SCBT Financial Corporation Reports Operating Earnings Up

14.4% for the Third Quarter of 2008; Solid Loan Growth and Asset Quality; Declares Quarterly Cash Dividend of $0.17

HIGHLIGHTS:

Operating Earnings & Net Income
• Operating Net Earnings of $6.5 million — up 14.4%
• Diluted operating earnings per share of $0.63
• Net Income of $124,000 — $0.01 per share; driven by Other-Than-Temporary Impairment (OTTI) of Freddie Mac preferred stock — $6.3 million after-tax, or $0.62 per share

Loan growth
• 3rd Quarter loan growth $33.4 million — 5.9% annualized growth

Asset quality
• NPAs:  0.54% of total assets and 0.66% of loans and repossessed assets  
• Net charge-offs — increased to 0.41% annualized for the quarter  — increased to 0.23% annualized YTD

COLUMBIA, SC – October 16, 2008—SCBT Financial Corporation (NASDAQ: SCBT), the holding company for SCBT, 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 nine-month period ended September 30, 2008.  The Company produced strong operating results due primarily to our net interest margin, sound asset quality and good expense control for the third quarter and on a year-to-date basis.  In addition, during the third quarter, the Company recorded a noncash OTTI charge related to its investment in Freddie Mac preferred stock of $9.8 million on a pre-tax basis and $6.3 million on an after-tax basis.  During September, and as previously released, the Company closed on a subordinated debt agreement which provides $15.0 million of Tier 2 regulatory capital that will enhance our capital structure and support the future growth of SCBT.

Quarterly Cash Dividend

The Board of Directors of SCBT declared today 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 14, 2008 to shareholders of record as of October 31, 2008.  

Third Quarter 2008 Results of Operations

On an operating basis for the three months ended September 30, 2008 and 2007, net operating earnings were $0.63 per diluted share, up 3.3%, from $0.61 per diluted share.  Net operating earnings were up $814,000, or 14.4%, excluding the OTTI charge, over the prior year comparable period.  For the nine months ended September 30, 2008, net operating earnings were up $2.1 million, or 13.1%, excluding the OTTI charge, over the September 30, 2007 results.  Net operating earnings per diluted share were $1.81 as of September 30, 2008 compared to $1.79 as of September 30, 2007.  The Company reported consolidated net income of $124,000, or $0.01 per diluted share for the three months ended September 30, 2008 compared to consolidated net income of $5.6 million, or $0.61 per diluted share for the third quarter of 2007, a $5.5 million or 97.8% decrease.  For the nine months ended September 30, 2008 and 2007, the Company reported net income of $12.2 million compared to $16.4 million, respectively, a decrease of $4.2 million, or 25.5%.  This resulted in diluted earnings per share of $1.19 and $1.78 for the nine months ended September 30, 2008 and 2007, respectively.      

“I am pleased with our operating performance this quarter and with our continued commitment to our customers.” said Robert R. Hill, Jr., CEO.  “The operating environment remains very challenging, but we continue to believe that banks with strength will be able to take advantage of many opportunities during this period of instability.  Our core earnings and financial strength are excellent.  Safety and soundness has been a hallmark strength for over 74 years, and we continue to perform much better than other banks in our market.  While we did see some increase in both charge-offs and non-performing assets, we continue to keep these at manageable levels.  Our growth this quarter was helped by the sale of several banks in our markets, which has resulted in many new customers.  In addition, we experienced a nice improvement in our efficiency ratio, which dropped below 60%.  Our long-term commitment to soundness, profitability and growth are helping to keep our company safe and sound during this period of economic instability.”

During the third quarter of 2008, the Company’s average total assets (including the acquired assets from TSB) increased to $2.8 billion, a 22.2% increase over the third quarter of 2007.  Excluding the assets from the acquisition of TSB, total assets grew by 12.4%.  The growth in average total assets was supported by growth in average total deposits (including TSB’s deposits) of $284.4 million, an increase of 15.9% over the total in the third quarter of 2007.  Excluding the deposits from the acquisition of TSB, deposits grew by $115.6 million or 6.5%.  Average earning assets for the quarter increased by $455.5 million, or 21.6%, compared to the third quarter of 2007.  Excluding the average earning assets of TSB for the quarter of $226.6 million, average earning assets grew 10.8%.   The increase in average earning assets also includes a 7.6% increase in average investment securities to $250.4 million.  Excluding the acquisition of TSB, there was a decrease in investment securities of 5.5%, or $12.8 million, which includes the $9.8 million OTTI charge of Freddie Mac preferred stock.
 
 
The Company’s annualized operating return on average assets (ROAA) for the third quarter decreased, due primarily to the increase in assets from acquiring TSB in the fourth quarter of 2007, to 0.93% compared to 1.00% for the third quarter of 2007, and increased from 0.91% for the second quarter of 2008.  The operating returns on average assets, equity and tangible equity exclude the effect of the after-tax impact of the OTTI charge.  Total year-to-date average shareholders’ equity at September 30, 2008 was $220.7 million, an increase of 31.1% from September 30, 2007.  The increase was primarily related to the acquisition of TSB during the fourth quarter of 2007.  Annualized operating return on average equity (ROAE) for the quarter was 11.57%, down from 13.13% for the third quarter of 2007, again due to the increased equity from the acquisition of TSB during the fourth quarter of 2007.  Annualized operating return on average tangible equity (ROATE) for the third quarter increased to 16.88% from 16.70% for the comparable period in the prior year, and increased from 16.18% in the second quarter of 2008.  On a GAAP basis and for September 30, 2008, the ROAA equaled 0.02%; the ROAE was 0.22%, and the ROATE was 0.69% compared to September 30, 2007, ROAA was 1.00%, ROAE was 13.13%, and ROATE was 16.70%.

Asset Quality

Annualized net charge-offs increased to 0.41% from the level of 0.16% experienced in the third quarter of 2007 and 0.17% experienced in the second quarter of 2008.  During the third quarter, non-performing assets (NPAs) as a percentage of loans and repossessed assets increased to 0.66% compared to 0.30% one year ago and 0.39% for the second quarter of 2008.  NPAs to total assets for the quarter were 0.54% compared to 0.24% at the end of the third quarter 2007 and 0.31% at the end of the second quarter 2008.  The increase in NPAs is reflective of the continued real estate pressure within the economy and particularly on the coast of South Carolina.  Compared to the industry, our asset quality remains sound and manageable.  During the third quarter, the Company’s other real estate owned (“OREO”) incr
eased $1.4 million from the end of the second quarter.  In addition, $1.0 million of the $1.1 million at the end of the second quarter remained with the company at the end of the third quarter.

At September 30, 2008, nonperforming loans totaled $12.4 million, representing 0.54% of period-end loans.  Other real estate owned at the end of the third quarter was $2.5 million, an increase from $1.1 million at the end of the second quarter 2008 and from $443,000 at the end of the third quarter 2007.  The allowance for loan losses at September 30, 2008 was $29.2 million and represented 1.28% of total period-end loans.  The current allowance for loan losses provides 2.36 times coverage of period-end nonperforming loans.  In the third quarter, net charge-offs were $2.3 million, or an annualized 0.41% of average loans compared to $708,000, or 0.16% in the same period of 2007 and $907,000, or 0.17% in the linked quarter.  The provision for loan losses was $2.8 million for the third quarter of 2008 compared to $1.2 million for the comparable quarter one year ago, and $2.3 million in the second quarter of 2008. 

Loans and Deposits

The Company increased total loans 23.7% since the third quarter of 2007, driven by continued growth in commercial real estate loans and home equity loans.  Core loan growth, which excludes the loans acquired from TSB of $156.5 million, was $281.0 million or 15.3% from September 30, 2007.  Total loans outstanding were $2.3 billion at September 30, 2008 compared to $1.8 billion for the comparable period in 2007.  The balance of mortgage loans held for sale decreased $7.6 million from the second quarter of 2008 to $11.4 million at September 30, 2008, and was lower than the balance at September 30, 2007 of $13.9 million reflective of the overall slow down within the mortgage banking industry.

Deposits increased in most categories except for demand deposits and NOW accounts.  Deposits increased by a total of $81.9 million, or 15.9% annualized, from the end of the second quarter of 2008, with the largest growth occurring in small denomination (less than $100,000) certificates of deposit.  The Company continues to reduce rates paid on the various deposits in order to manage our net interest margin within acceptable levels.  The Company increased the use of brokered deposits during the third quarter over the second quarter of 2008.  This increase totaled $80.6 million.  Consequently, we have reduced our balance of federal funds purchased during the third quarter.  Total deposits outstanding at the end of the third quarter of 2008 were $2.1 billion, an increase of $324.9 million, or 17.9%, compared to the third quarter of 2007.  Excluding the deposits acquired from TSB, total deposits increased $156.1 million, or 8.6% from the third quarter of 2007.  Compared to balances in the third quarter of 2007, savings account deposit levels increased $14.8 million, or 11.5%; smaller denomination certificates of deposit increased $127.1 million, or 29.1%; larger denomination certificates of deposit increased $60.8 million, or 15.4%; noninterest-bearing deposits decreased $3.5 million, or 1.2%; and NOW account balances decreased $30.3 million, or 10.5%.

Net Interest Income and Margin

Non-taxable equivalent net interest income (before provision for loan losses) was $24.7 million for the third quarter of 2008, up 20.3% from $20.5 million in the comparable period last year.  Tax-equivalent net interest margin decreased 3 basis points from the third quarter of 2007 to 3.86%.  Compared to the linked second quarter of 2008, tax-equivalent net interest margin increased 5 basis points from 3.81%.  John C. Pollok, CFO, said, “We have worked diligently to manage our balance sheet and to minimize the compression of the margin which most banks are currently experiencing during these difficult economic conditions.  We have continued to aggressively reduce the pricing of deposit funding sources and access those funding sources which are both readily available and economical to fund loan growth and to manage interest rate risk.  With this focused effort, we are pleased that we have been able to increase our net interest margin by 5 basis points from the second quarter of 2008.”
 
The Company’s average yield on interest-earning assets decreased 108 basis points while the average rate on interest-bearing liabilities decreased 129 basis points from the third quarter of 2007.  During the third quarter of 2008, the Company’s average total assets increased to $2.8 billion, a 22.2% increase over the third quarter of 2007.  The increase reflected a $455.3 million increase in average total loans to $2.3 billion from the third quarter of 2007, the result of the strong loan growth during the first nine months of 2008 and the acquisition of TSB late in the fourth quarter of 2007.  The increase in volume of loans at lower current market rates combined with variable rate loan resets resulted in the average yield on loans falling by 121 basis points compared to the third quarter of 2007.  Average investment securities were $250.4 million at September 30, 2008, or 7.6% higher than the balance in 2007.  The growth in average total assets was supported by growth in average total deposits of $284.4 million, an increase of 15.9% from the third quarter of 2007. 

Noninterest Income and Expense

Operating noninterest income was $7.1 million for the three months ended September 30, 2008 and 2007.  The third quarter of 2008 excludes the OTTI charge recorded on its Freddie Mac preferred stock of $9.8 million.  The components for noninterest income have both increases and decreases from the prior year.  Mortgage banking income declined by $356,000, or 41.3%, due to the industry-wide tightening of credit relative to mortgage lending.  This decrease was offset by solid increases in service charges on deposits of $248,000, or 6.3%; an increase in bankcard services income of $196,000, or 18.6%; and a $28,000, or 4.0%, increase in trust and investment services income.
   
 
Noninterest expense was $19.1 million in the third quarter of 2008, up $1.3 million or 7.1%, from $17.8 million in the comparable period in 2007.  The increase was driven by a $479,000, or 4.9%, increase in salaries and employee benefits expense primarily attributable to the additional employees from the TSB acquisition.  During the third quarter, the Company decided to substantially reduce incentive compensation for 2008 due to the OTTI charge recorded.  Accrued incentive compensation, primarily related to executive management, of $894,000 was reversed during the third quarter of 2008.  Excluding the TSB salaries and benefits for the quarter, salaries and benefits expenses were down 1.7% or $163,000 compared to the third quarter of 2007.  The full quarter impact of the five TSB offices is reflected in each line item of noninterest expense.  Advertising and marketing expense decreased $214,000, or 21.7%, compared to the third quarter of 2007.  Information services expense increased $199,000, or 19.0%.  Net occupancy expense increased $281,000, or 22.5%.  Furniture and equipment expense increased $118,000, or 8.1%, compared to the third quarter in 2007.  Noninterest expense decreased 4.7%, or $105,000, excluding TSB, compared to the third quarter of 2007.  The Company’s efficiency ratio improved to 59.82% compared to 64.16% one year ago, and to 62.27% in the second quarter of 2008. 

During the first quarter of 2008, the Company reclassified mortgage loan commission costs paid to originators previously recorded as compensation expenses into mortgage banking income to net the two amounts.  The result of these reclassifications for the first and second quarters of 2008 and prior periods was to decrease both noninterest reve
nue 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 SCBT, 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 74 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.