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SCBT Financial Corp. Reports Operating Results (10-K)
Posted by: gurufocus (IP Logged)
Date: March 9, 2012 04:37PM
SCBT Financial Corp. (SCBT) filed Annual Report for the period ended 2011-12-31.
Highlight of Business Operations:We achieved a net income of $22.6 million, or $1.63 diluted earnings per share ("EPS"), during 2011 compared to $51.9 million, or $4.08 diluted EPS in 2010. In 2010, we recorded a $98.1 million pre-tax gain on the acquisition of CBT compared to a $16.5 million pre-tax gain from the Habersham and BankMeridian acquisitions during 2011. Net interest income was up $28.8 million, or 23.5%, due primarily to improved yields on our acquired loan portfolio resulting in interest income being up $16.4 million, or 10.5%, and continued reduction of interest expense of $12.5 million, or 38.1%, related to all funding categories (deposits and other borrowings). Provision for loan losses declined by more than $24.0 million compared to 2010 due to reduced net charge offs of $17.5 million and improved credit quality indicators during the year. Noninterest income declined by $82.6 million due to an
The Federal Reserve's Federal Open Market Committee's Fed funds remained at a target range of zero to 0.25% for the year ended December 31, 2011. We continued to reduce rates on all of our deposit products in 2011 in line with the historically low Fed funds target. The reductions in the rates on interest-bearing liabilities contributed to higher net interest income for 2011 as compared to 2010. The repricing of our certificates of deposits to lower interest rates drove interest expense lower by $9.2 million for the year ended December 31, 2011. While the average balances of certificates of deposits declined by $193.8 million, the ending balance decreased $249.7 million from the balance at December 31, 2010. Interest expense from other borrowings also declined by $1.4 million in 2011 compared to 2010, due to the repayment of all FHLB advances in the first quarter of 2010 and repayment of subordinated indebtedness of $15.0 million during the fourth quarter of 2010. The average rates on interest-bearing liabilities adjusted downward more quickly than the decrease in average yields on interest-earning assets.
Noninterest income provides us with additional revenues that are significant sources of income. In 2011, 2010, and 2009, noninterest income comprised 26.7%, 52.9%, and 20.1%, respectively, of total net interest and noninterest income. The decrease from 2010 resulted primarily from the $16.5 million pre-tax gains recorded for the Habersham and BankMeridian acquisitions for the year ended December 31, 2011 compared to the $98.1 million pre-tax gain recorded for the CBT acquisition for the year ended December 31, 2010.
Our loan portfolio remains our largest category of interest-earning assets. The addition of $222.4 million in acquired loans in the Habersham and BankMeridian acquisitions along with an 11.4% increase in consumer real estate loans and a 28.4% increase in commercial owner occupied real estate loans contributed to overall loan growth for the year ended December 31, 2011. At December 31, 2011, total loans had grown to $2.9 billion, an increase of $255.5 million, or 9.8%, compared to $2.6 billion at the end of 2010. Average loans outstanding during 2011 were $2.8 billion, an increase of $183.1 million, or 7.1%, over the 2010 average of $2.6 billion. (For further discussion of the Company's acquired loan accounting, see Note 1Summary of Significant Accounting Policies, Note 2Mergers and Acquisitions and Note 5Loans and Allowance for Loan Losses to the consolidated financial statements.)
Our primary policy, established by ALCO and the board of directors, is to monitor exposure to interest rate increases and decreases of as much as 200 basis points ratably over a 12-month period. Our policy guideline prescribes 8% as the maximum negative impact on net interest income associated with a steady ("ramping") change in interest rates of 200 basis points over 12 months. This most-relied-upon simulation also uses a dynamic (or strategy) balance sheet that forecasts growth, not a static or frozen balance sheet. We traditionally have maintained a risk position well within the policy guideline level. As of December 31, 2011, the earnings simulations indicated that the impact of a 200 basis point increase in rates over 12 months would result in an approximate 0.7% increase in net interest incomeas compared with a base case interest rate environment that uses the implied forward rates in the currently existing yield curve. Certain key rates in the simulations model (such as federal funds at zero to 0.25%) are at unprecedented low levels that can decline very little, if at all, and remain a positive number. Consequently, the simulations in the declining-rate scenarios are viewed by us and many other depository institutions as being remote and not meaningful. Therefore, declining rate scenario simulations are not currently being used in our assessment and management of interest rate risk. The simulations indicate that our rate sensitivity is currently slightly asset sensitive to the indicated change in interest rates over a one-year horizon. As of December 31, 2010, the earnings simulations indicated that the impact of a 200 basis point increase in rates over 12 months would result in an approximate 1.6% increase in net interest incomeas compared with a base case interest rate environment.