October 22, 2010
SCBT Reports Third 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 September 30, 2010. Highlights of the third quarter 2010 include:
- Net income of $1.8 million; diluted earnings per share of $0.14 for the quarter
- Organic loan growth of $31.0 million for the third quarter; 5.6% annualized increase
- Core deposit growth --- excluding all CDs --- up $73.4 million; 17.0% annualized increase
- Strong revenue growth in mortgage banking income of $940,000 over 2Q 2010
- Allowance for loan losses: 2.07% of period end loans, excluding covered loans
- NPAs: 2.39% of total assets; 3.80% of loans and repossessed assets, excluding covered assets;
- Net charge-offs --- increased to 1.74% annualized for the quarter, excluding covered assets compared to 1.41% 2Q 2010
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 12, 2010 to shareholders of record as of November 5, 2010.
Third 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 $1.8 million, or $0.14 per diluted share for the three months ended September 30, 2010 compared to consolidated net income of $2.2 million, or $0.17 per diluted share for the third quarter of 2009, a $384,000 decrease. This decrease was primarily the net result of the following items:
- Provision for loan losses increased by $3.3 million over the comparable quarter within the noncovered SCBT loan portfolio; and
- Increase in non-interest expenses by $8.8 million due primarily to the addition of the Georgia franchise including merger related expenses of $566,000 for the quarter; offset by
- Increase in pre-tax net interest income of $4.6 million due to increases in earning assets and related interest income of $4.2 million, and reduction in interest expense on funding of the balance sheet by $401,000; and
- Increase in non-interest income by $6.9 million due to the acquisition of CBT which generated $3.3 million incrementally, and within legacy SCBT which contributed $3.6 million in all categories except service charges of deposit accounts.
“During the third quarter we continued to integrate the CBT acquisition and experience good growth in our company. Merger related expenses of $566,000 negatively impacted our earnings as did elevated credit costs. While earnings were below expectations, we experienced some positive trends in loan performance and are still on track to have the most profitable year we have ever experienced. Our past due loans and our non-performing assets leveled off compared to the second quarter of 2010,” said Robert R. Hill, Jr., President and CEO. “In the Carolinas, we have produced organic growth of $26.0 million in loans and more than $84.0 million in core deposits since the end of June. The continued inflow of customers reflects our relative strength and consistent performance during this economic downturn.”
During the third quarter, the Company incurred $392,000 of merger related expenses, net of tax, or $0.03 per share, and recorded additional OTTI of $331,000 after-tax, or $0.03 per share. On a net operating basis which excludes the two items, SCBT would report operating income of $2.5 million, after tax, or $0.20 per share for the third quarter of 2010, compared to $3.7 million, after tax or $0.29 per share for the third quarter of 2009.
On a year-to-date basis, the Company recorded an after-tax gain on acquisition of $62.5 million, or $4.91 per share; elected to pay off legacy Federal Home Loan Bank (“FHLB”) advances with the associated fee for the early pay off producing in an after-tax charge of $2.0 million, or $0.16 per share; incurred OTTI charges on certain pooled trust preferred securities, net of tax of $4.4 million, or $0.35 per share; and incurred merger related expenses of $3.7 million, net of tax or $0.29 per share. On a net operating basis which excludes these items, SCBT would report a net operating loss of $0.08 per diluted share for the year compared to net operating income of $0.78 per share for the first nine months of 2009.
The Company’s annualized return on average assets (ROAA) for the third quarter decreased to 0.19% compared to 0.31% for the third quarter of 2009 and increased from .06 % for the second quarter of 2010. Total average shareholders' equity at September 30, 2010 was $336.0 million, an increase of $53.1 million, or 18.8% from September 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 2.11%, down from 3.04% for the third quarter of 2009. Annualized return on average tangible equity (ROATE) for the third quarter decreased to 3.15% from 4.13% for the comparable period in the prior year, and increased from 1.42% in the second quarter of 2010.
“During the third quarter, our net interest margin declined by 6 basis points from the second quarter of 2010, as a result of the reduction in purchase accounting amortization more quickly than the repricing of time deposits in our Georgia markets. Our efficiency ratio, adjusted to exclude merger costs, increased to 67.7% from 65.1% in the second quarter of 2010. This increase was primarily the result of a $1.0 million increase in OREO and loan related expenses as we continue to work with the covered assets from CBT and the increase in OREO within legacy SCBT,” 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 third quarter of 2010, the Company continued to gather information regarding the initial fair value estimates of the assets and liabilities acquired. To date, we have identified no material adjustments.
Annualized net charge-offs within the legacy SCBT loan portfolio increased to 1.74% from 1.41% experienced in the second quarter of 2010, and increased from 0.92% experienced in the third quarter of 2009. During the third quarter, non-performing assets (NPAs) as a percentage of non-covered loans and repossessed assets increased to 3.80% compared to 1.96% one year ago and decreased from 3.84% for the second quarter of 2010. NPAs, excluding covered assets to total assets at September 30, 2010 were 2.39%, compared to 1.56% at the end of the third quarter in 2009 and 2.37% at the end of the second quarter 2010. The slight increase in NPAs continues to reflect the pressure within the real estate market. Our other real estate owned (“OREO”) increased by $5.9 million from the linked quarter and by $11.5 million from the third quarter of 2009, excluding covered OREO. Non-performing loans (including accruing loans past due 90 days or more) decreased $5.1 million from the second quarter of 2010, excluding covered loans, and increased by $31.6 million from the end of the third quarter in 2009, excluding covered loans.
At September 30, 2010, nonperforming loans, excluding covered loans, totaled $70.8 million, representing 3.13% of period-end loans. The allowance for loan losses at September 30, 2010 was $46.7 million and represented 2.07% of total period-end loans, excluding covered loans. The current allowance for loan losses provides .66 times coverage of period-end nonperforming loans, excluding covered loans, up from the second quarter 2010 level of .61 times coverage. In the third quarter, net charge-offs were $9.8 million, or an annualized 1.74% of average loans, excluding covered loans, compared to $5.1 million, or 0.92% in the same period of 2009 and $7.7 million, or 1.41% in the linked quarter. The provision for loan losses was $10.3 million for the third quarter of 2010 compared to $7.0 million for the comparable quarter one year ago, and $12.5 million in the second quarter of 2010.
Loans and Deposits
The Company’s total loans increased 18.9% since the third 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 $369.3 million in comparison to the third quarter of 2009, and the following loan portfolios increased as well: (1) commercial owner-occupied by $80.8 million, or 17.5%; (2) consumer owner occupied loans of $27.2 million, or 9.5%; (3) home equity loans of $12.1 million, or 4.9%; (4) other loans of $10.6 million, or 96.2%; and (5) commercial and industrial loans by $6.4 million, or 3.2%. Offsetting these increases were reductions in the following loan portfolios: (1) construction and land development loans by $60.1 million; (2) consumer non real estate loans of $12.1 million; (3) income producing property loans of $11.7 million; and (4) commercial non-owner occupied loans of $4.0 million. Total non-covered loans outstanding were $2.3 billion at September 30, 2010, compared to $2.2 billion at September 30, 2009. Total covered loans declined by $44.3 million during the quarter from $413.5 million at June 30, 2010 to $369.3 million at September 30, 2010. The balance of mortgage loans held for sale increased $29.5 million from September 30, 2009 to $49.6 million at September 30, 2010. During the third quarter of 2010, mortgage loans held for sale increased as refinancing activities have increased compared to the third quarter of 2009, as interest rates has become extremely attractive to homeowners.
Total deposits increased in all categories compared to the third quarter of 2009 by an overall $893.0 million, or 42.0%, primarily due to the FDIC-assisted acquisition of CBT. Total deposits increased by a total of $8.3 million, or 1.1% annualized, from the end of the second quarter of 2010. Core deposits (excluding all certificates of deposit) increased $73.4 million, or 17.0% annualized compared to the second quarter of 2010 and by $654.2 million, or 54.3% compared to the third quarter of 2009. The following changes in deposit categories account for the $8.3 million increase from the linked quarter: (1) the largest increase occurred in money market accounts which increased by $61.4 million, or 39.1% annualized, and (2) all other deposit categories increased except for CDs less than $100,000 which declined by $41.4 million, or 24.3% annualized, and CDs greater than $100,000 which declined by $25.2 million, or 17.0% 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. Total deposits outstanding at the end of the third quarter of 2010 were $3.0 billion, compared to $3.0 billion at the end of the second quarter 2010 and compared to $2.1 billion at the end of the third quarter of 2009.
Net Interest Income and Margin
Non-taxable equivalent net interest income (before provision for loan losses) was $31.0 million for the third quarter of 2010, up 17.6% from $26.4 million in the comparable period last year. Taxable equivalent net interest margin decreased 6 basis points from the third quarter of 2009 and from the second quarter of 2010 to 3.98%. During the third quarter, the net interest margin of SCBT declined primarily as a result of the reduction in purchase accounting amortization more quickly than the repricing of CDs in our Georgia markets. SCBT remained in an excess liquidity position during the third quarter, which had the effect of dampening the net interest margin by an estimated 12 basis points for the third quarter compared to 13 basis points for the second quarter of 2010. Interest rates remain at very low levels and the Company has continued to vigorously manage deposit pricing and funding sources to limit the amount of margin compression.
The Company’s average yield on interest-earning assets decreased 33 basis points while the average rate on interest-bearing liabilities decreased 40 basis points from the third quarter of 2009. During the third quarter of 2010, the Company’s average total assets increased by $848.8 million to $3.7 billion, a 30.2% increase over the third quarter of 2009. The increase reflected a $425.6 million increase in average total loans to $2.6 billion from the third quarter of 2009, the result of the FDIC-assisted acquisition during the first quarter, as well as some loan growth which has occurred over the past two quarters. The increase in volume of loans at lower current market rates resulted in the average yield on loans falling by 41 basis points compared to the third quarter of 2009. Average investment securities were $282.6 million at September 30, 2010, or 39.4% higher than the balance at the end of the third quarter of 2009 of $202.7 million, largely reflecting the impact of CBT. The growth in average total assets was supported by growth in average total deposits of $865.4 million, an increase of 40.2% from the third quarter of 2009, which primarily came from the FDIC-assisted acquisition of CBT.
Noninterest Income and Expense
Noninterest income was $12.5 million for the third quarter of 2010 compared to $5.6 million for the third quarter of 2009, an increase of $6.9 million, or 123.5%. This increase was partially driven by the addition of CBT noninterest income of $3.3 million. For legacy SCBT, noninterest income increased in mortgage banking income 73.8%, or 1.1 million, due to the fall in interest rates and associated refinancing activities; increased trust and investment service income of 81.5%, or $479,000; and increased bankcard services of 30.8%, or $394,000. These increases were partially offset by a decline in service charges on deposit accounts of $133,000, or 3.3%. The Company recorded an impairment charge related to pooled trust preferred securities of $479,000, during the third quarter of 2010, a $1.6 million decline from the third quarter of 2009.
Compared to the second quarter of 2010, operating noninterest income, which excludes securities losses, was up by $879,000. Without the addition of CBT, noninterest income would have increased by approximately $316,000 for the quarter for legacy SCBT, due primarily to an increase in mortgage banking income of $880,000; and offset by a decrease in other service charges, commissions, and fees of $434,000, and a decrease in service charges on deposit accounts of $104,000.
Noninterest expense was $30.6 million in the third quarter of 2010, a 40.4% or $8.8 million increase compared to $21.8 million in the third quarter of 2009, including merger related costs of $566,000. During the third quarter, the Company had increased costs in all categories of expense due to the addition of CBT. These costs related to the CBT franchise accounted for approximately $5.3 million of the increase. Without the addition of CBT and merger related costs, noninterest expense increased by approximately $2.9 million from third quarter of 2009 and in the following areas: (1) salaries and benefits by $3.0 million; (2) business development and staff related expenses by $549,000; (3) professional fees by $119,000; (4) net occupancy expense by $116,000; and (5) information services expense by $111,000. Partially offsetting the impact of these increases was reduced cost of OREO expense and loan related of $1.1 million compared to the third quarter of 2009. The Company’s quarterly efficiency ratio increased to 69.0% compared to 63.5% one year ago, and compared to 67.3% in the second 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 67.7% for the third quarter and 66.6% for the nine months ended September 30, 2010.
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 second 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-tomarket" 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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