South State Corp - 10-Q quarterly report FY

 

The Accompanying Notes are an Integral Part of the Financial Statements.

 

The Accompanying Notes are an Integral Part of the Financial Statements.

 

 

The Accompanying Notes are an Integral Part of the Financial Statements.

 

The Company's loan portfolio is comprised of the following:

 

An analysis of the changes in the allowance for loan losses is as follows:

The Company's interest-bearing deposits are comprised of the following:

 

The aggregate amount of time deposits in denominations of $100,000 or more at June 30, 2006 and December 31, 2005 was $298,829,000 and $268,212,000, respectively.

 

The components of net periodic pension expense recognized during the three and six months ended June 30 are as follows:

 

The Company contributed $195,000 and $390,000, respectively, to the pension plan for the three and six months ended June 30, 2006 and anticipates making similar additional contributions during the year.

The changes would apply for fiscal years ending after December 15, 2006 and could affect the Company’s pension and postretirement plan as early as December 31, 2006. The current proposal should not have an effect on the income statement but could have an effect on the balance sheet and adjustments to accumulated other comprehensive income. The Company is in the process of determining the effect of this exposure draft.

 

Basic earnings per share are calculated by dividing net income by the weighted-average shares of common stock outstanding during each period. The Company’s diluted earnings per share are 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 and six months ended June 30 are as follows:

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 as follows for the three and six months ended June 30:

 

Dividends per share are calculated using the current number of common shares issued and outstanding at the record date for any dividends paid during the reported periods.

 

The Company’s 1999 and 2004 stock option programs are long-term retention programs intended to attract, retain, and provide incentives for key employees and non-employee directors in the form of incentive and non-qualified stock options and restricted stock.

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, as these incentive stock options become exercisable in 25% increments ratably over the four year period following the grant date. 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 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 fair value of options is estimated at the date of grant using the Black-Scholes option pricing model and expensed over the options’ vesting periods. The following weighted-average assumptions were used in valuing options issued:

 

 

 

 

Management’s Discussion and Analysis of Financial Condition and Results of Operations relates to the financial statements contained in this quarterly report beginning on page 1. For further information, refer to Management’s Discussion and Analysis of Financial Condition and Results of Operations appearing in the Annual Report on Form 10-K for the year ended December 31, 2005.

SCBT Financial Corporation, headquartered in Columbia, South Carolina, is a bank holding company incorporated under the laws of South Carolina in 1985. We provide a wide range of banking services and products to our customers through our wholly-owned subsidiaries: South Carolina Bank and Trust, N.A. and South Carolina Bank and Trust of the Piedmont, N.A., both national banks that opened for business in 1932 and 1996, respectively. We engage in no significant operations other than the ownership of these banking subsidiaries.

At June 30, 2006, we had $2.07 billion in assets and approximately 627 full-time equivalent employees. Through our banking subsidiaries we provide our customers with checking accounts, NOW accounts, savings and time deposits of various types, brokerage services and alternative investment products such as annuities and mutual funds, trust and asset management services, business loans, agriculture loans, real estate loans, personal use loans, home improvement loans, automobile loans, credit cards, letters of credit, home equity lines of credit, safe deposit boxes, bank money orders, wire transfer services, correspondent banking services, and use of ATM facilities.

On May 18, 2006, our Board of Directors approved the addition of Jimmy Addison as a member of the Board of Directors and he will initially serve on the audit committee. Mr. Addison, chief financial officer of SCANA Corporation, brings added financial expertise at a publicly traded company to the board during our continued growth in South Carolina.

We measure our progress based on the results of soundness, profitability, and growth. We achieved record results for the second quarter of 2006, exceeding $5 million in earnings for the first time in our history. The following key operating highlights for the second quarter are outlined below:

 

Operating highlights for the six months ended June 30, 2006:

 

Our consolidated earnings growth reflected the strong profitability of our bank subsidiaries during the second quarter of 2006. South Carolina Bank and Trust had net income of $4,819,000 and South Carolina Bank and Trust of the Piedmont had net income of $668,000 during this period.

 

Overall growth in earning assets contributed to higher non-taxable equivalent (“TE”) net interest income. The primary basis for the increase in net interest income, along with the growth, was the continued increases in the prime rate, which affects variable rate loans. Our yields on earning assets increased less than interest rates paid on interest-bearing liabilities for the first six months of 2006 compared to the same period in 2005. Competition for deposits and other factors have caused rates on interest-bearing liabilities to increase generally more than asset yields.

 

Non-taxable equivalent net interest income increased 21 percent in the second quarter of 2006 compared to the same period in 2005. For the first six months of 2006, non-taxable equivalent net interest income increased 23 percent from the same period in 2005. Some key highlights are outlined below:

 

Growth in commercial real estate drove total loans 25 percent higher from the amount at June 30, 2005. Loans are our largest category of earning assets, and commercial real estate loans represent 46 percent of our total loans. At June 30, 2006, loans outstanding, excluding loans held for sale, were $1,646,174,000, compared to $1,535,901,000 at December 31, 2005 and $1,319,844,000 at June 30, 2005.

 

Interest earned on loans increased 46 percent in the second quarter of 2006 compared to the same period in 2005. Some key highlights are outlined below:

 

For the first six months of 2006, interest earned on loans increased 49 percent from the same period in 2005. In the six-month comparisons, we noted the following:

 

We use investment securities, the second largest category of earning assets, 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 public funds deposits and repurchase agreements. The composition of the portfolio remained relatively consistent with a bias towards increasing purchases of US government agency bonds rather than mortgage-backed securities. We continued our approach of slightly lengthening the average life of the portfolio as interest rates increased and with an anticipated end to the Federal Reserve's tightening cycle. At June 30, 2006, investment securities were $211,039,000, compared to $182,744,000 at December 31, 2005 and $176,562,000 at June 30, 2005.

 

Interest earned on investment securities increased 31 percent in the second quarter of 2006 compared to the same period in 2005. For the first six months of 2006, interest earned increased 29 percent from the same period in 2005. Some key highlights are outlined below:

 

Although securities classified as available for sale may be sold from time to time to meet liquidity or other needs, it is not our normal practice to trade this segment of the investment securities portfolio. While management 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 partly on changes in interest rates and alternative investment opportunities.

 

 

For the first six months of 2006, noninterest income increased 15 percent from the same period in 2005. In the six-month comparisons, the increase is mainly attributable to the following:

 

Noninterest expense increased 14 percent in the second quarter of 2006 compared to the same period in 2005, primarily as a result of the following:

 

 

Our ongoing capital requirements have been met primarily through retained earnings, less the payment of cash dividends. As of June 30, 2006, shareholders’ equity was $154,518,000, an increase of $6,115,000, or 4 percent, from $148,403,000 at December 31, 2005.

We 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 risk-based capital must be at least 4 percent of risk-weighted assets, while total risk-based capital must be at least 8 percent of 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 Tier 1 leverage ratio required for banks is between 3 and 5 percent, depending on the institution’s composite rating as determined by its regulators.

 

Not applicable.

At the Annual Meeting of Shareholders of SCBT Financial Corporation on April 25, 2006, the following proposals were submitted to a vote of the holders of SCBT Financial Corporation’s common stock voting as indicated:

 

1) Approval of a proposal to elect the following individuals as directors of SCBT Financial Corporation:

 

The following individuals continue to serve as directors until our Annual Shareholders’ Meeting in the year indicated:

 

Not applicable.