Net income for the second quarter of 2014 was $7.5 million, compared to net income of $137,000 for the second quarter of 2013 and net income of
$4.3 million for the first quarter of 2014. Fully diluted earnings per share were 22 cents in 2Q 2014 compared to zero cents in the 2Q 2013 and 13 cents in 1Q 2014.
“Today marks the fifth anniversary of State Bank, as well as the expiration of the loss share coverage under our commercial loss share agreements for our first acquisition, and I could not be more pleased with where we stand,” said Joe Evans, chairman and CEO, said July 24. “As our second quarter results reflect, we believe we are exiting loss share very successfully and are continuing to make solid progress in building the core bank as we announced two healthy bank acquisitions that will enhance our current franchise and expand our brand into a new market. I look forward to continuing our positive momentum in the second half of the year.”
Operating highlights include:
Net interest income was $33.1 million in 2Q 2014, down from $42.4 million in 1Q 2014 and $41.6 million in 2Q 2013 due to lower accretion income on covered loans.
Accretion income on covered loans was $17.1 million in 2Q 2014, down from $26.5 million in 1Q 2014. The higher accretion income in the previous quarter was due primarily to gains on covered loan pools that closed out in 1Q 2014.
Interest income on non-covered loans for 2Q 2014 was $15.4 million, up from $15.3 million in the prior quarter and $15.1 million in 2Q 2013.
The yield on non-covered loans decreased to 5.20-percent in 2Q 2014 primarily as a result of payoffs from higher-yielding commercial realestate loans as well as lower yields on new fundings.
Interest expense of $1.8 million in 2Q 2014 was down versus the prior quarter and the prior year period. Cost of funds for 2Q 2014 of 35 basis points was down two basis points from the prior quarter and the prior year period.
The non-covered loan portfolio continued to perform well in 2Q 2014 as recoveries were greater than charge-offs for the third conse-cutive quarter. The provision for loan losses on non-covered loans was $1 million in 2Q 2014 and was primarily attributable to organic loan growth. The provision on covered loans, net of the FDIC benefit, was a negative $299,000 in 2Q 2014 due to actual cash flows on covered loans exceeding estimated cash flows.
Non-interest income excluding amortization of the FDIC receivable for loss share agreements, which is referred to as the indemnification asset, was $3.3 million for 2Q 2014, up from $3.1 million in 1Q 2014 primarily due to increases in service charges on deposits, ATM and other income.
Total non-interest income for 2Q 2014, which includes amortization of the indemnification asset, was $1.4 million compared to negative $12.2 million in 1Q 2014 and negative $16.5 million in 2Q 2013.
Amortization of the indemnification asset negatively impacted noninterest income by $1.9 million in 2Q 2014 compared to $15.3 million in 1Q 2014 and $20.8 million in 2Q 2013.
As of June 30, the bank was projecting $20 million of scheduled amortization of the indemnification asset with an estimated weighted average life of four quarters, versus $140 million of scheduled loan accretion income with an estimated weighted average life of 10 quarters.
Total non-interest expense for 2Q 2014 was $22.1 million, down $1 million from 1Q 2014 and $3.4 million from 2Q 2013. Salary and benefit costsdecreased $502,000 in the quarter to $14.6 million for 2Q 2014.
Loan collection and OREO costs decreased $656,000 as the bank experienced a net recovery of $32,000 in 2Q 2014. The second quarter included approximately $265,000 of merger expenses related to the two acquisitions in the quarter.