expense 7,661 6,547 NET INCOME $ 14,233 $ 12,176 NET INCOME PER COMMON SHARE $ 1.06 $ 0.90 NET INCOME PER COMMON SHARE DILUTED $ 1.03 $ 0.86 The accompanying notes are an integral part of the statements. FIRST FINANCIAL HOLDINGS, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS Nine Months Ended June 30, 1999 1998 (Amounts in thousands) OPERATING ACTIVITIES (Unaudited) Net income $ 14,233 $ 12,176 Adjustments to reconcile net income to net cash provided by operating activities Depreciation 1,771 1,313 Gain on sale of investments and mortgage- backed securities, net (12) (471) Gain on sale of real estate owned, net (84) (49) Amortization of unearned discounts/premiums on investments 35 (415) Increase (decrease) in deferred loan fees and discounts 601 (490) (Increase) decrease in receivables and prepaid expenses 3,075 (2,589) Provision for loan losses 2,005 1,805 Writedowns of real estate acquired in settlement of loans 13 275 Proceeds from sales of loans held for sale 178,974 118,637 Origination of loans held for sale (180,089) (132,153) Increase in accounts payable and other liabilities 2,787 2,735 Net cash provided by operating activities 23,309 774 INVESTING ACTIVITIES Proceeds from maturity of investments 7,384 14,042 Proceeds from sale of investments available for sale 4,889 Net purchase of investments available for sale (1,957) (3,120) Purchase of FHLB stock (4,175) (4,199) Increase in loans, net (111,232) (129,872) Repayments on mortgage-backed securities 50,843 36,269 Purchase of mortgage-backed securities available for sale (100,611) (21,779) Sales of mortgage-backed securities 24,095 Proceeds from the sales of real estate owned 703 661 Net purchase of office properties and equipment (5,664) (1,888) Net cash used in investing activities (164,709) (80,902) FINANCING ACTIVITIES Net increase in deposit accounts 43,610 29,679 Net proceeds of FHLB advances 108,000 94,423 Increase (decrease) in securities sold under agreements to repurchase 14,637 (38,073) Increase in other borrowed money 2,750 Proceeds from sale of common stock 1,249 1,193 Dividends paid (4,867) (4,326) Treasury stock purchased (9,673) (88) Net cash provided by financing activities 155,706 82,808 Net increase in cash and cash equivalents 14,306 2,680 Cash and cash equivalents at beginning of period 40,392 48,034 Cash and cash equivalents at end of period $ 54,698 $ 50,714 Supplemental disclosures: Cash paid (received) during the period for: Interest $ 61,347 $ 61,873 Income taxes (196) 7,245 Loans foreclosed 497 2,419 Loans securitized into mortgage-backed securities 53,226 Unrealized net gain (loss) on securities available for sale, net of income tax (3,700) 619 The accompanying notes are an integral part of the statements. FIRST FINANCIAL HOLDINGS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS June 30, 1999 (Unaudited) A. BASIS OF PRESENTATION AND ACCOUNTING POLICIES The unaudited consolidated financial statements include the accounts of First Financial Holdings, Inc, ("First Financial", or the "Company") and its wholly-owned thrift subsidiaries, First Federal Savings and Loan Association of Charleston ("First Federal") and Peoples Federal Savings and Loan Association of Conway ("Peoples Federal") (together, the "Associations") and First Southeast Investor Services, Inc. All significant intercompany items related to the consolidated subsidiaries have been eliminated. The significant accounting policies followed by First Financial for interim financial reporting are consistent with the accounting policies followed for annual financial reporting. The unaudited consolidated financial statements and notes are presented in accordance with the instructions for Form 10-Q. The information contained in the footnotes included in First Financial's latest annual report on Form 10-K should be referred to in connection with the reading of these unaudited interim consolidated financial statements. Certain fiscal 1998 amounts have been reclassified to conform with the statement presentations for fiscal 1999. The results of operations for the nine months ended June 30, 1999 are not necessarily indicative of the results of operations that may be expected in future periods. This report may contain certain forward-looking statements with respect to financial conditions, results of operations and business of First Financial. These forward- looking statements involve certain risks and uncertainties, including, but not limited to, timing of certain business initiatives of the Company, the Company's interest rate risk position, Year 2000 initiatives and future regulatory actions of the Office of Thrift Supervision and the Federal Deposit Insurance Corporation. It is important to note that the Company's actual results may differ materially and adversely from those discussed in forward-looking statements. B. EARNINGS PER SHARE Basic and diluted earnings per share ("EPS") have been computed based upon net income as presented in the accompanying statements of income divided by the weighted average number of common shares outstanding or assumed to be outstanding as summarized below: Three Months Ended June 30, 1999 1998 Weighted average number of common shares used in basic EPS 13,355,444 13,607,943 Effect of dilutive stock options 300,695 516,860 Weighted average number of common shares and dilutive potential common shares used in diluted EPS 13,656,139 14,124,803 Nine Months Ended June 30, 1999 1998 Weighted average number of common shares used in basic EPS 13,487,060 13,548,567 Effect of dilutive stock options 351,319 557,299 Weighted average number of common shares and dilutive potential common shares used in diluted EPS 13,838,379 14,105,866 C. COMPREHENSIVE INCOME (LOSS) Comprehensive income (loss) is the change in the Corporation's equity during the period from transactions and other events and circumstances from non-owner sources. Total comprehensive income is comprised of net income and other comprehensive income and for the nine months ended June 30, 1999 and 1998 amounted to $10,533 and $12,795, respectively. The Corporation's "other comprehensive income" for the nine months ended June 30, 1999 and 1998 and "accumulated other comprehensive income" as of June 30, 1999 and 1998 are comprised solely of unrealized gains and losses on certain investments in debt and equity securities. Other comprehensive income for the nine months ended June 30, 1999 and 1998 follows (in thousands): Nine Months Ended June 30, 1999 1998 Unrealized holding gains (losses) arising during period $ (3,700) $ 638 Less reclassification adjustment for gains included in net income (19) Net unrealized gains (losses) on securities $ (3,700) $ 619 D. NATURE OF OPERATIONS First Financial is a multiple savings and loan holding company headquartered in Charleston, South Carolina. First Financial conducts its operations principally in South Carolina with lending functions also in North Carolina. The thrift subsidiaries, First Federal and Peoples Federal, provide a wide range of traditional banking services and also offer trust and insurance services through subsidiaries. The Company has a total of 37 offices in South Carolina located in the Charleston Metropolitan area and Horry, Georgetown and Florence counties, a loan origination office in coastal Brunswick County, North Carolina and a private banking office in Hilton Head, South Carolina. ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS GENERAL Net income for the quarter ended June 30, 1999 improved 18% to $4.9 million from net income of $4.2 million in the comparable quarter in 1998. Earnings per common share increased to $.37 for the current quarter compared to $.31 in the June 1998 quarter. On a diluted basis, earnings per common share increased to $.36 from $.30 in the comparable period. In the first nine months of 1999, First Financial earned $14.2 million compared with $12.2 million in the first nine months of 1998. Results for the first nine months of 1998 included approximately $317 thousand in non-recurring before-tax expenses related to the acquisition of Investors Savings Bank of South Carolina, Inc. ("Investors"). Year-to-date earnings per common share and diluted earnings per common share improved to $1.06 and $1.03, respectively, compared with $.90 and $.86 in 1998. BALANCE SHEET ANALYSIS Consolidated assets of the Company totaled approximately $2.0 billion at June 30, 1999. During the nine months ended June 30, 1999 assets increased $167 million, or 12.1% on an annualized basis. Cash, Investment Securities and Mortgage-backed Securities Cash, deposits in transit and interest-bearing deposits totaled $54.7 million at June 30, 1999. Investment balances declined in the current nine months to $39.0 million principally as a result of maturities. The Company increased its balances in mortgage-backed securities to $192.4 million, growing the portfolio by $43.8 million principally due to external purchases of $100.6 million. Loans Receivable Loans receivable, including loans held for sale, totaled $1.7 billion at June 30, 1999, increasing $109.2 million from September 30, 1998. The principal use of the Company's funds is the origination of mortgage and other loans. The Company originated $396 million (net of refinances) in mortgage loans, $130 million in consumer loans and $47 million in commercial business loans during the nine months ending June 30, 1999. The Company also originated or purchased $68 million in loans through its regional correspondent originators. Growth in net loans receivable is principally attributable to the significantly improved originations offset partially by fixed-rate loan sales of $179 million in the nine month period and higher prepayments due to the level of market interest rates in the nine months ended June 30, 1999. The following table summarizes the composition of the Company's gross loan portfolio (amounts in thousands): June 30, September 30, June 30, 1999 1998 1998 Residential (1-4 family) $ 1,242,612 $ 1,135,765 $ 1,114,368 Other residential 47,656 43,161 45,675 Land and lots 83,935 83,857 77,141 Commercial real estate 123,297 141,182 145,869 Consumer 206,899 172,684 165,273 Commercial business 40,105 33,790 36,155 Total gross loans $ 1,744,504 $ 1,610,439 $ 1,584,481 Outstanding commitments to originate mortgage loans and to fund the undisbursed portion of construction loans amounted to $89.9 million at June 30, 1999. Unused lines of credit on equity loans, consumer loans, credit cards and commercial loans totaled $182.6 million as of June 30, 1999. The Company originates the majority of its loans in its primary market area located in the coastal region of South Carolina. In an effort to expand mortgage lending operations and improve earning asset growth the Company began originating mortgage loans in other markets in 1995. The Company utilizes its existing mortgage loan products and programs in establishing correspondent relationships with other lenders. Asset Quality The following table summarizes the Company's problem assets for the periods indicated (amounts in thousands): June 30, September June 30, 1999 30, 1998 1998 Non-accrual loans $ 4,368 $ 2,647 $ 4,049 Loans 90 days or more delinquent (1) 52 50 40 Renegotiated loans 2,731 4,493 6,061 Real estate and other assets acquired in settlement of loans 5,806 5,871 11,654 Total $12,957 $ 13,061 $ 21,804 As a percent of net loans and real estate owned 0.77% 0.83% 1.41% As a percent of total assets 0.65% 0.71% 1.16% (1) The Company continues to accrue interest on these loans. Problem assets declined approximately 41% from one year ago principally due to the August 1998 sale of a shopping center acquired by foreclosure. Renegotiated loans declined by $1.8 million and non- accrual loans increased $1.7 million in the nine months ended June 30, 1999. A renegotiated loan of $1.4 million collateralized by multifamily property became seriously delinquent during the period and the Company placed the loan on non-accrual status. Allowance for Loan Losses The allowance for loan losses represents a reserve for probable inherent losses existing in the loan portfolio. The adequacy of the allowance for loan losses is evaluated at least quarterly based, among other factors, on a continuous review of the Company's loan portfolio, with particular emphasis on adversely classified loans. Following is a summary of the reserve for loan losses for the nine months ended June 30, 1999 and June 30, 1998 (amounts in thousands). 1999 1998 Balance at beginning of year $ 12,781 $ 12,103 Provision charged to operations 2,005 1,805 Recoveries of loans previously charged-off 504 692 Loan losses charged to reserves (1,106) (2,243) Balance at end of period $ 14,184 $ 12,357 The Company's impaired loans totaled $4.4 million at June 30, 1999, $3.0 million at September 30, 1998 and $5.2 million at June 30, 1998. Deposits and Borrowings First Financial's deposit composition at the indicated dates is as follows (amounts in thousands):
June 30, 1999 September 30, 1998 June 30, 1998 % of % of % of Balance Total Balance Total Balance Total Checking accounts $ 183,717 15.21% $ 162,260 13.93% $ 161,770 14.02% Passbook, statement and other accounts 125,089 10.35 120,927 10.39 122,782 10.64 Money market account 174,459 14.44 153,479 13.18 150,215 13.02 Certificate accounts 724,785 60.00 727,774 62.50 718,900 62.32 Total deposits $1,208,050 100.00% $1,164,440 100.00% $1,153,667 100.00%
Deposits increased $43.6 million during the nine months ended June 30, 1999, principally as a result of growth in checking and money market accounts. Total borrowings also increased $125.4 million to $630.3 million at June 30, 1999. Stockholders' Equity Stockholders' equity declined $2.8 million during the nine months of fiscal 1999 to total $122.4 million at June 30, 1999. The Company's capital ratio, total capital to total assets, was 6.10% at June 30, 1999, compared to 6.80% at September 30, 1998. During the nine months, the Company increased its dividend to stockholders to $.36 compared with $.315 per share in the first nine months of fiscal 1998. During the first nine months of fiscal 1999 the Company also completed its repurchase of 500,000 shares of its common stock for $9.7 million under its stock repurchase program initiated in October 1998. 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 June 30, 1999, both subsidiaries were categorized as "well capitalized" under the Prompt Corrective Action regulations adopted by the OTS pursuant to the Federal Deposit Insurance Corporation Improvement Act of 1991 ("FDICIA"). To remain in this status, the Associations must maintain core and risk-based capital ratios of at least 5.0% and 10.0%, respectively. The following table summarizes the capital requirements for First Federal and Peoples Federal as well as their capital positions at June 30, 1999:
First Federal Peoples Federal Percent of Percent of Amount Assets Amount Assets (Amounts in thousands) Tangible capital $85,521 6.37% $42,628 6.37% Tangible capital requirement 20,139 1.50 10,038 1.50 Excess $65,382 4.87% $32,590 4.87% Core capital $85,521 6.37% $42,628 6.37% Core capital requirement 53,703 4.00 26,769 4.00 Excess $31,818 2.37% $15,859 2.37% Risk-based capital(a) $94,278 10.06% $43,890 10.39% Minimum risk-based capital requirement(a) 74,954 8.00 33,790 8.00 Excess(a) $19,324 2.06% $10,100 2.39% (a) Based on total risk-weighted assets.
For a complete discussion of capital issues, refer to "Capital Requirements" and "Limitations on Capital Distributions" in the Company's 10-K for the fiscal year ending September 30, 1998. LIQUIDITY AND ASSET AND LIABILITY MANAGEMENT Liquidity The Associations are subject to federal regulations which require the maintenance of a daily average balance of liquid assets equal to 4.00% of net withdrawable savings and borrowings payable in one year. The liquidity ratios of the Associations, based on revised regulations issued by the Office of Thrift Supervision in November 1997, exceed the required levels. The Associations' primary sources of funds consist of retail and commercial deposits, borrowings from the FHLB, principal repayments on loans and mortgage-backed securities, securities sold under agreements to repurchase and the sale of loans. Each of the Association's sources of liquidity are subject to various uncertainties beyond the control of the Associations. As a measure of protection, the Associations have back-up sources of funds available, including excess FHLB borrowing capacity and excess liquidity in securities available for sale. During fiscal 1998, the FHLB of Atlanta instituted a general policy of limiting borrowing capacity to 30% of assets, regardless of the level of advances that could be supported by available collateral for such advances. This new policy serves to define an upper cap for FHLB advances for each of the banking subsidiaries. As of June 30, 1999, based on asset size of each banking subsidiary, additional borrowings of $22 million were available under the current FHLB of Atlanta general policy. During the current nine months the Company experienced a net cash outflow from investing activities of $164.7 million, consisting principally of loans originated and purchased for investment, and mortgage-backed securities purchased, which were partially offset by maturities of investment and mortgage-backed securities. Included in investing activities was $5.7 million in net purchases of office properties and equipment. The Company has three branch offices under construction and has also made additional investments in branch automation and communication systems. The Company experienced cash inflows of $23.3 million from operating activities and $155.7 million from financing activities. Financing activities consisted principally of $108 million in FHLB advances, $43.6 million in increased deposit account balances and $17.4 million in other borrowings. Parent Company Liquidity As a holding company, First Financial conducts its business through its subsidiaries. Unlike the Associations, First Financial is not subject to any regulatory liquidity requirements. Potential sources for First Financial's payment of principal and interest on its borrowings and for its stock repurchase program include (i) dividends from First Federal and Peoples Federal; (ii) payments from existing cash reserves and sales of marketable securities; (iii) interest on its investment securities; and (iv) advances on a bank line of credit. As of June 30, 1999, First Financial had cash reserves and existing marketable securities of $1.5 million compared with $2.3 million at September 30, 1998. First Federal's and Peoples Federal's ability to pay dividends and make other capital contributions to First Financial is restricted by regulation and may require regulatory approval. First Federal's and Peoples Federal's ability to make distributions may also depend on each institution's ability to meet minimum regulatory capital requirements in effect during the period. For a complete discussion of capital distribution regulations, refer to "Limitations on Capital Distributions" in the Company's 10-K for the fiscal year ending September 30, 1998. Asset/Liability Management The Company's Asset and Liability Committees establish policies and monitor results to control interest rate sensitivity. Although the Company utilizes measures such as static gap, which is simply the measurement of the difference between interest-sensitive assets and interest-sensitive liabilities repricing for a particular time period, just as important a process is the evaluation of how particular assets and liabilities are impacted by changes in interest rates or selected indices as they reprice. Asset/liability modeling is performed by the Company to assess varying interest rate and balance mix assumptions. These projections enable the Company to adjust its strategies to lessen the impact of significant interest rate fluctuations. The following table is a summary of First Financial's one year gap at June 30, 1999 (amounts in thousands): June 30, 1999 Interest-earning assets maturing or repricing within one year $ 753,317 Interest-bearing liabilities maturing or repricing within one year 1,352,740 Cumulative gap ($ 599,423) Gap as a percent of total assets (29.88%) The Company's one year gap as a percent of total assets changed from (19.33)% to (29.88)% during the current nine 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 June 30, 1999 AND 1998 Net Interest Income First Financial's net interest income for the three months ending June 30, 1999 was $15.5 million compared with $13.8 million for the comparable quarter in fiscal 1998. The gross interest margin increased from 2.86% in the prior quarter to 3.03% in the current quarter. The net yield on earning assets also improved to 3.25% from 3.10% in the prior quarter. The following table summarizes rates, yields and average earning asset and costing liability balances for the respective quarters (amounts in thousands): Quarter Ended June 30, 1999 1998 Average Average Average Yield/ Average Yield/ Balance Rate Balance Rate Loans and mortgage-backed securities $ 1,856,732 7.48% $ 1,702,092 7.77% Investments and other interest-earning assets 56,512 6.62 85,961 6.33 Total interest-earning assets $ 1,913,244 7.45% $ 1,788,053 7.70% Deposits $ 1,209,678 4.00% $ 1,149,830 4.39% Borrowings 611,517 5.27 551,654 5.79 Total interest-bearing liabilities $ 1,821,195 4.42% $ 1,701,484 4.84% Gross interest margin 3.03% 2.86% Net interest margin 3.25% 3.10% 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 June 30 1999 versus 1998 Volume Rate Total Interest income: Loans and mortgage-backed securities $ 2,909 $(1,266) $ 1,643 Investments and other interest-earning assets (479) 60 (419) Total interest income 2,430 (1,206) 1,224 Interest expense: Deposits 631 (1,160) (529) Borrowings 809 (760) 49 Total interest expense 1,440 (1,920) (480) Net interest income $ 990 $ 714 $ 1,704 Average balances of interest-earning assets increased $125.2 million, or 7.0%, in the June 1999 quarter compared with the June 1998 quarter, contributing to a $990 thousand increase in net interest income due to changes in volume. An increase in the Company's net interest margin from 3.10% in the June 1998 quarter to 3.25% in the June 1999 quarter also improved net interest income by approximately $714 thousand. There can be no assurance that the Company's net margin will not decline based on the current spread between short and long-term treasury interest rates, the 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 $760 thousand, compared to $600 thousand during the same period in the previous year. Net charge-offs for the current quarter totaled $132 thousand compared with $316 thousand in the comparable quarter in fiscal 1998. Total loan loss reserves as of June 30, 1999 were $14.2 million, or .85% of the total net loan portfolio compared with $12.4 million, or .80 % of the total net loan portfolio at June 30, 1998. Other Income/Non-Interest Expenses Other income increased $526 thousand, or 16.1%, in the June 1999 quarter compared to the June 30, 1998 quarter. Proceeds from the sales of loans held for sale totaled $46.7 million in the June 1999 quarter, resulting in gains of $285 thousand on sales. Fees on deposit accounts improved by 14.6% to $1.6 million in the quarter ended June 30, 1999 as compared with the quarter ended June 30, 1998. Non-interest expense increased $542 thousand, or 5.2%, during the current quarter. The June 1998 quarter's non-interest expense included approximately $375 thousand for non-recurring professional fees. Included in the increase in the current quarter is higher personnel costs which increased $964 thousand and higher equipment expenses which increased $129 thousand in the current period. The increase in personnel costs was principally due to expansion of customer services, higher commission payments related to lending volumes and increased staffing and overtime costs related to Year 2000 initiatives. Income Tax Expense During the quarter ended June 30, 1999, the Company's effective tax rate was 35.0% compared with 30.8% in the quarter ended June 30, 1998. During the June 1998 quarter the Company implemented certain strategies aimed at reducing the Company's effective tax rate, resulting in a lower provision for income taxes in that quarter. COMPARISON OF OPERATING RESULTS NINE MONTHS ENDING June 30, 1999 AND 1998 Net Interest Income First Financial's net interest income for the nine months ending June 30, 1999 of $44.9 million increased 10.5% over the $40.6 million recorded in the comparable nine months in fiscal 1998. Growth in net interest income was attributable to a 5.2% increase in the average balances of interest-earning assets and to improved margins. The gross interest margin improved to 3.00% from 2.84% in the prior nine months. The net margin also improved to 3.24% versus 3.09% in the nine months ended June 30, 1998. The following table summarizes rates, yields and average earning asset and costing liability balances for the respective periods (amounts in thousands): Nine months Ended June 30, 1999 1998 Average Average Average Yield/ Average Yield/ Balance Rate Balance Rate Loans and mortgage-backed securities $ 1,792,056 7.55% $ 1,664,193 7.81% Other interest-earning assets 54,902 6.56 91,928 6.34 Total interest-earning assets $ 1,846,958 7.52% $ 1,756,121 7.73% Deposits $ 1,191,647 4.13% $ 1,136,119 4.44% Borrowings 560,392 5.36 536,207 5.85 Total interest-bearing liabilities $ 1,752,039 4.52% $ 1,672,326 4.89% Gross interest margin 3.00% 2.84% Net interest margin 3.24% 3.09% The following rate/volume analysis depicts the increase (decrease) in net interest income attributable to interest rate and volume fluctuations compared to the prior period (amounts in thousands): Nine months Ended June 30, 1999 versus 1998 Volume Rate Total Interest income: Loans and mortgage-backed securities $ 7,291 $(3,313) $ 3,978 Investments and other interest-earning assets (1,804) 147 (1,657) Total interest income 5,487 (3,166) 2,321 Interest expense: Deposit accounts 1,778 (2,729) (951) Borrowings 1,032 (2,015) (983) Total interest expense 2,810 (4,744) (1,934) Net interest income $ 2,677 $ 1,578 $ 4,255 Provision for Loan Losses During the nine months ended June 30, 1999 First Financial's provision for loan losses totaled $2.0 million compared with $1.8 million at June 30, 1998. Net charge-offs for the current nine months totaled $602 thousand compared with $1.6 million in the comparable period in fiscal 1998. Charge-offs in the prior nine months included $679 thousand related to a $2.8 million multifamily loan on which the Company had maintained an $800,000 specific reserve. Other Income/Non-interest Expense Total other income improved $1.0 million, or 10.0%, in the current nine months. Fees on deposit accounts increased $510 thousand during the current nine months. The Company recorded gains of $1.3 million on loan sales during the current nine months compared with gains of $681 thousand in the nine months ended June 30, 1998. During the nine months ended June 30, 1998, the Company recorded gains of $471 thousand on the sale of investment and mortgage backed securities compared to only $12 thousand in the current nine months. Non-interest expense increased $1.9 million or 6.3% during the current nine months. Non-interest expense in the prior nine months included non-recurring expenses of $317 thousand related to the Investors merger. Also included in the prior nine month expenses were approximately $375 thousand of non-recurring professional fees related to strategic initiatives of the Company. Excluding the effect of these non-recurring expenses, total non-interest expense increased $2.6 million, or approximately 8.8%. The increase is attributable principally to higher personnel costs, higher equipment expenses related to new technology investments and the effect of higher expenses related to Year 2000 project. Income Tax Expense During the first nine months of fiscal 1999 and 1998, the Company's effective tax rate approximated 35%. The actual tax provision of $7.7 million resulted in an increase of $1.1 million from the prior period. Year 2000 Readiness Disclosure The Company continues to work aggressively on its comprehensive project concerning the impact of the Year 2000. The Year 2000 "problem" or the "millennium bug" has arisen because many computer programs were written to store years as two digits instead of four. By saving storage space by using a two digit year, a program which reads the year 00 could interpret the year to be 1900 when in fact the year 2000 is meant. The Company is very aware of the Year 2000 issue and is actively taking steps to address it. "Year 2000 Readiness" is the ability of the Company's internal computer systems (hardware, software and embedded microchips) to process data involving dates or portions of dates before, during and after January 1, 2000, including leap year calculations, without malfunction. As federally chartered thrifts, the Company's banking subsidiaries fall under the regulatory guidelines published by the Federal Financial Institutions Examination Council ("FFIEC"). Periodic audits of the Company's Year 2000 activities are performed by the Office of Thrift Supervision. The FFIEC considers five general Year 2000 phases: 1) Awareness - define the Year 2000 issues, gain executive level support, establish a project team, develop a strategy to address all internal and external systems and discuss the Year 2000 issue with vendors; 2) Assessment - Assess the size and complexity of the issues and detail the magnitude of the effort necessary to address them; 3) Renovation - Convert, replace or eliminate software, hardware and date sensitive items as necessary and monitor vendors renovation activities; 4) Validation - Test and verify software, systems component, other applicable date sensitive items and contingency plans; and 5) Implementation - Put tested date sensitive items into production, monitor implementation with vendors, and execute contingency plans as necessary. Management targeted June 30, 1999 as its date to complete all phases for mission-critical systems and this schedule was met. Mission critical applications include those that: 1) directly affect delivery of primary services to First Financial's customers; 2) directly affect First Financial's recognition and collection; 3) would create noncompliance with any statutes or laws; and 4) would require significant costs to address in the event of noncompliance. Another FFIEC area to be addressed is contingency planning. The Company is considering alternative measures throughout the organization in the event of a Year 2000-caused problem. Business areas have identified Year 2000 departmental risks and are incorporating changes to their existing contingency plans. Business resumption contingency plans were substantially complete at June 30, 1999. A methodology for testing all plans was also developed and contingency plan testing is scheduled to be completed by September 30, 1999. The Company's core business systems (those systems which run on its internal mainframe) are considered to be the most critical. The Company's host hardware and operating systems software were upgraded where necessary and deemed compliant by September 30, 1998. The Company utilizes an integrated banking application system from one vendor for most of its critical banking applications. These systems were moved from a "test" environment into production in March 1999. Although the Company has performed in depth date testing on all systems placed into production, it will continue to conduct periodic date testing throughout the remainder of the year, particularly to test any other modifications to software received from its integrated banking application vendor. Item processing systems were upgraded to Year 2000 compliance by December 1998. As part of a comprehensive two-year project, in June of 1998 the Company selected software and hardware for new branch automation systems. Installation of new teller systems, which are Year 2000 compliant, commenced in September 1998 and was completed in December 1998. Capitalized costs for the new branch hardware, software and a frame relay communication network are expected to total approximately $2.0 million. The Company has budgeted approximately $300 thousand in estimated operating costs for Year 2000. These costs do not include the cost of internal staff time spent on the Year 2000 project which the Company does not track separately. The costs of the Year 2000 project and the dates scheduled by the Company for being compliant are based on management's best estimates at this time. The Company continues to remediate non-critical systems and to evaluate the readiness of its vendors and its customers as a part of its Year 2000 project plan. The Company has tested extensively with the Federal Reserve, the Federal Home Loan Bank of Atlanta, secondary marketing firms such as Freddie Mac and Fannie Mae and a host of other suppliers and software providers. Additionally, the vendor that provides the Company's integrated banking application system as well as its credit card servicer are also subject to examinations of their Year 2000 readiness by federal banking regulatory agencies. Management presently believes that it has responded to the Year 2000 problem so that the effects of the Year 2000 problem will be minimized. There can be no assurance, however, that the systems of other vendors upon which the Company's operations rely, including essential utilities and telecommunications providers, will be Year 2000 compliant in a timely manner. If the Company's modifications and conversions of its systems are not made, or are not completed on a timely basis, or if the Company is subject to failure of a critical vendor to be compliant, the Year 2000 Issue could have a material impact on the operations of the Company, which in turn could have a materially adverse effect on the Company's results of operations and financial condition. IMPACT OF REGULATORY AND ACCOUNTING ISSUES For a comprehensive discussion of regulatory and accounting issues, refer to "Regulatory and Accounting Issues" in the Company's 10-K for the fiscal year ending September 30, 1998. FIRST FINANCIAL HOLDINGS, INC. OTHER INFORMATION Item 1 - Legal Proceedings Periodically, there are various claims and lawsuits involving the Associations and their subsidiaries mainly as defendants, such as claims to enforce liens, condemnation proceedings on properties in which the Associations hold security interests, claims involving the making and servicing of real property loans and other issues incident to the Association's business. In the opinion of management and the Company's legal counsel, no material loss is expected from any of such pending claims or lawsuits. Item 3. Quantitative and Qualitative Disclosures about Market Risk Market risk reflects the risk of economic loss resulting from adverse changes in market price and interest rates. This risk of loss can be reflected in diminished current market values and/or reduced potential net interest income in future periods. The Corporation's market risk arises primarily from interest rate risk inherent in its lending, deposit-taking and other funding activities. The structure of the Corporation's loan, investment, deposit and borrowing portfolios is such that a significant increase in interest rates may adversely impact net market values and net interest income. The Corporation does not maintain a trading account nor is the Corporation subject to currency exchange risk or commodity price risk. Responsibility for monitoring interest rate risk rests with the Asset/Liability Management Committee ("ALCO"), which is comprised of senior management. ALCO regularly reviews the Corporation's interest rate risk position and adopts balance sheet strategies that are intended to optimize net interest income while maintaining market risk within a set of Board-approved guidelines. As of June 30, 1999, Management believes that there have been no significant changes in market risk as disclosed in the Corporation's Annual Report on Form 10-K for the year ended September 30, 1998. Item 6 - Exhibits and Report on Form 8-K. Exhibits (3.1)Certificate of Incorporation, as amended, of Registrant (1) (3.2)Bylaws, as amended, of Registrant (2) (3.3)Amendment to Registrant's Bylaws (3) (3.4)Amendment to Registrant's Certificate of Incorporation (4) (4)Indenture, dated September 10, 1992, with respect to the Registrant's 9.375% Senior Notes, due September 1, 2001 (5) (10.1)Acquisition Agreement dated as of December 9, 1991 by and among the Registrant, First Federal Savings and Loan Association of Charleston and Peoples Federal Savings and Loan Association of Conway (5) (10.3)Employment Agreement with A. Thomas Hood, as amended (6) (10.4)Employment Agreement with Charles F. Baarcke, Jr. (7) (10.5)Employment Agreement with John L. Ott, Jr. (7) (10.6)1990 Stock Option and Incentive Plan (8) (10.7)1994 Outside Directors Stock Options-for-Fees Plan (9) (10.8)1994 Employee Stock Purchase Plan (9) (10.9)1996 Performance Equity Plan for Non-Employee Directors (10) (10.10)Employment Agreement with Susan E. Baham (6) (10.11)1997 Stock Option and Incentive Plan (11) (10.12)Investors Savings Bank of South Carolina, Inc. Incentive Stock Option Plan (12) (10.13)Borrowing Agreement with Bankers Bank (13) (22)Subsidiaries of the Registrant (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 Quarterly Report on Form 10-Q for the quarter ended December 31, 1997 (5) Incorporated by reference to the Registrant's Registration Statement on Form S-8 File No. 33-55067. (6) Incorporated by reference to the Registrant's Annual Report on Form 10-K for the year ended September 30, 1996. (7) Incorporated by reference to the Registrant's Annual Report on Form 10-K (8) Incorporated by reference to the Registrant's Registration Statement on Form S-8 File No. 33-57855. (9) Incorporated by reference to the Registrant's Proxy Statement for the Annual Meeting of Stockholders held on January 25, 1995 (10) Incorporated by reference to the Registrant's Proxy Statement for the Annual Meeting of Stockholders held on January 22, 1997. (11) Incorporated by reference to the Registrant's Preliminary Proxy Statement for the Annual Meeting of Stockholders to be held on January 28, 1998. (12) Incorporated by reference to the Registrant's Registration Statement on Form S-8 File No. 333-45033. (13) Incorporated by reference to the Registrant's Quarterly Report on Form 10-Q for the quarter ended June 30, 1998. Reports on Form 8-K None FIRST FINANCIAL HOLDINGS, INC. SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. First Financial Holdings, Inc. Date: August 16, 1999 By: /s/ Susan E. Baham Susan E. Baham Senior Vice President and Chief Financial Officer EX-27 2 FINANCIAL DATA SCHEDULE FOR 6/30/99
9 1000 9-MOS SEP-30-1999 JUN-30-1999 40,794 13,904 0 0 201,018 30,453 30,468 1,688,398 14,184 2,006,370 1,208,050 630,329 0 0 0 0 152 122,253 2,006,370 101,491 2,111 591 104,193 36,820 59,302 44,891 2,005 12 6,798 21,894 14,233 0 0 14,233 1.06 1.03 3.24 4,368 52 2,731 7,151 12,781 1,106 504 14,184 14,184 0 0
-----END PRIVACY-ENHANCED MESSAGE-----