December 03, 2011
SCBT Reports Third Quarter Net Income of $10.3 million; Declares Quarterly Cash Dividend
COLUMBIA, S.C.—(October 28, 2011) SCBT Financial Corporation (NASDAQ: SCBT), the holding company for SCBT, National Association, today released its unaudited results of operations and other financial information for the three month and nine month periods ended September 30, 2011. Highlights of the third quarter 2011 include the following:
- Net income of $10.3 million, up $8.5 million year over year; diluted earnings per share of $0.74 compared to $0.14 a year ago
- Completed the BankMeridian acquisition which resulted in an after-tax gain of $6.8 million, or $0.49 per diluted earnings per share
- Organic loan growth, excluding acquired loans, of $203.3 million; 9.0% increase from the 3rd quarter of 2010
- Core deposit growth, excluding CDs and the Habersham Bank (HB) and BankMeridian (BM) acquisitions, up $312.3 million; 17.3% increase from 3rd quarter 2010
- Return on average tangible equity was 13.8%, up from 3.2% one year ago
- Non-acquired allowance for loan losses: $49.1 million, or 2.00% of total non-acquired loans; provision expense exceeded net charge-offs by $1.0 million
- Legacy net charge-offs --- decreased to 1.16% annualized for the quarter, excluding acquired loans, compared to 1.74% for the 3rd quarter 2010;
- Non-performing Assets (NPAs): 2.44% of total assets; 3.87% of loans and repossessed assets, excluding acquired assets
Quarterly Cash Dividend
The Board of Directors of SCBT has declared a quarterly cash dividend of $0.17 per share payable on its common stock. This per share amount is equal to the dividend paid in the immediately preceding quarter and will be payable on November 25, 2011 to shareholders of record as of November 18, 2011.
Third Quarter 2011 Results of Operations
Please refer to the accompanying tables for detailed comparative data on results of operations and financial results.
The Company reported consolidated net income of $10.3 million, or $0.74 per diluted share for the three months ended September 30, 2011 compared to consolidated net income of $1.8 million, or $0.14 per diluted share for the third quarter of 2010. This $8.5 million increase was the net result of the following items:
- Improved net interest income of $9.7 million due primarily to the improved yields of acquired loans and reduced interest expense in both deposits and other borrowings;
- Improved provision for loan losses which decreased by $2.2 million over the comparable quarter for the non-acquired loan portfolio;
- Increase in non-interest income of $9.0 million, due primarily to the $11.0 pre-tax gain from the BM acquisition, offset by the negative accretion on the CBT indemnification asset. All other categories of non-interest income improved nicely; offset by
- Increase in non-interest expenses of $7.2 million, with $423,000 of this from the addition of BM; $2.1 million increase in salaries and benefits; $2.3 million increase related to OREO and loan related expenses; $1.1 million increase in other expenses; $1.0 million increase in merger related expenses; and $694,000 increase in information services expense; offset by a $495,000 decline in FDIC assessment and other regulatory charges.
“I am pleased with our third quarter 2011 results, in particular, our 13.83% return on tangible equity and $0.74 earnings per share. We also continue to move market share with both solid deposit and loan growth. Our mortgage business expanded significantly in the third quarter as refinancing activity accelerated, which resulted in a $1.2 million increase in mortgage banking income from second quarter,” said Robert R. Hill, Jr., president and CEO. “We closed our third FDIC-assisted transaction and second this year with the addition of BankMeridian on July 29. Our expense reduction plans are taking effect and are having a positive impact. We did see solid improvement in the level of past due loans and a continued steady decline in classified assets. Our 30-89 day past due levels are the lowest they have been since 2007. We still have work to do with our NPA levels, which have remained relatively flat. During the quarter, we wrote down three large OREO properties on the coast of South Carolina, which impacted us $2.4 million. We are pleased to see reductions in construction and development loan balances, down 26% this quarter and 19% for the year. Organic loan growth and taking advantage of the turbulent market has been a strength of ours during the downturn, and that continued this quarter. Our team grew our loan portfolio by $56.0 million, or 9.3% annualized. We will work in the fourth quarter to implement the branch consolidation plan we rolled out during the third quarter, achieve the cost saves from the BankMeridian integration, and further enhance our pre-tax, pre-provision earnings and net income.”
FDIC-Assisted Acquisition – BankMeridian
During the third quarter of 2011, SCBT entered into a whole bank with loss-share purchase and assumption agreement (“LSA”) with the FDIC to purchase certain assets and assume the deposits (excluding brokered deposits) and certain liabilities of BM. The Company acquired assets with a fair value of approximately $215.7 million, including $95.0 million in loans, $35.4 million in investment securities and assumed liabilities with a fair value of approximately $222.2 million, including $200.6 million of deposits. In addition, the Company received cash from the FDIC totaling approximately $17.1 million, which included the negative bid of $30.8 million.
Since acquisition, deposits and funding sources have been intentionally reduced by approximately $135.0 million from BM, including $20.0 million in FHLB advances and deposit runoff of more than $115.0 million.
In connection with the BM acquisition, SCBT also entered into loss sharing agreements with the FDIC. Pursuant to the terms of these loss sharing agreements, the FDIC’s obligation to reimburse SCBT for losses with respect to certain loans and foreclosed real estate purchased (“covered assets” or “covered loans”), begins with the first dollar of loss incurred. The FDIC has agreed to reimburse SCBT for 80% of the losses incurred. Gains and recoveries on covered assets will offset losses, or be paid to the FDIC, at the applicable loss share percentage of 80% at the time of recovery.
All assets acquired and liabilities assumed are recorded at estimated fair value on the date of acquisition, July 29, 2011. These fair value estimates are considered preliminary, and are subject to change for up to one year after the closing date of the acquisition as additional information relative to closing date fair values may become available. The Company and the FDIC are engaged in on-going discussions that may impact which assets and liabilities are ultimately acquired or assumed by the Company. In terms of banking offices, three locations were assumed, and one has been consolidated in Columbia, and the other two will remain banking offices, with the legacy SCBT locations being consolidated into them in November.
“We were very pleased to win the bid of BankMeridian during the third quarter through an FDIC-assisted transaction and the recognition of a pre-tax gain of $11.0 million,” said John C. Pollok, COO. “With the overlap in our existing South Carolina footprint, we have been able to quickly realize 75% cost saves from the second quarter 2011 expense base of BankMeridian. These cost saves, along with significant deposit runoff and paying off acquired FHLB advances, have allowed the BankMeridian acquisition to be immediately accretive to operating earnings. We plan to fully integrate BankMeridian onto the SCBT operating platform during the first weekend in November, with no increase in our branch count.”
Loans and Deposits
The Company’s total loans increased 9.6%, or $252.0 million, since the third quarter of 2010, driven primarily by increases in both commercial and consumer owner-occupied categories. Acquired loans increased by $48.8 million from the third quarter of 2010 and by $50.6 million from the second quarter of 2011, due to the BM acquisition during the third quarter of 2011. Acquired loans were $418.0 million at the end of the quarter. The following non-acquired loan portfolios increased: (1) commercial owner-occupied by $172.6 million, or 31.6%; (2) consumer owner-occupied loans by $79.3 million, or 25.2%; (3) consumer non real estate by $23.3 million, or 37.8%; (4) other income producing property by $14.5 million, or 11.3%; and (5) commercial and industrial loans by $12.7 million, or 6.2% and (6) home equity loans by $7.7 million, or 3.0%. Offsetting these increases was a reduction in (1) construction and land development loans by $86.2 million, or 21.4%; and (2) commercial non-owner occupied by $17.4 million, of 5.4%. Total non-acquired loans outstanding were $2.5 billion at September 30, 2011, compared to $2.3 billion at September 30, 2010. The balance of mortgage loans held for sale decreased $3.7 million from September 30, 2010, and increased $27.9 million from June 30, 2011 to $45.9 million at September 30, 2011. During the third quarter of 2011, mortgage loans held for sale increased as refinancing activities dramatically increased.
Total deposits increased in all categories, except certificates of deposit, compared to the third quarter of 2010 by an overall $267.5 million, or 8.9%, primarily due to the FDIC-assisted acquisition of HB and BM which accounted for $304.7 million of this increase. Without the impact of these acquisitions, total deposits declined by $37.2 million due to the large decline in time deposits of $349.5 million over the past year. Total deposits increased by $81.8 million, or 10.9% annualized, from the end of the second quarter of 2011. Core deposits (excluding all certificates of deposit) increased $144.6 million, or 33.4% annualized compared to the second quarter of 2011 and increased by $496.8 million, or 27.5% compared to the third quarter of 2010. The following increases in total deposit categories accounted for the $81.8 million increase from the linked quarter: (1) demand deposit accounts by $55.8 million or 37.3% annualized; (2) money market accounts by $64.5 million, or 32.9% annualized; (3) NOW accounts by $18.9 million or 14.5% annualized; and (4) Savings accounts by $5.4 million, or 8.4% annualized. Offsetting these increases was a decrease in CDs by a total of $62.7 million. Core deposits, excluding the HB and BM acquisition, increased by $115.3 million, or 23.0% annualized, in all core deposit categories. Time deposits continue to decline as expected, by $84.4 million during the 3rd quarter (without the impact of the acquisitions), as the Company continues to monitor and adjust rates paid on all deposit products as part of its strategy to manage its net interest margin. Total deposits outstanding at the end of the third quarter of 2011 were $3.3 billion, compared to $3.2 billion at the end of the second quarter 2011 and compared to $3.0 billion at the end of the third quarter of 2010.
Annualized net charge-offs within the non-acquired loan portfolio increased to 1.16% from 0.71% experienced in the second quarter of 2011, and decreased from 1.74% experienced in the third quarter of 2010. During the third quarter, non-performing assets (NPAs) as a percentage of non-acquired loans and repossessed assets increased to 3.87% compared to 3.80% one year ago and slightly increased from 3.86% for the second quarter of 2011. NPAs, excluding acquired assets to total assets at September 30, 2011 were 2.44%, compared to 2.39% at the end of the third quarter in 2010 and 2.44% at the end of the second quarter 2011. The level of NPAs, excluding acquired assets, continues to reflect pressure within the real estate market primarily in the coastal markets of Beaufort and the Grand Strand. Other real estate owned (“OREO”) decreased by $2.2 million from the 2nd quarter of 2011 and increased by $7.0 million from the third quarter of 2010, excluding covered OREO. During the third quarter, the Company wrote down three large coastal properties in South Carolina by a total of $2.4 million. Non-performing loans (including accruing loans past due 90 days or more) increased $4.6 million from the second quarter of 2011, excluding acquired loans, and increased by $2.6 million from the end of the third quarter in 2010. Non-acquired loans 30-89 days past due decreased $3.1 million from the second quarter of 2011, and decreased $4.5 million from the third quarter of 2010, or 34.9% to $8.4 million.
At September 30, 2011, nonperforming loans, excluding acquired loans, totaled $73.4 million, representing 2.98% of period-end loans, non-acquired. The allowance for loan losses, excluding acquired loans, at September 30, 2011 was $49.1 million and represented 2.00% of total period-end loans, excluding acquired loans. The current allowance for loan losses provides .67 times coverage of period-end nonperforming loans, excluding acquired loans, down from the second quarter 2011 level of .70 times coverage. In the third quarter, net charge-offs were $7.2 million, or an annualized 1.16% of average loans, excluding acquired loans, compared to $9.8 million, or 1.74% in the same period of 2010 and $4.2 million, or .71% in the 2nd quarter. The provision for loan losses, excluding any provision for loan losses related to acquired loans; was $8.1 million for the third quarter of 2011 compared to $10.3 million for the comparable quarter one year ago, and $4.2 million in the second quarter of 2011.
The allowance for loan losses related to acquired loans decreased by $1.6 million for the quarter. Acquired loans had charge offs on pools with Day 2 allowance totaling $5.9 million, partially offset by a $4.3 million increase in the acquired ALLL (see the discussion under “Accounting for Acquired Loans.”) The ending balance of the acquired allowance for loan losses at September 30, 2011 was $12.1 million compared to $13.7 million at June 30, 2011.
Net Interest Income and Margin
Non-taxable equivalent net interest income (before provision for loan losses) was $40.7 million for the third quarter of 2011, up 31.2% from $31.0 million in the comparable period last year. Taxable-equivalent net interest margin increased 95 basis points from the third quarter of 2010 and increased 26 basis points from the second quarter of 2011 to 4.93%. During the third quarter of 2011, SCBT benefited from continued improvement in cash flows and accretable yield related to the CBT acquired loan portfolio from the first quarter of 2011, and continues to lower funding cost by reducing rates on time deposits. The improved yield on acquired loans was substantially offset by the negative accretion on the indemnification asset recognized in noninterest income, from reduced cash flows under the LSA. SCBT’s yield on acquired loans improved to 11.71% from 11.17% in the linked quarter primarily due to better cash flows during the quarter for certain loan categories (pools). The effect (reduction) on net interest margin of the excess liquidity position was estimated to be 6 basis points for the third quarter and 29 basis points for the second quarter of 2011.
The Company’s average yield on interest-earning assets increased 46 basis points, while the average rate on interest-bearing liabilities decreased 52 basis points from the third quarter of 2010. During the third quarter of 2011, the Company’s average total assets increased by $279.6 million to $3.9 billion, a 7.6% increase over the third quarter of 2010. The increase reflected a $209.5 million increase in average total loans to $2.9 billion from the third quarter of 2010, the result of the FDIC-assisted acquisition of HB during the first quarter, BM during the third quarter and solid organic loan growth for a full year. The increase in loan volume at current market rates decreased the average yield on loans by 46 basis points compared to the third quarter of 2010. Average investment securities were $304.6 million at September 30, 2011, or a 7.8% increase from the $282.6 million balance at the end of the third quarter of 2010. The increase from the average balance at June 30, 2011 of $236.8 million was due to the acquisition of a net amount of $63.0 million in securities during the quarter and the securities purchased in the BM transaction totaling $35.4 million. The growth in average total assets was supported by growth in average total deposits of $258.7 million, an increase of 8.6% from the third quarter of 2010, which has come from the FDIC-assisted acquisition of HB and BM, and strong core deposit growth throughout SCBT.
Noninterest Income and Expense
Noninterest income was $20.8 million for the third quarter of 2011 compared to $11.8 million for the third quarter of 2010, an increase of $9.0 million, or 75.8%, due primarily to the $11.0 million gain from the acquisition of BM, which was partially offset by negative accretion on the indemnification asset. The negative accretion was the result of the reduced expected cash flows of this asset related to certain pools of CBT acquired loans which had improved estimated cash flows during the first and second quarters of 2011.
Other increases in noninterest income include increased service charges on deposit accounts of $367,000, or 6.5%; increased trust and investment service income of $254,000, or 21.2%; increased bankcard services of $583,000, or 24.3%; and increased mortgage banking income of $407,000, or 21.0%.
Compared to the second quarter of 2011, noninterest income, excluding the gain from the BM acquisition, was up by $1.1 million, driven primarily by mortgage banking income, up $1.2 million from an extremely active mortgage pipeline and activity in the secondary market. Service charges on deposit accounts were up $435,000 compared to the prior quarter. Offsetting these two increases were declines in Bankcard services income, accretion on the indemnification asset, securities gains (losses), and trust and investment services.
Noninterest expense was $37.2 million in the third quarter of 2011, a 24.1% or $7.2 million increase from $29.9 million in the third quarter of 2010. This increase includes the expenses from the HB acquisition, which occurred in the first quarter, and expenses from the BM acquisition which totals $423,000. Merger-related costs also increased by $1.0 million. In addition, OREO and loan related expenses increased $2.3 million compared to the third quarter of 2010 from $1.9 million. This increase was the result of three large write downs of OREO which totaled $2.4 million. Salaries and benefits increased $2.1 million from the third quarter of 2010; information services expense increased by $694,000; and net occupancy expense increased by $397,000. FDIC assessment and other regulatory charges decreased by $495,000 due to the change in methodology for how assessments are calculated.
Compared to the second quarter of 2011, noninterest expense increased by approximately $2.1 million; with $423,000 of this increase from the addition of BM, $1.3 million increase in OREO and loan related expenses and $1.0 million increase in merger related expenses. These increases were offset by a $400,000 reduction in FDIC assessment and other regulatory charges.
Selected Ratios and Capital
The Company’s annualized return on average assets (ROAA) for the third quarter increased to 1.04% compared to 0.19% for the third quarter of 2010, and increased from 0.50% for the second quarter of 2011. Total average shareholders' equity at September 30, 2011 was $380.9 million, an increase of $11.9 million, or 3.2% from June 30, 2011. This increase was primarily the result of the gain from the acquisition of BM and bank earnings during the quarter. Annualized return on average equity (ROAE) for the quarter was 10.76%, up from 2.11% for the third quarter of 2010. Annualized return on average tangible equity (ROATE) for the third quarter increased to 13.83% from 3.15% for the comparable period in the prior year, and increased from 7.16% in the second quarter of 2011.
The Company’s book value per share and tangible book value per share increased from June 30, 2011 by $0.73 per share to $27.26 and $21.91 per share, respectively.
The total risk-based capital ratio improved by 4 basis points from the second quarter of 2011, due primarily to the increase in total risk-based capital from quarterly earnings, including the gain from the acquisition of BM. Legacy loan growth (primarily risk-weighted at 100%) increased total risk weighted assets during the quarter and the acquired loan portfolio (primarily risk-weighted at 20%) increased with the addition of BM. The Tier 1 leverage ratio increased by 22 basis points for the quarter. The Company’s capital positions remain “well-capitalized” by all measures at September 30, 2011.
Accounting for Acquired Loans
The Company performs ongoing assessments of the estimated cash flows of its acquired loan portfolios. Increases in cash flow expectations result in a favorable adjustment to interest income over the remaining life of the related loans, and decreases in cash flow expectations result in an immediate recognition of a provision for loans losses, in both cases, net of any adjustments to the receivable from the FDIC for loss sharing. These ongoing assessments of the acquired CBT loan portfolio have resulted in a positive impact to interest income from a reduction in expected credit losses, which has been largely offset by a charge to noninterest income for the impact of reduced cash flows from the FDIC under the loss share agreement during the first quarter of 2011. During the third quarter of 2011, the Company assessed the estimated cash flows and determined the following impact to the acquired loan portfolio and related impact on the indemnification asset:
- The review of the performance of the loan pools during the third quarter resulted in an increase in the overall loss expectation for three pools by $4.3 million; which resulted in a net provision for loan losses for the quarter of $216,000 (net of the FDIC reimbursement of 95%); and
- There was no significant increase in performance of any of the pools during the quarter.
As of September 30, 2011, the Company has not made any changes to the estimated cash flow assumptions or expected losses for the acquired HB assets or BM assets.
FDIC-Assisted Acquisition – Habersham Bank
During the first quarter of 2011, SCBT entered into a whole bank with loss-share purchase and assumption agreement (“LSA”) with the FDIC to purchase certain assets and assume the deposits (excluding brokered deposits) and certain liabilities of HB. The Company acquired assets with a fair value of approximately $328.6 million, including $127.5 million in loans, and assumed liabilities with a fair value of approximately $381.5 million, including $340.6 million of deposits. In addition, the Company received cash from the FDIC totaling approximately $59.4 million, which included the negative bid of $38.3 million.
In connection with the HB acquisition, SCBT also entered into loss sharing agreements with the FDIC. This agreement is substantially the same as the terms outlined above in the BM acquisition.
All assets acquired and liabilities assumed are recorded at estimated fair value on the date of acquisition, February 18, 2011. These fair value estimates are considered preliminary, and are subject to change for up to one year after the closing date of the acquisition as additional information relative to closing date fair values may become available. During the quarter, the Company continued to gather information regarding the initial fair value estimates of the assets and liabilities acquired, but have identified no material adjustments as of September 30, 2011.
Download the Earnings Summary
SCBT Financial Corporation, Columbia, South Carolina is a registered bank holding company incorporated under the laws of South Carolina. The Company consists of SCBT, N.A., the third largest bank headquartered in South Carolina; NCBT, a division of SCBT, N.A., Community Bank & Trust, a division of SCBT, N.A; and BankMeridian, a division of SCBT, N.A. Providing financial services for over 75 years, SCBT Financial Corporation operates 74 locations in 17 South Carolina counties, 10 northeast Georgia counties, and Mecklenburg County in North Carolina. SCBT Financial Corporation has assets of approximately $3.9 billion and its stock is traded under the symbol SCBT in the NASDAQ Global Select Market. More information can be found at www.SCBTonline.com.
SCBT Financial Corporation will hold a conference call on October 28th at 11 a.m. Eastern Time where management will review earnings and performance trends. Callers wishing to participate may call toll-free by dialing 866-501-6246. The number for international participants is 914-495-8523. The conference ID number is 99746752. Participants can also listen to the live audio webcast through the Investor Relations section of www.SCBTonline.com. A replay will be available beginning October 28th by 2:00 pm Eastern Time until 11:59 p.m. on November 11th. To listen to the replay, dial 855-859-2056 or 404-537-3406. The passcode is 99746752.
Statements included in this press release include non-GAAP measures and should be read along with the accompanying tables which provide a reconciliation of non-GAAP measures to GAAP measures. Management believes that these non-GAAP measures provide additional useful information. Non-GAAP measures should not be considered as an alternative to any measure of performance or financial condition as promulgated under GAAP, and investors should consider the company's performance and financial condition as reported under GAAP and all other relevant information when assessing the performance or financial condition of the company. Non-GAAP measures have limitations as analytical tools, and investors should not consider them in isolation or as a substitute for analysis of the company's results or financial condition as reported under GAAP.
Cautionary Statement Regarding Forward Looking Statements
Statements included in this press release which are not historical in nature are intended to be, and are hereby identified as, forward looking statements for purposes of the safe harbor provided by Section 21E of the Securities Exchange Act of 1934. SCBT Financial Corporation cautions readers that forward-looking statements are subject to certain risks and uncertainties that could cause actual results to differ materially from forecasted results. Such risks and uncertainties, include, among others, the following possibilities: (1) credit risk associated with an obligor's failure to meet the terms of any contract with the bank or otherwise fail to perform as agreed; (2) interest risk involving the effect of a change in interest rates on both the bank's earnings and the market value of the portfolio equity; (3) liquidity risk affecting the bank's ability to meet its obligations when they come due; (4) price risk focusing on changes in market factors that may affect the value of traded instruments in "mark-to-market" portfolios; (5) transaction risk arising from problems with service or product delivery; (6) compliance risk involving risk to earnings or capital resulting from violations of or nonconformance with laws, rules, regulations, prescribed practices, or ethical standards; (7) strategic risk resulting from adverse business decisions or improper implementation of business decisions; (8) reputation risk that adversely affects earnings or capital arising from negative public opinion; (9) terrorist activities risk that results in loss of consumer confidence and economic disruptions; (10) economic downturn risk resulting in deterioration in the credit markets; (11) greater than expected non-interest expenses; (12) excessive loan losses; (13) potential deposit attrition, higher than expected costs, customer loss and business disruption associated with the integration of Habersham and BankMeridian, including, without limitation, potential difficulties in maintaining relationships with key personnel and other integration related-matters; and (14) other factors, which could cause actual results to differ materially from future results expressed or implied by such forward-looking statements.
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