XNAS:SCBT Quarterly Report 10-Q Filing - 6/30/2012

Effective Date 6/30/2012

Table of Contents

 

 

 

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

 

FORM 10-Q

 

(Mark One)

 

x      QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the quarterly period ended June 30, 2012

 

OR

 

o         TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the transition period from                   to                  

 

Commission file number 001-12669

 

GRAPHIC

 

SCBT FINANCIAL CORPORATION

(Exact name of registrant as specified in its charter)

 

South Carolina

 

57-0799315

(State or other jurisdiction of incorporation)

 

(IRS Employer Identification No.)

 

520 Gervais Street

 

 

Columbia, South Carolina

 

29201

(Address of principal executive offices)

 

(Zip Code)

 

(800) 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 o

 

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate website, if any, every Interactive Data file required to be submitted and posted pursuant to Rule 405 of Regulation S-T (Section 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).  Yes x  No o

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company.  See the definitions of “large accelerated filer,” “accelerated filer,” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

 

Large Accelerated Filer o

 

Accelerated Filer x

 

 

 

Non-Accelerated Filer o

 

Smaller Reporting Company o

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).  Yes o  No x

 

Indicate the number of shares outstanding of each of issuer’s classes of common stock, as of the latest practicable date:

 

Class

 

Outstanding as of July 31, 2012

Common Stock, $2.50 par value

 

15,093,603

 

 

 



Table of Contents

 

SCBT Financial Corporation and Subsidiary

June 30, 2012 Form 10-Q

 

INDEX

 

 

 

Page

 

 

 

PART I — FINANCIAL INFORMATION

 

 

 

 

Item 1.

Financial Statements

 

 

 

 

 

Condensed Consolidated Balance Sheets at June 30, 2012, December 31, 2011 and June 30, 2011

1

 

 

 

 

Condensed Consolidated Statements of Income for the Three Months and Six Months Ended June 30, 2012 and 2011

2

 

 

 

 

Condensed Consolidated Statements of Comprehensive Income for the Three Months And Six Months Ended June 30, 2012 and 2011

3

 

 

 

 

Condensed Consolidated Statements of Changes in Shareholders’ Equity for the Six Months Ended June 30, 2012 and 2011

4

 

 

 

 

Condensed Consolidated Statements of Cash Flows for the Six Months Ended June 30, 2012 and 2011

5

 

 

 

 

Notes to Condensed Consolidated Financial Statements

6-44

 

 

 

Item 2.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

45-66

 

 

 

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

66

 

 

 

Item 4.

Controls and Procedures

66

 

 

 

PART II — OTHER INFORMATION

 

 

 

 

Item 1.

Legal Proceedings

66

 

 

 

Item 1A.

Risk Factors

67

 

 

 

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

67

 

 

 

Item 3.

Defaults Upon Senior Securities

68

 

 

 

Item 4.

Mine Safety Disclosures

68

 

 

 

Item 5.

Other Information

68

 

 

 

Item 6.

Exhibits

69

 



Table of Contents

 

PART I — FINANCIAL INFORMATION

Item 1.  FINANCIAL STATEMENTS

 

SCBT Financial Corporation and Subsidiary

Condensed Consolidated Balance Sheets

(Dollars in thousands, except par value)

 

 

 

June 30,

 

December 31,

 

June 30,

 

 

 

2012

 

2011

 

2011

 

 

 

(Unaudited)

 

(Note 1)

 

(Unaudited)

 

ASSETS

 

 

 

 

 

 

 

Cash and cash equivalents:

 

 

 

 

 

 

 

Cash and due from banks

 

$

140,855

 

$

129,729

 

$

87,319

 

Interest-bearing deposits with banks

 

2,294

 

1,822

 

1,088

 

Federal funds sold and securities purchased under agreements to resell

 

166,770

 

39,874

 

160,660

 

Total cash and cash equivalents

 

309,919

 

171,425

 

249,067

 

Investment securities:

 

 

 

 

 

 

 

Securities held to maturity (fair value of $17,743, $17,864, and $19,834, respectively)

 

16,567

 

16,569

 

19,100

 

Securities available for sale, at fair value

 

478,472

 

289,195

 

209,956

 

Other investments

 

16,099

 

18,292

 

20,427

 

Total investment securities

 

511,138

 

324,056

 

249,483

 

Loans held for sale

 

42,525

 

45,809

 

17,956

 

Loans:

 

 

 

 

 

 

 

Acquired (covered of $332,874, $394,495, and $369,658, respectively; non-covered of $227,184, $7,706, and $9,683, respectively)

 

560,058

 

402,201

 

379,341

 

Less allowance for acquired loan losses

 

(35,813

)

(31,620

)

(25,545

)

Non-acquired

 

2,481,251

 

2,470,565

 

2,405,613

 

Less allowance for non-acquired loan losses

 

(47,269

)

(49,367

)

(48,180

)

Loans, net

 

2,958,227

 

2,791,779

 

2,711,229

 

FDIC receivable for loss share agreements

 

200,569

 

262,651

 

299,200

 

Premises and equipment, net

 

106,458

 

94,250

 

90,529

 

Other real estate owned (covered of $53,146, $65,849, and $74,591, respectively; non-covered of $31,263, $18,022, and $24,900, respectively)

 

84,409

 

83,871

 

99,491

 

Goodwill

 

66,542

 

62,888

 

62,888

 

Bank owned life insurance

 

35,543

 

22,111

 

21,836

 

Core deposit and other intangibles

 

13,429

 

11,538

 

12,027

 

Other assets

 

44,510

 

26,179

 

26,229

 

Total assets

 

$

4,373,269

 

$

3,896,557

 

$

3,839,935

 

 

 

 

 

 

 

 

 

LIABILITIES AND SHAREHOLDERS’ EQUITY

 

 

 

 

 

 

 

Deposits:

 

 

 

 

 

 

 

Noninterest-bearing

 

$

806,235

 

$

658,454

 

$

598,112

 

Interest-bearing

 

2,854,737

 

2,596,018

 

2,607,716

 

Total deposits

 

3,660,972

 

3,254,472

 

3,205,828

 

Federal funds purchased and securities sold under agreements to repurchase

 

220,264

 

180,436

 

187,550

 

Other borrowings

 

46,105

 

46,683

 

46,275

 

Other liabilities

 

21,022

 

33,186

 

29,177

 

Total liabilities

 

3,948,363

 

3,514,777

 

3,468,830

 

Shareholders’ equity:

 

 

 

 

 

 

 

Preferred stock - $.01 par value; authorized 10,000,000 shares; no shares issued and outstanding

 

 

 

 

Common stock - $2.50 par value; authorized 40,000,000 shares; 15,085,991, 14,039,422, and 13,987,686 shares issued and outstanding

 

37,715

 

35,099

 

34,969

 

Surplus

 

262,647

 

233,232

 

231,640

 

Retained earnings

 

126,304

 

116,198

 

105,799

 

Accumulated other comprehensive loss

 

(1,760

)

(2,749

)

(1,303

)

Total shareholders’ equity

 

424,906

 

381,780

 

371,105

 

Total liabilities and shareholders’ equity

 

$

4,373,269

 

$

3,896,557

 

$

3,839,935

 

 

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

 

1



Table of Contents

 

SCBT Financial Corporation and Subsidiary

Condensed Consolidated Statements of Income (unaudited)

(Dollars in thousands, except per share data)

 

 

 

Three Months Ended

 

Six Months Ended

 

 

 

June 30,

 

June 30,

 

 

 

2012

 

2011

 

2012

 

2011

 

Interest income:

 

 

 

 

 

 

 

 

 

Loans, including fees

 

$

42,120

 

$

40,994

 

$

81,898

 

$

77,824

 

Investment securities:

 

 

 

 

 

 

 

 

 

Taxable

 

2,870

 

1,741

 

4,906

 

3,598

 

Tax-exempt

 

201

 

235

 

395

 

450

 

Federal funds sold and securities purchased under agreements to resell

 

279

 

361

 

491

 

714

 

Total interest income

 

45,470

 

43,331

 

87,690

 

82,586

 

Interest expense:

 

 

 

 

 

 

 

 

 

Deposits

 

2,272

 

4,661

 

4,766

 

10,378

 

Federal funds purchased and securities sold under agreements to repurchase

 

110

 

142

 

236

 

302

 

Other borrowings

 

554

 

527

 

1,116

 

1,059

 

Total interest expense

 

2,936

 

5,330

 

6,118

 

11,739

 

Net interest income

 

42,534

 

38,001

 

81,572

 

70,847

 

Provision for loan losses

 

4,642

 

4,215

 

7,365

 

14,856

 

Net interest income after provision for loan losses

 

37,892

 

33,786

 

74,207

 

55,991

 

Noninterest income:

 

 

 

 

 

 

 

 

 

Service charges on deposit accounts

 

5,886

 

5,615

 

11,333

 

10,645

 

Bankcard services income

 

3,618

 

3,045

 

6,938

 

5,704

 

Mortgage banking income

 

2,962

 

1,125

 

4,792

 

1,988

 

Trust and investment services income

 

1,642

 

1,525

 

3,039

 

2,774

 

Securities gains

 

61

 

10

 

61

 

333

 

Amortization of FDIC indemnification assets, net

 

(4,370

)

(3,133

)

(7,603

)

(3,534

)

Gains on acquisitions

 

 

 

 

5,528

 

Other

 

1,945

 

605

 

2,657

 

1,227

 

Total noninterest income

 

11,744

 

8,792

 

21,217

 

24,665

 

Noninterest expense:

 

 

 

 

 

 

 

 

 

Salaries and employee benefits

 

18,262

 

18,016

 

36,310

 

34,662

 

Information services expense

 

2,902

 

2,503

 

5,370

 

4,845

 

Net occupancy expense

 

2,478

 

2,346

 

4,726

 

4,922

 

Furniture and equipment expense

 

2,371

 

2,181

 

4,610

 

4,139

 

OREO expense and loan related

 

2,115

 

2,662

 

4,831

 

5,310

 

Merger and conversion related expense

 

1,998

 

598

 

2,094

 

1,207

 

FDIC assessment and other regulatory charges

 

1,073

 

1,255

 

2,110

 

2,734

 

Professional fees

 

732

 

616

 

1,365

 

934

 

Advertising and marketing

 

553

 

289

 

1,310

 

1,198

 

Amortization of intangibles

 

540

 

505

 

1,040

 

951

 

Other

 

4,484

 

4,077

 

8,961

 

8,370

 

Total noninterest expense

 

37,508

 

35,048

 

72,727

 

69,272

 

Earnings:

 

 

 

 

 

 

 

 

 

Income before provision for income taxes

 

12,128

 

7,530

 

22,697

 

11,384

 

Provision for income taxes

 

4,097

 

2,612

 

7,638

 

3,950

 

Net income

 

$

8,031

 

$

4,918

 

$

15,059

 

$

7,434

 

Earnings per common share:

 

 

 

 

 

 

 

 

 

Basic

 

$

0.55

 

$

0.36

 

$

1.06

 

$

0.55

 

Diluted

 

$

0.55

 

$

0.35

 

$

1.05

 

$

0.55

 

Dividends per common share

 

$

0.17

 

$

0.17

 

$

0.34

 

$

0.34

 

Weighted-average common shares outstanding:

 

 

 

 

 

 

 

 

 

Basic

 

14,651

 

13,805

 

14,260

 

13,500

 

Diluted

 

14,733

 

13,886

 

14,334

 

13,582

 

 

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

 

2



Table of Contents

 

SCBT Financial Corporation and Subsidiary

Condensed Consolidated Statements of Comprehensive Income (unaudited)

(Dollars in thousands)

 

 

 

Three Months Ended

 

Six Months Ended

 

 

 

June 30,

 

June 30,

 

 

 

2012

 

2011

 

2012

 

2011

 

 

 

 

 

 

 

 

 

 

 

Net income

 

$

8,031

 

$

4,918

 

$

15,059

 

$

7,434

 

Other comprehensive income (loss):

 

 

 

 

 

 

 

 

 

Unrealized gains on securities:

 

 

 

 

 

 

 

 

 

Unrealized holding gains arising during period

 

2,109

 

2,770

 

1,783

 

4,296

 

Tax effect

 

(804

)

(983

)

(680

)

(1,521

)

Reclassification adjustment for gains included in net income

 

(61

)

(10

)

(61

)

(333

)

Tax effect

 

23

 

3

 

23

 

115

 

Net of tax amount

 

1,267

 

1,780

 

1,065

 

2,557

 

Unrealized losses on derivative financial instruments qualifying as cash flow hedges:

 

 

 

 

 

 

 

 

 

Unrealized holding losses arising during period

 

(306

)

(306

)

(267

)

(256

)

Tax effect

 

117

 

109

 

99

 

90

 

Reclassification adjustment for losses included in interest expense

 

73

 

76

 

144

 

151

 

Tax effect

 

(28

)

(27

)

(52

)

(53

)

Net of tax amount

 

(144

)

(148

)

(76

)

(68

)

Other comprehensive income, net of tax

 

1,123

 

1,632

 

989

 

2,489

 

Comprehensive income

 

$

9,154

 

$

6,550

 

$

16,048

 

$

9,923

 

 

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

 

3



Table of Contents

 

SCBT Financial Corporation and Subsidiary

Condensed Consolidated Statements of Changes in Shareholders’ Equity (unaudited)

Six Months Ended June 30, 2012 and 2011

(Dollars in thousands, except per share data)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Accumulated Other

 

 

 

 

 

Preferred Stock

 

Common Stock

 

 

 

Retained

 

Comprehensive

 

 

 

 

 

Shares

 

Amount

 

Shares

 

Amount

 

Surplus

 

Earnings

 

Income (Loss)

 

Total

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance, December 31, 2010

 

 

$

 

12,793,823

 

$

31,985

 

$

198,647

 

$

103,117

 

$

(3,792

)

$

329,957

 

Comprehensive income:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net income

 

 

 

 

 

 

7,434

 

 

7,434

 

Other comprehensive income, net of tax

 

 

 

 

 

 

 

2,489

 

2,489

 

Total comprehensive income

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

9,923

 

Cash dividends declared at $.34 per share

 

 

 

 

 

 

(4,752

)

 

(4,752

)

Employee stock purchases

 

 

 

5,540

 

14

 

161

 

 

 

175

 

Stock options exercised

 

 

 

11,550

 

29

 

184

 

 

 

213

 

Restricted stock awards

 

 

 

52,680

 

132

 

(132

)

 

 

 

Common stock repurchased

 

 

 

(4,939

)

(13

)

(146

)

 

 

(159

)

Share-based compensation expense

 

 

 

 

 

909

 

 

 

909

 

Common stock issued in private placement offering

 

 

 

1,129,032

 

2,822

 

32,017

 

 

 

34,839

 

Balance, June 30, 2011

 

 

$

 

13,987,686

 

$

34,969

 

$

231,640

 

$

105,799

 

$

(1,303

)

$

371,105

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance, December 31, 2011

 

 

$

 

14,039,422

 

$

35,099

 

$

233,232

 

$

116,198

 

$

(2,749

)

$

381,780

 

Comprehensive income:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net income

 

 

 

 

 

 

15,059

 

 

15,059

 

Other comprehensive income, net of tax

 

 

 

 

 

 

 

989

 

989

 

Total comprehensive income

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

16,048

 

Cash dividends declared at $.34 per share

 

 

 

 

 

 

(4,953

)

 

(4,953

)

Employee stock purchases

 

 

 

6,216

 

16

 

160

 

 

 

176

 

Stock options exercised

 

 

 

6,661

 

16

 

145

 

 

 

161

 

Restricted stock awards

 

 

 

41,374

 

103

 

(103

)

 

 

 

Common stock repurchased

 

 

 

(10,423

)

(26

)

(302

)

 

 

(328

)

Share-based compensation expense

 

 

 

 

 

877

 

 

 

877

 

Common stock issued for Peoples Bancorporation acquisition

 

 

 

1,002,741

 

2,507

 

28,638

 

 

 

31,145

 

Balance, June 30, 2012

 

 

$

 

15,085,991

 

$

37,715

 

$

262,647

 

$

126,304

 

$

(1,760

)

$

424,906

 

 

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

 

4



Table of Contents

 

SCBT Financial Corporation and Subsidiary

Condensed Consolidated Statements of Cash Flows (unaudited)

(Dollars in thousands)

 

 

 

Six Months Ended

 

 

 

June 30,

 

 

 

2012

 

2011

 

Cash flows from operating activities:

 

 

 

 

 

Net income

 

$

15,059

 

$

7,434

 

Adjustments to reconcile net income to net cash provided by operating activities:

 

 

 

 

 

Depreciation and amortization

 

5,895

 

5,093

 

Provision for loan losses

 

7,365

 

14,856

 

Deferred income taxes

 

(21,282

)

(105

)

Gain on sale of securities

 

(61

)

(333

)

Gains on acquisitions

 

 

(5,528

)

Share-based compensation expense

 

877

 

909

 

Loss on disposal of premises and equipment

 

2

 

48

 

Amortization of FDIC indemnification asset

 

7,603

 

3,534

 

Accretion on acquired loans

 

(20,979

)

(17,882

)

Net amortization of investment securities

 

1,564

 

689

 

Net change in:

 

 

 

 

 

Loans held for sale

 

3,284

 

24,747

 

Accrued interest receivable

 

2,776

 

1,377

 

Prepaid assets

 

293

 

2,559

 

FDIC loss share receivable

 

54,479

 

(3,213

)

Accrued interest payable

 

(1,021

)

(2,682

)

Accrued income taxes

 

10,568

 

1,381

 

Miscellaneous assets and liabilities

 

(221

)

17,688

 

Net cash provided by operating activities

 

66,201

 

50,572

 

Cash flows from investing activities:

 

 

 

 

 

Proceeds from sales of investment securities available for sale

 

25,359

 

52,282

 

Proceeds from maturities and calls of investment securities held to maturity

 

 

840

 

Proceeds from maturities and calls of investment securities available for sale

 

48,475

 

40,670

 

Proceeds from sales of other investment securities

 

4,326

 

3,396

 

Purchases of investment securities available for sale

 

(89,133

)

(43,568

)

Purchases of other investment securities

 

 

(630

)

Net (increase) decrease in customer loans

 

81,413

 

(22,379

)

Net cash received from acquisitions

 

10,923

 

91,281

 

Purchases of premises and equipment

 

(5,278

)

(7,889

)

Proceeds from sale of premises and equipment

 

15

 

2

 

Net cash provided by investing activities

 

76,100

 

114,005

 

Cash flows from financing activities:

 

 

 

 

 

Net decrease in deposits

 

(28,571

)

(138,969

)

Net increase (decrease) in federal funds purchased and securities sold under agreements to repurchase and other short-term borrowings

 

30,286

 

(5,618

)

Repayment of FHLB advances and other borrowings

 

(577

)

(38,338

)

Common stock issuance

 

175

 

35,014

 

Common stock repurchased

 

(328

)

(159

)

Dividends paid on common stock

 

(4,953

)

(4,752

)

Stock options exercised

 

161

 

213

 

Net cash used in financing activities

 

(3,807

)

(152,609

)

Net increase in cash and cash equivalents

 

138,494

 

11,968

 

Cash and cash equivalents at beginning of period

 

171,425

 

237,099

 

Cash and cash equivalents at end of period

 

$

309,919

 

$

249,067

 

 

 

 

 

 

 

Supplemental Disclosures:

 

 

 

 

 

Cash paid for:

 

 

 

 

 

Interest

 

$

6,029

 

$

13,445

 

Income taxes

 

$

18,206

 

$

2,540

 

 

 

 

 

 

 

Noncash investing activities:

 

 

 

 

 

Transfers of loans to foreclosed properties (covered of $15,075 and $16,002, respectively; and non-covered of $18,950 and $8,696, respectively)

 

$

34,025

 

$

24,698

 

 

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

 

5



Table of Contents

 

SCBT Financial Corporation and Subsidiary

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 accounting principles generally accepted in the United States 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 disclosures required by accounting principles generally accepted in the United States 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, and these reclassifications had no impact on net income or equity as previously reported.  Operating results for the six months ended June 30, 2012 are not necessarily indicative of the results that may be expected for the year ending December 31, 2012.

 

The condensed consolidated balance sheet at December 31, 2011 has been derived from the audited financial statements at that date but does not include all of the information and disclosures required by accounting principles generally accepted in the United States for complete financial statements.

 

Note 2 — Summary of Significant Accounting Policies

 

The information contained in the consolidated financial statements and accompanying notes included in SCBT Financial Corporation’s (the “Company”) Annual Report on Form 10-K for the year ended December 31, 2011, as filed with the Securities and Exchange Commission (the “SEC”) on March 9, 2012,  should be referenced when reading these unaudited condensed consolidated financial statements.

 

Business Combinations, Method of Accounting for Loans Acquired, and FDIC Indemnification Asset

 

The Company accounts for its acquisitions under Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) Topic 805, Business Combinations, which requires the use of the acquisition method of accounting. All identifiable assets acquired, including loans, are recorded at fair value. No allowance for loan losses related to the acquired loans is recorded on the acquisition date because the fair value of the loans acquired incorporates assumptions regarding credit risk. Loans acquired are recorded at fair value in accordance with the fair value methodology prescribed in FASB ASC Topic 820, Fair Value Measurements and Disclosures, exclusive of the loss share agreements with the Federal Deposit Insurance Corporation (the “FDIC”). The fair value estimates associated with the loans include estimates related to expected prepayments and the amount and timing of expected principal, interest and other cash flows.

 

Acquired credit-impaired loans are accounted for under the accounting guidance for loans and debt securities acquired with deteriorated credit quality, found in FASB ASC Topic 310-30, Receivables—Loans and Debt Securities Acquired with Deteriorated Credit Quality, formerly American Institute of Certified Public Accountants (“AICPA”) Statement of Position (SOP) 03-3, Accounting for Certain Loans or Debt Securities Acquired in a Transfer, and initially measured at fair value, which includes estimated future credit losses expected to be incurred over the life of the loans. Loans acquired in business combinations with evidence of credit deterioration since origination and for which it is probable that all contractually required payments will not be collected are considered to be credit impaired. Evidence of credit quality deterioration as of purchase dates may include information such as past-due and nonaccrual status, borrower credit scores and recent loan to value percentages. The Company considers expected prepayments and estimates the amount and timing of expected principal, interest and other cash flows for each loan or pool of loans meeting the criteria above, and determines the excess of the loan’s scheduled contractual principal and contractual interest payments over all cash flows expected to be collected at acquisition as an amount that should not be accreted (nonaccretable difference). The remaining amount, representing the excess of the loan’s or pool’s cash flows expected to be collected over the fair value for the loan or pool of loans, is accreted into interest income over the remaining life of the loan or pool (accretable yield). In accordance with FASB ASC Topic 310-30, the Company aggregated acquired loans that have common risk characteristics into pools within the following loan categories: commercial loans greater than or equal to $1 million—CBT, commercial real estate, commercial real estate—construction and development, residential real estate, residential real estate—junior lien, home equity, consumer, commercial and industrial, and single pay. Single pay loans consist of those instruments for which repayment of principal and interest is expected at maturity.

 

Loans acquired through business combinations that do not meet the specific criteria of FASB ASC Topic 310-30, but for which a discount is attributable at least in part to credit quality, are also accounted for under this guidance. As a result, related discounts are recognized subsequently through accretion based on the expected cash flows of the acquired loans.

 

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Table of Contents

 

Note 2 — Summary of Significant Accounting Policies (Continued)

 

Subsequent to the acquisition date, increases in cash flows expected to be received in excess of the Company’s initial estimates are reclassified from nonaccretable difference to accretable yield and are accreted into interest income on a level-yield basis over the remaining life of the loan. Decreases in cash flows expected to be collected are recognized as impairment through the provision for loan losses. For acquired loans subject to a loss sharing agreement with the FDIC, the FDIC indemnification asset will be adjusted prospectively in a similar, consistent manner with increases and decreases in expected cash flows.

 

The FDIC indemnification asset is measured separately from the related covered asset as it is not contractually embedded in the assets and is not transferable with the assets should the Company choose to dispose of them. Fair value was estimated at the acquisition date using projected cash flows related to the loss sharing agreements based on the expected reimbursements for losses and the applicable loss sharing percentages. These expected reimbursements do not include reimbursable amounts related to future covered expenditures. These cash flows were discounted to reflect the uncertainty of the timing and receipt of the loss sharing reimbursement from the FDIC. The Company will offset any recorded provision for loan losses related to acquired loans by recording an increase in the FDIC indemnification asset by the increase in expected cash flow, which is the result of a decrease in expected cash flow of acquired loans. An increase in cash flows on acquired loans results in a decrease in cash flows on the FDIC indemnification asset, which is recognized in the future (over the eligible loss sharing time periods) as negative accretion through non-interest income.

 

The Company incurs expenses related to the assets indemnified by the FDIC and pursuant to the loss share agreement, certain costs are reimbursable by the FDIC and are included in monthly and quarterly claims made by the Company. The estimates of reimbursements are netted against these covered expenses in the income statement.

 

Pursuant to an AICPA letter dated December 18, 2009, the AICPA summarized the view of the SEC regarding the accounting in subsequent periods for discount accretion associated with loan receivables acquired in a business combination or asset purchase.  Regarding the accounting for such loan receivables, that in the absence of further standard setting, the AICPA understands that the SEC would not object to an accounting policy based on contractual cash flows (FASB ASC Topic 310-20 approach) or an accounting policy based on expected cash flows (FASB ASC Topic 310-30 approach). Management believes the approach using expected cash flows is a more appropriate option to follow in accounting for the fair value discount.

 

Note 3 — Recent Accounting and Regulatory Pronouncements

 

In May 2011, the FASB issued ASU No. 2011-04, Amendments to Achieve Common Fair Value Measurement and Disclosure Requirements in U.S. GAAP and IFRS (“ASU 2011-04”). ASU 2011-04 results in common fair value measurement and disclosure requirements in U.S. GAAP and IFRSs. ASU 2011-04 became effective for the Company on January 1, 2012 and, aside from new disclosures included in Note 14 — Fair Value, did not have a significant impact on the Company’s financial statements.

 

In June 2011, the FASB issued ASU No. 2011-05, Comprehensive Income (Topic 220): Presentation of Comprehensive Income (“ASU 2011-05”).  ASU 2011-05 requires an entity to present the total of comprehensive income, the components of net income and the components of other comprehensive income either in a single continuous statement of comprehensive income or in two separate but consecutive statements.  ASU 2011-05 eliminates the option to present the components of other comprehensive income as part of the statement of equity.  Except as deferred in ASU 2011-12, Comprehensive Income (Topic 220): Deferral of the Effective Date for Amendments to Presentation of Reclassifications of Items Out of Accumulated Other Comprehensive Income in Accounting Standards Update No. 2011-05 (“ASU 2011-12”), ASU 2011-05 became effective for the Company on January 1, 2012.  In connection with the application of ASU 2011-05, the Company’s financial statements now include separate statements of comprehensive income. In December 2011, the FASB issued ASU 2011-12.  ASU 2011-12 defers changes in ASU No. 2011-05 that relate to the presentation of reclassification adjustments to allow the FASB time to re-deliberate whether to require presentation of such adjustments on the face of the financial statements to show the effects of reclassifications out of accumulated other comprehensive income on the components of net income and other comprehensive income. ASU 2011-12 allows entities to continue to report reclassifications out of accumulated other comprehensive income consistent with the presentation requirements in effect before ASU No. 2011-05. All other requirements in ASU No. 2011-05 are not affected by ASU No. 2011-12. ASU 2011-12 became effective for the Company on January 1, 2012 and did not have a significant impact on the Company’s financial statements.

 

In September 2011, the FASB issued ASU No. 2011-08, Intangibles — Goodwill and Other (Topic 350) (“ASU 2011-08”). ASU 2011-08 allows companies to waive comparing the fair value of a reporting unit to its carrying amount in assessing the recoverability of goodwill if, based on qualitative factors, it is not more likely than not that the fair value of a reporting unit is less than its carrying amount. ASU 2011-08 became effective for the Company on January 1, 2012 and did not have a significant impact on the Company’s financial statements.

 

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Table of Contents

 

Note 3 — Recent Accounting and Regulatory Pronouncements (Continued)

 

In December 2011, the FASB issued ASU No. 2011-11, Balance Sheet (Topic 210) — Disclosures about Offsetting Assets and Liabilities (“ASU 2011-11”). ASU 2011-11 amends Topic 210 to require an entity to disclose both gross and net information about financial instruments, such as sales and repurchase agreements and reverse sale and repurchase agreements and securities borrowing/lending arrangements, and derivative instruments that are eligible for offset in the statement of financial position and/or subject to a master netting arrangement or similar agreement. ASU 2011-11 is effective for fiscal years, and interim periods within those fiscal years, beginning on or after January 1, 2013 and is not expected to have a significant impact on the Company’s financial statements.

 

Note 4 — Mergers and Acquisitions

 

Peoples Bancorporation Acquisition

 

On April 24, 2012, the Company acquired all of the outstanding common stock of Peoples Bancorporation (“Peoples”), a bank holding company based in Easley, South Carolina, in a stock transaction.  Peoples common shareholders received 0.1413 shares of the Company’s common stock in exchange for each share of Peoples stock, resulting in the Company issuing 1,002,741 common shares at a fair value of $31.1 million.  Peoples’ preferred stock (including accrued and unpaid dividend) issued under the U.S. Treasury’s Troubled Asset Relief Program (“TARP”) were purchased by the Company for $13.4 million and retired as part of the merger transaction. In total, the purchase price was approximately $44.5 million including the value of the outstanding options to purchase common stock assumed in the merger.

 

The Peoples transaction was accounted for using the acquisition method of accounting and, accordingly, assets acquired, liabilities assumed and consideration exchanged were recorded at estimated fair value on the acquisition date. Fair values are preliminary and subject to refinement for up to a year after the closing date of the acquisition. The fair value of assets acquired, excluding goodwill, totaled $491.9 million, including $234.2 million in loans, $175.9 million of investment securities, and $2.9 million of identifiable intangible assets. The fair value of liabilities assumed were $451.0 million, including $435.1 million of deposits.

 

Goodwill of $3.7 million was calculated as the excess of the consideration exchanged over the net fair value of identifiable assets acquired.

 

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Table of Contents

 

Note 4 — Mergers and Acquisitions (Continued)

 

The following table presents the assets acquired and liabilities assumed as of April 24, 2012, as recorded by Peoples on the acquisition date and as adjusted for purchase accounting adjustments.

 

 

 

As Recorded by

 

Fair Value

 

As Recorded

 

(Dollars in thousands)

 

Peoples

 

Adjustments

 

by SCBT

 

Assets

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

24,459

 

$

 

$

24,459

 

Investment securities

 

176,334

 

(442

)(a)

175,892

 

Loans

 

262,858

 

(28,613

)(b)

234,245

 

Premises and equipment

 

10,094

 

3,240

(c)

13,334

 

Intangible assets

 

 

2,930

(d)

2,930

 

Other real estate owned and repossessed assets

 

13,257

 

(5,341

)(e)

7,916

 

Deferred tax asset

 

4,702

 

11,669

(f)

16,371

 

Other assets

 

17,588

 

(883

)(g)

16,705

 

Total assets

 

$

509,292

 

$

(17,440

)

$

491,852

 

 

 

 

 

 

 

 

 

Liabilities

 

 

 

 

 

 

 

Deposits:

 

 

 

 

 

 

 

Noninterest-bearing

 

$

54,884

 

$

 

$

54,884

 

Interest-bearing

 

378,781

 

1,405

(h)

380,186

 

Total deposits

 

433,665

 

1,405

 

435,070

 

Other borrowings

 

9,542

 

 

9,542

 

Other liabilities

 

4,291

 

2,054

(i)

6,345

 

Total liabilities

 

447,498

 

3,459

 

450,957

 

Net identifiable assets acquired over (under) liabilities assumed

 

61,794

 

(20,899

)

40,895

 

Goodwill

 

 

3,654

 

3,654

 

Net assets acquired over (under) liabililities assumed

 

$

61,794

 

$

(17,245

)

$

44,549

 

 

 

 

 

 

 

 

 

Consideration:

 

 

 

 

 

 

 

SCBT Financial Corporation common shares issued

 

1,002,741

 

 

 

 

 

Purchase price per share of the Company’s common stock

 

$

31.06

 

 

 

 

 

Company common stock issued and cash exchanged for fractional shares

 

31,160

 

 

 

 

 

Stock options converted

 

96

 

 

 

 

 

Cash paid for TARP preferred stock

 

13,293

 

 

 

 

 

Fair value of total consideration transferred

 

$

44,549

 

 

 

 

 

 


Explanation of fair value adjustments

(a)—Adjustment reflects marking the available-for-sale portfolio to fair value as of the acquisition date.

(b)—Adjustment reflects the fair value adjustments based on the Company’s evaluation of the acquired loan portfolio and excludes the allowance for loan losses recorded by Peoples Bancorporation, Inc.

(c)—Adjustment reflects the fair value adjustments based on the Company’s evaluation of the acquired premises and equipment.

(d)—Adjustment reflects the recording of the core deposit intangible on the acquired deposit accounts and other intangibles for non-compete agreements.

(e)—Adjustment reflects the fair value adjustments to OREO based on the Company’s evaluation of the acquired OREO portfolio.

(f) —Adjustment to record deferred tax asset related to purchase accounting adjustments at 35.8% income tax rate.

(g)—Adjustment reflects uncollectible portion of accrued interest receivable.

(h)—Adjustment arises since the rates on interest-bearing deposits are higher than rates available on similar deposits as of the acquisition date.

(i)—Adjustment reflects the incremental accrual for SERP termination, other employee related benefits, and other liabilities.

 

The following table provides a reconciliation of goodwill for the six months ended June 30, 2012:

 

(Dollars in thousands)

 

 

 

 

 

 

 

Balance, December 31, 2011

 

$

62,888

 

Additions:

 

 

 

Goodwill from Peoples acquisition

 

3,654

 

Balance, June 30, 2012

 

$

66,542

 

 

9



Table of Contents

 

Note 5 — Investment Securities

 

The following is the amortized cost and fair value of investment securities held to maturity:

 

 

 

 

 

Gross

 

Gross

 

 

 

 

 

Amortized

 

Unrealized

 

Unrealized

 

Fair

 

(Dollars in thousands)

 

Cost

 

Gains

 

Losses

 

Value

 

June 30, 2012:

 

 

 

 

 

 

 

 

 

State and municipal obligations

 

$

16,567

 

$

1,176

 

$

 

$

17,743

 

 

 

 

 

 

 

 

 

 

 

December 31, 2011:

 

 

 

 

 

 

 

 

 

State and municipal obligations

 

$

16,569

 

$

1,295

 

$

 

$

17,864

 

 

 

 

 

 

 

 

 

 

 

June 30, 2011:

 

 

 

 

 

 

 

 

 

State and municipal obligations

 

$

19,100

 

$

734

 

$

 

$

19,834

 

 

The following is the amortized cost and fair value of investment securities available for sale:

 

 

 

 

 

Gross

 

Gross

 

 

 

 

 

Amortized

 

Unrealized

 

Unrealized

 

Fair

 

(Dollars in thousands)

 

Cost

 

Gains

 

Losses

 

Value

 

June 30, 2012:

 

 

 

 

 

 

 

 

 

Government-sponsored entities debt *

 

$

64,195

 

$

1,078

 

$

(8

)

$

65,265

 

State and municipal obligations

 

135,068

 

3,764

 

(369

)

138,463

 

Mortgage-backed securities **

 

267,593

 

6,578

 

(49

)

274,122

 

FHLMC preferred stock***

 

147

 

112

 

 

259

 

Corporate stocks

 

240

 

123

 

 

363

 

 

 

$

467,243

 

$

11,655

 

$

(426

)

$

478,472

 

December 31, 2011:

 

 

 

 

 

 

 

 

 

Government-sponsored entities debt *

 

$

48,464

 

$

1,142

 

$

(3

)

$

49,603

 

State and municipal obligations

 

40,780

 

3,208

 

(31

)

43,957

 

Mortgage-backed securities **

 

190,204

 

5,111

 

(6

)

195,309

 

Corporate stocks

 

241

 

85

 

 

326

 

 

 

$

279,689

 

$

9,546

 

$

(40

)

$

289,195

 

June 30, 2011:

 

 

 

 

 

 

 

 

 

Government-sponsored entities debt *

 

$

57,729

 

$

1,085

 

$

 

$

58,814

 

State and municipal obligations

 

38,893

 

1,621

 

(137

)

40,377

 

Mortgage-backed securities **

 

106,968

 

3,427

 

(19

)

110,376

 

Corporate stocks

 

255

 

139

 

(5

)

389

 

 

 

$

203,845

 

$

6,272

 

$

(161

)

$

209,956

 

 


* - Government-sponsored entities holdings are comprised of debt securities offered by Federal Home Loan Mortgage Corporation (“FHLMC”) or Freddie Mac, Federal National Mortgage Association (“FNMA”) or Fannie Mae, FHLB, and Federal Farm Credit Banks (“FFCB”).

** - All of the mortgage-backed securities are issued by government-sponsored entities; there are no private-label holdings.

*** Securities issued by the Federal Home Loan Mortgage Corporation (“FHLMC” or “Freddie Mac”)

 

10



Table of Contents

 

Note 5 — Investment Securities (Continued)

 

The following is the amortized cost and fair value of other investment securities:

 

 

 

 

 

Gross

 

Gross

 

 

 

 

 

Amortized

 

Unrealized

 

Unrealized

 

Fair

 

(Dollars in thousands)

 

Cost

 

Gains

 

Losses

 

Value

 

June 30, 2012:

 

 

 

 

 

 

 

 

 

Federal Reserve Bank stock

 

$

7,028

 

$

 

$

 

$

7,028

 

Federal Home Loan Bank stock

 

7,739

 

 

 

7,739

 

Investment in unconsolidated subsidiaries

 

1,332

 

 

 

1,332

 

 

 

$

16,099

 

$

 

$

 

$

16,099

 

December 31, 2011:

 

 

 

 

 

 

 

 

 

Federal Reserve Bank stock

 

$

7,028

 

$

 

$

 

$

7,028

 

Federal Home Loan Bank stock

 

9,932

 

 

 

9,932

 

Investment in unconsolidated subsidiaries

 

1,332

 

 

 

1,332

 

 

 

$

18,292

 

$

 

$

 

$

18,292

 

June 30, 2011:

 

 

 

 

 

 

 

 

 

Federal Reserve Bank stock

 

$

6,617

 

$

 

$

 

$

6,617

 

Federal Home Loan Bank stock

 

12,478

 

 

 

12,478

 

Investment in unconsolidated subsidiaries

 

1,332

 

 

 

1,332

 

 

 

$

20,427

 

$

 

$

 

$

20,427

 

 

The Company has determined that the investment in Federal Reserve Bank stock and FHLB stock is not other than temporarily impaired as of June 30, 2012 and ultimate recoverability of the par value of these investments is probable.

 

Effective July 1, 2012, the Bank converted its national charter to a state charter and changed its name from SCBT, National Association to SCBT.  In conjunction with the charter conversion, the Bank became a non-member bank of the Federal Reserve and liquidated its entire position in Federal Reserve Bank stock on July 2, 2012, with no gain or loss.

 

The amortized cost and fair value of debt securities at June 30, 2012 by contractual maturity are detailed below.  Expected maturities will differ from contractual maturities because borrowers may have the right to call or prepay obligations with or without prepayment penalties.

 

 

 

Securities

 

Securities

 

 

 

Held to Maturity

 

Available for Sale

 

 

 

Amortized

 

Fair

 

Amortized

 

Fair

 

(Dollars in thousands)

 

Cost

 

Value

 

Cost

 

Value

 

 

 

 

 

 

 

 

 

 

 

Due in one year or less

 

$

840

 

$

850

 

$

1,098

 

$

1,099

 

Due after one year through five years

 

702

 

712

 

11,967

 

12,127

 

Due after five years through ten years

 

8,774

 

9,340

 

62,009

 

64,016

 

Due after ten years

 

6,251

 

6,841

 

392,169

 

401,230

 

 

 

$

16,567

 

$

17,743

 

$

467,243

 

$

478,472

 

 

11



Table of Contents

 

Note 5 — Investment Securities (Continued)

 

Information pertaining to the Company’s securities with gross unrealized losses at June 30, 2012, December 31, 2011 and June 30, 2011, aggregated by investment category and length of time that individual securities have been in a continuous unrealized loss position is as follows:

 

 

 

Less Than Twelve Months

 

Twelve Months or More

 

 

 

Gross

 

 

 

Gross

 

 

 

 

 

Unrealized

 

Fair

 

Unrealized

 

Fair

 

(Dollars in thousands)

 

Losses

 

Value

 

Losses

 

Value

 

June 30, 2012:

 

 

 

 

 

 

 

 

 

Securities Held to Maturity

 

 

 

 

 

 

 

 

 

State and municipal obligations

 

$

 

$

 

$

 

$

 

 

 

 

 

 

 

 

 

 

 

Securities Available for Sale

 

 

 

 

 

 

 

 

 

Government-sponsored entities debt

 

$

8

 

$

4,986

 

$

 

$

 

State and municipal obligations

 

369

 

45,232

 

 

 

Mortgage-backed securities

 

49

 

13,561

 

 

 

 

 

$

426

 

$

63,779

 

$

 

$

 

 

 

 

 

 

 

 

 

 

 

December 31, 2011:

 

 

 

 

 

 

 

 

 

Securities Held to Maturity

 

 

 

 

 

 

 

 

 

State and municipal obligations

 

$

 

$

 

$

 

$

 

 

 

 

 

 

 

 

 

 

 

Securities Available for Sale

 

 

 

 

 

 

 

 

 

Government-sponsored entities debt

 

$

3

 

$

5,505

 

$

 

$

 

State and municipal obligations

 

1

 

420

 

31

 

724

 

Mortgage-backed securities

 

5

 

6,601

 

 

 

 

 

$

9

 

$

12,526

 

$

31

 

$

724

 

 

 

 

 

 

 

 

 

 

 

June 30, 2011:

 

 

 

 

 

 

 

 

 

Securities Held to Maturity

 

 

 

 

 

 

 

 

 

State and municipal obligations

 

$

 

$

 

$

 

$

 

 

 

 

 

 

 

 

 

 

 

Securities Available for Sale

 

 

 

 

 

 

 

 

 

State and municipal obligations

 

$

55

 

$

3,927

 

$

82

 

$

913

 

Mortgage-backed securities

 

19

 

7,910

 

 

 

Corporate stocks

 

5

 

20

 

 

 

 

 

$

79

 

$

11,857

 

$

82

 

$

913

 

 

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Table of Contents

 

Note 6 — Loans and Allowance for Loan Losses

 

The following is a summary of non-acquired loans:

 

 

 

June 30,

 

December 31,

 

June 30,

 

(Dollars in thousands)

 

2012

 

2011

 

2011

 

 

 

 

 

 

 

 

 

Non-acquired loans:

 

 

 

 

 

 

 

Commercial non-owner occupied real estate:

 

 

 

 

 

 

 

Construction and land development

 

$

279,519

 

310,845

 

$

338,288

 

Commercial non-owner occupied

 

284,147