April 23, 2010
SCBT Reports Record First Quarter Net Income of $49.0 Million
COLUMBIA, S.C.—April 23, 2010—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 ended March 31, 2010. The Company produced record results due to the gain on the FDIC-assisted acquisition of Community Bank & Trust (“CBT”) of Cornelia, GA which closed on January 29, 2010. Highlights of the first quarter 2010 include:
- Net income of $49.0 million; diluted earnings per share of $3.86 for the quarter
- Core deposit growth --- excluding all CDs --- up $92.6 million; 29.9% annualized increase, excluding CBT
- Repositioned balance sheet --- paying off acquired (CBT) and legacy (SCBT) FHLB advances --- $160.5 million
- Allowance for loan losses: 1.90% of period end loans, excluding covered loans; up from 1.70% at 4Q 2009
- NPAs: 1.99% of total assets and 2.89% of loans and repossessed assets, excluding covered assets;
- Net charge-offs --- increased to 3.13% annualized for the quarter, excluding CBT
First Quarter 2010 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 available to the common shareholders of $49.0 million, or $3.86 per diluted share for the three months ended March 31, 2010 compared to consolidated net income of $3.7 million, or $0.33 per diluted share for the first quarter of 2009, a $45.3 million increase. This increase was primarily the net result of the following items:
- Pre-tax gain on acquisition of $98.1 million resulting from the FDIC-assisted acquisition of CBT; offset by
- Pre-tax provision for loan losses of $20.8 million due to an increase in the amount of charge-offs taken during the quarter and estimates of the probable losses in the legacy SCBT loan portfolio;
- Pre-tax Other Than Temporary Impairment (“OTTI”) charges related to pooled trust preferred securities (TRUPs) of $5.6 million;
- Pre-tax pre-payment fee for the early pay-off of legacy FHLB advances totaling $3.2 million; and
- Pre-tax merger related costs of $3.9 million.
“Our company experienced another very solid quarter with record earnings and a transformational acquisition in Georgia,” said Robert R. Hill, Jr., President and CEO. “We have performed very well and have been profitable every quarter in this downturn. We believe the addition of Community Bank and Trust in Georgia, the new relationships we have established in North Carolina and South Carolina, and the adjustments within our balance sheet position us well for the future. We began to see increased loan demand in the first quarter and continued to experience strong core deposit growth. We are also expanding our team by adding talented bankers in all three states. A tremendous job is being done with the execution and integration of Community Bank and Trust, and we are fortunate to have added a 100 plus year-old bank with a very loyal customer and employee base. While credit is still a headwind, our challenges are very manageable.”
The Company recorded a gain on acquisition, after-tax of $62.5 million or $4.92 per share and incurred $2.5 million of merger related expenses, net of tax, or $0.20 per share. In addition, during the quarter, the Company elected to pay off legacy Federal Home Loan Bank (“FHLB”) advances and the fee for the early pay off resulted in an after-tax charge of $2.0 million, or $0.16 per share. The Company also recorded additional OTTI on certain TRUPs of $3.6 million after-tax, or $0.28 per share. On a net operating basis which excludes these items, SCBT would report an operating loss of $0.43 per diluted share for the quarter compared to net operating income per share of $0.33 per share for the first quarter of 2009.
The Company’s annualized return on average assets (ROAA) for the first quarter increased to 5.71% compared to 0.64% for the first quarter of 2009, and increased from 0.22% for the fourth quarter of 2009. Total average shareholders' equity at March 31, 2010 was $348.8 million, an increase of $64.4 million, or 22.7% from December 31, 2009. This increase is primarily the result of the gain on the FDIC-assisted acquisition of $62.5 million, after-tax. Annualized return on average equity (ROAE) for the quarter was 56.93%, up from 6.10% for the first quarter of 2009. Annualized return on average tangible equity (ROATE) for the first quarter increased to 70.44% from 8.05% for the comparable period in the prior year, and increased from 2.92% in the fourth quarter of 2009.
FDIC-Assisted Acquisition – CBT
During the first quarter of 2010, SCBT entered into a whole bank with loss-share purchase and assumption agreement with the FDIC to purchase certain assets and assume most of the deposits (excluding brokered deposits) and certain liabilities of CBT. The Company acquired assets with a fair value of approximately $1.0 billion, including $459.5 million of loans, $105.6 million of investment securities, $80.6 million of cash and cash equivalents, excluding cash paid by the FDIC to consummate the acquisition, $25.9 million of other real estate owned (“OREO”), $276.8 million related to the FDIC’s indemnification of the Company against certain future losses and $16.5 million of other assets. Liabilities with a fair value of approximately $1.1 billion were also assumed, including $1.0 billion of deposits, $82.6 million of FHLB advances, and $42.8 million of other liabilities. The Company recorded $8.5 million in core deposit intangibles. In addition, the Company received cash from the FDIC totaling approximately $225.7 million and recorded a $5.9 million receivable due from the FDIC as compensation for the net liability that was assumed as a result of the acquisition. The FHLB advances assumed were paid off in early February of 2010.
In connection with the CBT 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 (1) 80% of the losses incurred up to $233.0 million and (2) 95% of losses in excess of $233.0 million. Gains and recoveries on covered assets will offset losses, or be paid to the FDIC, at the applicable loss share percentage at the time of recovery.
The assets acquired and liabilities assumed are recorded at estimated fair value on the date of acquisition. 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 and/or the purchase price.
Annualized net charge-offs of the legacy SCBT increased to 3.13% from 1.26% experienced in the fourth quarter of 2009, and increased from 0.79% experienced in the first quarter of 2009. During the first quarter, non-performing assets (NPAs) as a percentage of non-covered loans and repossessed assets increased to 2.80% compared to 1.34% one year ago and 2.40% for the fourth quarter of 2009. NPAs to total assets at March 31, 2010 were 1.93%, excluding covered assets, compared to 1.09% at the end of the first quarter in 2009 and 1.96% at the end of the fourth quarter 2009. The increase in NPAs continues to reflect the pressure within the real estate market throughout all of the markets in which we operate and within the economy as a whole. During the first quarter, the Company’s other real estate owned (“OREO”) increased $6.2 million from the end of the fourth quarter, excluding covered OREO and was slightly lower than the balance one year ago. Non-performing loans (including accruing loans past due 90 days or more) increased $2.1 million from the fourth quarter of 2009, excluding covered loans and by $30.5 million from the end of the first quarter in 2009, excluding covered loans.
At March 31, 2010, nonperforming loans, excluding covered loans, totaled $51.8 million, representing 2.38% of period-end loans. The allowance for loan losses at March 31, 2010 was $41.4 million and represented 1.90% of total period-end loans, excluding covered loans. The current allowance for loan losses provides .80 times coverage of period-end nonperforming loans, excluding covered loans, up slightly from the fourth quarter 2009 level of .75 times coverage. In the first quarter, net charge-offs were $16.9 million, or an annualized 3.13% of average loans, excluding covered loans, compared to $4.5 million, or 0.79% in the same period of 2009 and $7.0 million, or 1.26% in the linked quarter. The provision for loan losses was $20.8 million for the first quarter of 2010 compared to $5.0 million for the comparable quarter one year ago, and $10.2 million in the fourth quarter of 2009.
During the first quarter, the Company partially charged-off one large holding company loan in the amount of $5.7 million. There are no other loans of this type within the loan portfolio. In addition, the Company also charged-off $1.7 million of a $3.5 million commercial lot loan, and charged off another commercial loan (1-4 family residential lots) by $930,000 and moved the remaining $1.8 million balance to OREO. Both of these loans are along the South Carolina coast (the Grand Strand).
Loans and Deposits
The Company increased total loans 14.0% since the first quarter of 2009, driven by the FDIC-assisted acquisition and the addition of covered loans during the quarter. Covered loans increased the loan balance by $438.8 million during the quarter, but this increase was offset by $117.4 million in net loan decreases from the legacy SCBT loan portfolio compared to the first quarter of 2009. These reductions were in construction and land development loans of $77.1 million, commercial and industrial loans of $37.3 million, consumer non real estate loans of $20.7 million, commercial non owner occupied loans of $31.0 million, and consumer owner occupied loans of $10.7 million. Offsetting the loan reductions has been loan growth in home equity loans of $18.4 million and commercial owner occupied loans of $39.6 million. Total loans outstanding were $2.2 billion at March 31, 2010 compared to $2.3 billion at March 31, 2009, excluding covered loans. The balance of mortgage loans held for sale decreased $27.7 million from March 31, 2009 to $15.9 million at March 31, 2010. During the first quarter of 2010, mortgage loans held for sale decreased as refinancing activities have fallen off. The balance of mortgage loans held for sale at March 31, 2010 has now returned a more normalized level.
Total deposits increased in all categories compared to the first quarter of 2009, due to the FDIC-assisted acquisition of CBT. Total deposits increased by a total of $890.5 million, or 169.2% annualized, from the end of the fourth quarter of 2009, and by $843.2 million, or 39.2% from the first quarter of 2009. All categories of deposits increased substantially during the quarter, when compared to the first quarter of 2009 and to the fourth quarter of 2009. Core deposits (excluding all certificates of deposit) increased $419.4 million compared to the fourth quarter of 2009 and by $547.7 million compared to the first quarter of 2009. On a legacy SCBT basis, deposits increased by $84.5 million or 16.1% annualized during the quarter with the largest increase occurring in money market accounts which increased by $63.7 million or 60.6% annualized. All other deposit categories increased except for CDs less than $100,000 which declined by $11.5 million, or 10.9% annualized. Core deposits (excluding all certificates of deposit) for legacy SCBT continued to increase, as these balances grew by $92.6 million or 29.9% annualized compared to the fourth quarter of 2009 and increased by $220.9 million or 19.9%, compared to the first quarter of 2009. The Company has continued to focus on collecting core deposits within all of its markets. The Company continues to monitor and adjust rates paid on all deposits in order to manage its net interest margin. The Company had no brokered deposits at the end of the first quarter of 2010, and has not used this funding source since the third quarter of 2009. Total deposits outstanding at the end of the first quarter of 2010 were $3.0 billion, compared to $2.1 billion at the end of the fourth quarter 2009 and compared $2.2 billion at the end of the first quarter of 2009.
Net Interest Income and Margin
Non-taxable equivalent net interest income (before provision for loan losses) was $28.6 million for the first quarter of 2010, up 14.5% from $25.0 million in the comparable period last year. Taxable-equivalent net interest margin increased 2 basis points from the first quarter of 2009 to 3.89%. Compared to the fourth quarter of 2009, taxable-equivalent net interest margin decreased 40 basis points from 4.28%. Due to the FDIC-assisted acquisition during the first quarter, the net interest margin of SCBT has declined due to a significant increase in excess liquidity which reduced the net interest margin by an estimated 20 basis points during the quarter. Excluding this acquisition, legacy SCBT’s net interest margin remained strong at 4.09%. Interest rates have remained at very low levels and the Company has continued to manage deposit pricing and funding sources during the first quarter of 2010 to limit the amount of margin compression. The increase in non-performing assets continues to compress the net interest margin as well.
The Company’s average yield on interest-earning assets decreased 61 basis points while the average rate on interest-bearing liabilities decreased 79 basis points from the first quarter of 2009. During the first quarter of 2010, the Company’s average total assets increased by $609.1 million to $3.5 billion, a 21.2% increase over the first quarter of 2009. The increase reflected a $180.5 million increase in average total loans to $2.5 billion from the first quarter of 2009, the result of the FDIC-assisted acquisition during the quarter. The increase in volume of loans at lower current market rates resulted in average yield on loans falling by 28 basis points compared to the first quarter of 2009. Average investment securities were $281.9 million at March 31, 2010, or 31.8% higher than the balance at the end of the first quarter of 2009 of $213.8 million, largely reflecting the impact of CBT. The growth in average total assets was supported by growth in average total deposits of $552.9 million, an increase of 25.3% from the first quarter of 2009, which mostly came from the FDIC-assisted acquisition of CBT.
Noninterest Income and Expense
Operating noninterest income was $9.4 million (excluding the $98.1 million gain on acquisition and the OTTI of $5.6 million) for the first quarter of 2010 compared to $7.1 million for the first quarter of 2009, an increase of $2.3 million, or 32.7% from the comparable quarter. This increase was driven primarily by the addition of CBT noninterest income of $2.2 million. Bankcard services for legacy SCBT which were up 17.7%, or $209,000, were partially offset by mortgage banking income decreases of $93,000, or 7.4%.
Compared to the fourth quarter of 2009, operating noninterest income was up by $1.4 million, driven by the addition of CBT noninterest income of $2.2 million. Without the addition of CBT, noninterest income would have declined by approximately $740,000 for the quarter for legacy SCBT, due primarily to a decline in mortgage banking income of $538,000 and a decline in service charges on deposit accounts of $491,000. These decreases were only partially offset by increases of $98,000 in bankcard services income and increases of $164,000 in trust and investment services income.
Noninterest expense was $32.9 million in the first quarter of 2010, a 63.1% or $12.7 million increase compared to $20.2 million in the first quarter of 2009. During the first quarter, the Company had increased cost in all categories of expense due to the addition of CBT. These costs related to the CBT franchise accounted for $5.1 million of the increase. Without the addition of CBT and merger related costs, noninterest expense increased by $3.7 million from first quarter of 2009 and in the following areas: (1) salaries and benefits by $1.3 million and (2) FHLB Bank prepayment fee related to paying off legacy SCBT advances of $3.2 million, and were offset by a decline in OREO expense and loan related costs of $935,000 due primarily to a gain recognized on the sale of an OREO property of $623,000. The Company’s quarterly efficiency ratio improved to 24.1% compared to 62.4% one year ago, and compared to 58.1% in the fourth quarter of 2009. Adjusted for the gain on acquisition, FHLB advances prepayment fee and merger related costs, the efficiency ratio would have been 67.2%.
“Our adjusted efficiency ratio increased during the quarter to 67.2% with the addition of the operating expenses of CBT and no meaningful impact on non-interest income as we get our products and services in place in our Georgia markets,” said John C. Pollok, COO. “Additionally, the operating results for just our Georgia franchise nearly broke even during our first two months of operations, as we repositioned the balance sheet and began implementing our processes.”
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.; and Community Bank & Trust, a Division of SCBT, N.A. Providing financial services for over 75 years, SCBT Financial Corporation operates 86 locations in 17 South Carolina counties, 10 northeast Georgia counties, and Mecklenburg County in North Carolina. SCBT Financial Corporation has assets of approximately $3.6 billion and its stock is traded under the symbol SCBT in the NASDAQ Global Select Market. More information can be found atwww.SCBTonline.com.
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 CBT, 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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