Earnings Per Share, Accumulated Other Comprehensive Loss, Dividend Restrictions and Other Regulatory Matters

3 Months Ended

Mar. 31, 2013

Earnings Per Share [Text Block]

NOTE 6. Earnings Per Share, Accumulated Other Comprehensive Loss, Dividend Restrictions and Other Regulatory Matters

Earnings Per Share

     Basic earnings per common share is calculated by dividing net income by the weighted average number of common shares outstanding during the period. Diluted earnings per common share is calculated by applying the treasury stock method. Under the treasury stock method, the exercise of dilutive stock options is assumed. The sum of the assumed proceeds of (1) the stock option exercises, (2) the amount of any tax benefits that would be credited to additional paid-in capital assuming exercise of the options, and (3) the unamortized compensation expense on in-the-money options not yet recognized pursuant to GAAP for share-based payments (see Note 8 to the Consolidated Financial Statements) are assumed to be used to purchase common stock at the average market price during the period. The incremental shares (the difference between the number of shares assumed issued and the number of shares assumed purchased), if any, are included in the denominator of the diluted earnings per share calculation.

	Quarters Ended March 31,
(in thousands, except per share data)	2013		2012
Net income	$	5,253	$	1,739
Preferred stock dividends		813		813
Accretion on preferred stock discount		165		156
Net income available to common shareholders	$	4,275	$	770
Weighted average basic shares		16,529		16,527
Effect of dilutive stock options		18		1
Weighted average dilutive shares		16,547		16,528
Net income per common share
Basic	$	0.26	$	0.05
Diluted		0.26		0.05

     Stock options and warrants which were not included in computing diluted earnings per share because the effects were antidilutive totaled 418,242 as of March 31, 2013, compared to 624,157 as of March 31, 2012.

Accumulated Other Comprehensive Loss

     The following table summarizes the components of accumulated other comprehensive loss.

(in thousands)	Unrealized (loss) gain on securities available for sale			Change in pension liability			Total
Balance, December 31, 2011	$	(1,889	)	$	(955	)	$	(2,844	)
Net change in other comprehensive loss		719			---			719
Balance, March 31, 2012	$	(1,170	)	$	(955	)	$	(2,125	)
Balance, December 31, 2012	$	(1,709	)	$	(975	)	$	(2,684	)
Net change in other comprehensive loss		1,319			---			1,319
Balance, March 31, 2013	$	(390	)	$	(975	)	$	(1,365	)

Dividend Restrictions and Other Regulatory Matters

     Since First Financial is a bank holding company, its ability to declare and pay dividends is dependent on certain federal and state regulatory considerations, including the guidelines of the Board of Governors of the Federal Reserve. In accordance with a policy statement issued by the Federal Reserve regarding the payment of dividends by bank holding companies, the Federal Reserve may generally restrict or prohibit the payment of dividends if (1) First Financial’s net income available to shareholders for the past four quarters, net of dividends previously paid during that period, is not sufficient to fully fund the dividends; (2) First Financial’s prospective rate of earnings retention is not consistent with its capital needs and overall current and prospective financial condition; (3) First Financial will not meet, or is in danger of not meeting, its minimum regulatory capital ratios; or (4) the Federal Reserve otherwise determines that the payment of dividends would constitute an unsafe or unsound practice. The Federal Reserve’s policies also require that a bank holding company serve as a source of financial strength to its subsidiary banks by standing ready to use available resources to provide adequate capital funds during periods of financial stress or adversity and by maintaining the financial flexibility and capital-raising capacity to obtain additional resources for assisting its subsidiary banks where necessary. Under the prompt corrective action regulations for a bank subsidiary, the ability of a bank holding company to pay dividends may be restricted if a subsidiary bank becomes undercapitalized. These regulatory policies could affect the ability of First Financial to pay dividends or otherwise engage in capital distributions. In addition, since First Financial is a legal entity separate and distinct from First Federal and does not conduct stand-alone operations, its ability to pay dividends depends on the ability of First Federal to pay dividends to it. As a South Carolina chartered bank, First Federal is subject to limitations on the amount of dividends that it is permitted to pay. Unless otherwise instructed by the State Board of Financial Institutions (the “SC Board”) or the Commissioner of Banking, First Federal is generally permitted under South Carolina state banking regulations to pay cash dividends of up to 100% of net income in any calendar year without obtaining the prior approval of the SC Board. Under Federal Reserve regulations, a dividend cannot be paid by First Federal if it would be less than well-capitalized after the dividend. The Federal Reserve may also prevent the payment of a dividend by First Federal if it determines that the payment would be an unsafe and unsound banking practice.

     Quantitative measures established by regulation to ensure capital adequacy require First Financial and First Federal to maintain minimum amounts and ratios (as defined in the regulations and set forth in the table below) of tier 1 capital to total average assets and of risk-based capital to risk-based assets. As of March 31, 2013, both First Financial and First Federal met all capital adequacy requirements to which they are subject and were categorized as well-capitalized under the regulatory framework for prompt corrective action.

     As a result of First Federal’s charter conversion and Federal Reserve membership in February 2012, First Federal is subject to Federal Reserve Supervisory Letter SR 91-17, which provides application and supervision standards for de novo state member banks and converting thrifts. The guidance includes standards for senior management and directors, policies, cash flows between the bank and the holding company, ongoing supervision and capital levels, among other things. With respect to capital levels, the guidance provides that de novo state member banks and converting thrifts maintain a Tier 1 leverage capital ratio of 9.00% for the first three years as a state member bank unless an exception is granted.

     Capital amounts and ratios are presented in the following table.

(dollars in thousands)	Actual					For Capital Adequacy Purposes					To Be Well-Capitalized Under Prompt Corrective Action Provisions1
	Amount		Ratio			Amount		Ratio			Amount		Ratio
First Financial1
As of March 31, 2013
Tier 1 capital to total average assets	$	341,952		10.72	%	$	127,646		4.00	%
Tier I capital to risk-based assets		341,952		15.30			89,409		4.00
Risk-based capital to risk-based assets		370,636		16.58			178,819		8.00
As of December 31, 2012
Tier 1 capital to total average assets	$	337,908		10.54	%	$	128,287		4.00	%
Tier I capital to risk-based assets		337,908		14.89			90,804		4.00
Risk-based capital to risk-based assets		366,897		16.16			181,608		8.00
First Federal
As of March 31, 2013
Tier 1 capital to total average assets	$	326,547		10.24	%	$	127,579		4.00	%	$	159,474		5.00	%
Tier I capital to risk-based assets		326,547		14.63			89,258		4.00			133,887		6.00
Risk-based capital to risk-based assets		355,185		15.92			178,516		8.00			223,146		10.00
As of December 31, 2012
Tier 1 capital to total average assets	$	319,555		9.97	%	$	128,201		4.00	%	$	160,252		5.00	%
Tier I capital to risk-based assets		319,555		14.10			90,685		4.00			136,028		6.00
Risk-based capital to risk-based assets		348,503		15.37			181,370		8.00			226,713		10.00

¹ Bank holding companies are not subject to the prompt corrective action provision of the Federal Deposit Insurance Act.

     First Federal is generally required by regulatory agencies to maintain certain minimum balances of cash or noninterest-bearing deposits with the Federal Reserve. During 2012, and the quarter ended March 31, 2013 First Federal maintained excess balances in an interest-bearing account with the Federal Reserve and as a result, there was no required balance needed at March 31, 2013 and December 31, 2012.