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EX-32 - FIRST FINANCIAL HOLDINGS INC /DE/c71506_ex32.htm
EX-31.2 - FIRST FINANCIAL HOLDINGS INC /DE/c71506_ex31-2.htm
EX-31.1 - FIRST FINANCIAL HOLDINGS INC /DE/c71506_ex31-1.htm

 

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-Q

 

þ Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

For the quarterly period ended September 30, 2012

Or

o 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 000-17122

 

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.)

 

 

 

2440 Mall Drive, Charleston, South Carolina

 

29406


 


(Address of principal executive offices)

 

(Zip Code)

 

 

 

(843) 529-5933


Registrant’s telephone number, 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 þ No o       

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Website, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).
Yes þ No o       

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer,” “and smaller reporting company” in Rule 12b-2 of the Exchange Act.

 

 

 

 

Large accelerated filer o

Accelerated filer þ

Non-accelerated filer o

Smaller reporting company o


Indicate by check mark whether the registrant is a shell company (as defined by Rule 12b-2 of the Act).
Yes o No þ       

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.

 

 

 

Class

 

Outstanding at November 08, 2012


 


Common Stock, $0.01 par value

 

16,526,752

1



FIRST FINANCIAL HOLDINGS, INC.
Index to Form 10-Q

 

 

 

Part I – Financial Information

 

 

 

 

 

Item 1. Financial Statements (Unaudited)

 

 

Consolidated Balance Sheets

 

3

Consolidated Statements of Operations

 

4

Consolidated Statements of Comprehensive Income

 

5

Consolidated Statements of Changes in Shareholders’ Equity

 

6

Consolidated Statements of Cash Flows

 

7

Notes to Consolidated Financial Statements

 

9

 

 

 

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

 

36

 

 

 

Item 3. Quantitative and Qualitative Disclosures About Market Risk

 

57

 

 

 

Item 4. Controls and Procedures

 

57

 

 

 

Part II – Other Information

 

 

 

 

 

Item 1. Legal Proceedings

 

58

 

 

 

Item 1A. Risk Factors

 

58

 

 

 

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

 

58

 

 

 

Item 3. Defaults Upon Senior Securities

 

58

 

 

 

Item 4. Mine Safety Disclosures

 

58

 

 

 

Item 5. Other Information

 

58

 

 

 

Item 6. Exhibits

 

60

 

 

 

Signatures

 

61

2



 

 

 

 

 

 

 

 

 

 

 


 

FIRST FINANCIAL HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS (Unaudited)

 

 

 

 

 

 

 

 

 

 

 

(in thousands, except share data)

 

September 30,
2012

 

December 31,
2011

 

September 30,
2011

 









ASSETS

 

 

 

 

 

 

 

 

 

 

Cash and due from banks

 

$

50,749

 

$

61,400

 

$

54,307

 

Interest-bearing deposits with banks

 

 

35,668

 

 

15,275

 

 

31,630

 

 

 



 



 



 

Total cash and cash equivalents

 

 

86,417

 

 

76,675

 

 

85,937

 

Investment securities

 

 

 

 

 

 

 

 

 

 

Securities available for sale, at fair value

 

 

236,048

 

 

404,550

 

 

412,108

 

Securities held to maturity at amortized cost, approximate fair value $19,830, $23,242, and $24,162, respectively

 

 

17,331

 

 

20,486

 

 

21,671

 

Nonmarketable securities

 

 

23,254

 

 

32,694

 

 

35,782

 

 

 



 



 



 

Total investment securities

 

 

276,633

 

 

457,730

 

 

469,561

 

Loans

 

 

2,574,369

 

 

2,385,457

 

 

2,355,334

 

Less: Allowance for loan losses

 

 

46,351

 

 

53,524

 

 

54,333

 

 

 



 



 



 

Net loans

 

 

2,528,018

 

 

2,331,933

 

 

2,301,001

 

Loans held for sale

 

 

53,761

 

 

48,303

 

 

94,872

 

FDIC indemnification asset, net

 

 

75,017

 

 

51,021

 

 

50,465

 

Premises and equipment, net

 

 

83,916

 

 

82,907

 

 

83,423

 

Bank owned life insurance

 

 

50,241

 

 

 

 

 

Other intangibles, net

 

 

8,478

 

 

2,401

 

 

2,491

 

Other assets

 

 

83,006

 

 

95,994

 

 

118,560

 

 

 



 



 



 

Total assets

 

$

3,245,487

 

$

3,146,964

 

$

3,206,310

 

 

 



 



 



 

 

 

 

 

 

 

 

 

 

 

 

LIABILITIES

 

 

 

 

 

 

 

 

 

 

Deposits

 

 

 

 

 

 

 

 

 

 

Noninterest-bearing checking

 

$

382,077

 

$

279,310

 

$

278,944

 

Interest-bearing checking

 

 

507,262

 

 

429,907

 

 

440,584

 

Savings and money market

 

 

730,365

 

 

522,496

 

 

505,059

 

Retail time deposits

 

 

869,544

 

 

791,544

 

 

824,875

 

Wholesale time deposits

 

 

127,509

 

 

215,941

 

 

253,395

 

 

 



 



 



 

Total deposits

 

 

2,616,757

 

 

2,239,198

 

 

2,302,857

 

Advances from FHLB

 

 

253,000

 

 

561,000

 

 

558,000

 

Long-term debt

 

 

47,204

 

 

47,204

 

 

47,204

 

Other liabilities

 

 

36,026

 

 

22,384

 

 

29,743

 

 

 



 



 



 

Total liabilities

 

 

2,952,987

 

 

2,869,786

 

 

2,937,804

 

 

 

 

 

 

 

 

 

 

 

 

SHAREHOLDERS’ EQUITY

 

 

 

 

 

 

 

 

 

 

Preferred stock, Series A, $.01 par value, authorized 3,000,000 shares, issued 65,000 shares at September 30, 2012, December 31, 2011, and September 30, 2011, respectively (Redemption value $65,000)

 

 

1

 

 

1

 

 

1

 

Common stock, $.01 par value, authorized 34,000,000 shares, issued 21,465,163 shares at September 30, 2012, December 31, 2011 and September 30, 2011, respectively

 

 

215

 

 

215

 

 

215

 

Additional paid-in capital

 

 

196,612

 

 

196,002

 

 

195,790

 

Treasury stock at cost, 4,938,411 shares at September 30, 2012, December 31, 2011, and September 30, 2011, respectively

 

 

(103,563

)

 

(103,563

)

 

(103,563

)

Retained earnings

 

 

202,832

 

 

187,367

 

 

173,587

 

Accumulated other comprehensive (loss) income

 

 

(3,597

)

 

(2,844

)

 

2,476

 

 

 



 



 



 

Total shareholders’ equity

 

 

292,500

 

 

277,178

 

 

268,506

 

 

 



 



 



 

Total liabilities and shareholders’ equity

 

$

3,245,487

 

$

3,146,964

 

$

3,206,310

 

 

 



 



 



 

 

 

 

 

 

 

 

 

 

 

 












See accompanying notes to consolidated financial statements.

 

 

 

 

 

 

 

 

 

 

3



 

 

 

 

 

 

 

 

 

 

 

 

 

 


 

FIRST FINANCIAL HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended
September 30,

 

Nine Months Ended
September 30,

 

 

 


 



(in thousands, except per share data)

 

2012

 

2011

 

2012

 

2011

 






 





INTEREST INCOME

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest and fees on loans

 

$

37,104

 

$

33,828

 

$

105,223

 

$

103,169

 

Interest and dividends on investments

 

 

2,771

 

 

4,390

 

 

10,176

 

 

13,691

 

Other

 

 

139

 

 

338

 

 

317

 

 

1,352

 

 

 



 



 



 



 

Total interest income

 

 

40,014

 

 

38,556

 

 

115,716

 

 

118,212

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

INTEREST EXPENSE

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest on deposits

 

 

3,747

 

 

5,323

 

 

11,679

 

 

18,131

 

Interest on borrowed money

 

 

3,070

 

 

4,169

 

 

10,875

 

 

12,314

 

 

 



 



 



 



 

Total interest expense

 

 

6,817

 

 

9,492

 

 

22,554

 

 

30,445

 

 

 



 



 



 



 

NET INTEREST INCOME

 

 

33,197

 

 

29,064

 

 

93,162

 

 

87,767

 

Provision for loan losses

 

 

4,533

 

 

8,940

 

 

15,975

 

 

99,418

 

 

 



 



 



 



 

Net interest income (loss) after provision for loan losses

 

 

28,664

 

 

20,124

 

 

77,187

 

 

(11,651

)

NONINTEREST INCOME

 

 

 

 

 

 

 

 

 

 

 

 

 

Service charges and fees on deposit accounts

 

 

7,772

 

 

7,196

 

 

22,632

 

 

20,559

 

Mortgage and other loan income

 

 

4,061

 

 

2,743

 

 

11,868

 

 

5,918

 

Trust and plan administration

 

 

1,117

 

 

1,333

 

 

3,276

 

 

3,561

 

Brokerage fees

 

 

655

 

 

588

 

 

2,194

 

 

1,911

 

Other

 

 

754

 

 

647

 

 

2,222

 

 

1,992

 

Other-than-temporary impairment on investment securities

 

 

(145

)

 

(169

)

 

(359

)

 

(345

)

Gain on acquisition

 

 

 

 

 

 

14,550

 

 

 

Gain on sale or call of investments

 

 

334

 

 

 

 

3,877

 

 

1,419

 

Gain on sold loan pool, net

 

 

 

 

1,900

 

 

 

 

1,900

 

 

 



 



 



 



 

Total noninterest income

 

 

14,548

 

 

14,238

 

 

60,260

 

 

36,915

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

NONINTEREST EXPENSE

 

 

 

 

 

 

 

 

 

 

 

 

 

Salaries and employee benefits

 

 

15,621

 

 

14,672

 

 

45,975

 

 

47,441

 

Occupancy costs

 

 

2,333

 

 

2,187

 

 

7,533

 

 

6,512

 

Furniture and equipment

 

 

2,132

 

 

1,724

 

 

5,834

 

 

5,318

 

Other real estate expenses, net

 

 

1,030

 

 

3,115

 

 

1,694

 

 

3,782

 

FDIC insurance and regulatory fees

 

 

693

 

 

576

 

 

2,448

 

 

2,910

 

Professional services

 

 

1,980

 

 

1,589

 

 

5,320

 

 

4,161

 

Advertising and marketing

 

 

964

 

 

868

 

 

2,582

 

 

2,665

 

Other loan expense

 

 

1,620

 

 

990

 

 

4,254

 

 

3,014

 

Intangible amortization

 

 

512

 

 

80

 

 

970

 

 

244

 

Other expense

 

 

6,144

 

 

3,787

 

 

15,853

 

 

11,655

 

FHLB prepayment termination charge

 

 

 

 

 

 

8,525

 

 

 

Goodwill impairment

 

 

 

 

 

 

 

 

630

 

 

 



 



 



 



 

Total noninterest expense

 

 

33,029

 

 

29,588

 

 

100,988

 

 

88,332

 

 

 



 



 



 



 

Net income (loss) from continuing operations before taxes

 

 

10,183

 

 

4,774

 

 

36,459

 

 

(63,068

)

Income tax expense (benefit) from continuing operations

 

 

3,516

 

 

1,893

 

 

15,469

 

 

(24,308

)

 

 



 



 



 



 

NET INCOME (LOSS) FROM CONTINUING OPERATIONS

 

 

6,667

 

 

2,881

 

 

20,990

 

 

(38,760

)

Loss from discontinued operations, net of tax

 

 

 

 

(1,804

)

 

 

 

(3,593

)

 

 



 



 



 



 

NET INCOME (LOSS)

 

 

6,667

 

 

1,077

 

 

20,990

 

 

(42,353

)

Preferred stock dividends

 

 

813

 

 

813

 

 

2,438

 

 

2,438

 

Accretion on preferred stock discount

 

 

160

 

 

151

 

 

474

 

 

446

 

 

 



 



 



 



 

NET INCOME (LOSS) AVAILABLE TO COMMON SHAREHOLDERS

 

$

5,694

 

$

113

 

$

18,078

 

$

(45,237

)

 

 



 



 



 



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net income (loss) per common share from continuing operations

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

$

0.34

 

$

0.12

 

$

1.09

 

$

(2.52

)

Diluted

 

 

0.34

 

 

0.12

 

 

1.09

 

 

(2.52

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net loss per common share from discontinued operations

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

$

 

$

(0.11

)

$

 

$

(0.22

)

Diluted

 

 

 

 

(0.11

)

 

 

 

(0.22

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net income (loss) per common share

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

$

0.34

 

$

0.01

 

$

1.09

 

$

(2.74

)

Diluted

 

 

0.34

 

 

0.01

 

 

1.09

 

 

(2.74

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Average common shares outstanding

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

 

16,527

 

 

16,527

 

 

16,527

 

 

16,527

 

Diluted

 

 

16,529

 

 

16,527

 

 

16,528

 

 

16,527

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 


See accompanying notes to consolidated financial statements.

4



 


 

FIRST FINANCIAL HOLDINGS, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (Unaudited)



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended
September 30,

 

Nine Months Ended
September 30,

 

 

 


 


 

(in thousands)

 

2012

 

2011

 

2012

 

2011

 






 




 

NET INCOME (LOSS)

 

$

6,667

 

$

1,077

 

$

20,990

 

$

(42,353

)

OTHER COMPREHENSIVE INCOME (LOSS)

 

 

 

 

 

 

 

 

 

 

 

 

 

Unrealized gain (loss) on securities available for sale

 

 

463

 

 

4,274

 

 

(1,163

)

 

586

 

Change in pension liability

 

 

 

 

(261

)

 

 

 

(261

)

Other-than-temporary impairment

 

 

145

 

 

169

 

 

359

 

 

345

 

 

 



 



 



 



 

 

 

 

608

 

 

4,182

 

 

(804

)

 

670

 

Less: Reclassification of other-than-temporary impairment included in income for the period

 

 

(145

)

 

(169

)

 

(359

)

 

(345

)

Tax (expense) benefit

 

 

(162

)

 

(1,551

)

 

410

 

 

(124

)

 

 



 



 



 



 

TOTAL OTHER COMPREHENSIVE INCOME (LOSS), NET OF TAX

 

 

301

 

 

2,462

 

 

(753

)

 

201

 

 

 



 



 



 



 

TOTAL COMPREHENSIVE INCOME (LOSS)

 

$

6,968

 

$

3,539

 

$

20,237

 

$

(42,152

)

 

 



 



 



 



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 


See accompanying notes to consolidated financial statements.


5



 


 

FIRST FINANCIAL HOLDINGS, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY (Unaudited)


 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Accumulated
Other
Comprehensive
Income (Loss)

 

 

 

 

 

 

 

 

 

 

 

Treasury
Stock
at Cost

 

 

 

 

 

 

(in thousands, except per share data)

 

Preferred Stock

 

Common Stock

 

Additional Paid-
in Capital

 

 

Retained
Earnings

 

 

 

 

 

Shares

 

Amount

 

Shares

 

Amount

 

 

 

 

 

Total

 





















Balance at December 31, 2010

 

 

65

 

$

1

 

 

16,527

 

$

215

 

$

195,090

 

$

(103,563

)

$

221,304

 

$

2,275

 

$

315,322

 

Net loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(42,353

)

 

 

 

 

(42,353

)

Other comprehensive income, net of tax

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

201

 

 

201

 

Stock based compensation expense

 

 

 

 

 

 

 

 

 

 

 

 

 

 

254

 

 

 

 

 

 

 

 

 

 

 

254

 

Accretion of preferred stock

 

 

 

 

 

 

 

 

 

 

 

 

 

 

446

 

 

 

 

 

(446

)

 

 

 

 

 

Cash dividends

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Common stock ($0.05 per share)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(2,480

)

 

 

 

 

(2,480

)

Preferred stock ($12.50 per share)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(2,438

)

 

 

 

 

(2,438

)

 

 




























Balance at September 30, 2011

 

 

65

 

$

1

 

 

16,527

 

$

215

 

$

195,790

 

$

(103,563

)

$

173,587

 

$

2,476

 

$

268,506

 

 

 




























 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance at December 31, 2011

 

 

65

 

$

1

 

 

16,527

 

$

215

 

$

196,002

 

$

(103,563

)

$

187,367

 

$

(2,844

)

$

277,178

 

Net income

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

20,990

 

 

 

 

 

20,990

 

Other comprehensive loss, net of tax

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(753

)

 

(753

)

Stock based compensation expense

 

 

 

 

 

 

 

 

 

 

 

 

 

 

136

 

 

 

 

 

 

 

 

 

 

 

136

 

Accretion of preferred stock

 

 

 

 

 

 

 

 

 

 

 

 

 

 

474

 

 

 

 

 

(474

)

 

 

 

 

 

True-up preferred stock dividend payable

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(134

)

 

 

 

 

(134

)

Cash dividends

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Common stock ($0.05 per share)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(2,479

)

 

 

 

 

(2,479

)

Preferred stock ($12.50 per share)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(2,438

)

 

 

 

 

(2,438

)

 

 




























Balance at September 30, 2012

 

 

65

 

$

1

 

 

16,527

 

$

215

 

$

196,612

 

$

(103,563

)

$

202,832

 

$

(3,597

)

$

292,500

 

 

 




























 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 






























See accompanying notes to consolidated financial statements.

 

6



 


 

FIRST FINANCIAL HOLDINGS, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)


 

 

 

 

 

 

 

 

 

 

Nine Months Ended
September 30,

 

 

 


 

(in thousands)

 

2012

 

2011

 







Operating Activities

 

 

 

 

 

 

 

Net Income (loss)

 

$

20,990

 

$

(42,353

)

Less: loss from discontinued operations

 

 

 

 

(3,593

)

 

 



 



 

Net income (loss) from continuing operations

 

 

20,990

 

 

(38,760

)

Adjustments to reconcile net income to net cash provided by operating activities

 

 

 

 

 

 

 

Provision for loan losses

 

 

15,975

 

 

99,418

 

Depreciation

 

 

4,744

 

 

4,100

 

Amortization of intangibles

 

 

872

 

 

244

 

Net decrease (increase) in current & deferred income tax

 

 

24,450

 

 

(19,035

)

Mark-to-market adjustments

 

 

(7,817

)

 

(4,300

)

Fair value of adjustments on other real estate owned

 

 

7,224

 

 

6,015

 

Amortization (accretion) of unearned premiums/discounts on investments, net

 

 

197

 

 

(960

)

Other-than-temporary impairment on investment securities

 

 

359

 

 

345

 

Loans originated for sale

 

 

(576,662

)

 

(222,541

)

Proceeds from loans held for sale

 

 

586,659

 

 

213,089

 

Gain on sale of loans, net

 

 

(11,019

)

 

(2,120

)

Gain on sold loan pool, net

 

 

 

 

(1,900

)

Gain on sale of other real estate owned, net

 

 

(1,566

)

 

(921

)

Gain on sale or call of investments

 

 

(3,877

)

 

(1,419

)

Gain on sale of premises and equipment

 

 

(74

)

 

(91

)

Gain on acquisition

 

 

(14,550

)

 

 

Recognition of stock-based compensation expense

 

 

136

 

 

254

 

Decrease in prepaid FDIC insurance premium

 

 

1,997

 

 

2,278

 

FDIC reimbursement of covered asset losses

 

 

11,684

 

 

19,212

 

Goodwill impairment

 

 

 

 

630

 

FDIC indemnification asset impairment

 

 

563

 

 

 

Other

 

 

(6,737

)

 

(2,696

)

Discontinued operations, net

 

 

 

 

(10,700

)

 

 



 



 

Net cash provided by operating activities

 

 

53,548

 

 

40,142

 

 

 



 



 

 

 

 

 

 

 

 

 

Investing Activities

 

 

 

 

 

 

 

Securities available-for-sale

 

 

 

 

 

 

 

Proceeds from sales

 

 

207,705

 

 

1,419

 

Proceeds from maturities, calls, and payments

 

 

80,605

 

 

76,163

 

Purchases

 

 

(103,725

)

 

(114,700

)

Proceeds from maturities, calls, and payments; securities held to maturity

 

 

3,478

 

 

350

 

Decrease in nonmarketable securities, net

 

 

9,440

 

 

5,492

 

Purchase of bank owned life insurance

 

 

(50,000

)

 

 

Plantation acquisition, net of cash received

 

 

126,225

 

 

 

Liberty branch acquisition, net of cash received

 

 

84,195

 

 

 

Decrease in loans, net

 

 

74,018

 

 

14,897

 

 

 

 

 

 

 

 

 

Proceeds from sales of other real estate owned

 

 

23,681

 

 

14,946

 

Proceeds from sold loan pool

 

 

 

 

3,672

 

Proceeds from sale of business

 

 

 

 

40,278

 

Increase in premises and equipment, net

 

 

(3,670

)

 

(2,626

)

Discontinued operations, net

 

 

 

 

33

 

 

 



 



 

Net cash provided by investing activities

 

 

451,952

 

 

39,924

 

 

 



 



 

 

 

 

 

 

 

 

 


See accompanying notes to consolidated financial statements.


7



 


 

FIRST FINANCIAL HOLDINGS, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited) (continued)


 

 

 

 

 

 

 

 

 

 

Nine Months Ended
September 30,

 

 

 


 

(in thousands)

 

2012

 

2011

 







Financing Activities

 

 

 

 

 

 

 

Increase in demand and savings deposits, net

 

 

114,930

 

 

114,120

 

Decrease in time deposits, net

 

 

(269,416

)

 

(220,757

)

(Repayments of) proceeds from FHLB advances, net

 

 

(336,355

)

 

61,000

 

Dividends paid on common stock

 

 

(2,479

)

 

(2,480

)

Dividends paid on preferred stock

 

 

(2,438

)

 

(2,438

)

 

 



 



 

Net cash used by financing activities

 

 

(495,758

)

 

(50,555

)

 

 



 



 

 

 

 

 

 

 

 

 

 

 



 



 

Net increase in cash and cash equivalents

 

 

9,742

 

 

29,511

 

 

 



 



 

 

 

 

 

 

 

 

 

Cash and cash equivalents at beginning of period, continuing operations

 

 

76,675

 

 

53,404

 

Cash and cash equivalents at beginning of period, discontinued operations

 

 

 

 

3,022

 

 

 



 



 

Cash and cash equivalents at beginning of period

 

 

76,675

 

 

56,426

 

 

 



 



 

 

 

 

 

 

 

 

 

Cash and cash equivalents at end of period, continuing operations

 

 

86,417

 

 

85,937

 

Cash and cash equivalents at end of period, discontinued operations

 

 

 

 

 

 

 



 



 

Cash and cash equivalents at end of period

 

$

86,417

 

$

85,937

 

 

 



 



 

 

 

 

 

 

 

 

 

Supplemental disclosures

 

 

 

 

 

 

 

Cash paid during the period for

 

 

 

 

 

 

 

Interest

 

$

24,606

 

$

33,472

 

Income taxes

 

 

2,321

 

 

3,282

 

FHLB prepayment termination charge

 

 

8,525

 

 

 

Loans transferred to OREO

 

 

21,019

 

 

26,438

 

Loans transferred to held for sale

 

 

 

 

159,739

 

Loans securitized into mortgage-backed securities

 

 

469,635

 

 

167,695

 

 

 

 

 

 

 

 

 


See accompanying notes to consolidated financial statements.


8


FIRST FINANCIAL HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
September 30, 2012

NOTE 1. Basis of Presentation and Accounting Policies

          The accompanying unaudited consolidated financial statements for First Financial Holdings, Inc. (“First Financial”) and its wholly-owned subsidiaries, including First Federal Bank (“First Federal”), a South Carolina-chartered commercial bank, have been prepared in accordance with U.S. generally accepted accounting principles (“GAAP”) for interim financial information and the instructions for Form 10-Q and Article 10 of Regulation S-X pursuant to the Securities Exchange Act of 1934. Accordingly, they do not include all of the information and notes required by GAAP for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. Operating results for the three and nine months ended September 30, 2012 are not necessarily indicative of the results that may be expected for the year ending December 31, 2012.

          Certain amounts have been reclassified to conform with the current year presentation. First Financial’s significant accounting policies are described in Note 1 to the Consolidated Financial Statements included in First Financial’s 2011 Annual Report on Form 10-K for the fiscal year ended September 30, 2011, as filed with the Securities and Exchange Commission (“SEC”) on December 13, 2011. For interim reporting purposes, First Financial follows the same basic accounting policies, as updated by the information contained in this report. For further information, refer to the consolidated financial statements and footnotes included in First Financial’s 2011 Annual Report on Form 10-K.

          First Financial has one active wholly-owned trust formed for the purpose of issuing securities which qualify as regulatory capital and is considered a Variable Interest Entity (“VIE”). First Financial is not the primary beneficiary, and consequently, the trust is not consolidated in the accompanying consolidated financial statements. The trust issued $46.4 million in trust preferred securities to investors in 2004, which remains outstanding at September 30, 2012. The net proceeds from the issuance were used to purchase junior subordinated deferrable interest debentures issued by First Financial, which is the sole asset of the trust. The trust preferred securities held by this entity qualify as Tier 1 capital for First Financial and are classified as long-term debt on the Consolidated Balance Sheets, with the associated interest expense recorded in interest on borrowed money on the Consolidated Statements of Operations. The expected losses and residual returns for this entity are absorbed by the trust preferred security holders and, consequently, First Financial is not exposed to loss related to this VIE.

Change in Fiscal Year

          On December 20, 2011, First Financial’s Board of Directors approved an amendment to Article VIII of First Financial’s bylaws to change First Financial’s fiscal year end from September 30th to December 31st of each year. The change was effective December 31, 2011 and the current fiscal year began on January 1, 2012 and will end on December 31, 2012. The change in fiscal year end resulted in a three-month transition period which began on October 1, 2011 and ended on December 31, 2011. As a result of its change in fiscal year, First Financial filed a Transition Report on Form 10-Q with the SEC on February 9, 2012 which covered the transition period from October 1, 2011 to December 31, 2011.

Discontinued Operations

          As a result of First Financial’s sale of its insurance agency subsidiary, First Southeast Insurance Services, Inc., which was completed on June 1, 2011, and its managing general insurance agency subsidiary, Kimbrell Insurance Group, Inc., which was completed on September 30, 2011, the financial condition, operating results, and the gain or loss on the sales, net of transaction costs and taxes, for these subsidiaries have been segregated from the financial condition and operating results of First Financial’s continuing operations throughout this report and, as such, are presented as discontinued operations. While all prior periods have been revised retrospectively to align with this treatment, these changes do not affect First Financial’s reported consolidated financial condition or operating results for any of the prior periods.

Recently Adopted Accounting Pronouncements

FASB ASU 2012-02, “Intangibles – Goodwill and Other (Topic 350) – Testing Indefinite-Lived Assets for Impairment.”

          This ASU simplifies the guidance for testing the decline in the realizable value (impairment) of indefinite-lived intangible assets other than goodwill. The amendments will allow First Financial to make a qualitative evaluation about the likelihood of impairment of an indefinite-lived intangible asset to determine whether it should apply the quantitative test and calculate the fair value of the indefinite-lived intangible asset. Specifically, First Financial has the option to first assess qualitative factors (events and circumstances) that could have affected the significant inputs used in determining the fair value of the indefinite-lived intangible asset to determine whether it is more likely than not that the indefinite-lived intangible asset is impaired. If, after considering all relevant events and circumstances, First Federal concludes that it is more likely than not that the indefinite-lived intangible asset is impaired then First Financial is required to determine the fair value of the indefinite-lived intangible asset and compare the fair value with the carrying amount to determine the amount of impairment loss, if any. However, if First Financial concludes otherwise, then it is not required to take any further action. Under the amended guidance, First Financial may choose to bypass the qualitative assessment for any indefinite-lived intangible asset in any period and proceed directly to calculating its fair value. The amendments do not change how an impairment loss is measured or how First Financial measures an impairment loss. ASU 2012-2 is effective for annual and interim impairment tests performed after September 15, 2012. The adoption of ASU 2012-02 did not have a material impact on its financial condition or results of operations.

FASB ASU 2011-05, “Comprehensive Income (Topic 220) – Presentation of Comprehensive Income” as amended by Financial Accounting Standards Board (“FASB”) Accounting Standards Update (“ASU”) 2011-12, “Comprehensive Income (Topic 220)-Deferral of the Effective Date for Amendments to the Presentation of Reclassification of Items Out of Accumulated Other Comprehensive Income in Accounting Standards Update (“ASU”) 2011-05.”

          This ASU increases the prominence of other comprehensive income (“OCI”) in financial statements and provides two options for presenting OCI. The ASU eliminates the current placement near the statement of shareholders’ equity or detailed in the Consolidated Statement of Changes in Shareholders’ Equity. The ASU provides for an OCI statement to be included with the net income statement, and together the two will make a statement of total comprehensive income. Alternatively, businesses can have an OCI statement separate from a net income statement, but the two statements should appear consecutively within a financial report. The ASU does not affect the calculation of earnings per share. The adoption of ASU 2011-05 was effective December 15, 2011. First Financial elected to present a separate OCI statement which is located immediately following its Consolidated Statements of Operations.

9


FASB ASU 2011-04, “Fair Value Measurement (Topic 820) – Amendments to Achieve Common Fair Value Measurement and Disclosure Requirements in U.S. GAAP and IFRSs”

          This ASU amends the wording used to describe many of the requirements in GAAP for measuring fair value and for disclosing information about fair value measurements. The ASU clarifies the application of existing fair value measurement requirements and changes principles or requirement for measuring fair value or for disclosing information about fair value measurements. The ASU requires new disclosures for any transfers between Levels 1 and 2 of the fair value hierarchy, not just significant transfers, and further expands focus on Level 3 measurements, including quantitative information about the significant unobservable inputs used for all Level 3 measurements, a qualitative discussion about the sensitivity of recurring Level 3 measurements to changes in the unobservable inputs disclosed, and a description of the valuation processes. The adoption of ASU 2011-04 was effective for reporting periods beginning on or after December 15, 2011 and is included in Note 8 to the Consolidated Financial Statements.

FASB ASU 2011-03, “Transfer and Servicing (Topic 860) – Reconsideration of Effective Control of Repurchase Agreements”

          This ASU improves the accounting for repurchase agreements and other agreements that entitle and obligate a transferor to repurchase or redeem financial assets before their maturity. ASU 2011-03 removes from the assessment of effective control: (1) the criterion requiring the transferor to have the ability to repurchase or redeem the financial assets on substantially the agreed terms, even in the event of default by the transferee, and (2) the collateral maintenance implementation related to that criterion. Other criterions applicable to the assessment of effective control are not changed by the amendments in this ASU. The adoption of ASU 2011-03 was effective December 15, 2011 and did not have a material impact on First Financial’s financial condition or results of operations.

Recently Issued Accounting Pronouncements

FASB ASU 2012-06. “Business Combinations (Topic 805) - Subsequent Accounting for an Indemnification Asset Recognized at the Acquisition Date as a Result of a Government-Assisted Acquisition of a Financial Institution”

          This ASU addresses the diversity in practice about how to interpret the terms on the same basis and contractual limitations when subsequently measuring an indemnification asset recognized in a government-assisted (Federal Deposit Insurance Corporation or National Credit Union Administration) acquisition of a financial institution that includes a loss sharing agreement (indemnification agreement). When First Financial recognizes an indemnification asset (in accordance with Subtopic 805-20) as a result of a government-assisted acquisition of a financial institution and subsequently a change in the cash flows expected to be collected on the indemnification asset occurs (as a result of a change in cash flows expected to be collected on the assets subject to indemnification), First Financial should subsequently account for the change in the measurement of the indemnification asset on the same basis as the change in the assets subject to indemnification. Any amortization of changes in value should be limited to the contractual term of the indemnification agreement (that is, the lesser of the term of the indemnification agreement and the remaining life of the indemnified assets). This guidance is effective for annual periods beginning on or after December 15, 2012 and interim periods within those annual periods. First Financial has previously accounted for its indemnification asset in accordance with this guidance; accordingly, this guidance will have no impact on First Financial’s consolidated financial position, results of operations, or cash flows.

FASB ASU 2011-11, “Balance Sheet (Topic 210) - Disclosures about Offsetting Assets and Liabilities.”

          This ASU addresses the differences in reporting between GAAP and International Financial Reporting Standards (“IFRS”) regarding offsetting (netting) assets and liabilities and enhances current disclosures. ASU 2011-11 requires First Financial to disclose both gross information and net information about instruments and transactions eligible for offset in the statement of financial position and instruments and transactions subject to an agreement similar to a master netting arrangement. The scope includes derivatives, sale and repurchase agreements and reverse sales and repurchase agreements, as well as securities borrowing and securities lending arrangements. ASU 2011-11 is effective for annual reporting periods beginning on or after January 1, 2013 and interim periods within those annual periods. First Financial does not expect the adoption of ASU 2011-11 to have a material impact on its financial condition or results of operations.

10


NOTE 2. Acquisitions

          Acquisitions are accounted for in accordance with Accounting Standards Codification (“ASC”) 805, Business Combinations, and assets acquired and liabilities assumed are recorded at their estimated fair value as of acquisition date. Determining the fair value of the assets and liabilities, especially the loan portfolio and other real estate owned (“OREO”), is a complex process involving significant judgment regarding the methods and assumptions used to calculate estimated fair values. The fair value assigned to loans and OREO is preliminary and subject to refinement for the earlier of up to one year after the closing date of the acquisition or as additional information becomes available. Acquisition-related costs are recognized as expenses in the period they are incurred. As of September 30, 2012, there have been no adjustments or changes to the initial fair values.

Liberty Savings Bank Branch Acquisition

          On April 20, 2012, First Federal acquired five branches from Liberty Savings Bank (“Liberty”) in the Hilton Head, South Carolina market and the transaction included $22.2 million of performing loans and $113.2 million of deposits, as of the transaction date. First Federal consolidated three of the acquired branches with existing First Federal financial centers, adding a net of two new financial centers in the Hilton Head market. The acquired loans and time deposits were recorded at their estimated fair value based on expected contractual cash flows, which were discounted at market rates as of the acquisition date. The estimated fair value for the loans did not include a discount for credit quality as they were all performing loans as of the acquisition date. First Federal also recorded an intangible asset totaling $5.2 million, which represented the estimated fair value of the assumed core deposits (noninterest-bearing checking, interest-bearing checking, savings, and money market accounts) as well as the estimated value of a non-compete agreement between First Federal and Liberty. The amortization of the purchase accounting adjustments for the loans and time deposits is recorded in net interest income while the amortization of the intangible asset is recorded in noninterest expense on the Consolidated Statements of Operations.

Plantation Federal Bank FDIC-Assisted Acquisition

          On April 27, 2012, First Federal assumed all deposits and substantially all assets and certain other liabilities of Plantation Federal Bank (“Plantation”), a full-service community bank headquartered in Pawleys Island, South Carolina, from the Federal Deposit Insurance Corporation (“FDIC”), as receiver for Plantation (the “Transaction”). Plantation operated three branches along the coast of South Carolina under the name of Plantation Federal and three branches in the Greenville, South Carolina market under the name of First Savers Bank. The Transaction was made pursuant to a purchase and assumption agreement, in the FDIC’s customary form, entered into by First Federal and the FDIC as of April 27, 2012 (a “P&A Agreement”).

          In connection with the Transaction, the FDIC made a cash payment to First Federal of $46.0 million, and First Federal did not pay the FDIC a premium to assume the customer deposits. The P&A Agreement includes a customary loss sharing agreement with the FDIC, which covers $216.2 million at carrying value of acquired commercial loans and commercial OREO ($169.5 million at estimated fair value). First Federal will share in the losses on the covered asset pools and the FDIC is obligated to reimburse First Federal for 80% of all eligible losses with respect to covered assets, beginning with the first dollar of loss incurred through $55.0 million in losses. First Federal absorbs losses greater than $55.0 million up to $65.0 million. The FDIC will reimburse First Federal for 60% of all eligible losses in excess of $65.0 million. First Federal has a corresponding obligation to reimburse the FDIC according to the same arrangement for eligible recoveries with respect to the covered assets. The loss share agreement provides for FDIC loss sharing for five years and First Federal to reimburse the FDIC for recoveries for eight years.

          The fair value of the loans acquired was estimated based on discounted cash flows, which take into consideration current portfolio interest rates and repricing characteristics as well as assumptions related to prepayment speeds. Loans with an estimated fair value of $139.8 million with credit deterioration were acquired and accounted for in accordance with ASC 310-30, Accounting for Certain Loans or Debt Securities Acquired in a Transfer. First Federal estimated the fair value of the ASC 310-30 loans based on projected cash flows, the type of loan and related collateral, risk rating classification status and current market interest rates. Loans were grouped into pools according to similar characteristics and are treated in the aggregate when applying various valuation techniques. First Federal also estimated the amount of credit losses that are expected to be realized for the loan portfolio by estimating the liquidation value of collateral securing loans on nonaccrual status or classified as substandard or doubtful. Certain amounts related to these loans were estimates, such as “as-is” and liquidation collateral values provided for by appraisers, and are highly subjective. The discount rates take into consideration the market interest rate environment as of the acquisition date and a credit risk component based on the credit characteristics of each loan pool. The accretion of the fair value discount on the acquired loans is recorded in net interest income on the Consolidated Statements of Operations. The accretion of the fair value discount on the acquired OREO is recorded in noninterest expense on the Consolidated Statements of Operations.

          The fair value of the FDIC indemnification asset associated with the covered assets was estimated at $34.3 million using projected cash flows related to the loss sharing agreement, based on the expected reimbursement for losses and the applicable loss sharing percentages for each loss tranche. The expected cash flows were discounted to reflect the uncertainty of the timing and receipt of the loss sharing reimbursement from the FDIC. The amount that First Federal realizes on the FDIC indemnification asset could differ materially from the carrying value, based on the timing and amount of collections on the acquired covered assets in future periods. To the extent the actual values realized are different from the estimate, the indemnification asset will generally be affected in an offsetting manner due to the loss share support from the FDIC. There is no contractual interest rate associated with the FDIC indemnification asset; however, a present value discount was recorded against the initial balance of the FDIC indemnification asset and this discount is accreted into net interest income on the Consolidated Statement of Operations. A liability for a potential true-up payment which may be owed to the FDIC related to the indemnification asset was established at an estimated fair value of $3.5 million, net of present value discount. The true-up liability was recorded in other liabilities on the Consolidated Balance Sheets and the amortization of the fair value discount is recorded in noninterest expense on the Consolidated Statements of Operations.

11


          For the other assets acquired and liabilities assumed, First Federal used various methods to estimate fair value as of the acquisition date. For the investment securities and advances from the Federal Home Loan Bank (“FHLB”), the fair value was estimated using quoted or current market prices, including applicable prepayment termination charges. The fair value of time deposits was estimated based on expected contractual cash flows, which were discounted at current market rates. The accretion of the discount on the time deposits is recorded in net interest income on the Consolidated Statements of Operations. First Federal recorded a core deposit intangible representing the fair value of the assumed core deposits and the amortization of this intangible is recorded in noninterest expense on the Consolidated Statements of Operations.

          During the three months ended June 30, 2012 a bargain purchase gain of $14.6 million was recorded in noninterest income on the Consolidated Statements of Operations. A $5.6 million deferred tax liability, representing the difference between the financial statement and tax bases of the assets acquired and liabilities assumed, was recorded in other liabilities on the Consolidated Balance Sheets during the three months ended June 30, 2012. The bargain purchase gain represents the amount by which the estimated fair value of the assets acquired exceeded the estimated fair value of the liabilities assumed, adjusted for the discount bid cash payment received from the FDIC as well as the establishment of the FDIC indemnification asset and its associated potential true-up liability.

          Due to the significant amount of fair value adjustments, the resulting accretion and amortization of those adjustments and the protection from the FDIC loss share agreement, historical operating results for Plantation are not relevant to First Federal’s ongoing results of operations. The following table presents the assets acquired and liabilities assumed as of April 27, 2012, including the purchase accounting adjustments.

12



 

 


 

Statement of Assets Acquired and Liabilities Assumed
As of April 27, 2012

 

(in thousands)

 


 


 

 

 

 

 

 

 

 

 

 

 

 

 

Balances
Acquired from
the FDIC

 

Fair Value
Adjustments

 

As Recorded
by First Federal

 

 

 









 

ASSETS

 

 

 

 

 

 

 

 

 

 

Cash and due from banks

 

$

71,535

 

$

 

$

71,535

 

Interest-bearing deposits with banks

 

 

8,690

 

 

 

 

8,690

 

 

 









 

Total cash and cash equivalents

 

 

80,225

 

 

 

 

80,225

 

Investment securities

 

 

 

 

 

 

 

 

 

 

Securities available for sale, at fair value

 

 

10,824

 

 

 

 

10,824

 

Nonmarketable securities

 

3,307

 

 

 

 

3,307

 

 

 



 



 



 

Total investment securities

 

 

14,131

 

 

 

 

14,131

 

Loans

 

 

326,558

 

 

(47,907

)1

 

278,651

 

FDIC indemnification asset, net

 

 

 

 

34,300

2

 

34,300

 

Other real estate owned

 

 

25,260

 

 

(14,524

)3

 

10,736

 

Other intangibles, net

 

 

 

 

1,710

4

 

1,710

 

Other assets

 

 

1,263

 

 

 

 

1,263

 

 

 



 



 



 

Total assets acquired

 

$

447,437

 

$

(26,421

)

$

421,016

 

 

 



 



 



 

 

 

 

 

 

 

 

 

 

 

 

LIABILITIES

 

 

 

 

 

 

 

 

 

 

Deposits

 

 

 

 

 

 

 

 

 

 

Noninterest-bearing checking

 

$

25,942

 

$

 

$

25,942

 

Interest-bearing checking

 

 

34,806

 

 

 

 

34,806

 

Savings and money market

 

 

127,043

 

 

 

 

127,043

 

Retail time deposits

 

 

229,313

 

 

2,174

5

 

231,487

 

Wholesale time deposits

 

 

651

 

 

 

 

651

 

 

 



 



 



 

Total deposits

 

 

417,755

 

 

2,174

 

 

419,929

 

Advances from FHLB

 

 

28,000

 

 

355

6

 

28,355

 

Deferred tax liability

 

 

 

 

5,583

7

 

5,583

 

Other liabilities

 

 

533

 

 

3,500

8

 

4,033

 

 

 



 



 



 

Total liabilities assumed

 

 

446,288

 

$

11,612

 

 

457,900

 

 

 



 



 



 

Excess of liabilities assumed over assets acquired

 

$

1,149

 

 

 

 

$

(36,884

)

 

 



 

 

 

 



 












Explanation of fair value adjustments

 

 

1

Reflects the fair value adjustments based on First Federal’s evaluation of the acquired loan portfolio.

2

Reflects the estimated fair value of payments First Federal anticipates receiving from the FDIC under the loss share agreement.

3

Reflects estimated OREO losses based on First Federal’s evaluation of the acquired OREO.

4

Reflects recording the core deposit intangible on the acquired core deposits.

5

Adjusts for interest rates that are higher than rates available on similar deposits as of the acquistion date.

6

Reflects the fair value as quoted by the the FHLB.

7

Establishes a deferred tax liability related to the gain on acquisition.

8

Establishes the true-up liability that may be owed to the FDIC at the end of the loss share agreement.

          During the three months ended September 30, 2012, First Federal exercised an option under the P&A Agreement to acquire Plantation’s Pawleys Island branch location at fair market value for $2.8 million, and the closing is expected to occur during the fourth quarter of 2012. First Federal consolidated an existing financial center into this location and consolidated Plantation’s remaining two coastal locations into First Federal’s existing financial centers during the third quarter of 2012, for no net increase in financial centers along the South Carolina coast. First Federal assumed the leases associated with the three locations in the Greenville, South Carolina market and acquired certain fixed assets totaling $625 thousand associated with the former Plantation locations during the third quarter of 2012.

Note 3. Investment Securities

          The following table presents amortized cost, gross unrealized gains and losses, and estimated fair value on investment securities.

13



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 


 

 

 

 

 

 

 

 

 

As of September 30, 2012

 

As of December 31, 2011

 

 

 


 


 

(in thousands)

 

Amortized
Cost

 

Gross
Unrealized
Gains

 

Gross
Unrealized
Losses

 

Estimated
Fair Value

 

Amortized Cost

 

Gross
Unrealized
Gains

 

Gross
Unrealized
Losses

 

Estimated
Fair Value

 










 








 

Securities available for sale

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Obligations of the U.S. Government agencies and corporations

 

$

1,339

 

$

23

 

$

 

$

1,362

 

$

1,790

 

$

33

 

$

 

$

1,823

 

State and municipal obligations

 

 

6,535

 

 

37

 

 

 

 

6,572

 

 

450

 

 

38

 

 

 

 

488

 

Collateralized debt obligations

 

 

6,343

 

 

 

 

3,231

 

 

3,112

 

 

7,012

 

 

 

 

3,765

 

 

3,247

 

Mortgage-backed securities

 

 

49,061

 

 

2,308

 

 

6

 

 

51,363

 

 

80,696

 

 

3,719

 

 

16

 

 

84,399

 

Collateralized mortgage obligations

 

 

171,572

 

 

1,175

 

 

5,506

 

 

167,241

 

 

312,124

 

 

3,289

 

 

6,118

 

 

309,295

 

Other securities

 

 

5,548

 

 

1,087

 

 

237

 

 

6,398

 

 

5,582

 

 

56

 

 

340

 

 

5,298

 

 

 












 












 

Total securities available for sale

 

$

240,398

 

$

4,630

 

$

8,980

 

$

236,048

 

$

407,654

 

$

7,135

 

$

10,239

 

$

404,550

 

 

 












 












 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Securities held to maturity

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

State and municipal obligations

 

$

16,831

 

$

2,499

 

$

 

$

19,330

 

$

19,978

 

$

2,756

 

$

 

$

22,734

 

Certificates of deposit

 

 

500

 

 

 

 

 

 

500

 

 

508

 

 

 

 

 

 

508

 

 

 












 












 

Total securities held to maturity

 

$

17,331

 

$

2,499

 

$

 

$

19,830

 

$

20,486

 

$

2,756

 

$

 

$

23,242

 

 

 












 












 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Nonmarketable securities

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Federal Home Loan Bank stock

 

$

19,043

 

$

 

$

 

$

19,043

 

$

32,694

 

$

 

$

 

$

32,694

 

Federal Reserve Bank stock

 

 

4,211

 

 

 

 

 

 

4,211

 

 

 

 

 

 

 

 

 

 

 












 












 

Total nonmarketable securities

 

$

23,254

 

$

 

$

 

$

23,254

 

$

32,694

 

$

 

$

 

$

32,694

 

 

 












 












 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 


 

          Securities with a fair market value of $127.2 million at September 30, 2012 and $237.8 million at December 31, 2011 were pledged to secure public and certain customer deposits, repurchase agreements, and advances from FHLB and the Federal Reserve Bank of Richmond. During the three months ended June 30, 2012, mortgage-backed securities totaling $203.6 million with an average yield of 1.79% were sold as part of a balance sheet restructuring initiative, generating a $3.5 million gain ($2.2 million after-tax). All of the sold investment securities were classified as Level 2 fair value financial instruments and had not previously recorded an other-than-temporary impairment (“OTTI”) charge. As of September 30, 2012, the only investment position that exceeded 10% of shareholders’ equity was mortgage-backed securities issued by Bank of America, representing 15.4% of shareholders’ equity.

          The amortized cost and estimated fair value of investment securities by contractual maturity are presented in the following table. Expected maturities may differ from contractual maturities, as borrowers have the right to call or prepay obligations with or without call or prepayment penalties.

 

 

 

 

 

 

 

 


 

 

 

 

 

 

 

 

 

 

 

As of September 30, 2012

 

 

 


 

(in thousands)

 

Amortized Cost

 

Fair Value

 






Securities available for sale

 

 

 

 

 

 

 

Due within one year

 

$

 

$

 

Due after one year through five years

 

 

1,339

 

 

1,362

 

Due after five years through ten years

 

 

1,005

 

 

1,150

 

Due after ten years

 

 

14,874

 

 

11,444

 

 

 






 

 

 

 

17,218

 

 

13,956

 

Mortgage-backed securities

 

 

49,061

 

 

51,363

 

Collateralized mortgage obligations

 

 

171,572

 

 

167,241

 

Other securities with no stated maturity

 

 

2,547

 

 

3,488

 

 

 






 

Total

 

$

240,398

 

$

236,048

 

 

 






 

Securities held to maturity

 

 

 

 

 

 

 

Due within one year

 

$

500

 

$

500

 

Due after one year through five years

 

 

 

 

 

Due after five years through ten years

 

 

1,990

 

 

2,084

 

Due after ten years

 

 

14,841

 

 

17,246

 

 

 






 

Total

 

$

17,331

 

$

19,830

 

 

 






 

 

 

 

 

 

 

 

 


 

14


          The following table presents gross unrealized losses on investment securities and the fair value of the related securities, aggregated by investment category and length of time that individual securities have been in a continuous unrealized loss position.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 





























 

 

 

 

Less than 12 Months

 

12 Months or Longer

 

Total

 

 

 


 


 


 

September 30, 2012
(dollars in thousands)

 

#

 

Fair Value

 

Unrealized
Losses

 

#

 

Fair Value

 

Unrealized
Losses

 

#

 

Fair Value

 

Unrealized
Losses

 




















 

Securities available for sale

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Collateralized debt obligations

 

 

 

$

 

$

 

 

14

 

$

3,112

 

$

3,231

 

 

14

 

$

3,112

 

$

3,231

 

Mortgage-backed securities

 

 

 

 

 

 

 

 

1

 

 

452

 

 

6

 

 

1

 

 

452

 

 

6

 

Collateralized mortgage obligations

 

 

11

 

 

58,338

 

 

2,007

 

 

17

 

 

53,887

 

 

3,499

 

 

28

 

 

112,225

 

 

5,506

 

Other securities

 

 

 

 

 

 

 

 

2

 

 

1,759

 

 

237

 

 

2

 

 

1,759

 

 

237

 

 

 









 









 









 

Total

 

 

11

 

$

58,338

 

$

2,007

 

 

34

 

$

59,210

 

$

6,973

 

 

45

 

$

117,548

 

$

8,980

 

 

 









 









 









 


 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Less than 12 Months

 

12 Months or Longer

 

Total

 

 

 


 


 


 

December 31, 2011
(dollars in thousands)

 

#

 

Fair Value

 

Unrealized
Losses

 

#

 

Fair Value

 

Unrealized
Losses

 

#

 

Fair Value

 

Unrealized
Losses

 




















 

Securities available for sale

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Collateralized debt obligations

 

 

1

 

$

260

 

$

47

 

 

14

 

$

2,987

 

$

3,718

 

 

15

 

$

3,247

 

$

3,765

 

Mortgage-backed securities

 

 

 

 

 

 

 

 

1

 

 

577

 

 

16

 

 

1

 

 

577

 

 

16

 

Collateralized mortgage obligations

 

 

16

 

 

88,673

 

 

3,359

 

 

14

 

 

34,310

 

 

2,759

 

 

30

 

 

122,983

 

 

6,118

 

Other securities

 

 

2

 

 

1,977

 

 

29

 

 

1

 

 

685

 

 

311

 

 

3

 

 

2,662

 

 

340

 

 

 









 









 









 

Total

 

 

19

 

$

90,910

 

$

3,435

 

 

30

 

$

38,559

 

$

6,804

 

 

49

 

$

129,469

 

$

10,239

 

 

 









 









 









 






























Other-Than-Temporary Impairment

          Management evaluates securities for OTTI on at least a quarterly basis. In determining OTTI, investment securities are evaluated according to ASC 320-10 and management considers many factors including: (1) the length of time and extent to which the fair value has been less than cost; (2) the financial condition and near-term prospects of the issuer; (3) whether the market decline was affected by macroeconomic conditions; and (4) whether First Financial has the intent to sell the debt security or more likely than not will be required to sell the debt security before its anticipated recovery. The assessment of whether OTTI exists involves a high degree of subjectivity and is based on information available to management on the assessment date. Evaluations are performed on a more frequent basis as the degree to which fair value is below carrying cost or the length of time that the fair value has been continuously below carrying cost increases.

          At September 30, 2012, the majority of unrealized losses were related to trust preferred collateralized debt obligations (“CDOs”) and private-label collateralized mortgage obligations (“CMOs”) as discussed below. For the three and nine months ended September 30, 2012, credit-related OTTI of $145 thousand and $359 thousand, respectively, were recorded in “Other-than-temporary-impairment on investment securities” on the Consolidated Statements of Operations. The total carrying value of securities affected by credit-related OTTI represents 9.5% of the carrying value of First Financial’s investment portfolio at September 30, 2012, which does not materially impact First Financial’s current liquidity and capital positions.

Collateralized Debt Obligations

          The CDO portfolio is collateralized primarily with trust preferred securities issued by other financial institutions in pooled issuances. To determine the fair value, cash flow models for trust preferred CDOs provided by a third-party pricing service are utilized. The models estimate default vectors for the underlying issuers within each CDO security, estimate expected bank failures across the entire banking system to determine the impact on each CDO, and assign a risk rating to each individual issuer in the collateral pool. The individual risk ratings for the underlying securities in the pools were determined by a number of factors including Tier 1 capital ratio, return on assets, percent of nonperforming loans, percent of commercial and construction loans, and level of broker deposits for each underlying issuer. The risk ratings were used to determine an expected default vector for each CDO. The models assign assumptions for constant default rate, loss severity, recovery lags, and prepayment assumptions, which were reviewed for reasonableness and consistency by management. The projected cash flows were compared to book value to determine the amount of OTTI, if any. If a security is rated below investment grade by a credit rating agency, a stress test is performed to determine if the security has any OTTI. See Note 8 to the Consolidated Financial Statements for additional information on fair value.

          The following table provides information regarding the CDO portfolio characteristics and OTTI losses.

15



 


Collateralized Debt Obligations at September 30, 2012

(dollars in thousands)


 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Nine Months Ended
September 30, 2012
OTTI 1

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 


 

Name

 

Single/
Pooled

 

Class/
Tranche

 

Amortized
Cost

 

Fair
Value

 

Unrealized
Loss

 

Credit
Portion

 

Other

 

Total

 


















 

ALESCO I

 

Pooled

 

B-1

 

$

526

 

$

293

 

$

233

 

$

 

$

 

$

 

ALESCO II

 

Pooled

 

B-1

 

 

356

 

 

286

 

 

70

 

 

 

 

 

 

 

MCAP III

 

Pooled

 

B

 

 

287

 

 

137

 

 

150

 

 

 

 

 

 

 

MCAP IX

 

Pooled

 

B-1

 

 

334

 

 

171

 

 

163

 

 

 

 

 

 

 

MCAP XVIII

 

Pooled

 

C-1

 

 

179

 

 

167

 

 

12

 

 

 

 

 

 

 

PRETZL XI

 

Pooled

 

B-1

 

 

842

 

 

308

 

 

534

 

 

 

 

 

 

 

PRETZL XIII

 

Pooled

 

B-1

 

 

325

 

 

128

 

 

197

 

 

 

 

 

 

 

PRETZL IV

 

Pooled

 

MEZ

 

 

116

 

 

54

 

 

62

 

 

 

 

 

 

 

PRETZL VII

 

Pooled

 

MEZ

 

 

321

 

 

277

 

 

44

 

 

 

 

 

 

 

PRETZL XII

 

Pooled

 

B-2

 

 

523

 

 

316

 

 

207

 

 

 

 

 

 

 

PRETZL XIV

 

Pooled

 

B-1

 

 

634

 

 

204

 

 

430

 

 

30

 

 

 

 

30

 

TRPREF II

 

Pooled

 

B

 

 

646

 

 

253

 

 

393

 

 

 

 

 

 

 

USCAP II

 

Pooled

 

B-1

 

 

952

 

 

284

 

 

668

 

 

11

 

 

 

 

11

 

USCAP III

 

Pooled

 

B-1

 

 

302

 

 

234

 

 

68

 

 

 

 

 

 

 

 

 

 

 

 

 


















 

Total

 

 

 

 

 

$

6,343

 

$

3,112

 

$

3,231

 

$

41

 

 

 

$

41

 

 

 

 

 

 

 


















 


 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Dollar Basis

 

 

 

 

 

 

 

 

 

 

 


 

 

 

 

 

 

 

 

 

Lowest
Rating

 

% Performing

 

% Deferrals /
Defaults2

 

Constant Default Rate

 

Discount
Margin3

 

 

 

 

 

 


 

 

Name

 

 

 

 

High

 

Low

 

 














 

ALESCO I

 

C

 

83.72

%

16.28

%

0.97

 

0.26

 

11.70

%

ALESCO II

 

C

 

85.78

 

14.22

 

1.18

 

0.32

 

11.65

 

MCAP III

 

B

 

58.89

 

41.11

 

2.19

 

0.59

 

10.50

 

MCAP IX

 

CC

 

56.40

 

43.60

 

1.25

 

0.34

 

16.80

 

MCAP XVIII

 

C

 

68.70

 

31.30

 

0.79

 

0.25

 

11.05

 

PRETZL XI

 

C

 

67.68

 

32.32

 

0.45

 

0.25

 

11.60

 

PRETZL XIII

 

C

 

61.24

 

38.76

 

0.85

 

0.25

 

11.57

 

PRETZL IV

 

CCC

 

72.93

 

27.07

 

2.25

 

0.61

 

11.00

 

PRETZL VII

 

C

 

54.50

 

45.50

 

1.72

 

0.46

 

16.80

 

PRETZL XII

 

C

 

65.96

 

34.04

 

0.57

 

0.25

 

11.62

 

PRETZL XIV

 

C

 

59.66

 

40.34

 

0.25

 

0.25

 

11.57

 

TRPREF II

 

C

 

61.19

 

38.81

 

1.16

 

0.31

 

11.92

 

USCAP II

 

C

 

78.78

 

21.27

 

0.39

 

0.25

 

11.65

 

USCAP III

 

C

 

68.63

 

31.37

 

0.43

 

0.25

 

11.53

 

 

 

 

 




 

 

 

 

 

 

 

Total

 

 

 

66.88

%

33.12

%

 

 

 

 

 

 


 

 


1

Recognized in other-than-temporary impairment on investment securities on the Consolidated Statements of Operations

2

Represents percentage of the underlying trust preferred collateral not currently making dividend payments or issued by financial institutions that have been placed into receivership by the FDIC

3

Fair market value discount margin to LIBOR

          As of September 30, 2012, management does not intend to sell these securities, nor is it more likely than not that First Financial will be required to sell the securities before the amortized cost basis is recovered as First Financial has adequate other sources of liquidity.

Collateralized Mortgage Obligations

          The CMO portfolio is mainly comprised of private-label, non-agency mortgage-backed securities. To determine the fair value, cash flow models provided by a third-party pricing service are utilized. The models incorporate recent transaction volumes, price quotations and related price variability, available broker information, and market liquidity. As a result, the models estimate each security’s cash flow and adjusted price based on coupon, credit rating, constant prepayment rate, and required yields or spreads. If a private label security is rated below investment grade by a credit rating agency, a stress test is performed to determine if the

16


security has any OTTI. See Note 8 to the Consolidated Financial Statements for additional information on fair value.

          The following table presents the investment grades assigned by the rating agencies and OTTI losses for the CMO securities which were in a loss position at September 30, 2012.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 



















 

 

(in thousands)

 

As of September 30, 2012

 

Nine Months Ended
September 30, 2012
OTTI 1

 




 


 

Moody/S&P Ratings

 

#

 

Fair
Value

 

Unrealized
Loss

 

Credit
Portion

 

Other

 

Total

 














 

AAA

 

1

 

$

1,655

 

$

45

 

$

 

$

 

$

 

AA

 

5

 

 

31,576

 

 

590

 

 

 

 

 

 

 

A

 

2

 

 

9,409

 

 

381

 

 

 

 

 

 

 

BBB

 

8

 

 

17,869

 

 

941

 

 

18

 

 

 

 

18

 

Below investment grade

 

12

 

 

51,716

 

 

3,549

 

 

300

 

 

 

 

300

 

 

 





 



 









 

Total

 

28

 

$

112,225

 

$

5,506

 

$

318

 

$

 

$

318

 

 

 





 



 









 


 

 



1

Recognized in other-than-temporary impairment on investment securities on the Consolidated Statements of Operations

The OTTI in the table above was related to three securities with the following characteristics:

 

 

 

 

 

 

 

 








 

 

Description

 

2004 ARM
Senior Support

 

2005 Fixed
5 Year Senior

 

2004-2005 ARM
Super Senior

 




 

 

 

As of September 30, 2012

 

 

 


 

Credit rating

 

C

 

CC

 

B

 

Rating agency

 

Moody’s

 

Standard & Poor’s

 

Fitch

 

Twelve-month average loss severity

 

45.96%

 

76.71%

 

38.06%

 

Twelve-month average default rate

 

9.31

 

2.37

 

3.67

 

60 day or more delinquency rate

 

25.19

 

19.71

 

13.09

 


 

 

 

 

 

 

 

 

 

 


 

 

 

As of December 31, 2011

 

 

 


 

Credit rating

 

C

 

CC

 

B

 

Rating agency

 

Moody’s

 

Standard & Poor’s

 

Fitch

 

Twelve-month average loss severity

 

38.36%

 

76.71%

 

51.57%

 

Twelve-month average default rate

 

3.89

 

1.94

 

2.97

 

60 day or more delinquency rate

 

28.28

 

19.23

 

12.02

 








 

          The credit ratings displayed in the above table reflect the lowest credit ratings by the major rating agencies. As of September 30, 2012, management does not intend to sell these securities, nor is it more likely than not that it will be required to sell these securities before the amortized cost basis is recovered as First Financial has adequate other sources of liquidity.

          The following table presents the cumulative credit-related losses recognized in earnings.

17



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 


























 

 

 

 

Three Months Ended September 30, 2012

 

Three Months Ended September 30, 2011

 

 

 


 


 

(in thousands)

 

CDOs

 

CMOs

 

Other
Securities

 

Total

 

CDOs

 

CMOs

 

Other
Securities

 

Total

 


 








 








 

Cumulative credit related losses recognized in earnings at beginning of period

 

$

5,823

 

$

1,682

 

$

1,100

 

$

8,605

 

$

5,587

 

$

1,355

 

$

1,100

 

$

8,042

 

  Additions

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Credit loss for which previous OTTI was recognized

 

 

 

 

145

 

 

 

 

145

 

 

169

 

 

 

 

 

 

169

 

 

 



 



 



 



 



 



 



 



 

Cumulative credit related losses recognized in earnings at end of period

 

$

5,823

 

$

1,827

 

$

1,100

 

$

8,750

 

$

5,756

 

$

1,355

 

$

1,100

 

$

8,211

 

 

 



 



 



 



 



 



 



 



 


 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Nine Months Ended September 30, 2012

 

Nine Months Ended September 30, 2011

 

 

 


 


 

 

 

CDOs

 

CMOs

 

Other
Securities

 

Total

 

CDOs

 

CMOs

 

Other
Securities

 

Total

 

 

 


 


 

Cumulative credit related losses recognized in earnings at beginning of period

 

$

5,782

 

$

1,509

 

$

1,100

 

$

8,391

 

$

5,411

 

$

1,355

 

$

1,100

 

$

7,866

 

  Additions

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Credit loss for which previous OTTI was recognized

 

 

41

 

 

318

 

 

 

 

359

 

 

345

 

 

 

 

 

 

345

 

 

 



 



 



 



 



 



 



 



 

Cumulative credit related losses recognized in earnings at end of period

 

$

5,823

 

$

1,827

 

$

1,100

 

$

8,750

 

$

5,756

 

$

1,355

 

$

1,100

 

$

8,211

 

 

 



 



 



 



 



 



 



 



 


























 

NOTE 4. Loans and Other Repossessed Assets Acquired

          The following table presents the loan portfolio by major category.

 

 

 

 

 

 

 

 

LOANS
(in thousands)

 

September 30,
2012

 

December 31,
2011

 






 

Residential loans

 

 

 

 

 

 

 

Residential 1-4 family

 

$

1,008,130

 

$

975,405

 

Residential construction

 

 

19,660

 

 

15,117

 

Residential land

 

 

52,616

 

 

41,612

 

 

 






 

Total residential loans

 

 

1,080,406

 

 

1,032,134

 

 

 

 

 

 

 

 

 

Commercial loans

 

 

 

 

 

 

 

Commercial business

 

 

125,345

 

 

83,814

 

Commercial real estate

 

 

520,135

 

 

456,541

 

Commercial construction

 

 

1,801

 

 

16,477

 

Commercial land

 

 

74,306

 

 

61,238

 

 

 






 

Total commercial loans

 

 

721,587

 

 

618,070

 

 

 

 

 

 

 

 

 

Consumer loans

 

 

 

 

 

 

 

Home equity

 

 

380,000

 

 

357,270

 

Manufactured housing

 

 

277,744

 

 

275,275

 

Marine

 

 

69,314

 

 

52,590

 

Other consumer

 

 

45,318

 

 

50,118

 

 

 






 

Total consumer loans

 

 

772,376

 

 

735,253

 

 

 






 

Total loans

 

 

2,574,369

 

 

2,385,457

 

Less: Allowance for loan losses

 

 

46,351

 

 

53,524

 

 

 






 

Net loans

 

$

2,528,018

 

$

2,331,933

 

 

 






 

 

 

 

 

 

 

 

 

Loans held for sale

 

$

53,761

 

$

48,303

 

 

 






 








 

          Total loans at September 30, 2012 included $275.0 million of loans acquired at estimated fair value in the Plantation and Liberty transactions. See Note 2 to the Consolidated Financial Statements for additional information regarding acquired loans. The loans held for sale are comprised of residential mortgage loans to be sold in the secondary market, and generally settle in 45 to 60 days.

          On April 10, 2009, First Federal entered into a P&A Agreement with the FDIC to acquire certain assets and liabilities of Cape Fear Bank (“Cape Fear”). For Cape Fear, the entire loan portfolio and OREO is covered under the loss sharing agreement with the FDIC, while the P&A Agreement for Plantation covers certain commercial loans and commercial OREO. These “covered loans” are included in the table above and totaled $241.8 million at September 30, 2012 ($94.0 million related to Cape Fear and $147.8 million related to Plantation), compared with $141.4 million at December 31, 2011 (solely Cape Fear covered loans). See Note 5 to

18


the Consolidated Financial Statements for additional information regarding the FDIC indemnification asset associated with these acquisitions.

          The following table presents the loan portfolio by age of delinquency.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 


 

 

 

 

 

Age Analysis Past Due Loans

 

 

 

 

 

As of September 30, 2012

 

 

 


 

(in thousands)

 

30-59
Days Past
Due

 

60-89 Days
Past Due

 

90 Days
and Greater
Past Due

 

90 Days
and
Greater
Accruing

 

Total Past
Due

 

Current1

 

Total Loans

 
















 

Residential loans

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Residential 1-4 family

 

$

256

 

$

2,105

 

$

10,881

 

$

 

$

13,242

 

$

994,888

 

$

1,008,130

 

Residential construction

 

 

 

 

 

 

 

 

 

 

 

 

19,660

 

 

19,660

 

Residential land

 

 

157

 

 

 

 

1,558

 

 

 

 

1,715

 

 

50,901

 

 

52,616

 

 

 



 






 



 



 



 



 

Total residential loans

 

 

413

 

 

2,105

 

 

12,439

 

 

 

 

14,957

 

 

1,065,449

 

 

1,080,406

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Commercial loans

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Commercial business

 

 

364

 

 

218

 

 

1,407

 

 

 

 

1,989

 

 

123,356

 

 

125,345

 

Commercial real estate

 

 

1,965

 

 

432

 

 

15,853

 

 

 

 

18,250

 

 

501,885

 

 

520,135

 

Commercial construction

 

 

 

 

 

 

247

 

 

 

 

247

 

 

1,554

 

 

1,801

 

Commercial land

 

 

243

 

 

75

 

 

2,990

 

 

 

 

3,308

 

 

70,998

 

 

74,306

 

 

 



 






 



 



 



 



 

Total commercial loans

 

 

2,572

 

 

725

 

 

20,497

 

 

 

 

23,794

 

 

697,793

 

 

721,587

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Consumer loans

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Home equity

 

 

1,676

 

 

528

 

 

10,145

 

 

 

 

12,349

 

 

367,651

 

 

380,000

 

Manufactured housing

 

 

1,674

 

 

832

 

 

2,221

 

 

 

 

4,727

 

 

273,017

 

 

277,744

 

Marine

 

 

227

 

 

 

 

90

 

 

 

 

317

 

 

68,997

 

 

69,314

 

Other consumer

 

 

577

 

 

165

 

 

228

 

 

74

 

 

1,044

 

 

44,274

 

 

45,318

 

 

 



 






 



 



 



 



 

Total consumer loans

 

 

4,154

 

 

1,525

 

 

12,684

 

 

74

 

 

18,437

 

 

753,939

 

 

772,376

 

 

 



 



 



 



 



 



 



 

Total loans

 

$

7,139

 

$

4,355

 

$

45,620

 

$

74

 

$

57,188

 

$

2,517,181

 

$

2,574,369

 

 

 



 



 



 



 



 



 



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total loans excluding covered loans

 

$

5,698

 

$

4,355

 

$

35,598

 

$

74

 

$

45,725

 

$

2,286,838

 

$

2,332,563

 

 

 



 



 



 



 



 



 



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

























                                           
Age Analysis Past Due Loans                        
   
   
   
 
As of December 31, 2011
(in thousands)   30-59 Days
Past Due
    60-89 Days
Past Due
    90 Days and
Greater
Past Due
    90 Days and
Greater
Accruing
    Total
Past Due
    Current1     Total Loans  
Residential loans  
   
   
   
   
   
   
  Residential 1-4 family
$
1,796  
$
1,190  
$
4,977  
$
 
$
7,963  
$
967,442  
$
975,405  
  Residential construction
 
 
 
 
 
15,117  
15,117  
  Residential land
511  
50  
1,448  
 
2,009  
39,603  
41,612  
     Total residential loans   2,307     1,240     6,425         9,972  
1,022,162  
1,032,134  
                                           
Commercial loans                          
   
   
  Commercial business
676  
232  
3,665  
 
4,573  
79,241  
83,814  
  Commercial real estate
2,250  
1,264  
17,160  
 
20,674  
435,867  
456,541  
  Commercial construction
 
 
573  
 
573  
15,904  
16,477  
  Commercial land
743  
442  
5,232  
 
6,417  
54,821  
61,238  
Total commercial loans   3,669     1,938     26,630         32,237     585,833     618,070  
                         
               
Consumer loans                                      
  Home equity   2,599     1,926     8,192         12,717     344,553     357,270  
  Manufactured housing   2,515     752     3,461         6,728     268,547     275,275  
  Marine   410     187     246         843     51,747     52,590  
  Other consumer   520     311     224     121     1,176     48,942     50,118  
Total consumer  loans   6,044     3,176     12,123     121     21,464     713,789     735,253  
  Total loans

$

12,020  

$

6,354     45,178  

$

121  

$

63,673  

$

2,321,784     2,385,457  
                                           
Total  loans excluding covered loans

$

11,002  

$

5,069  

$

28,389  

$

121  

$

44,581  

$

2,199,490  

$

2,244,071  
                                           
1 Included in current loans are $2.4 million of performing troubled debt restructurings ("TDRs") of which $734 thousand are covered.

          Nonperforming assets include nonaccrual loans, loans delinquent 90 days or more and still accruing, restructured loans still accruing, and other repossessed assets acquired through foreclosure. With the exception of the credit card portfolio, loans are placed on nonaccrual status when they become 90 days delinquent. In addition, loans that were not delinquent in excess of 90 days but exhibited doubt as to the borrowers’ ability to repay all contractual principal and interest have been classified as impaired under ASC 310-10-35 and placed on nonaccrual status. The following table summarizes nonperforming assets.

 

 

 

 

 

 

 

 


 

 

 

 

 

 

 

 

 

Nonperforming Assets
(in thousands)

 

September 30,
2012

 

December 31,
2011

 






 

Nonaccrual loans

 

$

45,620

 

$

45,178

 

Loans 90+ days, still accruing

 

 

74

 

 

121

 

Restructured loans, still accruing

 

 

3,340

 

 

2,411

 

 

 



 



 

Total nonperforming loans

 

 

49,034

 

 

47,710

 

Other repossessed assets acquired

 

 

21,579

 

 

20,487

 

 

 



 



 

Total nonperforming assets

 

$

70,613

 

$

68,197

 

 

 



 



 

 

 

 

 

 

 

 

 

Total nonperforming loans excluding nonperforming covered loans

 

$

39,012

 

$

30,187

 

 

 



 



 

 

 

 

 

 

 

 

 

Total nonperforming assets excluding nonperforming covered assets

 

$

45,986

 

$

43,124

 

 

 



 



 

 

 

 

 

 

 

 

 


 

          Loans acquired in the Cape Fear and Plantation acquisitions that were performing at the time of acquisition, but have subsequently become nonaccrual are included in the tables above. Nonperforming loans acquired at acquisition are included in the current loan category in the “Age Analysis Past Due Loans” table above and, as such, are not included in the “Nonperforming Assets” table since these loans were adjusted to fair value at the acquisition date and accounted for under ASC 310-30.

19


Impaired Loans

          In accordance with ASC 310-10-35, a loan is considered impaired when First Federal determines it is probable that the principal and interest due under the contractual terms of the loan will not be collected. Criticized and classified commercial loans (as defined in the “Criticized Loans, Classified Loans and Other Risk Characteristics” section of this Note) greater than $500,000 are reviewed for potential impairment as part of a monthly problem loan review process. In addition, homogeneous loans which have been modified are reviewed for potential impairment.

          In assessing the impairment of a loan and the related reserve required for that loan, various methodologies are employed. Impairment measurement on loans that are not collateral dependent is determined primarily using the present value of expected future cash flows discounted at the loan’s effective interest rate. With respect to most real estate loans, and specifically if the loan is considered to be collected through a probable foreclosure, an approach that estimates the fair value of the underlying collateral is used. The collateral is appraised to reflect estimated realizable value (usually “as is” or liquidation value), with the market value being adjusted for estimated selling costs. First Federal’s policy is to update collateral appraisals on impaired loans at least annually, and more frequently if deemed necessary based on market conditions or specific circumstances. Significant downward trends in the real estate market can adversely affect First Federal’s collateral position. For larger credits or loans that are classified “substandard” or worse that rely primarily on real estate collateral for repayment, re-appraisal would occur earlier than the stated policy if management believes the market conditions have changed such that the existing appraisal may no longer reflect the current market value of the property. At a minimum, at the time a commercial loan with a principal balance of over $500,000 is downgraded to “substandard” or worse, or if the loan is determined to be impaired, the property securing the loan is re-appraised to update the value. In addition to updated appraisals, market bids or current offers may be utilized to estimate current value.

          First Federal maintains a valuation reserve for impaired loans as part of the allowance for loan losses. Cash collected on impaired nonaccrual loans is applied to outstanding principal. A summary of impaired loans, related valuation reserves, and their effect on interest income follows.

20



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 


 

Impaired Loans

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(in thousands)

 

Unpaid
Contractual
Principal
Balance

 

Recorded
Investment
With No
Specific
Allowance

 

Recorded
Investment
With Specific
Allowance

 

Total
Recorded
Investment

 

Specific
Allowance

 

Year to Date
Average
Balance

 

Interest
Income
Recognized
Year to
Date

 
















 

September 30, 2012

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Residential loans

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Residential 1-4 family

 

$

6,231

 

$

5,514

 

$

279

 

$

5,793

 

$

91

 

$

4,019

 

$

18

 

Residential land

 

 

475

 

 

109

 

 

 

 

109

 

 

 

 

55

 

 

 

 

 



 



 



 



 



 



 



 

Total residential loans

 

 

6,706

 

 

5,623

 

 

279

 

 

5,902

 

 

91

 

 

4,074

 

 

18

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Commercial loans

 

 

.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Commercial business

 

 

1,414

 

 

761

 

 

 

 

761

 

 

 

 

2,207

 

 

27

 

Commercial real estate

 

 

12,198

 

 

8,329

 

 

696

 

 

9,025

 

 

23

 

 

10,649

 

 

93

 

Commercial construction

 

 

311

 

 

248

 

 

 

 

248

 

 

 

 

255

 

 

 

Commercial land

 

 

3,879

 

 

1,133

 

 

1,093

 

 

2,226

 

 

283

 

 

2,977

 

 

 

 

 



 



 



 



 



 



 



 

Total commercial loans

 

 

17,802

 

 

10,471

 

 

1,789

 

 

12,260

 

 

306

 

 

16,087

 

 

120

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Consumer loans

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Home equity

 

 

7,693

 

 

5,892

 

 

404

 

 

6,296

 

 

70

 

 

5,036

 

 

5

 

Manufactured housing

 

 

154

 

 

136

 

 

 

 

136

 

 

 

 

135

 

 

 

Marine

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 



 



 



 



 



 



 



 

Total consumer loans

 

 

7,847

 

 

6,028

 

 

404

 

 

6,432

 

 

70

 

 

5,170

 

 

5

 

 

 



 



 



 



 



 



 



 

Total impaired loans

 

$

32,355

 

$

22,122

 

$

2,472

 

$

24,594

 

$

467

 

$

25,332

 

$

143

 

 

 



 



 



 



 



 



 



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

December 31, 2011

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Residential loans

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Residential 1-4 family

 

$

2,366

 

$

1,957

 

$

288

 

$

2,245

 

$

93

 

$

1,637

 

$

10

 

Residential land

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 



 



 



 



 



 



 



 

Total residential loans

 

 

2,366

 

 

1,957

 

 

288

 

 

2,245

 

 

93

 

 

1,637

 

 

10

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Commercial loans

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Commercial business

 

 

4,134

 

 

2,143

 

 

1,510

 

 

3,653

 

 

11

 

 

3,400

 

 

 

Commercial real estate

 

 

14,336

 

 

8,819

 

 

3,453

 

 

12,272

 

 

967

 

 

12,928

 

 

10

 

Commercial construction

 

 

311

 

 

261

 

 

 

 

261

 

 

 

 

261

 

 

 

Commercial land

 

 

6,258

 

 

2,024

 

 

1,704

 

 

3,728

 

 

327

 

 

4,495

 

 

 

 

 



 



 



 



 



 



 



 

Total commercial loans

 

 

25,039

 

 

13,247

 

 

6,667

 

 

19,914

 

 

1,305

 

 

21,084

 

 

10

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Consumer loans

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Home equity

 

 

4,356

 

 

2,978

 

 

797

 

 

3,775

 

 

1

 

 

3,017

 

 

 

Manufactured housing

 

 

155

 

 

133

 

 

 

 

133

 

 

 

 

134

 

 

 

Marine

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 



 



 



 



 



 



 



 

Total consumer loans

 

 

4,511

 

 

3,111

 

 

797

 

 

3,908

 

 

1

 

 

3,151

 

 

 

 

 



 



 



 



 



 



 



 

Total impaired loans

 

$

31,916

 

$

18,315

 

$

7,752

 

$

26,067

 

$

1,399

 

$

25,872

 

$

20

 

 

 



 



 



 



 



 



 



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 


 

          The total recorded investment in covered impaired loans was $4.6 million as of September 30, 2012. These loans did not have a specific allowance as of September 30, 2012. The following table rolls forward the accretable yield associated with the ASC-310-30 loan portfolio associated with the Cape Fear and Plantation acquisitions.

 

 

 

 

 

 

 

 


 

 

 

 

 

 

 

 

 

(in thousands)

 

 

 

 

 

 

 








 

2009 Cape Fear balance at acquisition

 

 

 

 

$

10,713

 

2009 accretion

 

 

(4,305

)

 

 

 

2010 accretion

 

 

(4,162

)

 

 

 

2011 accretion

 

 

(2,684

)

 

 

 

2011 reclassification from nonaccretable balance

 

 

14,592

 

 

 

 

2012 Plantation balance at acquisition

 

 

8,692

 

 

 

 

2012 accretion

 

 

(5,062

)

 

 

 

2012 reclassification from nonaccretable balance

 

 

6,000

 

 

 

 

 

 

 

 

 

 

13,071

 

 

 

 

 

 



 

Balance, at September 30, 2012

 

 

 

 

$

23,784

 

 

 

 

 

 



 

 

 

 

 

 

 

 

 


 

          During 2011 and 2012, First Federal reclassified some of the nonaccretable balance to accretable yield for the Cape Fear loans that were impaired at purchase. The reclassification was primarily the result of increased cash flow estimates due to revising loss projections based on actual

21


performance. This amount is recognized as a prospective yield adjustment and increases interest income over the remaining life of the loan pool.

Troubled Debt Restructuring (“TDR”)

          First Federal accounts for certain loan modifications or restructurings as a TDR. In general, the modification or restructuring of a loan is considered a TDR if, for economic or legal reasons related to a borrower’s financial difficulties, a concession is granted to the borrower that creditors would not otherwise consider. Concessions may relate to the contractual interest rate, maturity date, payment structure of the note or other actions. In accordance with GAAP, loans acquired under ASC 310-30 are not initially considered to be TDRs. The following table provides a summary of TDRs by accrual status. The TDRs on nonaccrual status are included in the nonperforming asset table above.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 


 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Troubled Debt Restructurings

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

September 30, 2012

 

December 31, 2011

 

 

 


 


 

(in thousands)

 

Still
Accruing

 

Nonaccrual

 

Total

 

Still
Accruing

 

Nonaccrual

 

Total

 














 

Residential 1-4 family

 

$

328

 

$

4,458

 

$

4,786

 

$

734

 

$

1,269

 

$

2,003

 

Residential land

 

 

 

 

66

 

 

66

 

 

 

 

 

 

 

 

 



 



 



 



 



 



 

Residential Loans

 

 

328

 

 

4,524

 

 

4,852

 

 

734

 

 

1,269

 

 

2,003

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Commercial loans

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Commercial business

 

 

689

 

 

 

 

689

 

 

700

 

 

1,113

 

 

1,813

 

Commercial real estate

 

 

1,512

 

 

3,475

 

 

4,987

 

 

977

 

 

5,293

 

 

6,270

 

Commercial land

 

 

499

 

 

1,727

 

 

2,226

 

 

 

 

2,192

 

 

2,192

 

 

 



 



 



 



 



 



 

Total commercial loans

 

 

2,700

 

 

5,202

 

 

7,902

 

 

1,677

 

 

8,598

 

 

10,275

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Consumer loans

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Home equity

 

 

176

 

 

4,607

 

 

4,783

 

 

 

 

3,775

 

 

3,775

 

Manufactured housing

 

 

136

 

 

 

 

136

 

 

 

 

133

 

 

133

 

 

 



 



 



 



 



 



 

Total consumer loans

 

 

312

 

 

4,607

 

 

4,919

 

 

 

 

3,908

 

 

3,908

 

 

 



 



 



 



 



 



 

Total loans

 

$

3,340

 

$

14,333

 

$

17,673

 

$

2,411

 

$

13,775

 

$

16,186

 

 

 



 



 



 



 



 



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 


 

          Once a loan is deemed to be a TDR, it is reviewed for potential impairment in accordance with ASC 310-10-35. The following table provides a summary of the loans that were restructured as TDRs during the three and nine months ended September 30, 2012 and 2011 and displays the incremental impact to the allowance for loan losses as a result of the modification.

22



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 


 

 

 

 

 

Troubled Debt Restructurings

 

 

 

As of and for the Three Months Ended September 30, 2012

 

 

 


 

 

 

Outstanding Recorded Investment1

 

 

 

 

 


 

 

 

(dollars in thousands)

 

#

 

Pre-Modification

 

Post-Modification
By Type

 

Total Post-
Modification
Investment

 

Increase to
Allowance

 








 


 


 

 

 

 

 

 

Total

 

Rate

 

Structure

 

 

 

 

 

 

 

 

 

 

 

 


 


 


 

 

 

 

 

 

 

Residential 1-4

 

 

1

 

$

790

 

$

 

$

790

 

$

790

 

$

 

Residential land

 

 

1

 

 

345

 

 

345

 

 

 

 

345

 

 

 

Commercial real estate

 

 

3

 

 

1,052

 

 

 

 

1,117

 

 

1,117

 

 

 

Commercial land

 

 

1

 

 

621

 

 

 

 

351

 

 

351

 

 

 

Home equity

 

 

3

 

 

551

 

 

453

 

 

98

 

 

551

 

 

3

 

 

 



 



 






 



 



 

Total restructured loans

 

 

9

 

$

3,359

 

$

798

 

$

2,356

 

$

3,154

 

$

3

 

 

 



 



 






 



 



 


 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

As of and for the Three Months Ended September 30, 2011

 

 

 


 

 

 

Outstanding Recorded Investment1

 

 

 

 

 


 

 

 

(dollars in thousands)

 

#

 

Pre-Modification

 

Post-Modification
By Type

 

Total Post-
Modification
Investment

 

Increase to
Allowance

 








 


 


 

 

 

 

 

 

Total

 

Rate

 

Structure

 

 

 

 

 

 

 

 

 

 

 

 


 


 


 

 

 

 

 

 

 

Commercial real estate

 

 

2

 

$

1,171

 

$

 

$

1,171

 

$

1,171

 

$

3

 

Home Equity

 

 

4

 

 

1,412

 

 

1,412

 

 

 

 

1,412

 

 

 

 

 



 



 






 



 



 

Total restructured loans

 

 

6

 

$

2,583

 

$

1,412

 

$

1,171

 

$

2,583

 

$

3

 

 

 



 



 






 



 



 



1Outstanding recorded investment as defined by ASC 310-35-24, includes the loan balance, accrued interest, loan fees or costs, and unamortized premium or discount.


 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 


 

 

 

As of and for the Nine Months Ended September 30, 2012

 

 

 


 

 

 

Outstanding Recorded Investment1

 

 

 

 

 


 

 

 

(dollars in thousands)

 

#

 

Pre-Modification

 

Post-Modification
By Type

 

Total Post-
Modification
Investment

 

Increase to
Allowance

 








 


 


 

 

 

 

 

Total

 

Rate

 

Structure

 

 

 

 

 

 

 

 

 

 

 


 


 


 

 

 

 

 

 

 

Residential 1-4

 

 

5

 

$

2,913

 

$

1,699