MACON, Ga., Oct. 24, 2007 (PRIME NEWSWIRE) -- Security Bank Corporation (Nasdaq:SBKC) today reported quarterly net income of $575,000 for the third quarter ended September 30, 2007, down 92% from third quarter 2006 net income of $6,940,000. Diluted earnings per share for the third quarter of 2007 were $0.03 compared to $0.37 per share for the comparable year ago period. The decrease in diluted earnings per share is primarily attributable to a 66 basis point decline in net interest margin and an $8.2 million increase in provision for loan losses versus the third quarter a year ago. For the nine months ended September 30, 2007 net income decreased 26% to $13.5 million compared to a year ago and on a per diluted share basis decreased 36% to $0.69 versus $1.08 for the comparable year ago period.
Security Bank's annualized return on average tangible equity and average assets for the nine months ended September 30, 2007 were 9.97% and 0.71% respectively, versus 18.41% and 1.27% for the same period in 2006. Tangible book value increased 9% to $9.57 per share at September 30, 2007 versus $8.76 a year ago. Tangible equity to tangible assets was 7.0% at September 30, 2007 versus 7.7% on September 30, 2006 and all bank subsidiaries were 'well-capitalized" as defined by regulatory standards.
Asset Quality
During the third quarter, nonperforming assets ("NPAs" or nonaccrual loans and other real estate owned) increased to $65.4 million, or 2.99% of total loans plus other real estate owned compared to 2.59% and 1.05% at the end of the second quarter of 2007 and the third quarter of 2006, respectively. While the Company did sell $14 million of NPAs during the quarter, new properties totaling approximately $15 million were moved to other real estate owned and approximately $33 million of new nonaccrual loans were identified. In addition, the Company charged off approximately $6.4 million (net) in loans receivable resulting in net charge-offs to average loans of 1.19% annualized for the third quarter of 2007. Net charge-offs to average loans were 0.18% annualized for the third quarter of 2006. For the first nine months of 2007, net charge-offs to average loans were 0.51% on an annualized basis. Security Bank increased its allowance for loan losses to $27.1 million, or 1.25% of loans receivable at September 30, 2007, up from $21.5 million at September 30, 2006.
Rett Walker, President and CEO, remarked, "It's been an unusual quarter in terms of overall credit market conditions and the fallout from subprime lending, a market in which we did not participate but one that is impacting us nevertheless. We ended the third quarter with total nonperforming assets roughly $10 million higher than at the end of the second quarter. This increase is primarily reflective of the downturn in the Atlanta residential real estate construction and development market. Realistically, it's too early to predict when we will see an improvement in NPAs from current levels given the uncertainty about the timing of the cyclical recovery of the Atlanta real estate market."
Balance Sheet
Loans receivable were $2.2 billion at September 30, 2007, up from $1.8 billion at September 30, 2006, an increase of 21%. On a sequential basis loans increased by roughly $71 million or approximately 14% on an annualized basis with over 85% of growth occurring in our Middle and Coastal Georgia markets.
Total deposits were $2.2 billion at September 30, 2007, an increase of 20% from $1.8 billion at September 30, 2006. Total assets increased 17.7% to $2.7 billion at September 30, 2007, compared to $2.3 billion at September 30, 2006.
Shareholders' equity increased $9.8 million to $312.0 million, an increase of 3% compared to September 30, 2006, primarily attributable to earnings, net of dividends paid, offset by $4.9 million in reduced equity as a result of shares purchased during the quarter under the current authorized share repurchase program.
Net Interest Income
Net interest income for the third quarter of 2007 was $22.8 million, an increase of 6% when compared to the third quarter of 2006. The increase is primarily the result of the continued growth in the Company's loan portfolio, both from organic growth and growth from acquisitions. The net interest margin (on a fully tax-equivalent basis ("FTE")) was 3.81% for the quarter ended September 30, 2007, compared to 4.47% for the comparable period one year ago and 4.11% for the second quarter of 2007. The decrease in the net interest margin in the third quarter of 2007 as compared to the second quarter of 2007 is the result of the aforementioned increase in nonperforming assets and the negative effect of very competitive loan pricing in the form of rate and fees. For the nine months ended September 30, 2007, the net interest margin (FTE) was 4.04% compared to 4.51% for the nine months ended September 30, 2006.
Noninterest Income and Expense
Noninterest income for the third quarter of 2007 was $4.3 million compared to the $5.0 million recognized during the third quarter of 2006. The decrease resulted from a decline in noninterest income of $899,000 which was somewhat offset by reduced securities losses of $265,000.
Noninterest expense for the third quarter of 2007 was $16.7 million, an increase of 16% over the third quarter 2006 level of $14.4 million. The increase is primarily attributable to a $1.8 million increase in other noninterest expense associated with foreclosure expenses from higher levels of nonperforming assets and the write-off of legal and other expenses associated with the cancellation of the First Commerce transaction. The remainder of the increase resulted from a $355,000 increase in salaries and benefits which is the direct result of the Company's organic growth and growth from the acquisition of Homestead Bank during 2006.
2007 Earnings Guidance
Based on current expectations, management is reducing its previously announced earnings per share guidance for 2007 from a range of $1.31 to $1.35 to $0.63 to $0.69. The reduction reflects management's current assumptions relating to the following factors:
* Higher provision for loan losses of up to $23 million for the year due to the continued elevated level of NPAs. Net charge offs are expected to increase to roughly 90 basis points versus more recent guidance of 75 to 80 basis points. * The net interest margin is projected to decline to approximately 3.9% for the year, the low end of our prior estimated range of 3.9% to 4.1% given recent and anticipated interest rate reductions by the Federal Reserve, along with elevated levels of nonperforming assets and related interest reversals. * A reduction in the Company's projected loan growth for the fourth quarter to approximately 5% from previous estimates of 10% to 12%.
Rett Walker, Security Bank Corporation President and CEO commented, "During this turbulent period in the market, we are seeking opportunities to enhance our position with customers, leveraging our exemplary customer service culture with new product offerings in wealth management, jumbo mortgage products and correspondent banking. At the same time, we are focused on quickly identifying and resolving our nonperforming loans and we have our top management talent focused on these issues. Finally, we are prudently increasing our reserve levels and we are focusing on cost control initiatives in a slower loan growth environment but not at the expense of long-term investments. We believe our current actions will serve us well and position us favorably when markets do recover."
Other Information
Security Bank Corporation management will host a conference call to discuss these results at 10:00 AM Eastern Daylight Time on Thursday, October 25, 2007. This call is open to all interested parties. From locations within the United States the call-in number is 877.407.8031 (201.689.8031 from outside the United States). Please call in 10 minutes prior to the beginning of the conference call and ask for Security Bank Corporation.
A recorded playback of the conference call will be available by calling 877.660.6853, or 201.612.7415 from outside the United States, from approximately 12:00 PM EDT, Thursday, October 25, until 11:59 PM EDT Thursday, November 1, 2007. The reservation numbers for this playback are Account #286 and Conference ID # 257886.
This press release, including the attached selected unaudited financial tables, which are a part of this release, contains financial information determined by methods other than in accordance with generally accepted accounting principles ("GAAP"). These non-GAAP financial measures are "tangible book value", "tangible equity to tangible assets" and "return on average tangible equity." Security Bank's management uses these non-GAAP measures in its analysis of Security Bank's performance.
Tangible book value is defined as total equity reduced by recorded intangible assets, net of related deferred tax benefits. Tangible book value per share is defined as tangible book value divided by total common shares outstanding. This measure is important to many investors in the marketplace who are interested in changes from period to period in book value per share exclusive of changes in intangible assets. Goodwill, an intangible asset that is recorded in a purchase business combination, has the effect of increasing total book value while not increasing the tangible assets of the company. For companies such as Security Bank that have engaged in multiple business combinations, purchase accounting requires the recording of significant amounts of goodwill related to such transactions. Tangible equity to tangible assets is the ratio of tangible equity defined as total equity reduced by recorded intangible assets, net of related deferred tax benefits, to tangible assets defined as total assets reduced by recorded intangible assets, net of related deferred tax benefits. Tangible equity to tangible assets is an important measure of the Company's capital strength without the effects of purchase accounting as noted above. Return on average tangible equity is defined as earnings for the period (annualized for the quarterly period or year-to-date period, as applicable) divided by average equity reduced by average goodwill and other intangible assets, net of related deferred tax benefits. Security Bank's management includes this measure because it believes that it is important when measuring the Company's performance exclusive of the effects of goodwill and other intangibles recorded in recent acquisitions, and this measure is used by many investors as part of their analysis of Security Bank.
These disclosures should not be viewed as a substitute for operating results determined in accordance with GAAP, nor are they necessarily comparable to non-GAAP performance measures that may be presented by other companies. Please refer to the "Reconciliation Table" in the attached schedules for a more detailed analysis of these non-GAAP measures and the most directly comparable GAAP measures.
About Security Bank Corporation
Based in Macon, Georgia, Security Bank Corporation is a multi-bank holding company with assets of $2.7 billion at September 30, 2007. Security Bank Corporation operates 6 community banks with banking offices located throughout middle Georgia, coastal Georgia and north metropolitan Atlanta. In addition, Security Bank Corporation operates an investment management and planning firm, CFS Wealth Management, LLC, in addition to operating its interim real estate and development lender and traditional mortgage originator, Fairfield Financial Services, Inc., with offices throughout Georgia.
Security Bank Corporation common stock is traded on the NASDAQ Global Select Market under the ticker symbol "SBKC." You may obtain copies of all documents that Security Bank files with the Securities and Exchange Commission, free of charge, at the SEC's website at www.sec.gov. In addition, copies of these documents may also be obtained from us without charge by directing a written request to Security Bank Corporation, 4219 Forsyth Road, Macon, Georgia 31210, attention: Investor Relations.
Safe Harbor
This press release contains forward-looking statements as defined by federal securities laws, including statements about Security Bank's loan loss provisions, net charge-offs, non-performing assets, net interest margin changes, the overall economic cycle and its impact on real estate values in Security Bank's markets, loan growth, introduction and success of new products and Security Bank's long-term prospects, among others. Statements contained in this press release that are not historical facts are forward looking statements. Forward looking statements may address issues involving significant risks, uncertainties, estimates and assumptions made by management. Security Bank's ability to accurately project results or predict the effects of future plans or strategies is inherently limited. Although Security Bank believes that the expectations and estimates reflected in its forward-looking statements are based on reasonable assumptions, actual results and performance could differ materially from those set forth in the forward-looking statements. Please refer to Security Bank Corporation's public filings with the Securities and Exchange Commission for a summary of important factors that could affect Security Bank Corporation's financial results and operations and its forward-looking statements. Security Bank Corporation does not intend to and assumes no responsibility, except as required by law, for updating or revising any forward-looking statements contained in this press release, whether as a result of new information, changes in assumptions, future events or otherwise.
Security Bank Corporation
Selected Consolidated Financial Data
(Dollars in Thousands, except Per Share Amounts)
Unaudited
Quarters Ended
September 30,
---------------------------------
2007 2006 % Change
--------- --------- --------
EARNINGS SUMMARY:
Net interest income $ 22,781 $ 21,587 5.5%
Provision for Loan Losses 9,400 1,226 666.7%
Noninterest Income 4,260 4,986 -14.6%
Noninterest Expense 16,719 14,432 15.8%
Provision for Income Taxes 347 3,975 -91.3%
Net Income 575 6,940 -91.7%
PER COMMON SHARE:
Basic earnings $ 0.03 $ 0.38 -92.1%
Diluted earnings 0.03 0.37 -91.9%
Cash dividends declared 0.088 0.075 17.3%
Book value 16.52 15.78 4.7%
Tangible book value 9.57 8.76 9.2%
KEY PERFORMANCE RATIOS (a):
Return on average tangible
equity (b) 1.24% 17.13%
Return on average assets 0.09% 1.28%
Efficiency ratio 61.83% 54.31%
Net interest margin (FTE) 3.81% 4.47%
Net charge-offs to average loans 1.19% 0.18%
BALANCE SHEET SUMMARY
- END OF PERIOD
Investment securities $ 227,694 $ 211,005 7.9%
Loans Held for Resale 8,867 8,947 -0.9%
Loans, gross 2,165,212 1,790,964 20.9%
Allowance for loan losses 27,132 21,477 26.3%
Total assets 2,723,986 2,314,913 17.7%
Deposits 2,191,100 1,833,005 19.5%
Other borrowed money 203,383 159,807 27.3%
Shareholders' equity 312,036 302,273 3.2%
Tangible equity to tangible assets 6.97% 7.70% -9.4%
ASSET QUALITY - END OF PERIOD
Nonaccrual loans $ 41,492 $ 16,946 144.8%
Other real estate owned 23,891 1,867 1179.6%
Total nonperforming assets 65,383 18,813 247.5%
Allowance for loan losses/NPA's 41.50% 114.16%
Allowance for loan losses/loans 1.25% 1.20%
Nine Months Ended
September 30,
---------------------------------
2007 2006 % Change
--------- --------- --------
EARNINGS SUMMARY:
Net interest income $ 68,941 $ 57,372 20.2%
Provision for Loan Losses 12,660 2,595 387.9%
Noninterest Income 13,985 14,820 -5.6%
Noninterest Expense 49,034 40,927 19.8%
Provision for Income Taxes 7,771 10,500 -26.0%
Net Income 13,461 18,170 -25.9%
PER COMMON SHARE:
Basic earnings $ 0.70 $ 1.10 -36.4%
Diluted earnings 0.69 1.08 -36.1%
Cash dividends declared 0.26 0.23 13.0%
Book value 16.52 15.78 4.7%
Tangible book value 9.57 8.76 9.2%
KEY PERFORMANCE RATIOS (a):
Return on average tangible
equity (b) 9.97% 18.41%
Return on average assets 0.71% 1.27%
Efficiency ratio 59.13% 56.69%
Net interest margin (FTE) 4.04% 4.51%
Net charge-offs to average loans 0.51% 0.12%
(a) Annualized based on number of days in the period, except
efficiency ratio
(b) Calculation of this measure is illustrated in the attached
GAAP to non-GAAP reconciliation
Reconciliation Table - GAAP to non-GAAP:
2007
-------------------------------------
3rd Quarter 2nd Quarter 1st Quarter
-------------------------------------
Book Value per share $ 16.52 $ 16.38 $ 16.25
Effect of intangible
assets per share (6.95) (6.84) (6.86)
Tangible book value $ 9.57 $ 9.54 $ 9.39
Equity $ 312,036 $ 314,687 $ 311,729
Intangible assets 132,942 133,218 133,416
Less tax effect of Core-Deposit
Intangible (38%) (1,661) (1,754) (1,848)
Tangible equity $ 180,755 $ 183,223 $ 180,161
Assets $2,723,986 $2,672,177 $2,541,603
Intangible assets 131,281 131,464 131,568
Tangible assets $2,592,705 $2,540,713 $2,410,035
Equity/Assets 11.46% 11.78% 12.27%
Effect of intangible assets -4.49% -4.57% -4.79%
Tangible Equity/Tangible Assets 6.97% 7.21% 7.48%
Average Equity $ 316,060 $ 313,877 $ 308,691
Average Intangible assets 133,117 133,363 136,228
Less tax effect of Core-Deposit
Intangible (38%) (1,720) (1,813) (1,896)
Average tangible equity $ 184,663 $ 182,327 $ 174,359
Net Income (a) $ 2,281 $ 24,467 $ 27,521
Return on average
tangible equity 1.24% 13.42% 15.78%
Diluted earnings per share $ 0.03 $ 0.31 $ 0.35
Effect of securities (gains)
losses, net of tax -- -- --
Effect of prepayment of FHLB
advances, net of tax -- -- --
Diluted operating earnings
per share $ 0.03 $ 0.31 $ 0.35
Net income $ 575 $ 6,100 $ 6,786
Effect of securities (gains)
losses, net of tax 3 -- (1)
Effect of prepayment of FHLB
advances, net of tax -- -- --
Net operating income $ 578 $ 6,100 $ 6,785
2006
----------------------------------------------------------
Dec 31/YTD 4th Qtr 3rd Qtr 2nd Qtr 1st Qtr
----------------------------------------------------------
Book Value
per share $ 15.99 $ 15.99 $ 15.78 $ 14.71 $ 13.79
Effect of
intangible
assets per
share (7.00) (7.00) (7.02) (6.05) (6.71)
Tangible
book
value $ 8.99 $ 8.99 $ 8.76 $ 8.66 $ 7.08
Equity $ 306,408 $ 306,408 $ 302,273 $ 257,780 $ 217,641
Intangible
assets 133,094 133,094 136,518 107,921 107,788
Less tax
effect of
Core-Depo-
sit Intan-
gible
(38%) (1,942) (1,942) (2,035) (1,865) (1,949)
Tangible
equity $ 175,256 $ 175,256 $ 167,790 $ 151,724 $ 111,802
Assets $2,494,071 $2,494,071 $2,314,913 $1,974,376 $1,912,841
Intangible
assets 131,152 131,152 134,483 106,056 105,839
Tangible
assets $2,362,919 $2,362,919 $2,180,430 $1,868,320 $1,807,002
Equity
/Assets 12.29% 12.29% 13.06% 13.06% 11.38%
Effect of
intangible
assets -4.87% -4.87% -5.36% -4.94% -5.19%
Tangible
Equity/Tan-
gible Assets 7.42% 7.42% 7.70% 8.12% 6.19%
Average
Equity $ 252,004 $ 304,362 $ 283,937 $ 235,731 $ 182,219
Average In-
tangible
assets 112,385 136,443 125,227 107,763 79,313
Less tax
effect of
Core-Deposit
Intangible
(38%) (1,921) (2,001) (2,006) (1,918) (1,754)
Average
tangible
equity $ 141,540 $ 169,920 $ 160,716 $ 129,886 $ 104,660
Net
Income(a) $ 23,392 $ 20,718 $ 27,534 $ 24,427 $ 20,846
Return on
average
tangible
equity 16.53% 12.19% 17.13% 18.81% 19.92%
Diluted
earnings
per share $ 1.33 $ 0.26 $ 0.37 $ 0.36 $ 0.35
Effect of
securities
(gains)
losses, net
of tax 0.06 0.05 0.01 -- --
Effect of
prepayment
of FHLB
advances,
net of
tax (0.01) -- (0.01) -- --
Diluted
operating
earnings
per share $ 1.38 $ 0.31 $ 0.37 $ 0.36 $ 0.35
Net income $ 23,392 $ 5,222 $ 6,940 $ 6,090 $ 5,140
Effect of
securities
(gains)
losses, net
of tax 980 808 172 -- --
Effect of
prepayment
of FHLB
advances,
net of tax (174) -- (174) -- --
Net
operating
income $ 24,198 $ 6,030 $ 6,938 $ 6,090 $ 5,140
(a) The actual number of days in the period were used to annualize
income