State Bank Reports $42M of Net Loan Growth in Q2
Friday, July 24th, 2015
State Bank Financial Corporation today announced unaudited financial results for the quarter ended June 30, 2015. After incorporating our previously disclosed one-time pre-tax charge of $14.5 million that resulted from the early termination of our loss share agreements, net loss for the second quarter of 2015 was $2.0 million, compared to net income of $7.5 million for the second quarter of 2014 and net income of $9.2 million for the first quarter of 2015. Fully diluted loss per share was $.06 in the second quarter of 2015 compared to fully diluted earnings per share of $.22 in the second quarter of 2014 and fully diluted earnings per share of $.25 in the first quarter of 2015. On an operating basis, income for the second quarter of 2015 was $7.7 million, or $.20 per fully diluted share.
Joe Evans, Chairman and CEO, commented, "The big event of the second quarter was the early termination of our FDIC loss share agreements with a related one-time charge that led to negative earnings. I am extremely pleased to have accomplished early termination and remain highly confident that the financial benefits will allow us to recover this charge within five quarters as we previously announced. We continue to experience strong organic loan and noninterest-bearing deposit growth and reap the benefits of our focus on key noninterest income initiatives. These fundamentals produced another quarter of solid operating results with strong momentum carrying over into the second half of the year."
- Recorded a one-time after-tax charge of $8.9 million related to early termination of loss share agreements with the FDIC, resulting in a net loss of $2.0 million during the second quarter
- Second quarter 2015 operating income of $7.7 million, or $.20 per diluted share
- Solid growth in noninterest income key initiatives
- $42 million of net loan growth, including run-off from purchased loans
Operating Highlights
Net interest income of $33.5 million in the second quarter of 2015 decreased from $39.1 million in the first quarter of 2015 due to lower accretion income on loans, but increased from $33.1 million in the second quarter of 2014. Interest income on loans, excluding purchased credit impaired loans, for the second quarter of 2015 was $23.1 million, up $1.7 million from $21.4 million in the prior quarter and up $7.8 million from $15.4 million in the second quarter of 2014. Accretion income on loans was $8.4 million in the second quarter of 2015, down from $16.1 million in the first quarter of 2015 due primarily to larger gains from early loan payoffs in the previous quarter as well as a loan pool that closed out in the first quarter of 2015. Base accretion declined $1.3 million in the second quarter of 2015 compared to the prior quarter. As of June 30, 2015, approximately $104 million of accretable discount remains to be recognized as loan accretion income, compared to $110 million of accretable discount remaining at the end of the first quarter of 2015. Interest expense of $2.0 million in the second quarter of 2015 was essentially flat compared to the prior quarter. Cost of funds for the second quarter of 2015 was 29 basis points, unchanged from the first quarter of 2015 and down six basis points from the second quarter of 2014.
The organic loan portfolio continued to perform well in the second quarter of 2015 as past due organic loans represented only .08% of total organic loans. The provision for loan losses was $64 thousand in the second quarter of 2015, a decrease of $3.1 million compared to the first quarter of 2015, of which $2.3 million was related to purchased credit impaired loans.
Noninterest income, excluding (amortization)/accretion of the FDIC receivable for loss share agreements, was $9.3 million for the second quarter of 2015, compared to $10.3 million in the first quarter of 2015. The first quarter of 2015 included $380 thousand in securities gains and $2.0 million in prepayment fees. In the second quarter of 2015, we continued to experience solid growth in our noninterest income key initiatives as income from mortgage banking of $3.5 million and SBA lending of $1.4 million were up $800 thousand and $257 thousand, respectively, from the previous quarter. Payroll fee income of $956 thousand increased versus the prior year period, but was down from the previous quarter due to what is typically a seasonally strong first quarter.
On May 21, 2015, State Bank entered into an agreement with the FDIC to terminate the loss share agreements on all 12 FDIC-assisted acquisitions that occurred in 2009, 2010 and 2011, resulting in a pre-tax charge of approximately $14.5 million for the second quarter of 2015. Approximately $9.3 million of the one-time pre-tax charge was related to amortization scheduled to be recognized during future quarters, with the remainder primarily consisting of the payment made to the FDIC to eliminate all rights and obligations between State Bank and the FDIC, most significantly the elimination of the FDIC's right to share in the recovery of losses previously recognized under loss share. State Bank will now retain 100% of future recoveries instead of retaining either 5% or 20% of future recoveries as provided in the now terminated loss share agreements.
Total noninterest expense for the second quarter of 2015 was $31.4 million, a $1.3 million increase from
the first quarter of 2015, due primarily to higher merger-related expenses and salary and benefit costs largely as a result of severance related to the early termination of loss share. Merger-related expenses totaled $876 thousand in the second quarter of 2015, up from $137 thousand in the first quarter of 2015. Severance expenses totaled $443 thousand in the second quarter of 2015, compared to $365 thousand in the first quarter of 2015.
Financial Condition
Total assets at June 30, 2015 were $3.3 billion, down from $3.4 billion at March 31, 2015 but up from $2.6 billion at June 30, 2014. Period-end organic loans increased to $1.5 billion at June 30, 2015, a net increase of $90.8 million from the first quarter of 2015 and $294.0 million from the second quarter of 2014. Approximately $10.5 million of the growth in organic loans was related to loan renewals of purchased non-credit impaired loans that migrated into organic loans. Purchased non-credit impaired loans decreased $35.3 million from the first quarter of 2015 to $340.5 million, and purchased credit impaired loans decreased to $177.4 million at the end of the second quarter of 2015, a $13.5 million linked-quarter decline. Total net loans, excluding loans held for sale, were $2.0 billion at June 30, 2015, up $42.4 million from the first quarter of 2015.
Total deposits at June 30, 2015 were $2.7 billion, down from $2.8 billion at the end of the first quarter of 2015 but up from $2.1 billion at the end of the second quarter of 2014. Period-end noninterest-bearing demand deposits increased $70.2 million from the first quarter of 2015 and represented 27.9% of total deposits as of June 30, 2015. Average noninterest-bearing demand deposits increased $90.6 million from the first quarter of 2015. Average transaction accounts, comprised of noninterest-bearing demand deposits and interest-bearing transaction accounts, increased $105.7 million from the first quarter of 2015.
Tangible book value per share was $13.51 at the end of the second quarter of 2015. State Bank Financial Corporation continues to be well capitalized, ending the quarter with a leverage ratio of 14.78% and a Tier I risk-based capital ratio of 18.83%.
Branch Closures
As part of our ongoing strategy to deploy personnel and resources more efficiently, State Bank consolidated three branch offices in Middle Georgia in the second quarter of 2015. After completing the First Bank of Georgia conversion, which is scheduled for the weekend of July 25-26, 2015, State Bank will operate 26 banking offices in three primary markets: Metro Atlanta (7), Middle Georgia (12), and Augusta (7), as well as five mortgage origination offices in the Atlanta, Augusta and Savannah, Georgia markets.
Detailed Results
Supplemental tables displaying financial results for the second quarter of 2015, the previous four quarters and the first half of 2015 are included with this press release.
Non-GAAP Financial Measures
This press release contains certain performance measures determined by methods other than in accordance with accounting principles generally accepted in the United States of America ("GAAP"). For more information on this topic, please refer to 2Q15 Financial Supplement: Table 2, Condensed Operating Results to GAAP Earnings Reconciliation, on page 7.
