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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20529
FORM 10-Q
Quarterly Report Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
For the quarterly period ended March 31, 2005
Commission File Number: 000-13663
SCBT FINANCIAL CORPORATION
(exact name of registrant as specified in its charter)
SOUTH CAROLINA 57-0799315
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
520 GERVAIS STREET, COLUMBIA, SOUTH CAROLINA 29201
(Address of principal executive offices) (Zip Code)
(803) 277-2175
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act
of 1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports) and (2) has been subject to such
filing requirements for the past 90 days. Yes ( X ) No ( )
Indicate by check mark whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Act.) Yes ( X ) No ( )
Indicate the number of shares outstanding of each of issuer's
class of securities:
Class Outstanding as of March 31, 2005
Common Stock, $2.50 par value 8,058,194
SCBT FINANCIAL CORPORATION
INDEX
Part I: Financial Information
Item 1 - Financial Statements
Condensed Consolidated Balance Sheets -
March 31, 2005 and December 31, 2004
Condensed Consolidated Statements of Changes
In Shareholders' Equity -
Three Months Ended
March 31, 2005 and 2004
Condensed Consolidated Statements of Income -
Three Months Ended
March 31, 2005 and 2004
Condensed Consolidated Statements of Cash Flows -
Three Months Ended
March 31, 2005 and 2004
Notes to Consolidated Financial Statements
Item 2 - Management's Discussion and Analysis of
Financial Condition and Results of Operations
Item 3 - Quantitative and Qualitative Disclosures About Market Risk -
Reference is made to Management's Discussion and Analysis of Financial
Condition and Results of Operations in the Company's Annual Report on
Form 10-K for the year ended December 31, 2004
Item 4 - Controls and Procedures
Part II: Other Information
Item 1 - Legal Proceedings
Item 2 - Changes in Securities
Item 6 - Exhibits and Reports on Form 8-K
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
SCBT FINANCIAL CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
-------------------------------------
(In thousands of dollars, except par value)
3/31/2005 12/31/2004
(Unaudited) (Note 1)
------------------------
ASSETS
------
Cash and cash equivalents:
Cash and due from banks $ 45,154 $ 39,261
Interest-bearing deposits with banks 19,886 14,876
Federal funds sold and securities purchased under
agreements to resell 33,655 3,000
------------------------
Total cash and cash equivalents 98,695 57,137
------------------------
Investment securities:
Securities held to maturity (fair value of $21,875 in
2005 and $25,406 in 2004) 21,348 24,604
Securities available for sale, at fair value 134,301 135,058
Other investments 6,264 5,784
------------------------
Total investment securities 161,913 165,446
------------------------
Loans held for sale 17,704 13,837
------------------------
Loans 1,195,337 1,153,407
Less unearned income (117) (177)
Less allowance for loan losses (15,085) (14,470)
------------------------
Loans, net 1,180,135 1,138,760
------------------------
Premises and equipment, net 33,744 33,667
------------------------
Other assets 29,892 28,130
------------------------
Total assets $1,522,083 $1,436,977
========================
LIABILITIES AND SHAREHOLDERS' EQUITY
------------------------------------
Deposits:
Noninterest-bearing $ 226,912 $ 224,027
Interest-bearing 1,019,009 947,286
------------------------
Total deposits 1,245,921 1,171,313
Federal funds purchased and securities sold under
agreements to repurchase 96,222 89,208
FHLB advances 51,903 51,928
Other liabilities 7,212 5,730
------------------------
Total liabilities 1,401,258 1,318,179
------------------------
Shareholders' equity:
Common stock - $2.50 par value; authorized 40,000,000
shares; issued and outstanding 8,058,194 and
7,657,094 shares 20,145 19,143
Stock dividend distributable - 955
Surplus 72,516 72,079
Retained earnings 29,187 26,486
Accumulated other comprehensive income (loss) (1,023) 135
------------------------
Total shareholders' equity 120,825 118,798
------------------------
Total liabilities and shareholders' equity $1,522,083 $1,436,977
========================
THE ACCOMPANYING NOTES ARE AN INTEGRAL
--------------------------------------
PART OF THE FINANCIAL STATEMENTS
--------------------------------
SCBT FINANCIAL CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
THREE MONTHS ENDED MARCH 31, 2005 AND 2004
------------------------------------------
(Unaudited)
(In thousands of dollars, except per share data)
Accumulated
Common Stock Stock Other
-------------------- Dividend Retained Comprehensive
Shares Amount Distibutable Surplus Earnings Income (Loss) Total
-------------------- ------------ ------- --------- ------------- ---------
Balance, December 31, 2003 7,690,186 $ 19,225 $ - $62,722 $ 29,787 $ 615 $ 112,349
---------
Comprehensive income:
Net income - - - - 3,366 - 3,366
Change in net unrealized gain on securities
available for sale, net of tax effects - - - - - 323 323
---------
Total comprehensive income 3,689
---------
Cash dividends declared at $.17 per share - - - - (1,312) - (1,312)
---------
Stock options exercised 44,607 111 - 676 - - 787
---------
Employee stock purchases 2,432 6 - 56 - - 62
---------
Common stock repurchased (17,835) (44) - (521) - - (565)
- -------------------------------------------------------------------------------------------------------------------------------
Balance, March 31, 2004 7,719,390 $ 19,298 $ - $62,933 $ 31,841 $ 938 $ 115,010
===============================================================================================================================
Balance, December 31, 2004 7,657,094 $ 19,143 $ 955 $72,079 $ 26,486 $ 135 $ 118,798
---------
Comprehensive income:
Net income - - - - 4,070 - 4,070
Change in net unrealized loss on securities
available for sale, net of tax effects - - - - - (1,158) (1,158)
---------
Total comprehensive income 2,912
---------
Cash dividends declared at $.17 per share - - - - (1,369) - (1,369)
---------
Stock options exercised 12,702 31 - 213 - - 244
---------
Employee stock purchases 3,173 8 - 73 - - 81
---------
Restricted stock awards 11,592 29 - 360 - - 389
---------
Common stock repurchased (7,695) (19) - (211) - - (230)
---------
Common stock dividend of 5%, record date,
December 20, 2004 381,328 953 (955) 2 - - -
- -------------------------------------------------------------------------------------------------------------------------------
Balance, March 31, 2005 8,058,194 $ 20,145 $ - $72,516 $ 29,187 $ (1,023) $ 120,825
===============================================================================================================================
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS
-----------------------------------------------------------------------
SCBT FINANCIAL CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
-------------------------------------------
(Unaudited)
(In thousands of dollars, except par value)
Three Months Ended
---------------------------
3/31/05 3/31/04
-------- --------
Interest income:
Loans, including fees $ 17,814 $ 14,045
Investment securities:
Taxable 1,365 1,029
Tax-exempt 328 388
Federal funds sold and securities
purchased under agreements to resell 120 57
Money market funds 1 11
Deposits with banks 139 24
------------ ------------
Total interest income 19,767 15,554
------------ ------------
Interest expense:
Deposits 4,090 2,337
Federal funds purchased and securities
sold under agreements to repurchase 375 117
FHLB advances 644 653
------------ ------------
Total interest expense 5,109 3,107
------------ ------------
Net interest income:
Net interest income 14,658 12,447
Provision for loan losses 723 788
------------ ------------
Net interest income after provision for
loan losses 13,935 11,659
------------ ------------
Noninterest income:
Service charges on deposit accounts 2,870 2,808
Other service charges and fees 2,405 2,736
Gain on sale of assets 3 172
Net realized gains on investments 2 5
------------ ------------
Total noninterest income 5,280 5,721
------------ ------------
Noninterest expense:
Salaries and employee benefits 7,732 6,831
Net occupancy expense 797 781
Furniture and equipment expense 948 1,073
Other expense 3,666 3,801
------------ ------------
Total noninterest expense 13,143 12,486
------------ ------------
Earnings:
Income before provision for income taxes 6,072 4,894
Provision for income taxes 2,002 1,528
------------ ------------
Net income $ 4,070 $ 3,366
============ ============
Earnings per share:
Basic $0.51 $0.42
============ ============
Diluted $0.50 $0.41
============ ============
THE ACCOMPANYING NOTES ARE AN INTEGRAL
--------------------------------------
PART OF THE FINANCIAL STATEMENTS
--------------------------------
SCBT FINANCIAL CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
-----------------------------------------------
(Unaudited)
(In thousands of dollars)
Three Months Ended
------------------------
3/31/2005 3/31/2004
------------------------
Cash flows from operating activities:
Net income $ 4,070 $ 3,366
Adjustments to reconcile net income to net cash
provided (used) by operating activities:
Depreciation and amortization 633 613
Provision for loan losses 723 788
Net realized gain on investments (2) (5)
Gain on sale of premises and equipment (3) (172)
Net amortization of investment securities 73 128
Net change in miscellaneous assets and
liabilities (3,506) (4,256)
------------------------
Net cash provided by operating activities 1,988 462
------------------------
Cash flows from investing activities:
Proceeds from maturities and calls of investment
securities held to maturity 3,244 2,592
Proceeds from maturities of investment securities
available for sale 4,683 27,727
Purchases of investment securities available for sale (5,852) (21,816)
Purchases of other investment securities (481) (173)
Net increase in customer loans (42,174) (52,347)
Recoveries of loans previously charged off 77 204
Purchases of premises and equipment (771) (896)
Proceeds from sale of premises and equipment 133 214
------------------------
Net cash used by investing activities (41,141) (44,495)
------------------------
Cash flows from financing activities:
Net increase in deposits 74,607 54,793
Net increase in federal funds purchased and
securities sold under agreements to repurchase 7,014 20,543
Repayment of debt (25) (25)
Common stock issuance 470 62
Common stock repurchase (230) (565)
Dividends paid (1,369) (1,312)
Stock options exercised 244 787
------------------------
Net cash provided by financing activities 80,711 74,283
------------------------
Net increase in cash and cash equivalents $ 41,558 $ 30,250
Cash and cash equivalents at beginning of period 57,137 47,124
------------------------
Cash and cash equivalents at end of period $ 98,695 $ 77,374
========================
THE ACCOMPANYING NOTES ARE AN INTEGRAL
--------------------------------------
PART OF THE FINANCIAL STATEMENTS
--------------------------------
SCBT FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Note 1 - Basis of Presentation:
The accompanying unaudited condensed consolidated financial statements have
been prepared in accordance with generally accepted accounting principles for
interim financial information and with the instructions to Form 10-Q and Article
10 of Regulation S-X. Accordingly, they do not include all of the information
and footnotes required by generally accepted accounting principles for complete
financial statements. In the opinion of management, all adjustments (consisting
of normal recurring accruals) considered necessary for a fair presentation have
been included. Certain prior period information has been reclassified to conform
to the current period presentation. Operating results for the three months ended
March 31, 2005 are not necessarily indicative of the results that may be
expected for the year ending December 31, 2005.
The condensed consolidated balance sheet at December 31, 2004, has been
derived from the audited financial statements at that date, but does not include
all of the information and footnotes required by generally accepted accounting
principles for complete financial statements.
The information contained in the consolidated financial statements and
accompanying footnotes included in the Company's annual report on Form 10-K for
the year ended December 31, 2004 should be referenced when reading these
unaudited condensed consolidated financial statements.
Note 2 - Recent Accounting Pronouncements:
In December 2003, the American Institute of Certified Public Accountants
(AICPA) issued Statement of Position No. 03-3, Accounting for Certain Loans or
Debt Securities Acquired in a Transfer (SOP 03-3). SOP 03-3 is effective for
loans acquired in fiscal years beginning after December 15, 2004. SOP 03-3
requires acquired loans to be recorded at fair value and prohibits carrying over
valuation allowances in the initial accounting for all loans acquired in a
transfer that have evidence of deterioration in credit quality since
origination, when it is probable that the investor will be unable to collect all
contractual cash flows. Loans carried at fair value, mortgage loans
held-for-sale, and loans to borrowers in good standing under revolving credit
agreements are excluded from the scope of SOP 03-3. SOP 03-3 had no material
impact on the Company's results of operations or financial condition.
In March 2004, the Emerging Issues Task Force (EITF) issued EITF 03-1, The
Meaning of Other-Than-Temporary Impairment and Its Application to Certain
Investments (EITF 03-1). EITF 03-1 provides recognition and measurement guidance
regarding when impairments of equity and debt securities are considered
other-than-temporary thereby requiring a charge to earnings, and also requires
additional annual disclosures for investments in unrealized loss positions. The
additional annual disclosure requirements were previously issued by the EITF in
November 2003 and were effective for the Corporation for the year ended December
31, 2003. In September 2004, the FASB issued FASB Staff Position (FSP) EITF
03-1-1, which delays the recognition and measurement provisions of EITF 03-1
pending the issuance of further implementation guidance. The Company is
currently evaluating the effect of the recognition and measurement provisions of
EITF 03-1.
In December 2004, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting (SFAS) No. 123 (revised 2004), Share-based
Payment (SFAS 123R) which eliminates the ability to account for share-based
compensation transactions using APB Opinion No. 25, and generally requires that
such transactions be accounted for using a fair value-based method with the
resulting compensation cost recognized over the period that the employee is
required to provide service in order to receive their compensation. SFAS 123R
also amends SFAS No. 95, Statement of Cash Flows, requiring the benefits of tax
deductions in excess of recognized compensation cost to be reported as a
financing cash flow, rather than as an operating cash flow as currently
required. The Company plans to adopt SFAS 123R beginning July 1, 2005, and does
not expect it to have a material impact on its financial position results of
operations.
In December 2004, the FASB issued SFAS No. 153, Exchanges of Nonmonetary
Assets - an amendment of APB Opinion No. 29 (SFAS 153). SFAS 153 addresses the
measurement of nonmonetary exchanges and eliminates the exception from fair
value measurement for nonmonetary exchanges of similar productive assets in APB
Opinion No. 29, Accounting for Nonmonetary Transactions, and replaces it with an
exception for exchanges that do not have commercial substance. SFAS 153
specifies that a nonmonetary exchange has commercial substance if the future
cash flows of the entity are expected to change significantly as a result of the
exchange. The Company does not expect the adoption of SFAS 153 to have a
material impact on its financial position or results of operations.
Note 3- Retirement Plan
The components of net periodic pension cost recognized during the three
months ended March 31, 2005 and 2004 are as follows:
(In thousands of dollars)
Three Months Ended
------------------
3/31/2005 3/31/2004
--------- ---------
Service cost $ 237 $ 166
Interest cost 208 179
Expected return on assets (239) (198)
Amortization of prior service cost (10) (10)
Recognized net actuarial gain 90 47
-----------------------
Total $ 286 $ 184
=======================
The Company contributed $192,000 to the Plan during the first quarter of
2005 and may contribute up to the allowable tax deduction limit of $2,000,000
for the year 2005.
Note 4 - Earnings Per Share:
Basic earnings per share is calculated by dividing net income by the
weighted-average shares of common stock outstanding during each period. Diluted
earnings per share is based on the weighted-average shares of common stock
outstanding during each period plus the maximum dilutive effect of common stock
issuable upon exercise of stock options. The weighted average number of shares
and equivalents are determined after giving retroactive effect to stock
dividends and stock splits. Weighted-average shares outstanding used in
calculating earnings per share for the three months ended March 31, 2005 and
2004 are as follows:
3/31/2005 3/31/2004
--------- ---------
Basic 8,053,089 8,095,916
Diluted 8,127,230 8,191,642
Shares outstanding for per share data calculations have been retroactively
adjusted to give effect to a 5% common stock dividend paid to shareholders of
record as of December 20, 2004.
The calculation of diluted earnings per share excludes outstanding stock
options that have exercise prices greater than the average market price of the
common shares. The number of shares in this category was 32,968 with an exercise
price of $33.57 at March 31, 2005. There were no options in this category at
March 31, 2004.
Dividends per share are calculated using the current equivalent number of
common shares outstanding at the time of the dividend based on the Company's
shares outstanding.
Note 5 - Stock-Based Compensation:
During 1996, 1999, and 2004, the Company adopted stock option plans under
which incentive and nonqualified stock options may be granted periodically to
key employees and non-employee directors. With the exception of non-qualified
options granted to directors under the 1999 and 2004 plans, which in some cases
may be exercised at any time prior to expiration and in some other cases may be
exercised at intervals less than one year following the grant date, incentive
stock options granted under the plans may not be exercised in whole or in part
within one year following the date of the grant , and thereafter become
exercisable in 25% increments over the next four years. The options are granted
at an exercise price at least equal to the fair value of the common stock at the
date of grant and have terms ranging from five to ten years. No options were
granted under the 1996 plan after December 18, 2000, and the plan has since
terminated other than for any options still unexercised and outstanding. No
options were granted under the 1999 plan after January 2, 2004, and the plan is
closed other than for any options still unexercised and outstanding. The 2004
plan is the only plan from which new stock-based compensation grants may be
issued.
The Company from time-to-time also grants shares of restricted stock to key
employees and non-employee directors. These awards help align the interests of
these employees and directors with the interests of the shareholders of the
Company by providing economic value directly related to increases in the value
of the Company's stock. The value of the stock awarded is established as the
fair market value of the stock at the time of the grant. The Company recognizes
expenses, equal to the total value of such awards, ratably over the vesting
period of the stock grants. Grants to employees typically vest over a 48-month
period, while grants to non-employee directors typically vest within a 12-month
period.
The Company applies the intrinsic value method in accounting for its
stock-based compensation plans in accordance with Accounting Principles Board
Opinion No. 25. Under the intrinsic value method, no stock-based employee
compensation cost is, or is expected to be, reflected in net income, as all
options granted under the plans had an exercise price equal to the market value
of the underlying common stock on the date of grant. Had stock-based employee
compensation costs of the Company's stock option plans been determined based on
the fair value at the grant dates for awards under those plans consistent with
the method prescribed by SFAS 123, as amended by SFAS 148, the Company's net
income and earnings per share would have been reduced to the pro forma amounts
indicated:
Three Months Ended
------------------
(In thousands of dollars, except per share data) 3/31/2005 3/31/2004
--------- ---------
Net income, as reported $ 4,070 $ 3,366
Less, total stock-based employee
compensation expense determined under fair
value based method, net of related tax effects 66 56
-----------------------
Pro forma net income $ 4,004 $ 3,310
=======================
Earnings per share:
Basic - as reported $ 0.51 $ 0.42
=======================
Basic - pro forma $ 0.50 $ 0.41
=======================
Diluted - as reported $ 0.50 $ 0.41
=======================
Diluted - pro forma $ 0.49 $ 0.40
=======================
The effect of applying SFAS 123 in the above pro forma disclosure is not
indicative of future amounts. The Company anticipates making awards in the
future under its stock-based compensation plans.
The fair value of each stock option grant is estimated on the date of grant
using the Black-Scholes option pricing model with the following weighted-average
assumptions:
Three Months Ended
------------------
3/31/2005 3/31/2004
--------- ---------
Dividend yield 2.19% 2.47%
Expected life 10 years 10 years
Expected volatility 24.0% 26.0%
Risk-free interest rate 4.22% 4.26%
Note 6 - Commitments and Contingent Liabilities:
In the normal course of business, the Company makes various commitments and
incurs certain contingent liabilities, which are not reflected in the
accompanying financial statements. The commitments and contingent liabilities
include guarantees, commitments to extend credit and standby letters of credit.
At March 31, 2005, commitments to extend credit and standby letters of credit
totaled $303,217,000. The Company does not anticipate any material losses as a
result of these transactions.
Note 7 - Subsequent Events:
In April 2005, the Company completed the acquisition of New Commerce
Bancorp and its banking subsidiary, New Commerce Bank. New Commerce Bank had two
branch offices in the Mauldin and Simpsonville communities of Greenville County
and total assets of approximately $94,000,000 at the merger date, the close of
business April 8, 2005. New Commerce Bancorp was merged into South Carolina Bank
and Trust, N. A. Pursuant to the agreement, South Carolina Bank and Trust paid
$18.00 in cash for each share of New Commerce Bancorp common stock for an
aggregate purchase price of $20,106,000.
Also in April 2005, the Company established two new Delaware trust
subsidiaries, SCBT Capital Trust I and SCBT Capital Trust II, which completed
the sale of an aggregate $20,000,000 of trust preferred securities on April 7,
2005. SCBT Capital Trust I issued $12,000,000 in trust preferred securities at a
rate equal to the 3-month LIBOR rate plus a spread. The initial LIBOR rate,
which adjusts quarterly, was 3.12313% per annum. SCBT Capital Trust II issued
$8,000,000 in trust preferred securities at a rate fixed for the first five
years at 6.37%, and thereafter at a rate equal to the 3-month LIBOR rate plus a
spread. The trust preferred securities mature in 30 years, and can be called by
the issuer without penalty on or after June 30, 2010.
SCBT FINANCIAL CORPORATION AND SUBSIDIARIES
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The following discussion relates to the financial statements contained in
this report. For further information refer to Management's Discussion and
Analysis of Financial Condition and Results of Operations appearing in SCBT
Financial Corporation's Annual Report on Form 10-K for the year ended December
31, 2004.
Statements included in Management's Discussion and Analysis of Financial
Condition and Results of Operations 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 risk factors 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 rate risk
involving the effect of a change in interest rates on both the bank's earnings
and the market value of 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; and (8) Reputation risk that adversely affects earnings or
capital arising from negative public opinion.
SCBT Financial Corporation (the "Company") is a bank holding company
incorporated under the laws of South Carolina in 1985. The Company owns 100
percent of South Carolina Bank and Trust, N. A., a national bank that opened for
business in 1932 and 100 percent of South Carolina Bank and Trust of the
Piedmont, N. A., a national bank that opened for business in 1996. The Company
engages in no significant operations other than the ownership of its
subsidiaries.
Early in the second quarter of 2005, the Company completed the acquisition
of New Commerce Bancorp and its banking subsidiary, New Commerce Bank. New
Commerce Bank had two branch offices in the Mauldin and Simpsonville communities
of Greenville County and had total assets of approximately $94,000,000 at the
merger date, the close of business April 8, 2005. New Commerce Bancorp was
merged into South Carolina Bank and Trust, N. A. Pursuant to the agreement,
South Carolina Bank and Trust paid $18.00 in cash for each share of New Commerce
Bancorp common stock for an aggregate purchase price of $20,106,000.
Also early in the second quarter of 2005, the Company established two new
Delaware trust subsidiaries, SCBT Capital Trust I and SCBT Capital Trust II,
which completed the sale of an aggregate $20,000,000 of trust preferred
securities on April 7, 2005. SCBT Capital Trust I issued $12,000,000 in trust
preferred securities at a rate equal to the 3-month LIBOR rate plus a spread.
The LIBOR rate, which adjusts quarterly, was 3.12313% per annum at the initial
setting. SCBT Capital Trust II issued $8,000,000 in trust preferred securities
at a rate fixed for the first five years at 6.37%, and thereafter at a rate
equal to the 3-month LIBOR rate plus a spread. The trust preferred securities
mature in 30 years and can be called at the issuer's option without penalty on
or after June 30, 2010.
Some of the major services that the Company provides through its banking
subsidiaries include checking, NOW accounts, savings and time deposits of
various types, alternative investment products such as annuities and mutual
funds, loans for businesses, agriculture, real estate, personal use, home
improvement and automobiles, credit cards, letters of credit, home equity lines
of credit, safe deposit boxes, bank money orders, wire transfer services, trust
services, discount brokerage services, correspondent banking services, and use
of ATM facilities. The Company has no material concentration of deposits from
any single customer or group of customers. The Company considers that it has no
significant portion of its loans concentrated within a single industry or group
of related industries, although based on OCC regulatory criteria, it had credit
concentrations in loans to lessors of nonresidential buildings, loans to
religious organizations, and other activities related to real estate.
Furthermore, the Company attempts to avoid making loans that, in an aggregate
amount, exceed 10 percent of total loans to a multiple number of borrowers
engaged in similar business activities that could cause these aggregated loans
to be similarly impacted by economic or other conditions. As of March 31, 2005,
there were no aggregated credit concentrations of this type. There are no
material seasonal factors that would have a material adverse effect on the
Company. The Company does not have foreign loans or deposits.
RESULTS OF OPERATIONS
For the first quarter of 2005, the Company had consolidated net income of
$4,070,000, an increase of 20.9 percent from $3,366,000 earned in the first
quarter of 2004. Diluted earnings per share were $0.50 for the first quarter of
2005, compared with $0.41 in the prior year. Annualized returns on average
assets and average shareholders' equity for the three months ended March 31,
2005 were 1.10 percent and 13.77 percent, respectively, compared to 1.10 percent
and 11.96 percent, respectively, for the first quarter of 2004.
NET INTEREST INCOME
For the first quarter of 2005, net interest income was $14,658,000, an
increase of $2,211,000, or 17.8 percent, over $12,447,000 for the same period in
2004. This increase was largely the result of growth in earning assets and
low-rate and non-interest bearing deposits.
The yield on a major portion of the Company's earning assets adjusts
simultaneously, but to varying degrees of magnitude, with changes in the general
level of interest rates. Comparing the first three months of 2005 and 2004,
yields on earning assets had increased less than interest rates paid on
interest-bearing liabilities. For the three months ended March 31, 2005, the
non-tax equivalent yield on earning assets was 5.73 percent, compared with 5.44
percent during the same period in 2004, an increase of 29 basis points. For the
same comparative periods, the cost of interest-bearing liabilities used to
support these assets increased 49 basis points from 1.33 percent in 2004 to 1.82
percent in 2005. The taxable equivalent net interest margin decreased 13 basis
points from 4.44 percent in the first quarter of 2004 to 4.31 percent for the
first quarter of 2005. The low interest rate environment continued to impact the
net interest margin. Increases in the latter half of 2004 in rates paid on money
market deposits and certificates of deposit primarily drove the increase in the
cost of interest bearing liabilities. Nonetheless the taxable equivalent net
interest margin for the first quarter of 2005 increased by 7 basis points from
the 4.24 percent margin in the immediately preceding quarter.
Loans comprise the Company's largest category of earning assets. As of
March 31, 2005, loans outstanding, net of unearned income, were $1,195,220,000,
compared with $1,153,230,000 at December 31, 2004. This represents an increase
of $41,990,000 or 3.6 percent, with significant growth in commercial, commercial
and consumer real estate and home equity loan categories. For the quarter ended
March 31, 2005, interest and fees on loans were $17,814,000, compared with
$14,045,000 for the comparable period in 2004, an increase of $3,769,000, or
26.8 percent. This increase was the result of higher lending rates and loan
portfolio growth.
For the three months ended March 31, 2005, loans averaged $1,177,059,000
and increased in yield by 27 basis points to 6.07 percent on a non-tax
equivalent basis, compared to $962,598,000 with a non-tax equivalent yield of
5.80 for the same period in 2004.
Investment securities, the second largest category of earning assets, are
utilized to generate interest income through the employment of excess funds, to
provide liquidity, to fund loan demand or deposit liquidation, and to pledge as
collateral for certain deposits and repurchase agreements. At March 31, 2005,
investment securities were $161,913,000, compared to $165,446,000 at December
31, 2004. The composition of the portfolio remained relatively consistent during
the first three months of 2004, with a continued bias toward relatively
short-term and shorter average life securities in the continuing low rate
environment.
For the quarter ended March 31, 2005, interest earned on investment
securities was $1,693,000, compared with $1,417,000 for the comparable period in
2004. This increase of $276,000, or 19.5 percent, resulted from higher average
outstanding balances and yields in 2005 versus 2004. For the first three months
of 2005, investment securities averaged $164,933,000 with a yield of 4.59
percent on a taxable equivalent basis, compared to an average of $145,464,000
and yield of 4.55 percent for the first quarter of 2004.
There was a net realized gain on investments of $2,000 during the first
quarter of 2005 and a net gain of $5,000 in the first quarter of 2004. As of
March 31, 2005, the Company had a net unrealized pre-tax gain of $527,000 and a
net unrealized pre-tax loss of $1,651,000 in the held-to-maturity and
available-for-sale securities portfolio segments, respectively.
Although securities classified as available-for-sale may be sold from time
to time to meet liquidity or other needs, it is not the normal practice of the
Company to trade this segment of the investment securities portfolio. While
management has the ability and generally holds these assets on a long-term basis
or until maturity, any short-term investments or securities available for sale
could be converted at an earlier point, depending on changes in interest rates
and alternative investment opportunities.
As of March 31, 2005 and March 31, 2004, the Company had no holdings in
money market funds. These short-term investments averaged $4,824,000 for the
first three months of 2004 and earned $11,000.
During the first three months of 2005, interest-bearing liabilities
averaged $1,140,000,000 with an average rate of 1.82 percent. This compares to
an average balance of $936,785,000 and rate of 1.33 percent for same period in
2004, an increase of 49 basis points. At March 31, 2005, approximately 38
percent of interest-bearing liabilities had fixed rates for a specified term.
These are expected to renew at prevailing market rates as they mature.
Non-interest bearing deposits were $226,912,000 at March 31, 2005, an
increase of $2,885,000, or 1.3 percent, from $224,027,000 at December 31, 2004.
During the same three-month period, interest-bearing deposits grew by
$71,723,000, or 7.6 percent, from $947,286,000 to $1,019,009,000. Comparing
first quarter ending balances, interest-bearing deposits grew over the past
twelve months by $219,953,000, or 26.9 percent, from $803,056,000 in 2004. The
Company paid interest of $4,090,000 in the first quarter of 2005 on average
interest-bearing deposits of $987,653,000, compared with $2,337,000 paid on an
average of $793,789,000 in the comparable 2004 period.
PROVISION FOR LOAN LOSSES
The provision for loan losses for the three months ended March 31, 2005 was
$723,000 compared with $788,000 for the first quarter of 2004, a decrease of 8.2
percent. The provision reflects favorable asset quality measures, including net
charge-offs as a percentage of average loans of only 0.04 percent annualized for
the first quarter of 2005. The allowance for loan losses was $15,085,000, or
1.26 percent of loans net of unearned income at March 31, 2005 and $14,470,000,
or 1.25 percent of outstanding loans at December 31, 2004. The current allowance
provides 4.56 times coverage of period end nonperforming loans, which totaled
$3,310,000, or 0.28 percent of period end loans. The allowance for loan losses
also provides approximately 34 times coverage of first quarter annualized net
charge-offs. Net charge-offs for the first quarter were $108,000, or an
annualized 0.04 percent of average loans net of unearned income. In the prior
year, net charge offs were $254,000, or an annualized 0.31 percent, of first
quarter average loans.
The pace of economic activity has been mixed, both nationally and in South
Carolina. There has been some evidence of rising consumer price inflation, much
of which is attributable to increased costs for gasoline and energy products.
The Federal Reserve has continued its process of increasing short-term interest
rates on a measured basis. In the current economic climate, management
anticipates that loan charge-offs in the coming year may increase somewhat from
the extremely low level seen in the first quarter to percentages of loan
balances that could be reasonably comparable to levels experienced in recent
periods. For all of 2004, the Company's net charge-offs amounted to 0.15 percent
of loans. Management assesses the adequacy of the allowance for loan losses by
using an internal risk rating system, independent credit reviews and regulatory
agency examinations, all of which evaluate the quality of the loan portfolio and
seek to identify problem loans. Based on such analysis, management and the board
of directors consider the current allowance to be adequate.
Other real estate owned includes certain real estate acquired as a result
of foreclosure and property not intended for bank use. As of March 31, 2005,
other real estate owned was $1,351,000, compared with $1,712,000 at December 31,
2004 and $1,554,000 at the end of the first quarter of 2004.
NONINTEREST INCOME AND EXPENSE
Non-interest income for the first quarter of 2005 was $5,280,000, compared
with $5,721,000 for the same period in 2004, a decrease of $441,000, or 7.7
percent. The decrease from 2004 results is primarily attributable to a March
2004 $782,000 gain on the sale of the Cameron branch of South Carolina Bank and
Trust, somewhat offset by increases of $173,000 in secondary market origination
fees, $73,000 in debit card income and $62,000 in service charges on deposit
accounts. In the quarterly comparisons, fees from trust and fiduciary services
increased 13.8 percent, from $138,000 to $157,000.
For the first quarter of 2005, non-interest expense was $13,143,000, an
increase of $657,000, or 5.3 percent, from $12,486,000 for the same period in
the previous year. Salaries and employee benefits increased $901,000, or 13.2
percent, to $7,732,000 from the first quarter of 2004 to the first quarter of
2005. Base salaries increased $141,000, or 3.1 percent. The remainder of the
increase is attributable to higher mortgage loan origination commissions, higher
levels of retail sales incentives, and accruals for other employee and officer
performance incentive programs. In year-to-year first quarter comparisons,
furniture and equipment expense (including some lower computer and data
processing lease expenses) declined 11.7 percent to $948,000 while net occupancy
expense was up 2.1 percent to $797,000. Other expense was $3,666,000 in the
first quarter of 2005, a decrease of $135,000, or 3.6 percent, from the first
quarter of 2004. 2004's elevated expenses were driven by non-recurring expenses
of $266,000 associated with several 2004 first quarter initiatives. These
included acquisition expenses of the Denmark, SC bank branch, costs incurred in
the corporate name change process, fees associated with the new listing on the
Nasdaq Stock Market, and consulting fees in connection with contract analyses
for cost reduction opportunities.
NET INCOME
Net income was $4,070,000 for the first quarter of 2005, an increase of
$704,000, or 20.9 percent, compared with $3,366,000 in the first quarter of
2004. As described above, earnings were impacted by the 17.7 percent increase in
net interest income, partially offset by a substantially smaller decrease in
non-interest income and increase in non-interest expense.
CAPITAL RESOURCES AND LIQUIDITY
The ongoing capital requirements of the Company have been met primarily
through retained earnings, less the payment of cash dividends. As of March 31,
2005, shareholders' equity was $120,825,000, an increase of $2,027,000, or 1.7
percent, from $118,798,000 at December 31, 2004.
The Company and its subsidiaries are subject to certain risk-based capital
guidelines. Certain ratios measure the relationship of capital to a combination
of balance sheet and off balance sheet risks. The values of both balance sheet
and off balance sheet items are adjusted to reflect credit risk. Under the
guidelines promulgated by the Board of Governors of the Federal Reserve System,
which are substantially similar to those of the Comptroller of the Currency,
Tier 1 capital must be at least 4 percent of risk-weighted assets, while total
capital must be at least 8 percent of risk-weighted assets. The Corporation's
Tier 1 capital to risk-weighted assets ratio at March 31, 2005 was 9.76 percent,
compared to 9.85 percent at December 31, 2004. The total capital to
risk-weighted ratio was 11.01 percent at the end of the first quarter of 2005,
compared with 11.10 at the end of 2004. These ratios have declined primarily
because of the continuing strong loan growth and the corresponding impact on
risk-weighted assets.
In conjunction with the risk-based ratios, the regulatory agencies have
also prescribed a leverage capital ratio for assessing capital adequacy. The
minimum leverage ratio required for banks is between 3 and 5 percent, depending
on the institution's composite rating as determined by its regulators. The
Company's leverage ratio was 7.85 percent as of March 31, 2005 and 8.05 percent
as of December 31, 2004. The Company's capital ratios currently well exceed the
minimum standards and continue to be in the "well capitalized" regulatory
classifications.
Liquidity is the ability of the Company to generate sufficient cash to meet
its financial obligations, which arise primarily from the withdrawal of
deposits, extension of credit and payment of operating expenses. Asset liquidity
is maintained by the maturity structure of loans, investment securities and
other short-term investments. Management has policies and procedures governing
the length of time to maturity on loans and investments. Normally, changes in
the earning asset mix are of a longer-term nature and are not utilized for
day-to-day corporate liquidity needs.
The Company's liabilities provide liquidity on a day-to-day basis. Daily
liquidity needs are met from deposit levels or from the Company's use of federal
funds purchased, securities sold under agreements to repurchase and other
short-term borrowings. Additional liquidity can be secured from lines of credit
extended to the Company from its correspondent banks and the Federal Home Loan
Bank. Management believes that its liquidity position is adequate.
Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
There have been no material changes in the Company's quantitative and
qualitative disclosures about market risk as of March 31, 2005 from that
presented in the Annual Report on Form 10-K for the year ended December 31,
2004.
Item 4. CONTROLS AND PROCEDURES
As of the end of the period covered by this report, the Company carried out
an evaluation, under the supervision and with the participation of the Company's
management, including the Company's President and Chief Executive Officer and
the Chief Financial Officer, of the effectiveness of the design and operation of
the Company's disclosure controls and procedures pursuant to Exchange Act Rule
13a-15. Management necessarily applied its judgment in the process of reviewing
these controls and procedures, which, by their nature, can provide only
reasonable assurance regarding management's control objectives. Based upon this
evaluation, the Company's President and Chief Executive Officer and the Chief
Financial Officer concluded that the Company's disclosure controls and
procedures are effective in timely alerting them as to material information
relating to the Company, including its consolidated subsidiaries, required to be
included in the Company's Exchange Act filings.
There have been no significant changes in the Company's internal controls
or in other factors that could significantly affect internal controls subsequent
to the date the Company carried out its evaluation.
The design of any system of controls and procedures is based in part upon
certain assumptions about the likelihood of future events. There can be no
assurance that any design will succeed in achieving its stated goals under all
potential future conditions, regardless of how remote.
PART II - OTHER INFORMATION
Item 1. Legal Proceedings:
Neither SCBT Financial Corporation nor its subsidiaries is a party to nor
is any of their property subject to any material or other pending legal
proceedings, other than in the ordinary routine proceedings incident to their
business.
Item 2. Change in Securities:
(a) through (d): Not applicable.
(e) Issuer Purchases of Equity Securities:
In February 2004 SCBT Financial Corporation announced a program with no
formal expiration date to repurchase up to 250,000 of its common shares. The
following table reflects activity in this program during the first quarter 2005:
(d) Maximum
(c) Total Number (or
Number of Approximate
Shares (or Dollar Value)
Units) of Shares (or
Purchased as Units) that
(a) Total Part of May Yet Be
Number of (b) Average Publicly Purchased
Shares (or Price Paid per Announced Under the
Units) Share (or Plans or Plans or
Period Purchased Unit) Programs Programs
- ---------------------------------------------------------------------------------------------------------
January 1 - January 31 - - 147,872
February 1 - February 28 - - 147,872
March 1 - March 31 - - 147,872
----------------- -----------------
Total - - 147,872
================= =================
Also during the quarter, the Company redeemed 7,695 of its shares at $29.95 per
share from two executive officers under an approved program designed to
facilitate stock option exercises under the 1999 and 2004 stock option plans.
There is no pre-determined number of shares that may be repurchased in
accordance with this activity.
Item 3. Defaults Upon Senior Securities: .
Not applicable.
Item 4. Submission of Matters to a Vote of Security Holders:
Not applicable.
Item 5. Other Information:
Not Applicable.
Item 6. Exhibits:
The following is a list of exhibits to this report:
Exhibit No. Description of Exhibit
- ----------- ----------------------
31.1 Rule 13a - 14(a) Certification of the Chief Executive Officer
31.2 Rule 13a - 14(a) Certification of the Chief Financial Officer
32 Section 1350 Certifications
Pursuant to the requirements of the Securities and Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
SCBT FINANCIAL CORPORATION
Date: May 10, 2005 /s/ Robert R. Hill, Jr.
-----------------------
Robert R. Hill, Jr.
President and
Chief Executive Officer
Date: May 10, 2005 /s/ Richard C. Mathis
---------------------
Richard C. Mathis
Executive Vice President and
Chief Financial Officer
Exhibit Index
Exhibit Number Description
- -------------- -----------
31.1 Rule 13a - 14(a) Certification of the Chief Executive Officer
31.2 Rule 13a - 14(a) Certification of the Chief Financial Officer
32 Section 1350 Certifications.