Business Context and Reporting Period
Company: SCBT Financial Corporation (Southstate Bank Corp)
Filing Type: Form 10-Q (Quarterly Report)
Period Ended: June 30, 2009
Overview: SCBT Financial Corporation is a bank holding company headquartered in Columbia, South Carolina, operating primarily through its subsidiary, SCBT, N.A. The company provides a full range of banking services including commercial and consumer lending, deposits, and wealth management. As of June 30, 2009, the company held approximately $2.8 billion in total assets and employed approximately 702 full-time equivalents.
Key Financial Metrics
| Metric | Three Months Ended June 30, 2009 | Six Months Ended June 30, 2009 | Three Months Ended June 30, 2008 | Six Months Ended June 30, 2008 |
|---|---|---|---|---|
| Net Income | $5.4 million | $9.9 million | $6.1 million | $12.1 million |
| Net Income Available to Common Shareholders | $1.5 million | $5.2 million | $6.1 million | $12.1 million |
| Diluted EPS (Common) | $0.13 | $0.45 | $0.60 | $1.18 |
| Net Interest Income | $26.0 million | $51.0 million | $23.6 million | $46.5 million |
| Provision for Loan Losses | $4.5 million | $9.6 million | $2.3 million | $3.6 million |
| Total Assets | $2.81 billion | - | $2.77 billion | - |
| Total Loans | $2.24 billion | - | $2.25 billion | - |
| Allowance for Loan Losses | $32.4 million | - | $28.8 million | - |
| Shareholders' Equity | $280 million | - | $221 million | - |
| Cash and Cash Equivalents | $157.1 million | - | $104.5 million | - |
Material Changes vs. Prior Period
- Profitability Decline: Net income available to common shareholders decreased 75.2% year-over-year (Q2 2009 vs. Q2 2008) to $1.5 million. This sharp decline was primarily driven by a $3.3 million accelerated deemed dividend charge associated with the repurchase of preferred stock issued to the U.S. Treasury under the Capital Purchase Program (CPP).
- Net Interest Income Growth: Despite lower interest rates, net interest income increased 10.4% year-over-year to $26.0 million. The net interest margin expanded to 4.03% (non-taxable equivalent) due to a faster decline in the cost of interest-bearing liabilities compared to the yield on earning assets.
- Increased Credit Costs: The provision for loan losses more than doubled year-over-year to $4.5 million, reflecting a rise in nonperforming assets and net charge-offs. Net charge-offs for the quarter were $4.2 million, compared to $0.9 million in the prior year.
- Asset Quality Deterioration: Nonperforming assets (NPAs) rose to $39.1 million (1.39% of total assets) from $8.7 million (0.31% of total assets) in June 2008. Nonperforming loans increased to $29.9 million, and Other Real Estate Owned (OREO) increased to $9.2 million.
- Capital Structure Changes: The company exited the TARP CPP by repurchasing all Series T preferred stock and the associated warrant in Q2 2009. Concurrently, the company raised approximately $29.2 million through a public offering of 1.36 million shares of common stock.
Guidance, Outlook, and Risks
- Management Commentary: Management believes asset quality remains manageable despite the increase in nonperforming assets. The allowance for loan losses coverage of nonperforming loans decreased to 108.33% from 388.96% in the prior year due to the rise in problem loans.
- Investment Securities Risk: The company holds $16.4 million in pooled trust preferred securities (TRUPs) with a fair value of $9.7 million. A $544,000 other-than-temporary impairment (OTTI) charge was recognized in Q2 2009 on two specific securities. Management continues to monitor the remaining six TRUPs, noting that the market for these securities is illiquid and subject to further impairment risk.
- Regulatory and Economic Risks: The company faces increased FDIC assessment costs due to special assessments and higher base rates. Economic risks include rising unemployment, declining real estate values, and recessionary pressures in the Southeast region.
- Liquidity: Liquidity is considered adequate, supported by a $360 million federal funds credit line, $111 million available at the Federal Reserve discount window, and $156.6 million in FHLB credit facilities. Brokered deposits were significantly reduced from $110 million to $10 million during the period.
Investor Verification Checklist
- TARP Exit Impact: Verify the full financial impact of the $3.3 million accelerated dividend charge and the $1.4 million warrant repurchase on common shareholder equity and earnings.
- TRUPs Exposure: Review the detailed valuation methodology for the $16.4 million portfolio of trust preferred securities and the potential for future OTTI charges given the illiquid market.
- Nonperforming Assets Trend: Monitor the trajectory of nonperforming loans and OREO, specifically the concentration in commercial real estate and construction/land development sectors.
- Allowance Adequacy: Assess whether the 1.45% allowance for loan losses ratio is sufficient given the rapid increase in net charge-offs and the 108% coverage ratio of nonperforming loans.
- Capital Ratios: Confirm that the company maintains "well-capitalized" status following the common stock issuance and preferred stock redemption.