SCBT Financial Corporation Reports Net Operating Income Up 19.1% and Net Income Up 8.1% for the Quarter; Declares Cash DividendJanuary 22, 2008
COLUMBIA, S.C.—January 22, 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 and year ended December 31, 2007. The Company produced an 8.9% increase in consolidated net income to $21.6 million, and an 11.5% increase in net operating income to $22.1 million for the year 2007. Total assets for SCBT grew 19.2% to $2.6 billion at December 31, 2007.
• Operating Net Income of $5.7 million — Up 19.1%
• Diluted Operating Earnings per share of $0.59 — Up 15.7%
• Net income of $5.1 million, includes $811,000 of merger expenses
• Diluted Net Income per share of $0.54 — Up 5.0%
–Strong asset quality
• NPAs as a percentage of loans and repossessed assets — 33 basis points
• Net charge offs — 0.15% in 4Q; 0.13% YTD
–Completed acquisition of TSB Financial Corporation
–Repositioned securities portfolio
Quarterly Cash Dividend
The Board of Directors of SCBT announces a quarterly cash dividend of 17 cents 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 February 15, 2008 to shareholders of record as of February 1, 2008.
Fourth Quarter 2007 Results of Operations
Please refer to the accompanying tables for detailed comparative data on results of operations and financial results and a reconciliation of Non-GAAP financial measures to GAAP comparable financial measures.
The Company reported consolidated net income of $5.1 million, or $0.54 per diluted share, for the three months ended December 31, 2007 compared to consolidated net income of $4.8 million, or $0.51 per diluted share, for the fourth quarter of 2006. Net income of $21.6 million for 2007 reflects an 8.9% increase from $19.8 million in 2006. The Company had diluted earnings per share of $2.32 and $2.15 for the years ended December 31, 2007 and 2006, respectively.
During the fourth quarter of 2007, SCBT completed the acquisition of TSB Financial Corporation (TSB), the parent of The Scottish Bank. This transaction added approximately $222.4 million in assets. The Company incurred $525,000 of merger related expenses, net of tax, or $0.05 per share. On a net operating income basis that factors out these expenses, SCBT would report $0.59 per diluted share for the quarter compared to $0.51 per share for the fourth quarter of 2006, an increase of 15.7%. For 2007, net operating earnings per diluted share were $2.37, up 10.5% from $2.15 in 2006. In addition, the Company chose to reposition approximately $25.0 million of its available-for-sale investment portfolio for the current interest rate environment and incurred securities losses of $326,000, net of tax. This loss had the effect of lowering fourth quarter and full-year earnings per basic and diluted share by approximately $0.04. However, the transaction was expected to increase the book yield of the portfolio by approximately 16 basis points and have a favorable impact to net interest margin in 2008.
During the fourth quarter of 2007, the Company decided to reclassify loan origination fees previously recorded in net interest revenue with an offsetting amount of direct loan origination costs that had been included in salaries and employee benefits. The result of these reclassifications for the fourth quarter and prior periods was to decrease net interest revenue on the one hand and operating expenses on the other. Similarly, the reclassifications decreased the net interest margin but also improved (decreased) the efficiency ratio. The reclassifications had no impact on net income or equity in any of the reported periods.
The Company’s earnings growth reflected the strong profitability of its bank subsidiaries during the fourth quarter. Compared to the fourth quarter 2006, South Carolina Bank and Trust reported a 15.2% increase in net income to $5.2 million and South Carolina Bank and Trust of the Piedmont reported a 17.9% increase in net income to $785,000. For the month of December 2007, its only period as a subsidiary of SCBT, The Scottish Bank reported net income of $110,000.
“2007 was one of the most difficult years our industry has faced,” said CEO Robert R. Hill, Jr. “I am proud of the results our team has produced. Our disciplined approach to soundness, profitability and growth over the years is paying off during these turbulent times. During 2007, we continued to see exceptional loan quality, margin expansion, and significant growth in fee income. We acquired The Scottish Bank in the fourth quarter, and its integration into SCBT is going exceptionally well. We are on target relative to our pro forma analysis and have a very strong team in place and tremendous growth opportunities ahead of us. We will continue to be very committed to asset quality in 2008 and will do our utmost again to be one of the top performing banks in the country.”
During the fourth quarter of 2007, the Company’s total assets increased to $2.6 billion, a 19.2% increase over the fourth quarter of 2006. The growth in total assets was supported by growth in total deposits of $221.2 million, an increase of 13.0% over the total in the fourth quarter of 2006. Average earning assets for the quarter increased by $230.5 million, or 11.6%, compared to the comparable period in 2006. The increase includes a 15.1% increase in investment securities to $246.9 million. The acquisition of TSB added $154.4 million in loans, net of the allowance for loan losses, $30.5 million in investment securities and $168.8 million in deposits.
The Company’s annualized return on average assets (ROAA) for the fourth quarter decreased, due primarily to the acquisition of TSB, to 0.86% compared to 0.88% for the fourth quarter of 2006. Compared to the third quarter of 2007, ROAA decreased 0.14%. Excluding merger related expenses of $525,000, ROAA for the fourth quarter was 0.94%. Total shareholders’ equity at December 31, 2007 was $215.1 million, an increase of 32.9% from December 31, 2006. The increase was primarily related to the acquisition of TSB during the quarter. Annualized return on average equity (ROAE) for the quarter was 10.76%, down from 11.63% for the fourth quarter of 2006. Excluding merger related expenses, ROAE was 11.86% for the fourth quarter. Annualized return on average tangible equity (ROATE) for the fourth quarter decreased to 14.53% from 15.33% for the comparable period in the prior year and from 16.70% in the third quarter of 2007. Excluding merger related expenses, ROATE for the fourth quarter was 15.98%.
John C. Pollok, senior executive vice president and CFO, stated, “Asset quality continues to be one of the core values of SCBT. I am proud of this commitment to maintaining strong asset quality and the discipline of our bankers in the current economic environment, as evidenced by our low level of 33 basis points in NPAs for the quarter.”
At December 31, 2007, nonperforming loans totaled $6.3 million, representing 0.30% of period-end loans. Other real estate owned at the end of the fourth quarter was $490,000, a slight increase from $443,000 at the end of the third quarter. The allowance for loan losses at December 31, 2007 was $26.6 million and represented 1.28% of total loans. The current allowance for loan losses provides 4.19 times coverage of period-end nonperforming loans. In the fourth quarter, net charge-of
fs were $726,000, or an annualized 0.15% of average loans compared to 0.13% in the same period of 2006, and compared to 0.16% in the linked third quarter. On a year-to-date basis, net charge-offs were $2.3 million, or 0.13% compared to $2.6 million, or 0.16% in 2006.
Loans and Deposits
The Company increased total loans 18.3% since the fourth quarter of 2006, driven largely by continued growth in commercial loans. The acquired loans from TSB increased the total loan portfolio by $156.5 million, or 8.9% from December 31, 2006. The primary composition of the TSB loan portfolio is 59% commercial real estate, 16% commercial loans, 14% home equity loans, and 7% consumer construction and development loans. Total loans outstanding were $2.1 billion at December 31, 2007 compared to $1.8 billion for the comparable period in 2006. The balance of mortgage loans held for sale increased $3.4 million from the third quarter to $17.4 million at year end.
Deposits declined in most categories subsequent to our decision to reduce deposit rates during the latter half of the fourth quarter in step with the reduction in market rates administered by the Federal Reserve. Deposits increased by a total of $168.8 million with the acquisition of TSB. Total deposits outstanding at the end of the fourth quarter of 2007 were $1.9 billion, an increase of $221.2 million, or 13.0%, compared to the fourth quarter in 2006. When compared to the third quarter, total deposits outstanding increased $114.0 million, or 25.2% annualized, which includes the impact of the acquired deposits from TSB. Excluding the deposits acquired from TSB, total deposits decreased $54.8 million, or 12% annualized. Savings account deposit levels increased $4.3 million, or 13.5%; certificates of deposits decreased $42.1 million, or 19.0% annualized; non-interest deposits decreased $1.3 million, or 1.7% annualized. Non-interest bearing deposits increased $22.5 million, or 30.7%, to $315.9 million from the third quarter of 2007 the deposits TSB.
Net Interest Income and Margin
Non-taxable equivalent net interest income (before provision for loan losses) was $21.6 million for the fourth quarter of 2007, up 14.7% from $18.8 million in the comparable period last year. Tax-equivalent net interest margin increased 10 basis points from the fourth quarter of 2006 to 3.91%; compared to the linked third quarter of 2007, tax-equivalent net interest margin increased 2 basis points from 3.89%.
The Company’s average yield on interest-earning assets increased 12 basis points while the average rate on interest-bearing liabilities increased 6 basis points from the fourth quarter of 2006. During the fourth quarter of 2007, the Company’s average total assets increased to $2.4 billion, an 11.5% increase over the fourth quarter of 2006. The increase reflected a $210.4 million increase in average total loans to $1.9 billion from the fourth quarter of 2006. The increase in volume and a 10 basis point increase in average yields on total loans contributed to a higher average yield on interest-earning assets during the fourth quarter. Average investment securities were $246.9 million at December 31, 2007, or 15.1% higher than the balance in 2006. The growth in average total assets was supported by growth in average total deposits of $148.2 million, an increase of 8.8% over the average in the fourth quarter of 2006.
Noninterest Income and Expense
Noninterest income was $7.0 million in the fourth quarter of 2007, a 6.2% increase from $6.6 million in the comparable period in 2006. This increase included a $773,000, or 22.8%, increase in service charges on deposit accounts; $165,000, or 18.3%, increase in bankcard services income; a $20,000, or 3.5%, increase in trust and investment services income and a $160,000, or 33.6%, increase in other noninterest income from the comparable period in 2006. Secondary market mortgage fees declined $536,000 or 34.1%, due to the overall slow down within the real estate industry and the industry-wide tightening of credit relative to mortgage lending. The increase in other noninterest income was driven by three factors: a $24,000 increase in the cash surrender value of bank owned life insurance; the addition of $26,000 income from TSB; and a loss on the sale of fixed assets of $116,000, which was recorded in the fourth quarter of 2006.
Noninterest expense was $19.3 million in the fourth quarter of 2007, up 16.6% from $16.6 million in the comparable period in 2006. The Company incurred $811,000 of merger related expenses which accounted for 4.9% of the increase. The increase was also driven by $1,230,000, or 12.9%, 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 19.3%, or $238,000, of the compensation increase from the same quarter a year ago, and on a year-to-date basis the increase was 29.6%, or $1.5 million. Advertising and marketing expense decreased $293,000, or 29.2%, compared to the fourth quarter of 2006. Information services expense increased $152,000, or 16.0%. Net occupancy expense increased $286,000, or 26.5%. Furniture and equipment expense increased $252,000, or 19.7%, compared to the fourth quarter in 2006.
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 the 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, cust
omer 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.