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10 Most Profitable Banks Trading Below Book Value

3. First Financial Holdings


Shares of First Financial Holdings (FFCH) of Charleston, S.C., closed at $15.15 Thursday, returning 16% this year, following a 49% return during 2012. The shares traded for 0.9 times tangible book value, and for 13.3 times the consensus 2014 EPS estimate of $1.14. The consensus 2013 EPS estimate is $1.16.

The company had $3.2 billion in total assets as of Dec. 31, and its 2012 ROA was 0.9%.

First Financial Holdings reported fourth-quarter net income available to common shareholders of $6.8 million, or 41 cents a share, increasing from $5.7 million, or 34 cents a share, in the third quarter, but declining from $14.6 million, or 88 cents a share, in the fourth quarter of 2011. During the fourth quarter of 2011, the company booked a $12.7 million after-tax gain, following a bulk-loan sale.

Net interest income grew to $35.1 million in the fourth quarter from $33.2 million the previous quarter, and $28.9 million a year earlier. The sequential growth in net interest income reflected a significant widening of the net interest margin to 4.69% in the fourth quarter from 4.35% in the third quarter and 3.91% in the fourth quarter of 2011.

But First Financial's financial results have had many moving parts. The sequential margin expansion and increase in net interest income mainly reflected $3.6 million in cash that was received because a pool of loans acquired along with the failed Cape Fear Bank in 2009 had performed better than expected. The company said that the "net interest margin for the current quarter without the impact of the additional income was 4.15%." Of course, a net interest margin above 4% is still quite respectable in the current rate environment.

The company also purchased the failed Plantation Federal Savings Bank of Pawleys Island, S.C., from the FDIC in April of last year, adding roughly $486 million in assets, $441 million in deposits, and six branches.

Another notable item in First Financial's fourth-quarter earnings release included an increase in mortgage and other loan income to $6 million from $4.1 million the previous quarter and $2.7 million a year earlier. The company's pretax earnings were lowered by a $3.4 million impairment to its FDIC indemnity on acquired assets.

Sterne Agee analyst Kenneth James has a "neutral" rating on First Financial Holdings, with EPS estimates of $1.14 for 2013 and $1.17 for 2014. The analyst said in a report on Jan. 28 that "We believe the valuation expansion of the past year largely reflects near-term prospects while longer-term visibility on continued progression to peer-like returns (ROA/ROE) remains somewhat clouded."

James also said that "the emergence of higher interest rates will likely be required as we expect NIM pressure from current lofty levels to eat into the pre-provision, pretax ROA of the next two years."

FFCH Chart FFCH data by YCharts

Interested in more on First Financial Holdings? See TheStreet Ratings' report card for this stock.

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