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SOUTH STATE Corp 10-Q 2011

Documents found in this filing:

  1. 10-Q
  2. Ex-31.1
  3. Ex-31.2
  4. Ex-32
  5. Graphic
  6. Graphic

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 September 30, 2011

 

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 October 31, 2011

Common Stock, $2.50 par value

 

14,014,513

 

 

 



Table of Contents

 

SCBT Financial Corporation and Subsidiary

September 30, 2011 Form 10-Q

 

INDEX

 

 

 

Page

 

 

 

PART I — FINANCIAL INFORMATION

 

 

 

 

Item 1.

Financial Statements

 

 

 

 

 

Condensed Consolidated Balance Sheets at September 30, 2011, December 31, 2010 and September 30, 2010

1

 

 

 

 

Condensed Consolidated Statements of Income for the Three Months and Nine Months Ended September 30, 2011 and 2010

2

 

 

 

 

Condensed Consolidated Statements of Changes in Shareholders’ Equity for the Nine Months Ended September 30, 2011 and 2010

3

 

 

 

 

Condensed Consolidated Statements of Cash Flows for the Nine Months Ended September 30, 2011 and 2010

4

 

 

 

 

Notes to Condensed Consolidated Financial Statements

5-48

 

 

 

Item 2.

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

49-70

 

 

 

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

70

 

 

 

Item 4.

Controls and Procedures

71

 

 

 

PART II — OTHER INFORMATION

 

 

 

 

Item 1.

Legal Proceedings

71

 

 

 

Item 1A.

Risk Factors

71

 

 

 

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

71

 

 

 

Item 3.

Defaults Upon Senior Securities

72

 

 

 

Item 4.

(Removed and Reserved)

72

 

 

 

Item 5.

Other Information

72

 

 

 

Item 6.

Exhibits

73

 



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)

 

 

 

September 30,

 

December 31,

 

September 30,

 

 

 

2011

 

2010

 

2010

 

 

 

(Unaudited)

 

(Note 1)

 

(Unaudited)

 

ASSETS

 

 

 

 

 

 

 

Cash and cash equivalents:

 

 

 

 

 

 

 

Cash and due from banks

 

$

134,939

 

$

83,449

 

$

81,462

 

Interest-bearing deposits with banks

 

1,530

 

416

 

928

 

Federal funds sold and securities purchased under agreements to resell

 

22,300

 

153,234

 

90,800

 

Total cash and cash equivalents

 

158,769

 

237,099

 

173,190

 

Investment securities:

 

 

 

 

 

 

 

Securities held to maturity
(fair value of $19,872, $20,150 and $21,058, respectively)

 

18,699

 

19,941

 

19,941

 

Securities available for sale, at fair value

 

281,926

 

197,374

 

227,137

 

Other investments

 

20,422

 

20,597

 

21,116

 

Total investment securities

 

321,047

 

237,912

 

268,194

 

Loans held for sale

 

45,870

 

42,704

 

49,586

 

Loans:

 

 

 

 

 

 

 

Acquired

 

418,045

 

321,038

 

369,272

 

Less allowance for acquired loan losses

 

(12,123

)

 

 

Non-acquired

 

2,461,613

 

2,296,200

 

2,258,353

 

Less allowance for non-acquired loan losses

 

(49,110

)

(47,512

)

(46,657

)

Loans, net

 

2,818,425

 

2,569,726

 

2,580,968

 

FDIC receivable for loss share agreements

 

274,658

 

212,103

 

267,486

 

Other real estate owned (covered of $79,740, $69,317, and $47,365, respectively; and non-covered of $22,686, $17,264, and $15,657, respectively)

 

102,426

 

86,581

 

63,022

 

Premises and equipment, net

 

90,020

 

87,381

 

86,396

 

Goodwill

 

62,888

 

62,888

 

62,888

 

Other assets

 

61,415

 

58,397

 

61,134

 

Total assets

 

$

3,935,518

 

$

3,594,791

 

$

3,612,864

 

 

 

 

 

 

 

 

 

LIABILITIES AND SHAREHOLDERS’ EQUITY

 

 

 

 

 

 

 

Deposits:

 

 

 

 

 

 

 

Noninterest-bearing

 

$

653,923

 

$

484,838

 

$

472,753

 

Interest-bearing

 

2,633,729

 

2,519,310

 

2,547,393

 

Total deposits

 

3,287,652

 

3,004,148

 

3,020,146

 

Federal funds purchased and securities sold under agreements to repurchase

 

184,403

 

191,017

 

163,905

 

Other borrowings

 

46,955

 

46,978

 

62,183

 

Other liabilities

 

34,786

 

22,691

 

31,435

 

Total liabilities

 

3,553,796

 

3,264,834

 

3,277,669

 

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; 14,004,372, 12,793,823 and 12,779,463 shares issued and outstanding

 

35,011

 

31,985

 

31,949

 

Surplus

 

232,314

 

198,647

 

197,885

 

Retained earnings

 

113,752

 

103,117

 

104,730

 

Accumulated other comprehensive income (loss)

 

645

 

(3,792

)

631

 

Total shareholders’ equity

 

381,722

 

329,957

 

335,195

 

Total liabilities and shareholders’ equity

 

$

3,935,518

 

$

3,594,791

 

$

3,612,864

 

 

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

 

Nine Months Ended

 

 

 

September 30,

 

September 30,

 

 

 

2011

 

2010

 

2011

 

2010

 

Interest income:

 

 

 

 

 

 

 

 

 

Loans, including fees

 

$

42,912

 

$

36,233

 

$

120,735

 

$

106,400

 

Investment securities:

 

 

 

 

 

 

 

 

 

Taxable

 

2,023

 

2,526

 

5,621

 

7,780

 

Tax-exempt

 

211

 

243

 

662

 

672

 

Federal funds sold and securities purchased under agreements to resell

 

161

 

247

 

875

 

713

 

Total interest income

 

45,307

 

39,249

 

127,893

 

115,565

 

Interest expense:

 

 

 

 

 

 

 

 

 

Deposits

 

3,958

 

7,374

 

14,335

 

21,507

 

Federal funds purchased and securities sold under agreements to repurchase

 

118

 

226

 

420

 

490

 

Other borrowings

 

551

 

638

 

1,611

 

2,766

 

Total interest expense

 

4,627

 

8,238

 

16,366

 

24,763

 

Net interest income

 

40,680

 

31,011

 

111,527

 

90,802

 

Provision for loan losses

 

8,323

 

10,328

 

23,179

 

43,615

 

Net interest income after provision for loan losses

 

32,357

 

20,683

 

88,348

 

47,187

 

Noninterest income:

 

 

 

 

 

 

 

 

 

Gains on acquisitions

 

11,001

 

 

16,529

 

98,081

 

Service charges on deposit accounts

 

6,050

 

5,683

 

16,695

 

15,788

 

Bankcard services income

 

2,980

 

2,397

 

8,684

 

6,617

 

Mortgage banking income

 

2,341

 

1,934

 

4,329

 

4,031

 

Trust and investment services income

 

1,453

 

1,199

 

4,227

 

3,170

 

Securities gains

 

 

 

333

 

 

Other-than-temporary impairment losses

 

(100

)

(479

)

(100

)

(6,740

)

Accretion (amortization) of FDIC indemnification asset

 

(3,515

)

530

 

(7,049

)

1,466

 

Other

 

581

 

566

 

1,808

 

2,065

 

Total noninterest income

 

20,791

 

11,830

 

45,456

 

124,478

 

Noninterest expense:

 

 

 

 

 

 

 

 

 

Salaries and employee benefits

 

17,345

 

15,274

 

52,007

 

44,289

 

OREO expense and loan related

 

4,118

 

1,861

 

9,428

 

2,416

 

Information services expense

 

2,851

 

2,157

 

7,696

 

6,684

 

Net occupancy expense

 

2,443

 

2,046

 

7,365

 

6,326

 

Furniture and equipment expense

 

2,127

 

1,963

 

6,266

 

5,537

 

Merger-related expense

 

1,587

 

566

 

2,794

 

5,438

 

FDIC assessment and other regulatory charges

 

859

 

1,354

 

3,593

 

3,904

 

Advertising and marketing

 

824

 

614

 

2,022

 

2,229

 

Amortization of intangibles

 

517

 

432

 

1,468

 

1,212

 

Professional fees

 

377

 

495

 

1,311

 

1,668

 

Federal Home Loan Bank advances prepayment fee

 

 

 

 

3,189

 

Other

 

4,110

 

3,170

 

12,480

 

8,604

 

Total noninterest expense

 

37,158

 

29,932

 

106,430

 

91,496

 

Earnings:

 

 

 

 

 

 

 

 

 

Income before provision for income taxes

 

15,990

 

2,581

 

27,374

 

80,169

 

Provision for income taxes

 

5,658

 

794

 

9,608

 

28,846

 

Net income

 

$

10,332

 

$

1,787

 

$

17,766

 

$

51,323

 

Earnings per common share:

 

 

 

 

 

 

 

 

 

Basic

 

$

0.75

 

$

0.14

 

$

1.30

 

$

4.07

 

Diluted

 

$

0.74

 

$

0.14

 

$

1.28

 

$

4.04

 

Dividends per common share

 

$

0.17

 

$

0.17

 

$

0.51

 

$

0.51

 

Weighted-average common shares outstanding:

 

 

 

 

 

 

 

 

 

Basic

 

13,818

 

12,620

 

13,613

 

12,609

 

Diluted

 

13,884

 

12,711

 

13,689

 

12,715

 

 

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

 

2



Table of Contents

 

SCBT Financial Corporation and Subsidiary

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

Nine Months Ended September 30, 2011 and 2010

(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, 2009

 

 

$

 

12,739,533

 

$

31,849

 

$

196,437

 

$

59,915

 

$

(5,382

)

$

282,819

 

Comprehensive income:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net income

 

 

 

 

 

 

51,323

 

 

51,323

 

Change in net unrealized gain on securities available for sale, net of tax

 

 

 

 

 

 

 

6,742

 

6,742

 

Change in unrealized losses on derivative financial instruments qualifying as cash flow hedges, net of tax

 

 

 

 

 

 

 

(729

)

(729

)

Total comprehensive income

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

57,336

 

Cash dividends declared at $.51 per share

 

 

 

 

 

 

(6,508

)

 

(6,508

)

Employee stock purchases

 

 

 

10,097

 

25

 

278

 

 

 

303

 

Stock options exercised

 

 

 

12,587

 

32

 

208

 

 

 

240

 

Restricted stock awards

 

 

 

22,698

 

57

 

(57

)

 

 

 

Common stock repurchased

 

 

 

(5,452

)

(14

)

(184

)

 

 

(198

)

Share-based compensation expense

 

 

 

 

 

1,203

 

 

 

1,203

 

Balance, September 30, 2010

 

 

$

 

12,779,463

 

$

31,949

 

$

197,885

 

$

104,730

 

$

631

 

$

335,195

 

Balance, December 31, 2010

 

 

$

 

12,793,823

 

$

31,985

 

$

198,647

 

$

103,117

 

$

(3,792

)

$

329,957

 

Comprehensive income:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net income

 

 

 

 

 

 

17,766

 

 

17,766

 

Change in net unrealized gain on securities available for sale, net of tax

 

 

 

 

 

 

 

4,916

 

4,916

 

Change in unrealized losses on derivative financial instruments qualifying as cash flow hedges, net of tax

 

 

 

 

 

 

 

(479

)

(479

)

Total comprehensive income

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

22,203

 

Cash dividends declared at $.51 per share

 

 

 

 

 

 

(7,131

)

 

(7,131

)

Employee stock purchases

 

 

 

11,673

 

29

 

313

 

 

 

342

 

Stock options exercised

 

 

 

24,102

 

60

 

363

 

 

 

423

 

Restricted stock awards

 

 

 

54,080

 

136

 

(136

)

 

 

 

Common stock repurchased

 

 

 

(8,338

)

(21

)

(231

)

 

 

(252

)

Share-based compensation expense

 

 

 

 

 

1,341

 

 

 

1,341

 

Common stock issued in private placement offering

 

 

 

1,129,032

 

2,822

 

32,017

 

 

 

34,839

 

Balance, September 30, 2011

 

 

$

 

14,004,372

 

$

35,011

 

$

232,314

 

$

113,752

 

$

645

 

$

381,722

 

 

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

 

3



Table of Contents

 

SCBT Financial Corporation and Subsidiary

Condensed Consolidated Statements of Cash Flows (unaudited)

(Dollars in thousands)

 

 

 

Nine Months Ended

 

 

 

September 30,

 

 

 

2011

 

2010

 

Cash flows from operating activities:

 

 

 

 

 

Net income

 

$

17,766

 

$

51,323

 

Adjustments to reconcile net income to net cash provided by (used in) operating activities:

 

 

 

 

 

Depreciation and amortization

 

7,784

 

6,769

 

Provision for loan losses

 

23,179

 

43,615

 

Deferred income taxes

 

1,907

 

(4,413

)

Other-than-temporary impairment on securities

 

100

 

6,740

 

Gain on sale of securities

 

(333

)

 

Gains on acquisitions

 

(16,529

)

(98,081

)

Share-based compensation expense

 

1,341

 

1,203

 

Loss on disposal of premises and equipment

 

61

 

36

 

Federal Home Loan Bank advances prepayment fee

 

 

3,189

 

Amortization (accretion) on FDIC indemnification asset

 

7,049

 

(1,466

)

Accretion on acquired loans

 

(11,905

)

1,622

 

Net amortization of investment securities

 

1,136

 

590

 

Net change in:

 

 

 

 

 

Loans held for sale

 

(3,166

)

(32,023

)

Accrued interest receivable

 

593

 

2,820

 

Prepaid assets

 

2,748

 

3,055

 

FDIC loss share receivable

 

68,570

 

10,769

 

Accrued interest payable

 

(3,964

)

(5,072

)

Accrued income taxes

 

(1,325

)

25,742

 

Miscellaneous assets and liabilities

 

17,112

 

(19,391

)

Net cash provided by (used in) operating activities

 

112,124

 

(2,973

)

Cash flows from investing activities:

 

 

 

 

 

Proceeds from sales of investment securities available for sale

 

52,282

 

 

Proceeds from maturities and calls of investment securities held to maturity

 

1,240

 

1,595

 

Proceeds from maturities and calls of investment securities available for sale

 

70,222

 

92,176

 

Proceeds from sales of other investment securities

 

5,651

 

1,113

 

Purchases of investment securities available for sale

 

(108,366

)

(43,143

)

Purchases of other investment securities

 

(1,041

)

 

Net increase in customer loans

 

(37,540

)

(989

)

Net cash received from acquisition

 

136,716

 

306,298

 

Purchases of premises and equipment

 

(12,922

)

(20,876

)

Proceeds from sale of premises and equipment

 

26

 

45

 

Net cash provided by investing activities

 

106,268

 

336,219

 

Cash flows from financing activities:

 

 

 

 

 

Net decrease in deposits

 

(257,725

)

(92,998

)

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

 

(8,090

)

224

 

Repayment of FHLB advances

 

(59,128

)

(166,027

)

Common stock issuance

 

35,181

 

303

 

Common stock repurchased

 

(252

)

(198

)

Dividends paid on common stock

 

(7,131

)

(6,508

)

Stock options exercised

 

423

 

240

 

Net cash used in financing activities

 

(296,722

)

(264,964

)

Net increase (decrease) in cash and cash equivalents

 

(78,330

)

68,282

 

Cash and cash equivalents at beginning of period

 

237,099

 

104,908

 

Cash and cash equivalents at end of period

 

$

158,769

 

$

173,190

 

 

 

 

 

 

 

Supplemental Disclosures:

 

 

 

 

 

Cash paid for:

 

 

 

 

 

Interest

 

$

18,614

 

$

29,835

 

Income taxes

 

$

8,240

 

$

6,324

 

 

 

 

 

 

 

Noncash investing activities:

 

 

 

 

 

Transfers of loans to foreclosed properties (covered of $22,038 and $30,643, respectively; and non-covered of $19,801 and $20,629, respectively)

 

$

41,839

 

$

51,272

 

 

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

 

4



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 nine months ended September 30, 2011 are not necessarily indicative of the results that may be expected for the year ending December 31, 2011.

 

The condensed consolidated balance sheet at December 31, 2010, 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” or “SCBT”) Annual Report on Form 10-K for the year ended December 31, 2010, as filed with the Securities and Exchange Commission (the “SEC”) on March 16, 2011,  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 undiscounted 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 undiscounted 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 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 amount deemed paid for the loan or pool of loans, is accreted into interest income over the remaining life of the loan or pool (accretable yield).  The Company records a discount on these loans at acquisition to record them at their realizable cash flows.  In accordance with FASB ASC Topic 310-30, the Company aggregated loans that have common risk characteristics into pools within the following loan categories:  commercial loans greater than or equal to $1 million, 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.

 

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 flow of the acquired loans.

 

5



Table of Contents

 

Note 2 — Summary of Significant Accounting Policies (continued)

 

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.

 

Subsequent to the acquisition date, increases in cash flows expected to be received in excess of the Company’s initial investment in the loans should be accreted into interest income on a level-yield basis over the life of the loan.  Decreases in cash flows expected to be collected should be recognized as impairment through the provision for loan losses, net of the expected reimbursement from the FDIC through the loss share agreement.  The FDIC indemnification asset will be adjusted in a similar, consistent manner with increases and decreases in expected cash flows through the income statement in non-interest income.  The FDIC indemnification asset is also adjusted for reimbursable expenses through non-interest expense.

 

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 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 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 statements of income.

 

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 No. 2011-04”). ASU No. 2011-04 results in common fair value measurement and disclosure requirements in U.S. GAAP and IFRSs. ASU 2011-04 is effective for interim and annual reporting periods beginning after December 15, 2011. Adoption of ASU 2011-04 is not expected to have a significant impact on the Company’s financial statement disclosures.

 

In June 2011, the FASB issued ASU No. 2011-05, Comprehensive Income (Topic 220): Presentation of Comprehensive Income (“ASU No. 2011-05”). ASU No. 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. ASU 2011-05 is effective for fiscal years, and interim periods within those fiscal years, beginning on or after December 15, 2011, with early adoption permitted. Management is evaluating the impact of this ASU on the Company’s consolidated financial statements.

 

In September 2011, the FASB issued ASU No 2011-08, Intangibles — Goodwill and Other (Topic 350) (“ASU No. 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 will be effective for annual and interim goodwill impairment tests performed for fiscal years beginning after December 15, 2011. Management is evaluating the impact of this ASU on the Company’s consolidated financial statements.

 

6



Table of Contents

 

Note 3 — Recent Accounting and Regulatory Pronouncements (continued)

 

The enactment of the Dodd-Frank Wall Street Reform and Consumer Protection Act (the “Dodd-Frank Act”) will result in expansive changes in many areas affecting the financial services industry in general and the Company in particular. The legislation provides broad economic oversight, consumer financial services protection, investor protection, rating agency reform and derivative regulatory reform. Various corporate governance requirements will result in expanded proxy disclosures and shareholder rights. Additional provisions address the mortgage industry in an effort to strengthen lending practices. Deposit insurance reform has resulted in permanent FDIC protection for up to $250,000 of certain deposits and will require the FDIC’s Deposit Insurance Fund to maintain 1.35 percent of insured deposits with the burden for closing any shortfall falling to banks with more than $10 billion in assets. Provisions within the Dodd-Frank Act will prohibit institutions that had more than $15 billion in assets on December 31, 2009 from including trust preferred securities (“TRUPs”) as Tier 1 capital beginning in 2013. One third will be phased out over the next two years ending in 2015. Financial institutions with less than $15 billion in total assets, such as the Company, may continue to count their pre-May 19, 2010, TRUPs as Tier 1 capital, but may not issue new Tier 1 capital TRUPs. The Dodd-Frank Act also requires new limits on interchange transaction fees that banks receive from merchants via card networks like Visa, Inc. and MasterCard, Inc. when a customer uses a debit card.  In June 2011, the Federal Reserve approved a final debit card interchange rule in accordance with the Dodd-Frank Act.  The final rule caps an issuer’s base fee at 21 cents per transaction and allows an additional 5 basis point charge per transaction to help cover fraud losses.  Although the rule technically does not apply to institutions with less than $10 billion in assets, such as the Bank, the price controls may affect institutions with less than $10 billion in assets, such as the Bank, which could be pressured by the marketplace to lower their own interchange rates.  We believe that regulations promulgated under the Dodd-Frank Act also will ultimately impose significant new compliance costs associated with the new regulations.  We will continue to monitor the regulations as they are implemented and will review our policies, products and procedures to insure full compliance but also attempt to minimize any negative impact on our operations.  On July 21, 2011, the Federal Reserve’s Final Rule repealing Regulation Q, which prohibited the payment of interest on demand deposits, became effective.  As a result of this repeal, our Bank has the option of offering interest bearing demand deposits, and may incur increased interest costs for funding if we elect to offer such deposit accounts.

 

Effective December 31, 2010, SCBT adopted certain of the key provisions of Accounting Standards Update (“ASU”) No. 2010-20, Disclosures about the Credit Quality of Financing Receivables and the Allowance for Credit Losses, (“ASU 2010-20”). ASU 2010-20 amends ASC 310 by requiring more robust and disaggregated disclosures about the credit quality of an entity’s financing receivables and its allowance for credit losses. The objective of enhancing these disclosures is to improve financial statement users’ understanding of (1) the nature of an entity’s credit risk associated with its financing receivables and (2) the entity’s assessment of that risk in estimating its allowance for credit losses as well as changes in the allowance and reasons for those changes. The new and amended disclosures in the ASU were effective December 31, 2010, and are included in Note 6 Loans and Allowance for Loan Losses. The disclosure for the activity in the allowance for credit losses for each period became effective for the first quarter of 2011.  In January 2011, the FASB issued ASU No. 2011-01, Receivables (Topic 310): Deferral of the Effective Date of Disclosures about Troubled Debt Restructurings in Update No. 2010-20. The amendments in ASU 2011-01 temporarily delayed the effective date of the disclosures about troubled debt restructurings in ASU 2010-20 for public entities.  In April 2011, the FASB issued ASU 2011-02, Receivables (Topic 310): A Creditor’s Determination of Whether a Restructuring Is a Troubled Debt Restructuring. The update provides additional guidance to assist creditors in determining whether a restructuring of a receivable meets the criteria to be considered a TDR, both for purposes of recording impairment and disclosing TDRs. A restructuring of a credit arrangement constitutes a TDR if the restructuring constitutes a concession, and the debtor is experiencing financial difficulties. The clarifications for classification apply to all restructurings occurring on or after January 1, 2011. The measurement of impairment for those newly identified TDRs will be applied prospectively beginning in the third quarter of 2011. The related disclosures which were previously deferred are required for the interim reporting period ending September 30, 2011. The impact of adoption for SCBT is the inclusion of additional disclosures in SCBT’s consolidated financial statements and the identification of three additional TDRs for a total of $1.1 million.

 

Note 4 — Mergers and Acquisitions

 

Generally, acquisitions are accounted for under the acquisition method of accounting in accordance with FASB ASC 805, Business Combinations. Both the purchased assets and liabilities assumed are recorded at their respective acquisition date fair values. Determining the fair value of assets and liabilities, especially the loan portfolio and foreclosed real estate, is a complicated process involving significant judgment regarding methods and assumptions used to calculate estimated fair values. Fair values are preliminary and subject to refinement for up to one year after the closing date of the acquisition as additional information regarding the closing date fair values becomes available.

 

7



Table of Contents

 

Note 4 — Mergers and Acquisitions (continued)

 

BankMeridian Acquisition

 

On July 29, 2011, the Company’s wholly-owned subsidiary, SCBT, N.A. (the “Bank”), entered into a purchase and assumption (“P&A”) agreement with loss share arrangements with the FDIC to purchase certain assets and assume substantially all of the deposits and certain liabilities of BankMeridian, N.A., a full service community bank headquartered in Columbia, South Carolina. BankMeridian operated 3 branches in total in Columbia, Spartanburg, and Hilton Head, South Carolina.

 

Pursuant to the P&A agreement, SCBT, N.A. received a discount of $30.8 million on the assets acquired and did not pay the FDIC a premium to assume all customer deposits. Most of the loans and foreclosed real estate purchased are covered by a loss share agreement between the FDIC and SCBT, N.A. Under this loss share agreement, the FDIC has agreed to cover 80% of loan and foreclosed real estate losses. Gains and recoveries on covered assets will offset losses, or be paid to the FDIC, at the applicable loss share percentage at the time of recovery. The loss sharing agreement applicable to single family assets (loans and OREO) provides for FDIC loss sharing and Bank reimbursement to the FDIC for ten years. The loss share agreement applicable to commercial assets (loans and OREO) provides for FDIC loss sharing for five years and Bank reimbursement to the FDIC for eight years. As of the date of acquisition, we calculated the amount of such reimbursements that we expect to receive from the FDIC using the present value of anticipated cash flows from the covered assets based on the credit adjustments estimated for each pool of loans and the estimated losses on foreclosed assets. In accordance with FASB ASC Topic 805, the FDIC indemnification asset was initially recorded at its fair value, and is measured separately from the loan assets and foreclosed assets because the loss sharing agreements are not contractually embedded in them or transferable with them in the event of disposal. The balance of the FDIC indemnification asset increases and decreases as the expected and actual cash flows from the covered assets fluctuate, as loans are paid off or impaired and as loans and foreclosed assets are sold. There are no contractual interest rates on this contractual receivable from the FDIC; however, a discount was recorded against the initial balance of the FDIC indemnification asset in conjunction with the fair value measurement as this receivable will be collected over the term of the loss sharing agreement. This discount will be accreted to non-interest income over future periods.

 

The Bank did not immediately acquire the real estate, banking facilities, furniture or equipment of BankMeridian as a part of the P&A agreement. However, the Bank has the option to purchase the real estate and furniture and equipment from the FDIC. The term of this option expired approximately 90 days from the date of the acquisition.  In September of 2011, the Bank consolidated the main BankMeridian location in Columbia into the Bank’s main Columbia location, and opted to not acquire this facility.  The Bank also plans to consolidate its Spartanburg and Hilton Head locations into the locations assumed in the BankMeridian transaction during the fourth quarter of 2011.  The result of these actions will be no additional branch locations for the Bank.

 

As of September 30, 2011, there have been no adjustments or changes to the initial fair values related to the BankMeridian acquisition. The purchase accounting adjustments and the loss sharing arrangement with the FDIC significantly impact the effects of the acquired entity on the ongoing operations of the Company.  Additionally, disclosure of pro forma financial information is made more difficult by the troubled nature of BankMeridian prior to the date of the combination.  Accordingly, no pro forma financial information has been presented.

 

During the three months and nine months ended September 30, 2011, noninterest income included a pre-tax gain of $11.0 million which resulted from the acquisition of BankMeridian. The amount of the gain was equal to the amount by which the fair value of assets acquired exceeded the fair value of liabilities assumed, and resulted from the discount bid on the assets acquired and the impact of the FDIC loss share agreement, both of which are attributable to the troubled nature of BankMeridian prior to the acquisition. The Company recognized $578,000 in merger-related expense from the BankMeridian acquisition during the three months and nine months ended September 30, 2011.

 

Included in the initial fair value of the FDIC indemnification asset recognized below is an expected “true up” with the FDIC, where there is an estimated payment to the FDIC of approximately $1.0 million at the end of the loss share agreement (in 10 years).  The actual payment will be determined at the end of the loss sharing agreement term and is based on the negative bid, expected losses, intrinsic loss estimate, and assets covered under loss share.  This “true up” estimate will be eliminated if the actual losses were to exceed management’s current estimate by an additional $10.0 million.

 

8



Table of Contents

 

Note 4 — Mergers and Acquisitions (continued)

 

The following table presents the assets acquired and liabilities assumed as of July 29, 2011, as recorded by BankMeridian on the acquisition date and as adjusted for purchase accounting adjustments.

 

 

 

 

 

Balances

 

Balances

 

 

 

 

 

 

 

As Recorded by

 

Kept by

 

Acquired

 

Fair Value

 

As Recorded

 

(Dollars in thousands)

 

BankMeridian

 

FDIC

 

from FDIC

 

Adjustments

 

by SCBT

 

Assets

 

 

 

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

28,363

 

$

23

 

$

28,386

 

$

 

$

28,386

 

Investment securities

 

35,671

 

(77

)

35,594

 

(242

)(a)

35,352

 

Loans

 

145,290

 

9,021

 

154,311

 

(59,330

)(b)

94,981

 

Premises and equipment

 

1,320

 

(1,316

)

4

 

15

(c)

19

 

Intangible assets

 

 

 

 

551

(d)

551

 

FDIC receivable for loss sharing agreement

 

 

 

 

50,753

(e)

50,753

 

Other real estate owned and repossessed assets

 

13,932

 

669

 

14,601

 

(9,775

)(f)

4,826

 

Other assets

 

1,126

 

492

 

1,618

 

(761

)(g)

857

 

Total assets

 

$

225,702

 

$

8,812

 

$

234,514

 

$

(18,789

)

$

215,725

 

 

 

 

 

 

 

 

 

 

 

 

 

Liabilities

 

 

 

 

 

 

 

 

 

 

 

Deposits:

 

 

 

 

 

 

 

 

 

 

 

Noninterest-bearing

 

$

12,431

 

$

(12

)

$

12,419

 

$

 

$

12,419

 

Interest-bearing

 

192,551

 

(4,609

)

187,942

 

220

(h)

188,162

 

Total deposits

 

204,982

 

(4,621

)

200,361

 

220

 

200,581

 

Other borrowings

 

20,000

 

 

20,000

 

790

(i)

20,790

 

Other liabilities

 

1,016

 

(142

)

874

 

 

874

 

Total liabilities

 

225,998

 

(4,763

)

221,235

 

1,010

 

222,245

 

Net assets acquired over (under) liablities assumed

 

$

(296

)

$

13,575

 

$

13,279

 

$

(19,799

)

$

(6,520

)

Excess of assets acquired over (under) liabilities assumed

 

$

(296

)

$

13,575

 

$

13,279

 

 

 

 

 

Aggregate fair value adjustments

 

 

 

 

 

 

 

$

(19,799

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cash received from the FDIC

 

 

 

 

 

 

 

 

 

$

17,050

 

Cash due from FDIC

 

 

 

 

 

 

 

 

 

471

 

Total

 

 

 

 

 

 

 

 

 

17,521

 

Gain on acquisition (noninterest income)

 

 

 

 

 

 

 

 

 

$

11,001

 

 


Explanation of fair value adjustments

 

Adjustment reflects:

(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.

(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.

(e)—Adjustment reflects the estimated fair value of payments the Company will receive from the FDIC under the loss share agreements.

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

(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 prepayment fee paid when Federal Home Loan Bank (“FHLB”) advances were completely paid off in August 2011.

 

9



Table of Contents

 

Note 4 — Mergers and Acquisitions (continued)

 

Habersham Bank Acquisition

 

On February 18, 2011, the Bank entered into a P&A agreement with loss share arrangements with the FDIC to purchase certain assets and assume substantially all of the deposits and certain liabilities of Habersham Bank (“Habersham”), a full service Georgia state-chartered community bank headquartered in Clarkesville, Georgia.  Habersham operated eight branches in the northeast region of Georgia.

 

Pursuant to the P&A agreement, the Bank received a discount of $38.3 million on the assets acquired and did not pay the FDIC a premium to assume all customer deposits. Most of the loans and foreclosed real estate purchased are covered by a loss share agreement between the FDIC and the Bank. Under this loss share agreement, the FDIC has agreed to cover 80% of loan and foreclosed real estate losses. Gains and recoveries on covered assets will offset losses, or be paid to the FDIC, at the applicable loss share percentage at the time of recovery. The loss sharing agreement applicable to single family assets (loans and OREO) provides for FDIC loss sharing and Bank reimbursement to the FDIC for ten years. The loss share agreement applicable to commercial assets (loans and OREO) provides for FDIC loss sharing for five years and Bank reimbursement to the FDIC for eight years. As of the date of acquisition, we calculated the amount of such reimbursements that we expect to receive from the FDIC using the present value of anticipated cash flows from the covered assets based on the credit adjustments estimated for each pool of loans and the estimated losses on foreclosed assets. In accordance with FASB ASC Topic 805, the FDIC indemnification asset was initially recorded at its fair value, and is measured separately from the loan assets and foreclosed assets because the loss sharing agreements are not contractually embedded in them or transferable with them in the event of disposal. The balance of the FDIC indemnification asset increases and decreases as the expected and actual cash flows from the covered assets fluctuate, as loans are paid off or impaired and as loans and foreclosed assets are sold. There are no contractual interest rates on this contractual receivable from the FDIC; however, a discount was recorded against the initial balance of the FDIC indemnification asset in conjunction with the fair value measurement as this receivable will be collected over the term of the loss sharing agreement. This discount will be accreted to non-interest income over future periods.

 

The Bank did not immediately acquire the real estate, banking facilities, furniture or equipment of Habersham as a part of the P&A agreement. However, the Bank had the option to purchase the real estate and furniture and equipment from the FDIC. The term of this option expired on May 19, 2011. On May 19, 2011, the Bank notified the FDIC that it planned to acquire four bank facilities with an appraised value of approximately $6.7 million. In addition, the Bank notified the FDIC that it plans to purchase approximately $362,000 of furniture or equipment related to five locations being retained by the Bank. The Bank will settle this purchase along with other settlement items identified no later than February 17, 2012, and currently has a payable of $6.4 million as of September 30, 2011. These five banking facilities include both leased and owned locations. In June of 2011, the Bank closed 3 branches and converted the operating system of the acquired Georgia franchise.

 

As of September 30, 2011, there have been no adjustments or changes to the initial fair values related to the Habersham acquisition. The purchase accounting adjustments and the loss sharing arrangement with the FDIC significantly impact the effects of the acquired entity on the ongoing operations of the Company.  Additionally, disclosure of pro forma financial information is made more difficult by the troubled nature of BankMeridian prior to the date of the combination.  Accordingly, no pro forma financial information has been presented.

 

For the nine months ended September 30, 2011, noninterest income included a pre-tax gain of $5.5 million which resulted from the acquisition of Habersham. The amount of the gain was equal to the amount by which the fair value of assets acquired exceeded the fair value of liabilities assumed, and resulted from the discount bid on the assets acquired and the impact of the FDIC loss share agreement, both of which are attributable to the troubled nature of Habersham prior to the acquisition. The Company recognized $239,000 and $1.4 million in merger-related expense related to the Habersham acquisition during the three months and nine months ended September 30, 2011.

 

There is no expected “true up” included in the initial fair value of the FDIC indemnification asset recognized for this acquisition.  This is the result of the amount of the negative bid, the expected losses, intrinsic loss estimate, and the assets covered under loss share.  This “true up” estimate can result in a needed “true up” if the expected losses were to decline by more than $26.0 million.

 

10



Table of Contents

 

Note 4 — Mergers and Acquisitions (continued)

 

The following table presents the assets acquired and liabilities assumed as of February 18, 2011, as recorded by Habersham on the acquisition date and as adjusted for purchase accounting adjustments.

 

 

 

 

 

Balances

 

Balances

 

 

 

 

 

 

 

As Recorded

 

Kept by

 

Acquired

 

Fair Value

 

As Recorded

 

(Dollars in thousands)

 

by Habersham

 

FDIC

 

from FDIC

 

Adjustments

 

by SCBT

 

Assets

 

 

 

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

31,924

 

$

(4

)

$

31,920

 

$

 

$

31,920

 

Investment securities

 

65,018

 

(3,582

)

61,436

 

(566

)(a)

60,870

 

Loans

 

212,828

 

9,039

 

221,867

 

(94,414

)(b)

127,453

 

Premises and equipment

 

16,915

 

(16,915

)

 

 

 

Intangible assets

 

 

 

 

3,262

(c)

3,262

 

FDIC receivable for loss sharing agreement

 

 

 

 

87,418

(d)

87,418

 

Other real estate owned and repossessed assets

 

42,024

 

(616

)

41,408

 

(26,915

)(e)

14,493

 

Other assets

 

14,446

 

(11,227

)

3,219

 

 

3,219

 

Total assets

 

$

383,155

 

$

(23,305

)

$

359,850

 

$

(31,215

)

$

328,635

 

 

 

 

 

 

 

 

 

 

 

 

 

Liabilities

 

 

 

 

 

 

 

 

 

 

 

Deposits:

 

 

 

 

 

 

 

 

 

 

 

Noninterest-bearing

 

$

76,205

 

$

(5

)

$

76,200

 

$

 

$

76,200

 

Interest-bearing

 

263,246

 

 

263,246

 

1,203

(f)

264,449

 

Total deposits

 

339,451

 

(5

)

339,446

 

1,203

 

340,649

 

Other borrowings

 

39,433

 

(6

)

39,427

 

344

(g)

39,771

 

Other liabilities

 

2,819

 

(1,710

)

1,109

 

 

1,109

 

Total liabilities

 

381,703

 

(1,721

)

379,982

 

1,547

 

381,529

 

Net assets acquired over (under) liablities assumed

 

$

1,452

 

$

(21,584

)

$

(20,132

)

$

(32,762

)

$

(52,894

)

Excess of assets acquired over (under) liabilities assumed

 

$

1,452

 

$

(21,584

)

$

(20,132

)

 

 

 

 

Aggregate fair value adjustments

 

 

 

 

 

 

 

$

(32,762

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cash received from the FDIC

 

 

 

 

 

 

 

 

 

$

59,360

 

Cash due to FDIC

 

 

 

 

 

 

 

 

 

(938

)

Total

 

 

 

 

 

 

 

 

 

58,422

 

Gain on acquisition (noninterest income)

 

 

 

 

 

 

 

 

 

$

5,528

 

 


Explanation of fair value adjustments

 

Adjustment reflects:

(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.

(c)—Adjustment reflects the recording of the core deposit intangible on the acquired deposit accounts.

(d)—Adjustment reflects the estimated fair value of payments the Company will receive from the FDIC under the loss share agreements.

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

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

(g)—Adjustment reflects the prepayment fee paid when Federal Home Loan Bank (“FHLB”) advances were completely paid off in February 2011.

 

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Table of Contents

 

Note 4 — Mergers and Acquisitions (continued)

 

Community Bank and Trust Acquisition

 

On January 29, 2010, the Bank entered into a P&A agreement, including loss share arrangements, with the FDIC to purchase certain assets and assume substantially all of the deposits and certain liabilities of CBT, a full service Georgia state-chartered community bank headquartered in Cornelia, Georgia. CBT operated 38 locations, including 36 branches, one loan production office and one trust office in the northeast region of Georgia.

 

Pursuant to the P&A agreement, the Bank received a discount of $158.0 million on the assets acquired and did not pay the FDIC a premium to assume all customer deposits. The loans and foreclosed real estate purchased are covered by a loss share agreement between the FDIC and the Bank. Under this loss share agreement, the FDIC has agreed to cover 80% of loan and foreclosed real estate losses up to $233.0 million and 95% of losses that exceed that amount. Gains and recoveries on covered assets will offset losses, or be paid to the FDIC, at the applicable loss share percentage at the time of recovery. The loss sharing agreement applicable to single family assets (loans and OREO) provides for FDIC loss sharing and Bank reimbursement to the FDIC for ten years. The loss share agreement applicable to commercial assets (loans and OREO) provides for FDIC loss sharing for five years and Bank reimbursement to the FDIC for eight years. The loss share agreement applicable to single family loans provides for FDIC loss sharing for ten years and Bank reimbursement to the FDIC for ten years. As of the date of acquisition, we calculated the amount of such reimbursements that we expect to receive from the FDIC using the present value of anticipated cash flows from the covered assets based on the credit adjustments estimated for each pool of loans and the estimated losses on foreclosed assets. In accordance with FASB ASC Topic 805, the FDIC indemnification asset was initially recorded at its fair value, and is measured separately from the loan assets and foreclosed assets because the loss sharing agreements are not contractually embedded in them or transferable with them in the event of disposal. The balance of the FDIC indemnification asset increases and decreases as the expected and actual cash flows from the covered assets fluctuate, as loans are paid off or impaired and as loans and foreclosed assets are sold. There are no contractual interest rates on this contractual receivable from the FDIC; however, a discount was recorded against the initial balance of the FDIC indemnification asset in conjunction with the fair value measurement as this receivable will be collected over the term of the loss sharing agreements. This discount will be accreted to non-interest income over future periods.

 

The Bank did not immediately acquire the real estate, banking facilities, furniture or equipment of CBT as a part of the P&A agreement. However, on October 27, 2010, the Bank acquired seven bank facilities with an appraised value of approximately $10.9 million. In addition, the Bank purchased approximately $700,000 of furniture or equipment related to 27 locations retained by the Bank.  In late May and early June of 2010, the Bank closed 10 bank branches, 1 trust office, and converted the operating system of the acquired Georgia franchise.

 

There were no adjustments or changes to the initial fair values related to the CBT acquisition within the one year time frame from the date of acquisition.  The purchase accounting adjustments and the loss sharing arrangement with the FDIC will significantly impact the effects of the acquired entity on the ongoing operations of the Company.

 

For the year ended December 31, 2010, noninterest income included a pre-tax gain of $98.1 million as a result of the acquisition of CBT. The amount of the gain was equal to the amount by which the fair value of assets acquired exceeded the fair value of liabilities assumed, and resulted from the discount bid on the assets acquired and the impact of the FDIC loss share agreement, both of which are attributable to the troubled nature of CBT prior to the acquisition. The Company recognized $5.5 million in merger-related expense during the twelve months ended December 31, 2010.

 

Currently, there is no “true up” expected with the CBT acquisition, given the level of expected losses.  Expected losses and cash flow are measured and evaluated each quarter, and can result in a need “true up”.

 

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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 January 29, 2010, as recorded by CBT on the acquisition date and as adjusted for purchase accounting adjustments.

 

 

 

 

 

Balances

 

Balances

 

 

 

 

 

 

 

As Recorded

 

Kept by

 

Acquired

 

Fair Value

 

As Recorded

 

(Dollars in thousands)

 

by CBT

 

FDIC

 

from FDIC

 

Adjustments

 

by SCBT

 

Assets

 

 

 

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

80,615

 

$

(12

)

$

80,603

 

$

 

$

80,603

 

Investment securities

 

116,270

 

(10,046

)

106,224

 

(613

)(a)

105,611

 

Loans

 

828,223

 

(56,725

)

771,498

 

(312,033

)(b)

459,465

 

Premises and equipment

 

24,063

 

(24,015

)

48

 

 

48

 

Intangible assets

 

 

 

 

8,535

(c)

8,535

 

FDIC receivable for loss sharing agreement

 

 

 

 

276,789

(d)

276,789

 

Other real estate owned and repossessed assets

 

46,271

 

4,852

 

51,123

 

(25,194

)(e)

25,929

 

Other assets

 

26,414

 

(18,541

)

7,873

 

 

7,873

 

Total assets

 

$

1,121,856

 

$

(104,487

)

$

1,017,369

 

$

(52,516

)

$

964,853

 

 

 

 

 

 

 

 

 

 

 

 

 

Liabilities

 

 

 

 

 

 

 

 

 

 

 

Deposits:

 

 

 

 

 

 

 

 

 

 

 

Noninterest-bearing

 

$

107,617

 

$

(11,602

)

$

96,015

 

$

 

$

96,015

 

Interest-bearing

 

907,288

 

311

 

907,599

 

4,892

(f)

912,491

 

Total deposits

 

1,014,905

 

(11,291

)

1,003,614

 

4,892

 

1,008,506

 

Other borrowings

 

80,250

 

 

80,250