January 22, 2009
Earnings of $4.3 million for the Fourth Quarter and $22.9 million for 2008
--Operating Earnings & Net Income
- Operating Net Earnings of $4.3 million --- down 24.0%; YTD $22.9 million --- 3.6% increase
- Diluted operating earnings per share of $0.39; YTD diluted operating EPS of $2.20
- Net Income of $3.5 million --- $0.33 per share; driven primarily by 167% increase in the quarter provision for loan losses
- YTD Net Income of $15.9 million --- $1.52 per share
- 4th Quarter loan growth $36.4 million --- 6.4% annualized growth
- Allowance for loan losses: 1.36% of period end loans; up from 1.28%
- NPAs: 0.76% of total assets and 0.91% of loans and repossessed assets
- Net charge-offs --- increased to 0.35% annualized for the quarter
--- increased to 0.26% YTD
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 period and year ended December 31, 2008. The Company produced solid operating results due primarily to our net interest margin, continued sound asset quality and good loan growth for the fourth quarter. In addition, during the fourth quarter, the Company sold its position in Freddie Mac preferred stock of $10.25 million, original cost basis. Along with the $9.76 million impairment charge recorded in the third quarter, the company recorded an additional loss on this sale of $383,000 on a pre-tax basis, during the fourth quarter. During October, and as previously released, the Company issued 1.01 million shares of common stock in a private placement offering which provided $26.8 million, net of issuance cost, of additional Tier 1 regulatory capital that will enhance our capital structure and support the future growth of SCBT.
Quarterly Cash Dividend
The Board of Directors of SCBT declared today 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 February 20, 2009 to shareholders of record as of February 6, 2009.
Fourth Quarter 2008 Results of Operations
Please refer to the accompanying tables for detailed comparative data on results of operations and financial results. Throughout this news release the Company refers to “operating earnings” as a measure of its results of operations that differs from its net income under Generally Accepted Accounting Principles in the United States (“GAAP”). Refer to the accompanying tables for a reconciliation of “operating earnings” to GAAP net income.
On an operating basis for the three months ended December 31, 2008 and 2007, net operating earnings were $0.39 per diluted share, down 33.9%, in 2008, from $0.59 per diluted share, in 2007. Net operating earnings were down $1.4 million or 24.0%, in 2008, excluding an OTTI charge related to other equities of $124,000, and a loss on bank owned life insurance (BOLI) policies of $260,000, the realized loss on Freddie Mac preferred securities of $383,000 and merger costs related to moving to a single charter of $405,000, over the prior year comparable period. For the year ended December 31, 2008, net operating earnings were up $794,000, or 3.6%, excluding the OTTI charge, the loss on BOLI, the realized loss on Freddie Mac preferred securities of $10.14 million, and merger costs related to moving to a single charter over the December 31, 2007 results. Net operating earnings per diluted share were $2.20 for the year ended December 31, 2008 compared to $2.37 for the year ended December 31, 2007, a decrease of 7.2%.
The Company reported consolidated net income of $3.5 million, or $0.32 per diluted share for the three months ended December 31, 2008 compared to consolidated net income of $5.1 million, or $0.54 per diluted share for the fourth quarter of 2007, a $1.6 million or 31.0% decrease. For the year ended December 31, 2008 and 2007, the Company reported net income of $15.8 million compared to $21.6 million, respectively, a decrease of $5.8 million, or 26.8%. This resulted in diluted earnings per share of $1.52 and $2.32 for the year ended December 31, 2008 and 2007, respectively.
“SCBT experienced very positive operating results in 2008. While overall earnings declined, we were one of the best performing banks in the country last year,” said Robert R. Hill, Jr. “Our stock price increased 9%, which reflected our performance. We were one of the few banks that had an increase in stock price in 2008. We have experienced pressures from the deteriorating economy and do expect this to continue for the foreseeable future. In spite of this, our credit quality continues to be very good, and we further strengthened our balance sheet by building our reserves for loan losses during the fourth quarter. We feel we are very well prepared for the future due to our strong capital position, asset quality, good liquidity, and customer base. Our current market presents challenges, but it also presents many opportunities for strong banks.”
During the fourth quarter of 2008, the Company’s average total assets (including a full quarter’s impact of the acquired assets from TSB Financial Corporation) increased by $389.3 million, a 16.4% increase over the fourth quarter of 2007. The growth in average total assets was supported by growth in average total deposits of $305.9 million, an increase of 16.7% over the total in the fourth quarter of 2007. Average earning assets for the quarter increased by $347.6 million, or 15.7%, compared to the fourth quarter of 2007. The increase in average earning assets also includes a 5.8% decrease in average investment securities to $232.4 million, which includes the $9.8 million OTTI charge on Freddie Mac preferred stock impact for all of the fourth quarter.
The Company’s annualized operating return on average assets (ROAA) for the fourth quarter decreased to 0.62% compared to 0.94% for the fourth quarter of 2007, and decreased from 0.93% for the third quarter of 2008. The operating returns on average assets, equity and tangible equity exclude the effect of the after-tax impact of the OTTI charges, the loss on BOLI, the realized loss on Freddie Mac preferred securities and the merger cost related to moving to a single charter. Total year-to-date average shareholders' equity at December 31, 2008 was $239.8 million, an increase of 26.5% from December 31, 2007. This increase is due primarily to the issuance of 1,010,000 shares of common stock in October. Annualized operating return on average equity (ROAE) for the quarter was 7.14%, down from 11.86% for the fourth quarter of 2007. Annualized operating return on average tangible equity (ROATE) for the fourth quarter decreased to 10.20% from 15.98% for the comparable period in the prior year, and decreased from 16.88% in the third quarter of 2008. On a GAAP basis for December 31, 2008, the ROAA equaled 0.51%; the ROAE was 5.89%, and the ROATE was 8.46% compared to December 31, 2007, ROAA was 0.86%, ROAE was 10.76%, and ROATE was 14.53%.
Annualized net charge-offs decreased to 0.35% from 0.41% experienced in the third quarter of 2008; but increased from 0.15% experienced in the fourth quarter of 2007. During the fourth quarter, non-performing assets (NPAs) as a percentage of loans and repossessed assets increased to 0.91% compared to 0.33% one year ago and 0.66% for the third quarter of 2008. NPAs to total assets at December 31, 2008 were 0.76% compared to 0.27% at the end of 2007 and 0.54% at the end of the third quarter 2008. The increase in NPAs continues to reflect the pressure within the real estate market and within the economy as a whole. Compared to the banking industry, our asset quality remains manageable. During the fourth quarter, the Company’s other real estate owned (“OREO”) increased $3.6 million from the end of the third quarter. Nonaccrual loans increased $3.1 million from the third quarter of 2008, and by $9.3 million from the end of 2007.
At December 31, 2008, nonperforming loans totaled $14.9 million, representing 0.64% of period-end loans. Other real estate owned at the end of the fourth quarter was $6.1 million, an increase from $2.5 million at the end of the third quarter 2008 and from $490,000 at the end of 2007. The allowance for loan losses at December 31, 2008 was $31.5 million and represented 1.36% of total period-end loans. The current allowance for loan losses provides 2.11 times coverage of period-end nonperforming loans. In the fourth quarter, net charge-offs were $2.0 million, or an annualized 0.35% of average loans compared to $728,000, or 0.15% in the same period of 2008 and $2.3 million, or 0.41% in the linked quarter. The provision for loan losses was $4.4 million for the fourth quarter of 2008 compared to $1.6 million for the comparable quarter one year ago, and $2.8 million in the third quarter of 2008.
Loans and Deposits
The Company increased total loans 11.2% since the fourth quarter of 2007, driven by continued growth in commercial real estate loans and home equity loans. Total loans outstanding were $2.3 billion at December 31, 2008 compared to $2.1 billion for the year ended December 31, 2007. The balance of mortgage loans held for sale increased $4.3 million from the third quarter of 2008 to $15.7 million at December 31, 2008, and was lower than the balance at December 31, 2007 of $17.4 million reflective of the overall slow down within the mortgage banking industry and the tightening of credit.
Deposits increased in most categories except for demand deposits and money market accounts. Deposits increased by a total of $14.5 million, or 2.7% annualized, from the end of the third quarter of 2008, with the largest growth occurring in small denomination (less than $100,000) certificates of deposit and NOW accounts. The Company continues to reduce rates paid on the various deposits in order to manage its net interest margin within acceptable levels. The Company continued to increase slightly the use of brokered deposits during the fourth quarter over the third quarter of 2008. This increase totaled $3.8 million. With the modest increase in overall deposits and the additional capital raised in October of the fourth quarter, the Company was able to fund all of its loan growth as well as reduce its balance of federal funds purchased during the fourth quarter. Total deposits outstanding at the end of the fourth quarter of 2008 were $2.2 billion, an increase of $225.4 million, or 11.7%, compared to the end of 2007.
Net Interest Income and Margin
Non-taxable equivalent net interest income (before provision for loan losses) was $24.6 million for the fourth quarter of 2008, up 14.1% from $21.6 million in the comparable period last year. Tax-equivalent net interest margin decreased 5 basis points from the fourth quarter of 2007 to 3.86%. Compared to the linked third quarter of 2008, tax-equivalent net interest margin remained unchanged. With the decline in interest rates by the Federal Reserve, the Company has continued to aggressively manage deposit pricing and funding sources during the fourth quarter of 2008 and limited the amount of margin compression. The increase in non-performing assets continued to pressure the margin, and we have reduced the net interest margin for these assets in these difficult economic conditions. With the efforts of raising new capital and aggressively managing our deposits and funding sources, the net interest margin decreased 5 basis points compared to the fourth quarter of 2007. On a year-to-date basis, the margin has declined 2 basis points from 3.85% in 2007 to 3.83% in 2008.
The Company’s average yield on interest-earning assets decreased 111 basis points while the average rate on interest-bearing liabilities decreased 131 basis points from the fourth quarter of 2007. During the fourth quarter of 2008, the Company’s average total assets increased to $2.77 billion, a 16.4% increase over the fourth quarter of 2007. The increase reflected a $373.9 million increase in average total loans to $2.3 billion from the fourth quarter of 2007, the result of the strong loan growth during 2008. The increase in volume of loans at lower current market rates combined with variable rate loan resets resulted in the average yield on loans falling by 128 basis points compared to the fourth quarter of 2007. Average investment securities were $232.4 million at December 31, 2008, or 5.8% lower than the balance in 2007. The growth in average total assets was supported by growth in average total deposits of $305.9 million, an increase of 16.7% from the fourth quarter of 2007.
Noninterest Income and Expense
Operating noninterest income was $6.9 million for the fourth quarter of 2008 compared to $6.6 million for the fourth quarter of 2007, up by $305,000, or 4.6% from the prior year. Mortgage banking income increased by $47,000, or 7.4%, reflecting the reduction in interest rates and the government’s attempt to loosen credit. The other increases are as follows: an increase in bankcard services income of $83,000, or 7.8%; and a $59,000, or 9.9%, increase in trust and investment services income. The increases listed above were more than offset by the following items during the fourth quarter of 2008: an additional loss recorded on the sale of its Freddie Mac preferred stock of $383,000, an OTTI charge of $124,000 related to certain equity investments held at the holding company, and a loss on BOLI policies of $260,000. Compared to the third quarter of 2008, operating noninterest income was down by $190,000, driven by a decline in all components of noninterest income, except for mortgage banking income which was up $171,000, or 33.7%.
Noninterest expense was $20.9 million in the fourth quarter of 2008, up $2.0 million or 10.5%, from $18.9 million in the comparable period in 2007. During the fourth quarter, the Company incurred numerous charges including the cost related to moving to a single bank charter of $405,000; severance pay of $130,000; marketing cost of $378,000; OREO expenses were higher by $506,000; FDIC assessments were higher by $254,000; property tax increased by $174,000; and cost related to collection of loans increased $97,000. The full quarter impact of the five TSB offices is reflected in each line item of noninterest expense compared to 2007 when there was only one month of charges. The Company’s quarterly efficiency ratio increased to 66.34% compared to 65.42% one year ago, and compared to 59.82% in the third quarter of 2008.
“Operating earnings for the Company increased in 2008 by 3.6%,” said John C. Pollok, CFO. “With the continued difficult operating environment, we are pleased to have increased our operating earnings on a year-over-year basis. We feel we have substantially improved our operating model by improving our efficiency ratio during 2008 to 63.49% compared to 65.31% in 2007. We saw our mortgage banking income increase by $171,000 during the fourth quarter, as rates have declined due to the Federal Reserve’s action, and borrowers are refinancing to lower mortgage rates.”
During the first quarter of 2008, the Company reclassified mortgage loan commission costs paid to originators previously recorded as compensation expenses into mortgage banking income to net the two amounts. The result of these reclassifications for the first and second quarters of 2008 and prior periods was to decrease both noninterest revenue and noninterest expense. The reclassification resulted in an improved (decreased) efficiency ratio ranging from 0.50% to 0.87% for the previous four quarters of 2007, and had no impact on net income or equity in any of the reported periods.
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, and NCBT, a Division of SCBT, N.A. Providing financial services for 75 years, SCBT Financial Corporation operates 50 financial centers in 16 South Carolina counties and Mecklenburg County in North Carolina. SCBT Financial Corporation has assets of approximately $2.8 billion and its stock is traded under the symbol SCBT on the NASDAQ Global Select Market. More information can be found at www.SCBTonline.com.
For additional information, please visit our website at www.SCBTonline.com.
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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 and Exchange Act of 1934, as amended. 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; and (10) potential deposit attrition, higher than expected costs, customer loss and business disruption associated with the integration of The Scottish Bank, including, without limitation, potential difficulties in maintaining relationships with key personnel and other integration related-matters.