July 23, 2010
SCBT Reports Second Quarter Net Earnings; Declares Quarterly Dividend
COLUMBIA, S.C.—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 June 30, 2010. Highlights of the second quarter 2010 include:
- Net income of $575,000; diluted earnings per share of $0.05 for the quarter
- Successful conversion of CBT systems to SCBT operating system
- Organic loan growth of $52.2 million for the second quarter; 9.6% annualized increase
- Core deposit growth --- excluding all CDs --- up $73.2 million; 17.6% annualized increase
- Strong revenue growth in both net interest income by $2.5 million and non-interest income $2.6 million over 1Q 2010, excluding securities losses and gain from acquisition
- Allowance for loan losses: 2.07% of period end loans, excluding covered loans; up from 1.90% at 1Q 2010
- NPAs: 2.37% of total assets; 3.84% of loans and repossessed assets, excluding covered assets;
- Net charge-offs --- decreased to 1.41% annualized for the quarter, excluding covered 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 August 20, 2010 to shareholders of record as of August 13, 2010.
Second 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 common shareholders of $575,000, or $0.05 per diluted share for the three months ended June 30, 2010 compared to consolidated net income of $1.5 million, or $0.13 per diluted share for the second quarter of 2009, a $950,000 decrease. This decrease was primarily the net result of the following items:
- Provision for loan losses increased by $8.0 million over the comparable quarter within the non-covered SCBT loan portfolio; and
- Increase in non-interest expenses by $8.3 million due primarily to the addition of the Georgia franchise including merger related expenses of $964,000 for the quarter; offset by
- Increase in pre-tax net interest income of $5.1 million due to increases in earning assets and related interest income of $3.2 million, and reduction in interest expense on funding of the balance sheet by $1.9 million; and
- Increase in non-interest income by $3.7 million in all categories due to the acquisition of CBT and within legacy SCBT; and
- Second quarter of 2009 results included $3.9 million in dividends paid on preferred stock and accretion on preferred stock discount related to the redemption of preferred stock issued under the US Treasury TARP Capital Purchase Program.
The Company recorded additional pre-tax other than temporary impairment (“OTTI”) charges related to pooled trust preferred securities (TRUPs) of $665,000 which is included in non-interest income, during the second quarter.
“I am pleased that we continued to be one of the few banks that have been profitable in every quarter of this downturn,” said Robert R. Hill, Jr., President and CEO.
“This was a more challenging quarter due to the integration of CBT, but year-to-date 2010 continues to be our most profitable six months ever. The second quarter was comprised of many moving parts as we worked to integrate the acquisition of CBT. We completed the integration of the operating system in Georgia to the SCBT operating platform during June, and we closed 10 of the acquired locations. We continued to incur merger costs related to the integration activities and during the midst of the changes, we have been successful in retaining almost all of the 109,000 Georgia customer relationships. These changes resulted in mixed operating results for this quarter, but prepare us very well for the future. In the Carolinas, we experienced approximately $52.2 million in loan growth and strong core deposit growth of $85.9 million from the end of March. We are fortunate to continue to attract talented bankers and many new customers to our company. Asset quality for the quarter remained challenging with increased NPA levels. A large portion of this increase was from three coastal real estate relationships. We did see a significant reduction in our 30-89 day past due loans and saw some stabilization in our non-coastal markets. While asset quality deteriorated this quarter, our asset quality remains manageable.”
During the second quarter, the Company incurred $798,000 of merger related expenses, net of tax, or $0.06 per share, and recorded additional OTTI of $559,000 after-tax, or $0.04 per share. On a net operating basis which excludes the two items, SCBT would report an operating gain of $1.9 million, after tax, or $0.15 per share for the second quarter of 2010, compared to $1.9 million, after tax or $0.16 per share for the second quarter of 2009.
On a year-to-date basis, the Company recorded a gain on acquisition, after-tax of $62.5 million, or $4.91 per share; 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; incurred OTTI on certain pooled trust preferred securities, net of tax of $4.1 million, or $0.32 per share; and incurred merger related expenses of $3.3 million, net of tax or $0.26 per share. On a net operating basis which excludes these items, SCBT reported a net operating loss of $0.27 per diluted share for the year compared to net operating income of $0.48 per share for the first half of 2009.
The Company’s annualized return on average assets (ROAA) for the second quarter decreased to 0.06% compared to 0.77% for the second quarter of 2009 and 5.72% for the first quarter of 2010. Total average shareholders' equity at June 30, 2010 was $336.4 million, an increase of $37.6 million, or 12.6% from June 30, 2009. This increase was primarily the result of the gain from the first quarter acquisition of CBT. Annualized return on average equity (ROAE) for the quarter was 0.69%, down from 7.23% for the second quarter of 2009. Annualized return on average tangible equity (ROATE) for the second quarter decreased to 1.42% from 9.43% for the comparable period in the prior year, and decreased from 71.89% in the first quarter of 2010.
“During the second quarter of 2010, we successfully converted the Georgia franchise onto the SCBT operating system, elected which offices would remain open and closed 10 locations, and continued to merge the CBT division into SCBT. We are beginning to see our CBT operating costs decline and expect to realize additional cost savings over the remainder of 2010. Our net interest margin improved from the first quarter, as the adjustments within our balance sheet made during the first quarter are paying off. Our adjusted efficiency ratio decreased during the second quarter to 65.1% from 67.2% in the first quarter of 2010. In addition, we have begun to integrate our products and services into our Georgia markets and expect the last half of 2010 to reflect these actions,” said John C. Pollok, COO.
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 in loans, and liabilities with a fair value of approximately $1.1 billion were also assumed, including $1.0 billion of deposits. In addition, the Company received cash from the FDIC totaling approximately $225.7 million, which included the negative bid of $158.0 million.
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.
All 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. During the second quarter of 2010, 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 June 30, 2010.
Annualized net charge-offs of the legacy SCBT loan portfolio decreased to 1.41% from 3.13% experienced in the first quarter of 2010, and increased from 0.74% experienced in the second quarter of 2009. During the second quarter, non-performing assets (NPAs) as a percentage of non-covered loans and repossessed assets increased to 3.84% compared to 1.83% one year ago and 2.89% for the first quarter of 2010. NPAs, excluding covered assets to total assets at June 30, 2010 were 2.37%, compared to 1.46% at the end of the second quarter in 2009 and 1.72% at the end of the first quarter 2010. The increase in NPAs continues to reflect the pressure within the real estate market, especially on the coast of South Carolina. During the second quarter, the Company’s other real estate owned (“OREO”) increased $484,000 from the prior quarter end, excluding covered OREO and was $638,000 higher than the balance one year ago. Non-performing loans (including accruing loans past due 90 days or more) increased $22.1 million from the first quarter of 2010, excluding covered loans and by $46.0 million from the end of the second quarter in 2009, excluding covered loans. The increase from the first quarter was driven primarily by three relationships along the coast of South Carolina and resulted in $13.1 million being moved to nonaccrual.
At June 30, 2010, nonperforming loans, excluding covered loans, totaled $75.9 million, representing 3.41% of period-end loans. The allowance for loan losses at June 30, 2010 was $46.2 million and represented 2.07% of total period-end loans, excluding covered loans. The current allowance for loan losses provides .61 times
coverage of period-end nonperforming loans, excluding covered loans, down from the first quarter 2010 level of .77 times coverage. In the second quarter, net charge-offs were $7.7 million, or an annualized 1.41% of average loans, excluding covered loans, compared to $4.2 million, or 0.74% in the same period of 2009 and $16.9 million, or 3.13% in the linked quarter. The provision for loan losses was $12.5 million for the second quarter of 2010 compared to $4.5 million for the comparable quarter one year ago, and $20.8 million in the first quarter of 2010.
Loans and Deposits
The Company’s total loans increased 18.1% since the second quarter of 2009, driven by the addition of covered loans in the FDIC-assisted acquisition during the first quarter. Covered loans increased the loan balance by $413.5 million in comparison to the second quarter of 2009, but this increase has been offset by $8.7 million in net loan decreases from the legacy SCBT loan portfolio compared to the second quarter of 2009. These reductions were in construction and land development loans of $46.0 million, commercial and industrial loans of $1.5 million, consumer non real estate loans of $16.3 million, commercial non-owner occupied loans of $24.1 million, and other income producing property loans of $10.1 million. Offsetting the loan reductions has been loan growth in home equity loans of $12.7 million, consumer owner occupied loans of $15.2 million, commercial owner occupied loans of $41.9 million, and other loans of $19.4 million. Total non-covered loans outstanding were $2.2 billion at June 30, 2010 compared to $2.2 billion at June 30, 2009. Total covered loans declined by $25.3 million during the quarter from $438.8 million to $413.5 million at June 30, 2010. The balance of mortgage loans held for sale decreased $31.1 million from June 30, 2009 to $22.7 million at June 30, 2010. During the second quarter of 2010, mortgage loans held for sale decreased as refinancing activities have fallen off compared to the second quarter of 2009. The balance of mortgage loans held for sale at June 30, 2010 has now returned to a more normalized level.
Total deposits increased in all categories compared to the second quarter of 2009, primarily due to the FDIC-assisted acquisition of CBT. Total deposits increased by a total of $16.8 million, or 2.2% annualized, from the end of the first quarter of 2010, and by $831.5 million, or 38.1% from the second quarter of 2009. Core deposits (excluding all certificates of deposit) increased $73.2 million, or 17.6% annualized compared to the first quarter of 2010 and by $580.8 million, or 50.4% compared to the second quarter of 2009. The following changes in deposit categories account for the $16.8 million increase for the quarter: (1) the largest increase occurred in money market accounts which increased by $66.9 million, or 47.7% annualized, and (2) all other deposit categories increased except for CDs less than $100,000 which declined by $25.0 million, or 14.1% annualized, CDs greater than $100,000 which declined by $32.8 million, or 21.0% annualized, and savings accounts which declined by $4.5 million, or 9.1% annualized. 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 certificates of deposits in order to manage its net interest margin. The Company had no brokered deposits at the end of the second quarter of 2010, and has not used this funding source since the third quarter of 2009. Total deposits outstanding at the end of the second quarter of 2010 were $3.0 billion, compared to $3.0 billion at the end of the first quarter 2010 and compared to $2.2 billion at the end of the second quarter of 2009.
Net Interest Income and Margin
Non-taxable equivalent net interest income (before provision for loan losses) was $31.2 million for the second quarter of 2010, up 19.8% from $26.0 million in the comparable period last year. Taxable-equivalent net interest margin decreased 3 basis points from the second quarter of 2009 to 4.04%. Compared to the first quarter of 2010, taxable-equivalent net interest margin increased 15 basis points from 3.89%. During the first quarter, the net interest margin of SCBT declined due to the significant increase in excess liquidity primarily resulting from the FDIC-assisted acquisition. This excess liquidity continued and reduced the net interest margin by an estimated 13 basis points for the second quarter and 20 basis points for the first quarter. Interest rates remain at very low levels and the Company has continued to manage deposit pricing and funding sources to limit the amount of margin compression.
The Company’s average yield on interest-earning assets decreased 55 basis points while the average rate on interest-bearing liabilities decreased 70 basis points from the second quarter of 2009. During the second quarter of 2010, the Company’s average total assets increased by $865.2 million to $3.7 billion, a 30.8% increase over the second quarter of 2009. The increase reflected a $357.3 million increase in average total loans to $2.6 billion from the second quarter of 2009, the result of the FDIC-assisted acquisition during the first quarter. The increase in volume of loans at lower current market rates resulted in average yield on loans falling by 34 basis points compared to the second quarter of 2009. Average investment securities were $305.5 million at June 30, 2010, or 53.3% higher than the balance at the end of the second quarter of 2009 of $199.3 million, largely reflecting the impact of CBT. The growth in average total assets was supported by growth in average total deposits of $866.8 million, an increase of 40.4% from the second quarter of 2009, which mostly came from the FDIC-assisted acquisition of CBT.
Noninterest Income and Expense
Noninterest income was $11.4 million for the second quarter of 2010 compared to $7.7 million for the second quarter of 2009, an increase of $3.7 million, or 47.2%. This increase was driven primarily by the addition of CBT noninterest income of $2.7 million. For legacy SCBT, noninterest income increased in trust and investment service income 70.6%, or $474,000; bankcard services up 25.6%, or $331,000; and other service charges, commissions and fees were up 127.0%, or $497,000. These increases were partially offset by a mortgage banking income decline of $493,000, or 23.1%, and by a $131,000 increased impairment charge on pooled trust preferred securities.
Compared to the first quarter of 2010, operating noninterest income, which excludes securities losses and gain from acquisition, was up by $2.6 million. Without the addition of CBT, noninterest income would have increased by approximately $2.1 million for the quarter for legacy SCBT, due primarily to an increase in service charges on deposit accounts of $546,000; an increase in mortgage banking income of $473,000; an increase in trust and investment services income of $414,000; an increase in other service charges, commissions, and fees of $412,000; and an increase in bankcard services income of $230,000.
Noninterest expense was $29.4 million in the second quarter of 2010, a 39.6% or $8.3 million increase compared to $21.0 million in the second quarter of 2009. During the second quarter, the Company had increased cost in most categories of expense due to the addition of CBT. These costs related to the CBT franchise accounted for $6.1 million of the increase. Without the addition of CBT and merger related costs, noninterest expense increased by $2.2 million from second quarter of 2009 and in the following areas: (1) salaries and benefits by $2.6 million and (2) advertising and marketing by $413,000 and (3) business development and staff related expenses by $346,000. Partially offsetting the impact of these increases was reduced cost of FDIC assessments of $1.3 million in the second quarter of 2009. The Company’s quarterly efficiency ratio increased to 67.3% compared to 60.9% one year ago, and compared to 24.1% in the first quarter of 2010. On an adjusted basis, excluding the impact of the gain from the FDIC assisted transaction, FHLB prepayment fee, and merger-related cost, the efficiency ratio was 65.1% for the second quarter and 66.1% for the six months ended June 30, 2010. The decline in the adjusted efficiency ratio from first quarter of 2010 is reflected in both strong net interest income and non-interest income growth during the quarter.
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 75 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 at www.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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