SCBT Financial Corporation Reports Strong Third Quarter Earnings and Continued Strong Asset Quality

 

COLUMBIA, S.C.—October 16, 2007 -HIGHLIGHTS:
–Third quarter earnings
 Net income of $5.6 million – Up 7.3%; Net income of $16.4 million YTD – Up 9.1%  Diluted EPS of $0.61 – Up 7.5%; Diluted EPS of $1.78 YTD – Up 9.0%
 Demand deposits grew 11.6% annualized
–Continued strong asset quality
NPAs as a percentage of loans and repossessed assets – 30 basis points
Allowance for loan losses as a percentage of total loans – 1.29%

SCBT Financial Corporation (NASDAQ: SCBT), the holding company for South Carolina Bank and Trust, N.A. and South Carolina Bank and Trust of the Piedmont, N.A., reported an increase in consolidated net income compared to the third quarter of 2006.  The Company today released its unaudited results of operations and other financial information for the period ended September 30, 2007. 

Third Quarter 2007 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 $5.6 million, or $0.61 per diluted share, for the three months ended September 30, 2007 compared to consolidated net income of $5.3 million, or $0.57 per diluted share, for the third quarter of 2006.  Net income of $16.4 million for the nine months of 2007 reflects a 9.1% increase from $15.0 million in the nine months ended September 30, 2006.  The Company had diluted earnings per share of $1.78 and $1.63 for the nine months ended September 30, 2007 and 2006, respectively.  The Company’s earnings growth reflected the strong profitability of its bank subsidiaries during the third quarter.  Compared to the third quarter 2006, South Carolina Bank and Trust reported a 2.4% increase in net income to $5.3 million and South Carolina Bank and Trust of the Piedmont reported a 40.7% increase in net income to $837,000.

“We continue to report strong earnings and strong asset quality during a difficult operating environment for the financial services industry,” commented Robert R. Hill, Jr., CEO of SCBT Financial Corporation.  “Our performance was driven by increases in non-interest income, margin expansion, and excellent credit quality.  We continued making investments for the future in the third quarter with the opening of a new office in Lexington, SC and the pending acquisition of the Scottish Bank in North Carolina.  These two investments will help drive our future growth and performance.  Non-interest income increased significantly during the quarter as service charges on deposits increased 11.3%, bankcard services income increased 19.4%, and trust and investment services income increased 25.4% over the third quarter of 2006.  Net interest margin increased by 7 basis points from the second quarter.  We do believe our net interest margin has stabilized and should remain within the 4.00% range as we wrap up 2007 and head into 2008.  I am very proud of our team’s performance in the third quarter.  We continue to have a great balance of soundness, profitability and growth.”

During the third quarter of 2007, the Company’s total assets increased to $2.3 billion, a 7.0% increase over the third quarter of 2006.  The growth in total assets was supported by growth in total deposits of $156.4 million, an increase of 9.4% over the total in the third quarter of 2006.  Earning assets for the quarter increased by $149.4 million, or 7.6%, compared to the comparable period in 2006.  The increase includes a 14.2% increase in investment securities to $242.9 million.

The Company’s annualized return on average assets (ROAA) for the third quarter decreased slightly to 1.00% compared to 1.01% for the third quarter of 2006.  Compared to the second quarter of 2007, ROAA remained the same.  Total shareholders’ equity at quarter end was $175.5 million, an increase of 9.4% from the third quarter of 2006.  The Company’s total shareholders’ equity was impacted by a decrease in accumulated other comprehensive income resulting from the implementation in the fourth quarter 2006 of a new accounting pronouncement for defined benefit pension and other postretirement plans.  Annualized return on average equity for the quarter was 13.13%, down from 13.28% for the third quarter of 2006.  Annualized return on average tangible equity for the third quarter decreased to 16.52% from 17.22% for the comparable period in the prior year and from 16.82% in the second quarter. 

Asset Quality

The results reported for the third quarter reflect a return to more normalized net charge-offs compared to very low net charge-off results in the second quarter of 2007.  John C. Pollok, senior executive vice president and CFO of SCBT Financial Corporation commented, “We remain committed to maintaining strong asset quality.  Non-performing assets and net charge-offs remain at low levels, and we continue to monitor our risk within our loan portfolio and remain aggressive and disciplined in dealing with assets if they show signs of deterioration.”

At September 30, 2007, nonperforming loans totaled $4.8 million, representing 0.26% of period-end loans.  Other real estate owned at the end of the third quarter was $443,000, a decrease from $771,000 in the second quarter.  The allowance for loan losses at September 30, 2007 was $23.8 million and represented 1.29% of total loans.  The current allowance for loan losses provides 4.95 times coverage of period-end nonperforming loans.  In the third quarter, net charge-offs were $708,000, or an annualized 0.16% of average loans compared to 0.14% in the same period of 2006.
 
Loans and Deposits

The Company grew total loans 9.5% since the third quarter of 2006, an increase driven largely by continued growth in commercial loans.  Commercial real estate loans totaled $928.0 million at quarter-end, a 24.2% annualized increase from the second quarter of 2007 and an 18.6% increase from the comparable period in 2006.  Commercial non real estate loans decreased 2.5% to $203.6 million from the second quarter and increased 14.9% from the comparable period in 2006.  Total loans outstanding were $1.8 billion at September 30, 2007 compared to $1.7 billion for the comparable period in 2006.  The balance of mortgage loans held for sale decreased $14.2 million from the second quarter to $13.9 million.

Deposit growth remained strong compared to the same quarter in 2006, driven largely by growth in certificates of deposit and savings deposits.  Total deposits outstanding at the end of the third quarter were $1.8 billion, an increase of $156.4 million, or 9.4%, compared to the third quarter in the prior year.  When compared to second quarter, total deposits outstanding increased $30.6 million, or 6.9% annualized; savings account deposit levels increased $13.6 million, or 47.5%; and certificates of deposits increased $23.1 million, or 11.4%.  Non-interest bearing deposits grew $8.2 million, or 11.6%, to $293.4 million from the second quarter. 

Net Interest Income and Margin

Non-taxable equivalent net interest income (before provision for loan losses) was $21.4 million for the third quarter of 2007, up 8.2% from $19.8 million in the comparable period last year.  Tax-equivalent net interest margin decreased 8 basis points from the third quarter of 2006 to 4.06%; however, compared to the second quarter of 2007, tax-equivalent net interest margin increased 7 basis points from 3.99%.

The Company’s average yield on interest-earning assets increased 23 basis points while the average rate on interest-bearing liabilities increased 33 basis points from the third quarter of 2006.  During the third quarter of 2007, the Company’s average total assets increased to $2.3 billion, a 9.7% increase over the third quarter of 2006.  The increase reflected a $148.7 million inc
rease in average total loans to $1.8 billion from the third quarter of 2006.  The increase in volume and a 25 basis point increase in average yields on total loans contributed to higher average yield on interest-earning assets during the third quarter.  Average earning assets for the quarter increased by $194.1 million, or 10.1%, compared to the average for the comparable period in 2006.  Average investment securities were $232.8 million at September 30, 2007, or 10.5% higher than the balance in 2006.  The growth in average total assets was supported by growth in average total deposits of $180.1 million, an increase of 11.2% over the average in the third quarter of 2006. 

Noninterest Income and Expense

Noninterest income was $7.7 million in the third quarter of 2007, a 12.5% increase from $6.8 million in the comparable period in 2006.  This increase included a $397,000, or 11.3%, increase in service charges on deposit accounts; a $171,000, or 19.4%, increase in bankcard services income; a $140,000, or 25.4%, increase in trust and investment services income and a $279,000, or 75.4%, increase in other noninterest income from the comparable period in 2006.  Secondary market mortgage fees declined $135,000 or 8.9%, due to the overall slow down within the real estate industry and the tightening of credit relative to mortgage lending.  The increase in other noninterest income was driven by two factors.  The first is a $141,000 increase in the cash surrender value of bank owned life insurance, and the second is a loss on the sale of fixed assets of $141,000, which was recorded in the third quarter of 2006. 

Noninterest expense was $19.3 million in the third quarter of 2007, up from $17.6 million in the comparable period in 2006.  The increase was driven by $945,000, or 9.2%, increase in salaries and employee benefits expense driven by sales volume incentives paid to employees and the addition of six full service locations since June 30, 2006.  These locations accounted for approximately 25.1%, or $237,000, of the compensation increase from the same quarter a year ago.  Advertising and marketing expense increased $238,000, or 31.9% compared to the third quarter of 2006.  Information services expense increased $105,000, or 11.1%.  Net occupancy expense increased $159,000, or 14.6%.  Furniture and equipment expense increased $188,000, or 15.9%, compared to the third quarter in 2006.

SCBT Financial Corporation is a multi-bank holding company whose subsidiaries are South Carolina Bank and Trust, N.A. and South Carolina Bank and Trust of the Piedmont, N.A.  The Mortgage Banc, Inc. is a wholly owned subsidiary of South Carolina Bank and Trust, N.A.  Through these subsidiaries, SCBT Financial Corporation operates 45 financial centers in 16 South Carolina counties, and has served South Carolinians for more than 73 years.  The Company offers a full range of retail and commercial banking services, mortgage lending services, trust and investment services, and consumer finance loans.  SCBT Financial Corporation’s common stock is traded on the NASDAQ Global Select MarketSM under the symbol “SCBT.”

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; and (9) terrorist activities risk that results in loss of consumer confidence and economic disruptions.