SCBT Financial Corporation Reports Net Income Up 14.5% for the First Quarter of 2008; Strong Asset Quality Prevails
April 18, 2008
COLUMBIA, SC — April 17, 2008 — SCBT Financial Corporation (NASDAQ: SCBT), the holding company for South Carolina Bank and Trust, National Association, South Carolina Bank and Trust of the Piedmont, National Association, and The Scottish Bank, National Association, today released its unaudited results of operations and other financial information for the three-month period ended March 31, 2008. The Company produced a 14.5% increase in consolidated net income to $6.0 million, compared to $5.2 million for the first quarter of 2007. Total assets grew 19.4% to $2.7 billion at March 31, 2008 from March 31, 2007.
HIGHLIGHTS:
–Earnings
• Net Income of $6.0 million — Up 14.5%
• Diluted earnings per share of $0.58 — Up 3.9%
–Strong asset quality
• NPAs as a percentage of total assets — 0.28%
• Net charge-offs — 0.09% in 1st Quarter 2008
–Completed the systems conversion of The Scottish Bank, National Association (“TSB”)
First Quarter 2008 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 $6.0 million for the three months ended March 31, 2008 compared to consolidated net income of $5.2 million for the first quarter of 2007, a $753,000 increase, or 14.5%. The Company had diluted earnings per share of $0.58 and $0.56 for the quarters ended March 31, 2008 and 2007, respectively.
During the first quarter of 2008, SCBT completed the systems conversion of TSB, following the acquisition that occurred on November 30, 2007.
“Our team’s performance in the first quarter was excellent,” said Robert R. Hill, Jr., CEO. “As we work through one of the toughest banking environments in decades, SCBT continues to perform at a very high level. Our long-term commitment to the fundamentals of banking, strong credit underwriting, a talented team, and the continued resilience of most of our markets are the key reasons for these results. During the quarter we completed the integration of The Scottish Bank, which has gone very well. We are now well positioned in the Charlotte MSA with our York County, SC and Charlotte offices. Our other major growth initiative, Charleston, has also exceeded expectations. The Federal Reserve continued to cut interest rates significantly during the quarter, and our company has managed through these cuts with minimal impact. Continued strong credit quality is the strength of our company. Over the last several quarters we have taken proactive measures to identify problem loans as early as possible. These steps include in-house and independent review of larger transactions and updating credit scores on all consumer real estate loans. While not immune to the credit cycle, we remain optimistic that our overall credit performance will continue to be solid.”
During the first quarter of 2008, the Company’s average total assets (including TSB’s assets) increased to $2.7 billion, a 20.4% increase over the first quarter of 2007. Excluding the assets from the acquisition of TSB, total assets grew by 9.5%. The growth in total assets was supported by growth in total deposits (including TSB’s deposits) of $299.8 million, an increase of 17.5% over the total in the first quarter of 2007. Excluding the deposits from the acquisition of TSB, deposits grew by 7.6%. Average earning assets for the quarter increased by $406.3 million, or 19.8%, compared to the first quarter of 2007. Excluding the average earning assets of TSB for the quarter of $240.9 million, average earning assets grew 8.1%. The increase in average earning assets also includes a 20.7% increase in average investment securities to $258.5 million. Excluding the acquisition of TSB, the increase in investment securities was 6.3%, or $13.4 million.
The Company’s annualized return on average assets (ROAA) for the first quarter decreased, due primarily to the acquisition of TSB, to 0.90% compared to 0.96% for the first quarter of 2007. Compared to the fourth quarter of 2007, ROAA increased 0.04%. Total shareholders’ equity at March 31, 2008 was $220.0 million, an increase of 32.1% from March 31, 2007. The increase was primarily related to the acquisition of TSB during the fourth quarter of 2007. Annualized return on average equity (ROAE) for the quarter was 11.01%, down from 12.87% for the first quarter of 2007, again due to the acquisition of TSB during the fourth quarter of 2007. Annualized return on average tangible equity (ROATE) for the first quarter decreased to 15.75% from 16.85% for the comparable period in the prior year and increased from 14.53% in the fourth quarter of 2007.
Asset Quality
John C. Pollok, senior executive vice president and CFO, stated, “We continue to benefit from our strong asset quality and disciplined approach our bankers exhibit within the current economic environment. Our level of NPAs and NPLs should compare favorably within the industry and continue to reflect this core value of SCBT, as evidenced by our low level of NPAs at 36 basis points to period-end loans and repossessed assets for the quarter and 28 basis points in NPAs to total assets for the quarter.”
At March 31, 2008, nonperforming loans totaled $6.9 million, representing 0.32% of period-end loans. Other real estate owned at the end of the first quarter was $651,000, a modest increase from $490,000 at the end of the fourth quarter 2007 and from $525,000 at the end of the first quarter 2007. The allowance for loan losses at March 31, 2008 was $27.3 million and represented 1.27% of total period-end loans. The current allowance for loan losses provides 3.96 times coverage of period-end nonperforming loans. In the first quarter, net charge-offs were $480,000, or an annualized 0.09% of average loans compared to $495,000, or 0.11% in the same period of 2007, and compared to $728,000, or 0.15% in the linked quarter of 2007.
Loans and Deposits
The Company increased total loans 20.3% since the first quarter of 2007, driven by continued growth in commercial loans. Core loan growth, which excludes the loans acquired from TSB of $156.2 million, was 11.5% from March 31, 2007. Total loans outstanding were $2.1 billion at March 31, 2008 compared to $1.8 billion for the comparable period in 2007. The balance of mortgage loans held for sale increased $10.7 million from the fourth quarter to $28.1 million at March 31, 2008, but was still lower than the balance at March 31, 2007 of $33.9 million.
Deposits increased in most categories even subsequent to our decision to reduce deposit rates during the first quarter in response to the reduction in market rates administered by the Federal Reserve. Deposits increased by a total of $88.3 million from the end of the year, with the largest growth occurring in small and large denomination certificates of deposit. Compared to March 31, 2007, deposits increased by $299.8 million, with $168.8 million being attributable to the TSB acquisition. The Company reduced rates and increased the use of federal funds purchased and FHLB advances. Total deposits outstanding at the end of the first quarter of 2008 were $2.0 billion, an increase of $299.8 million, or 17.5%, compared to the first quarter of 2007. When compared to the fourth quarter, total deposits outstanding increased $88.3 million, or 18.3% annualized. Excluding the deposits acquired from TSB, total deposits increased $131.0 million, or 7.6% from the first quarter of 2007. Savings account deposit levels increased $41.8 million, or 44.4% from the first quarter of 2007; smaller denomination certificates of deposit increased $48.8 milli
on, or 12.3% from the first quarter of 2007; larger denomination certificates of deposit increased $62.7 million, or 17.1% from the first quarter of 2007; and noninterest-bearing deposits increased $18.8 million, or 6.9%, to $315.6 million from the first quarter of 2007.
Net Interest Income and Margin
Non-taxable equivalent net interest income (before provision for loan losses) was $22.9 million for the first quarter of 2008, up 21.7% from $18.8 million in the comparable period last year. Tax-equivalent net interest margin increased 2 basis points from the first quarter of 2007 to 3.79%. Compared to the linked fourth quarter of 2007, tax-equivalent net interest margin decreased 12 basis points from 3.91%. John C. Pollok, CFO, said, “During the quarter, the Federal Reserve reduced rates dramatically which has resulted in some compression of our net interest margin from year end 2007; however, we have responded quickly by reducing the pricing of our deposit funding sources and have increased our borrowings in FHLB advances in balancing the funding of our assets. In addition, we experienced some seasonal compression in our net interest margin from increased municipality deposits which require collateralization.”
The Company’s average yield on interest-earning assets decreased 37 basis points while the average rate on interest-bearing liabilities decreased 48 basis points from the first quarter of 2007. During the first quarter of 2008, the Company’s average total assets increased to $2.7 billion, a 20.4% increase over the first quarter of 2007. The increase reflected a $355.7 million increase in average total loans to $2.1 billion from the first quarter of 2007, largely the result of the acquisition of TSB late in the fourth quarter of 2007. The increase in volume of loans at the low current market’s rates and an even more pronounced decrease in rates during the quarter resulted in the average yield on loans falling by 40 basis points compared to the first quarter of 2007. Average investment securities were $258.5 million at March 31, 2008, or 20.7% higher than the balance in 2007. The growth in average total assets was supported by growth in average total deposits of $264.2 million, an increase of 15.6% over the average in the first quarter of 2007.
Noninterest Income and Expense
Noninterest income was $7.5 million in the first quarter of 2008, a 13.5% increase from $6.6 million in the comparable period in 2007. This increase included a $401,000, or 11.8%, increase in service charges on deposit accounts; $179,000, or 18.3%, increase in bankcard services income; a $73,000, or 11.7%, increase in trust and investment services income and a $220,000, or 36.8%, increase in other noninterest income from the comparable period in 2007. Secondary market mortgage fees increased slightly by $19,000 or 1.9%, due to the overall slowdown within the real estate industry and the industry-wide tightening of credit relative to mortgage lending. The Company also received a cash payment for the partial redemption of Visa, Inc. shares on March 28, 2008, in connection with Visa, Inc.’s initial public offering. This resulted in pre-tax income of $253,000 recorded in other noninterest income. The remaining 9,410 shares that the Company received are restricted for three years and are convertible to Class A shares of Visa, Inc.
Noninterest expense was $20.1 million in the first quarter of 2008, up 18.1% from $17.1 million in the comparable period in 2007. The increase was driven by $1.8 million, or 19.3%, increase in salaries and employee benefits expense driven by sales volume incentives paid to employees and the addition of TSB employees for a full quarter. Excluding TSB, salary and benefits were up 11.1% or $1.0 million compared to the first quarter of 2007. The five locations of TSB and the full quarter impact of these offices are reflected in each line item of noninterest expense. Advertising and marketing expense increased $313,000, or 51.7%, compared to the first quarter of 2007. Information services expense increased $181,000, or 18.1%. Net occupancy expense increased $397,000, or 36.1%. Furniture and equipment expense increased $137,000, or 9.9%, compared to the first quarter in 2007. Noninterest expense increased 8.6%, or $1.5 million, excluding TSB, compared to the first quarter of 2007. The Company incurred approximately $198,000 in merger-related expenses during the quarter which relate to the integration of TSB.
During the first quarter of 2008, the Company reclassified mortgage loan commission costs paid to originators previously recorded as compensation expenses into secondary market mortgage fees to net the two amounts. The result of these reclassifications for the first quarter 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 is a multi-bank holding company whose subsidiaries are South Carolina Bank and Trust, N.A., South Carolina Bank and Trust of the Piedmont, N.A and The Scottish Bank, N.A. Through these subsidiaries, SCBT Financial Corporation operates 50 financial centers in 16 South Carolina counties and Mecklenburg County of North Carolina. The Company has been serving banking needs within the Carolinas 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.
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.
