SCBT Financial: The other B-word

Paul Rolfes | Oct 07, 2008 6:20am EDT | Comment

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Mention the “B” word as a viable investment path in this time of great hand-wringing on Capitol Hill and Wall Street, and some might gasp, shake their heads and run away. That word is banks.

Is it time to call the exorcist to oust those demonic thoughts? Not necessarily, because digging beneath the doom-and-gloom headlines of catastrophic failures and loan losses, some financial-services companies are chugging along quite nicely.

SCBT Financial Corp. (Nasdaq:SCBT), which primarily operates as South Carolina Bank and Trust, appears to have escaped a drenching from the bloodbath. The 75-year-old Columbia, S.C., company operates 50 Carolinas branches.

SCBT’s philosophy is typical of banks that have not been pulled under by the meltdown: know your market, keep the customer satisfied and stick to what has kept you in business. Over the past three months, its share price has risen 26%, and is up 14% year to date. Amid the turmoil, SCBT hit a 52-week high of $45.24 on Sept. 19, contrasted to a July 15 low of $26.25. The stock closed Monday at $36.16.

Analysts who follow SCBT have expressed positive comments. In a Sept. 23 clients’ note, SunTrust Robinson Humphrey’s Mac Hodgson said, “We continue to recommend SCBT as a small-cap stock we want to own long term because it is a standout in terms of credit quality and growth opportunities.” Hodgson has a “buy” rating and a $38 price target, noting “SCBT is among a select few banks that has been able to consistently deliver pristine asset quality and earnings growth … .”

Fig Partners managing principal and director of research Christopher Marinac, who has had SCBT at “outperform,” noted in a report that he’s expecting an earnings uptick this year and next because of “the opportunity and ability of SCBT to organically grow its market share … by winning loan and deposit business from large national and regional competitors.”

Last year, SCBT acquired TSB Financial and its Scottish Bank, with $193 million in assets. With the acquisition, SCBT took a giant step into Charlotte, N.C., the backyard of two of the biggest bank players: Bank of America (NYSE:BAC) and Wachovia (currently being fought over by Citigroup (NYSE:C) and Wells Fargo (NYSE:WFC).

For the quarter ended June 30, SCBT reported a 10.4% rise in consolidated net income to a record $6.1 million. Average total assets (including those from TSB) increased 21% to $2.7 billion. Nonperforming loans of $7.4 million represented 0.33% of all loans. Net charge-offs and nonperforming assets also were a fraction of a percentage point.

But that’s not to say that SCBT Financial hasn’t been tainted by the sins of its brethren. SCBT said Sept. 9 that it held $10.25 million in Freddie Mac (NYSE:FRE) preferred shares, resulting in an unrealized loss of $6.6 million, and that its third-quarter impairment charge is “difficult to determine.” The company had noted the exposure in its 10-Q filed a month earlier.

On Sept. 23, SCBT said its South Carolina Bank and Trust subsidiary enhanced its capital position with a $15 million subordinated debt agreement. In a press release, CEO Robert R. Hill Jr. noted: “We feel the market will begin to present many opportunities to banks that are strong, and therefore we are adding to our capital in order to be well-positioned to take advantage of these opportunities.”

Typically SCBT reports its quarterly results several weeks after the ending period, so investors should find out soon how they fared.