Market Overview

South State Corporation Reports Third Quarter Operating EPS of $1.12; Increases Quarterly Cash Dividend

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COLUMBIA, S.C.--(BUSINESS WIRE)--

South State Corporation (NASDAQ: SSB) today released its unaudited results of operations and other financial information for the three-month and nine-month period ended September 30, 2015. Highlights of the third quarter 2015 include the following:

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  • Operating earnings for 3Q improved to $27.2 million or $1.12 per share (diluted), up from $26.3 million or $1.09 per share for 2Q 2015
    • Earnings per share (EPS) – diluted was $1.04 compared to $1.03 in 2Q 2015; and $0.80 per share in 3Q 2014, a 30% increase;
    • Net income available to the common shareholders of $25.1 million improved by 30.1% from 3Q 2014 of $19.3 million;
    • For the nine-months ended September 30, 2015, net income totaled $73.9 million compared to $53.1 million a year ago, a 39.2% increase; and
    • Increased dividend paid to common shareholders by 19.0%, or $0.04 per share, since 3Q 2014
  • Net loan growth (non-acquired loans exceeded acquired loan runoff) during third quarter was $86.7 million or 5.9% annualized
    • Non-acquired loan growth totaled $206.3 million or 21.6% annualized growth; which
    • Outpaced acquired loan runoff of $119.6 million
  • Performance ratios during 3Q 2015 from 2Q 2015
    • Operating return on average assets was 1.29%, a decline from 1.32%
    • Operating return on average tangible equity improved to 16.92% from 16.90%
    • Efficiency ratio rose to 64.4% from 63.2%
    • Operating efficiency ratio rose to 61.7% from 61.2% (excludes one-time charges related to merger and conversion expenses in 2014 and branch consolidation and acquisition expenses in 2015)
  • Balance sheet changes during 3Q 2015
    • Goodwill increased by $20.7 million from the Bank of America branch acquisition
    • OREO decreased $3.7 million to $31.4 million, due to primarily to the disposition of 49 properties during the quarter
    • Noninterest bearing deposits increased by $82.3 million and interest bearing deposits increased by $328.1 million primarily from the Bank of America branch acquisition
    • Shareholders' equity increased $24.5 million to $1.048 billion
    • Tangible equity to tangible assets declined to 8.14% from 8.56%, at June 30, 2015, due to the Bank of America branch acquisition
  • Asset quality continues to improve
    • Nonperforming assets (NPAs) declined by 8.5%, or $5.6 million, to $60.0 million
    • NPAs to total assets improved to 0.71% from 0.81%
    • Net charge offs on non-acquired loans were 0.09%, or $875,000, in 3Q 2015, down from 0.12%, or $1.1 million, in 2Q 2015
    • Coverage ratio of ALLL on non-acquired non-performing loans improved to 147.1% from 141.0%

Quarterly Cash Dividend

The Board of Directors of South State Corporation has declared a quarterly cash dividend of $0.26 per share payable on its common stock. This per share amount is $0.01 per share, or 4.0% higher than the dividend paid in the immediately preceding quarter and is $0.04 per share, or 18.2%, higher than third quarter of 2014. The dividend will be payable on November 20, 2015 to shareholders of record as of November 13, 2015.

Branch Initiatives - Update

The consolidation (11) or sale (2) of 13 branches and ATM locations in 2015 during the second, third and fourth quarters is summarized below:

  • Consolidated eight of eleven locations during the second quarter (May and June);
  • Consolidated three locations during the third quarter; and
  • Sold two branches in early October of 2015.

The purchase and conversion of 13 former Bank of America branches and ATM locations was completed during the weekend beginning on August 21, 2015 (12 in South Carolina and 1 in Georgia). Below is a summary of assets and liabilities acquired and the expectations:

  • Acquired $438.3 million in total deposits, $3.1 million in loans (including overdrafts) and $4.1 million in fixed assets (including 30+ ATMs);
  • Modeled 15% deposit runoff with actual runoff totaling approximately 24%;
  • Core deposit intangible totaled $6.8 million, or 1.55% of total deposits;
  • Amortization of core deposit intangible over 10 years using an accelerated method;
  • Original deal value modeled was $31.6 million compared to actual of $25.0 million (based on 30 day average deposits of $454.8 million); and
  • Expect mid-single digit accretion in 2016.

Third Quarter 2015 Financial Performance

  Three Months Ended   Nine Months Ended
(Dollars in thousands, except per share data) Sep. 30,   Jun. 30,   Mar. 31,   Dec. 31,   Sep. 30, September 30,
INCOME STATEMENT   2015     2015     2015     2014     2014     2015       2014  
Interest income
Loans, including fees (8) $ 79,857 $ 79,407 $ 78,848 $ 79,893 $ 78,700 $ 238,111 $ 239,988
Investment securities, federal funds sold and securities
purchased under agreements to resell   5,705     5,358     5,150     5,487     5,648     16,214     16,654  
Total interest income 85,562 84,765 83,998 85,380 84,348 254,325 256,642
Interest expense
Deposits 1,811 1,737 2,003 2,246 2,395 5,550 7,056
Federal funds purchased, securities sold under agreements
to repurchase, and other borrowings   736     751     946     1,583     1,584     2,434     4,777  
Total interest expense   2,547     2,488     2,949     3,829     3,979     7,984     11,833  
Net interest income 83,015 82,277 81,049 81,551 80,369 246,341 244,809
Provision for loan losses (1)   1,075     3,145     818     1,481     2,091     5,038     5,109  
Net interest income after provision for loan losses   81,940     79,132     80,231     80,070     78,278     241,303     239,700  
Noninterest income   29,771     30,082     26,505     25,299     24,453     86,358     69,398  
Pre-tax operating expense 70,103 69,292 70,485 70,077 68,212 209,880 209,022
Branch consolidation / acquisition expense 3,091 2,237 -- -- -- 5,328 --
Merger and branding related expense   --     --     --     4,599     6,846     --     19,341  
Total noninterest expense   73,194     71,529     70,485     74,676     75,058     215,208     228,363  
Income before provision for income taxes 38,517 37,685 36,251 30,693 27,673 112,453 80,735
Provision for income taxes   13,377     12,813     12,325     9,445     8,346     38,515     26,546  
Net income 25,140 24,872 23,926 21,248 19,327 73,938 54,189
Preferred stock dividends   --     --     --     --     --     --     1,073  
Net income available to common shareholders $ 25,140   $ 24,872   $ 23,926   $ 21,248   $ 19,327   $ 73,938   $ 53,116  
 
Operating Earnings (non-GAAP) (3)
Net income (GAAP) $ 25,140 $ 24,872 $ 23,926 $ 21,248 $ 19,327 $ 73,938 $ 54,189
Securities (gains) losses, net of tax -- -- -- -- 63 -- 5
Merger and branding related expense, net of tax -- -- -- 3,184 4,781 -- 12,982
Branch consolidation / acquisition expense   2,017     1,476     --     --     --     3,503     --  
Net operating earnings (non-GAAP) 27,157 26,348 23,926 24,432 24,171 77,441 67,176
Preferred stock dividends   --     --     --     --     --     --     1,073  

Net operating earnings available to common

shareholders (non-GAAP)

$ 27,157   $ 26,348   $ 23,926   $ 24,432   $ 24,171   $ 77,441   $ 66,103  
 
Basic earnings per common share $ 1.05 $ 1.04 $ 1.00 $ 0.89 $ 0.81 $ 3.09 $ 2.22
Diluted earnings per common share $ 1.04 $ 1.03 $ 0.99 $ 0.88 $ 0.80 $ 3.05 $ 2.20
Operating earnings per common share - Basic (non-GAAP) (3) $ 1.13 $ 1.10 $ 1.00 $ 1.02 $ 1.01 $ 3.23 $ 2.77
Operating earnings per common share - Diluted (non-GAAP) (3) $ 1.12 $ 1.09 $ 0.99 $ 1.01 $ 1.00 $ 3.20 $ 2.74
Dividends per common share $ 0.25 $ 0.24 $ 0.23 $ 0.22 $ 0.21 $ 0.72 $ 0.60
Basic weighted-average common shares outstanding 23,984,417 23,980,602 23,943,443 23,911,515 23,898,982 23,955,562 23,889,546
Diluted weighted-average common shares outstanding 24,285,228 24,258,014 24,200,709 24,189,289 24,160,461 24,234,802 24,139,374
Effective tax rate 34.73 % 34.00 % 34.00 % 30.77 % 30.16 % 34.25 % 32.88 %

The Company reported consolidated net income available to common shareholders of $25.1 million, or $1.04 per diluted common share for the three-months ended September 30, 2015 up from $24.9 million, or $1.03 per diluted common share for the three-months ended June 30, 2015. The $268,000 increase was the result of an increase in interest income of $797,000 (primarily from non-acquired loan interest income and securities income), a decline in the provision for loan losses of $2.1 million (primarily in the non-acquired loan portfolio and the acquired non-credit impaired loan portfolio), a decrease in noninterest income of $311,000 (reduction in mortgage banking income partially offset by higher fees on deposit accounts and higher trust and investment services income), an increase in noninterest expenses of $1.7 million (branch consolidation and acquisition expenses and an increase in OREO and loan related expenses) and an increase in the provision for income taxes of $564,000. During the quarter, our effective income tax rate increased to 34.73%, resulting in an effective tax rate of 34.25% on a year-to-date basis compared to 32.88% in 2014, due to higher pre-tax net income.

"South State experienced solid performance during the third quarter of 2015," said Robert R. Hill, Jr., CEO of South State Corporation. "The Bank of America conversion was completed this quarter and was very well executed. We feel good about the opportunity this acquisition provides us. Both net income available to the common shareholder and diluted earnings per share improved 30%, compared to the third quarter of 2014. Our team continues to make progress in growing organically, adding new talent, and taking steps to improve efficiency levels. The strength of our balance sheet and significant liquidity put us in a position of strength for future growth. The board has again approved a quarterly common stock cash dividend, for the seventh consecutive increase, of $0.26 per share, up 18.2% from last year."

Balance Sheet and Capital

  Ending Balance
Sep. 30,   Jun. 30,   Mar. 31,   Dec. 31,   Sep. 30,
BALANCE SHEET 2015   2015   2015   2014   2014  
Assets
Cash and cash equivalents $ 889,380   $ 593,382   $ 630,734   $ 417,869   $ 503,028  
Investment securities:
Securities held to maturity 9,314 9,659 9,659 9,659 10,389
Securities available for sale, at fair value 885,798 841,661 808,396 806,766 805,114
Other investments   9,031     9,031     9,031     10,518     10,518  
Total investment securities   904,143     860,351     827,086     826,943     826,021  
Loans held for sale   48,985     73,055     87,342     61,840     57,683  
Loans:
Acquired credit impaired 768,606 823,981 866,504 919,402 980,492
Acquired non-credit impaired 1,107,440 1,171,672 1,247,349 1,327,999 1,377,343
Non-acquired 3,994,716 3,788,399 3,586,405 3,467,826 3,304,708
Less allowance for non-acquired loan losses (1)   (35,116 )   (34,782 )   (33,538 )   (34,539 )   (34,804 )
Loans, net   5,835,646     5,749,270     5,666,720     5,680,688     5,627,739  
FDIC receivable for loss share agreements 7,942 11,035 16,713 22,161 30,983
Other real estate owned ("OREO") 31,378 35,042 36,096 42,726 51,250
Premises and equipment, net 174,662 171,582 171,565 171,772 173,425
Bank owned life insurance 100,967 100,363 99,751 99,140 98,505
Deferred tax asset 40,090 45,911 40,629 42,692 60,322
Mortgage servicing rights 24,665 25,325 21,510 21,601 22,052
Core deposit and other intangibles 49,982 45,260 47,223 49,239 51,291
Goodwill 338,342 317,688 317,688 317,688 317,688
Other assets   53,694     56,720     58,525     71,868     60,101  
Total assets $ 8,499,876   $ 8,084,984   $ 8,021,582   $ 7,826,227   $ 7,880,088  
 
Liabilities and Shareholders' Equity
Deposits:
Noninterest-bearing $ 1,927,309 $ 1,844,973 $ 1,757,302 $ 1,639,953 $ 1,654,308
Interest-bearing   5,150,700     4,822,555     4,876,355     4,821,092     4,863,920  
Total deposits   7,078,009     6,667,528     6,633,657     6,461,045     6,518,228  
Federal funds purchased and securities
sold under agreements to repurchase 260,521 287,903 276,774 221,541 231,229
Other borrowings 55,107 55,055 55,003 101,210 101,127
Other liabilities   57,927     50,719     48,584     57,511     62,509  
Total liabilities   7,451,564     7,061,205     7,014,018     6,841,307     6,913,093  
 
Shareholders' equity:
Preferred stock - $.01 par value; authorized 10,000,000 shares -- -- -- -- --
Common stock - $2.50 par value; authorized 40,000,000 shares 60,529 60,494 60,392 60,377 60,338
Surplus 706,227 704,625 702,648 701,764 700,579
Retained earnings 279,681 260,591 241,526 223,156 207,219
Accumulated other comprehensive income (loss)   1,875     (1,931 )   2,998     (377 )   (1,141 )
Total shareholders' equity   1,048,312     1,023,779     1,007,564     984,920     966,995  
Total liabilities and shareholders' equity $ 8,499,876   $ 8,084,984   $ 8,021,582   $ 7,826,227   $ 7,880,088  
 
Common shares issued and outstanding 24,211,793 24,197,531 24,156,759 24,150,702 24,135,220

At September 30, 2015, the Company's total assets were $8.5 billion, up from $8.1 billion at June 30, 2015 and up from $7.8 billion at December 31, 2014. During the third quarter of 2015, the Company experienced asset growth primarily in cash of $296.0 million, securities of $43.8 million and loans of $86.7 million, excluding the change in the allowance for loan losses. During the second quarter of 2015, the Company began to increase the investment portfolio and may continue to increase the portfolio throughout the remainder of 2015. Goodwill and core deposit intangibles increased $25.4 million during the quarter due to the branch acquisition from Bank of America. These increases were offset by declines in loans held for sale of $24.1 million, FDIC receivable of $3.1 million, OREO of $3.7 million and deferred tax asset, net of $5.8 million. Liabilities increased due to total deposit growth of $410.5 million, primarily from the Bank of America branch acquisition. This increase was partially offset by decline in federal funds purchased and securities sold under agreements to repurchase of $27.4 million.

The Company's book value per common share increased to $43.30 per share at September 30, 2015, compared to $42.31 at June 30, 2015, and $40.78 at December 31, 2014. Capital increased by $24.5 million due primarily to net income of $25.1 million, which was offset by the common dividend paid of $6.1 million. Accumulated other comprehensive income shifted to a net gain during the third quarter 2015, with the increase in the unrealized gains in the AFS securities portfolio during the quarter of $3.7 million, net of tax. Tangible book value ("TBV") per common share decreased by $0.05 per share to $27.26 at September 30, 2015 compared $27.31 at June 30, 2015, and increased by $1.67 per share from $25.59 at December 31, 2014. The quarterly decrease of $0.05 per share was the result of the increase in goodwill and core deposit intangibles resulting from the branch acquisition, which resulted in a decline of tangible book value of $1.05 per share. The majority of this decline was offset by the increase in net income of $1.04 per share, reduced by the dividend paid of $0.25 per share, and the increase in accumulated other comprehensive income during the quarter of $0.16 per share.

The total risk-based capital (RBC) ratio is estimated to be 13.3% down from June 30, 2015 of 13.7%, due primarily to the growth in assets, however capital was level from the prior quarter given the branch acquisition during the quarter. Total RBC was also down from December 31, 2014 of 14.3%, due to the adoption of Basel III, redemption of $46.3 million of trust preferred securities and the impact of the branch acquisition. Tier 1 leverage ratio is estimated to decrease to 9.3% from June 30, 2015 level of 9.6%. The Company's capital position remains "well-capitalized" by all measures at September 30, 2015.

"During the third quarter, our tangible capital decreased from $660.8 million at June 30, 2015 to $660.0 million at September 30, 2015," said John C. Pollok, COO and CFO. "With the acquisition of the 13 branches and the increase in intangibles of $25.4 million during the quarter, we experienced only a slight decline in tangible book value of $0.05 per share during the quarter."

  Three Months Ended   Nine Months Ended
Sep. 30,   Jun. 30,   Mar. 31,   Dec. 31,   Sep. 30, September 30,
PERFORMANCE RATIOS   2015     2015     2015     2014     2014   2015     2014  
Return on average assets (annualized) 1.20 % 1.24 % 1.23 % 1.07 % 0.96 % 1.22 % 0.91 %
Operating return on average assets (annualized) (non-GAAP) (3) 1.29 % 1.32 % 1.23 % 1.23 % 1.21 % 1.28 % 1.13 %
Operating return on average equity (annualized) (non-GAAP) (3) 10.39 % 10.36 % 9.73 % 9.93 % 9.99 % 10.17 % 9.30 %
Return on average tangible common equity (annualized) (non-GAAP) (7) 15.72 % 16.00 % 16.21 % 14.77 % 13.97 % 15.97 % 13.41 %
Operating return on average tangible common equity (annualized) (non-GAAP) (3) (7) 16.92 % 16.90 % 16.21 % 16.85 % 17.23 % 16.69 % 16.45 %
Efficiency ratio (tax equivalent) 64.39 % 63.19 % 65.05 % 69.34 % 70.98 % 64.20 % 72.11 %
Operating efficiency ratio (9) 61.67 % 61.22 % 65.05 % 65.07 % 64.51 % 62.61 % 66.00 %
Dividend payout ratio (2) 24.07 % 23.35 % 23.22 % 25.00 % 26.22 % 23.55 % 27.25 %
Book value per common share $ 43.30 $ 42.31 $ 41.71 $ 40.78 $ 40.07
Tangible common equity per common share (non-GAAP) (7) $ 27.26 $ 27.31 $ 26.60 $ 25.59 $ 24.78
 
CAPITAL RATIOS
Equity-to-assets 12.33 % 12.66 % 12.56 % 12.58 % 12.27 %
Tangible equity-to-tangible assets (non-GAAP) (7) 8.14 % 8.56 % 8.39 % 8.28 % 7.96 %
Tier 1 common equity (6) 11.8 % 12.1 % 12.2 %
Tier 1 leverage (6) 9.3 % 9.6 % 9.5 % 9.4 % 9.1 %
Tier 1 risk-based capital (6) 12.6 % 13.0 % 13.1 % 13.5 % 13.2 %
Total risk-based capital (6) 13.3 % 13.7 % 13.8 % 14.3 % 14.1 %
 
OTHER DATA
Number of branches 130 120 127 127 127
Number of employees (full-time equivalent basis) 2,083 2,028 2,051 2,081 2,057

Asset Quality

  Ending Balance    
Sep. 30,   Jun. 30,   Mar. 31,   Dec. 31,   Sep. 30,
(Dollars in thousands)   2015     2015     2015     2014     2014  
NONPERFORMING ASSETS:
Non-acquired
Non-acquired nonperforming loans $ 23,871 $ 24,661 $ 27,574 $ 28,516 $ 30,481
Restructured loans
Non-acquired OREO and other nonperforming assets   5,980     5,862     6,500     7,947     9,360  
Total non-acquired nonperforming assets   29,851     30,523     34,074     36,463     39,841  
Acquired
Acquired nonperforming loans 4,130 5,274 7,380 7,646 5,860
Acquired OREO and other nonperforming assets   25,979     29,720     30,268     35,473     42,530  
Total acquired nonperforming assets   30,109     34,994     37,648     43,119     48,390  
Total nonperforming assets $ 59,960   $ 65,517   $ 71,722   $ 79,582   $ 88,231  
 
Three Months Ended Nine Months Ended
Sep. 30, Jun. 30, Mar. 31, Dec. 31, Sep. 30,

Sep. 30,

  2015     2015     2015     2014     2014   2015   2014  
ASSET QUALITY RATIOS:
Allowance for non-acquired loan losses as a
percentage of non-acquired loans (1) 0.88 % 0.92 % 0.94 % 1.00 % 1.05 % 0.88 % 1.05 %
Allowance for non-acquired loan losses as a
percentage of non-acquired nonperforming loans 147.11 % 141.04 % 121.63 % 121.12 % 114.18 % 147.11 % 114.18 %
Net charge-offs on non-acquired loans as a percentage of
average non-acquired loans (annualized) (1) 0.09 % 0.12 % -0.01 % 0.13 % 0.26 % 0.07 % 0.17 %
Net charge-offs on acquired non-credit impaired loans as a percentage
of average acquired non-credit impaired loans (annualized) (1) -0.05 % 0.18 % 0.56 % 0.14 % 0.12 % 0.24 % 0.04 %
Total nonperforming assets as a percentage
of total assets 0.71 % 0.81 % 0.89 % 1.02 % 1.12 %
Excluding Acquired Assets
NPLs as a percentage of period end non-acquired loans (1) 0.60 % 0.65 % 0.77 % 0.82 % 0.92 %
Total nonperforming assets as a percentage of
total non-acquired loans and repossessed assets (1) (4) 0.75 % 0.80 % 0.95 % 1.05 % 1.20 %
Total nonperforming assets as a percentage
of total assets (5) 0.35 % 0.38 % 0.42 % 0.47 % 0.51 %

During the third quarter of 2015, overall asset quality improved as NPAs declined by $5.6 million, or 8.5% to $60.0 million, and represented 0.71% of total assets. Compared to September 30, 2014, NPAs have declined by $28.3 million, or 32.0%, from $88.2 million and represented 1.12% of total assets. Non-acquired NPAs, excluding acquired loans and acquired other real estate owned (OREO), declined by $672,000, or 2.2%, to $29.9 million, from the level at June 30, 2015. Non-acquired nonperforming loans decreased by $790,000, or 3.2%, and non-acquired OREO and other assets repossessed increased slightly by $118,000, or 2.0%. Compared to September 30, 2014, non-acquired NPAs declined by $10.0 million, or 25.1%. Non-acquired NPAs as a percentage of total non-acquired loans and repossessed assets declined to 0.75% compared to 0.80% in the second quarter of 2015 and 1.20% at September 30, 2014.

During the third quarter, the Company reported $4.1 million in nonperforming loans related to "acquired non-credit impaired loans". This was a decrease of $1.1 million from the second quarter of 2015. Additionally, acquired nonperforming OREO and other assets owned declined by $3.7 million to $26.0 million from June 30, 2015 and by $16.6 million from September 30, 2014. Total acquired NPAs have declined $18.3 million, or 37.8%, since September 30, 2014.

At September 30, 2015, the allowance for non-acquired loan losses was $35.1 million or 0.88% of non-acquired period-end loans. The current allowance for loan losses provides 1.47 times coverage of period-end non-acquired nonperforming loans, up from 1.41 times at June 30, 2015 and up from 1.21 times December 31, 2014. At September 30, 2014, this coverage was 1.14 times. Net charge-offs within the non-acquired portfolio were $875,000, or 0.09% annualized, in the third quarter compared to $1.1 million for the second quarter or 0.12% annualized. Third quarter 2014 net charge-offs totaled $2.1 million, or 0.26% annualized. During the third quarter, the allowance for loan losses was increased by $1.2 million compared to an increase of $2.4 million in the second quarter of 2015 through the provision for loan losses. The increase was primarily due to larger loans and increases in certain loan types during the second and third quarter of 2015 (within the general reserve).

Net charge offs (recoveries) related to "acquired non-credit impaired loans" were ($132,000), or (0.05%) annualized, during the third quarter of 2015, compared to $533,000, or 0.18% annualized, in the second quarter of 2015. The Company recorded a provision for loan losses, accordingly, equal to the net charge offs (recoveries) during the quarter. In the third quarter 2014, net charge offs totaled $438,000, or 0.12% annualized.

Total OREO decreased by $3.7 million during the third quarter of 2015 to $31.4 million compared to the second quarter of 2015. This decline was primarily the result the disposition of 49 properties during the third quarter. OREO was $51.3 million at September 30, 2014. Overall, OREO and loan related costs increased by $698,000 to $2.7 million in the third quarter of 2015 compared to the second quarter 2015, due to more asset write downs and increases in the "cost to carry" of certain properties (assets). On a year-to-date basis, OREO and other loan related cost have declined by $1.6 million compared to 2014, as the OREO balance has declined by $11.3 million and nonperforming loan balance has declined $8.2 million since December 31, 2014.

Net Interest Income and Margin

  Three Months Ended          
September 30, 2015   June 30, 2015   September 30, 2014
(Dollars in thousands) Average   Income/   Yield/ Average   Income/   Yield/ Average   Income/   Yield/
YIELD ANALYSIS Balance Expense Rate Balance Expense Rate Balance Expense Rate
Interest-Earning Assets:

 

 

 

Federal funds sold, reverse repo, and time deposits $ 638,760 $ 487 0.30 % $ 408,611 $ 464 0.46 % 392,407 $ 430 0.43 %

 

 

 

 

Investment securities (taxable) 724,306 4,106 2.25 % 687,990 3,822 2.23 % 675,782 3,982 2.34 %

 

 

 

 

Investment securities (tax-exempt) 138,560 1,112 3.18 % 139,473 1,072 3.08 % 147,051 1,236 3.33 %

 

 

 

 

Loans held for sale 57,435 560 3.87 % 66,792 623 3.74 % 52,078 375 2.86 %
Loans   5,806,211   79,297 5.42 %   5,713,175   78,784 5.53 %   5,662,999   78,325 5.49 %
Total interest-earning assets 7,365,272 85,562 4.61 % 7,016,041 84,765 4.85 % 6,930,317 84,348 4.83 %
Noninterest-earning assets   959,335   1,018,348   1,021,687
Total Assets $ 8,324,607 $ 8,034,389 $ 7,952,004
Interest-Bearing Liabilities:
Transaction and money market accounts $ 3,118,508 $ 683 0.09 % $ 2,985,239 $ 681 0.09 % $ 2,892,934 $ 895 0.12 %
Savings deposits 705,499 111 0.06 % 677,018 110 0.07 % 664,395 126 0.08 %
Certificates and other time deposits 1,147,770 1,017 0.35 % 1,163,359 946 0.33 % 1,342,709 1,374 0.41 %
Federal funds purchased and repurchase agreements 296,469 95 0.13 % 306,041 105 0.14 % 256,000 87 0.13 %
Other borrowings   55,081   641 4.62 %   55,022   646 4.71 %   101,090   1,497 5.88 %
Total interest-bearing liabilities 5,323,327 2,547 0.19 % 5,186,679 2,488 0.19 % 5,257,128 3,979 0.30 %
Noninterest-bearing liabilities 1,963,827 1,827,465 1,735,340
Shareholders' equity   1,037,453   1,020,245   959,536
Total Non-IBL and shareholders' equity   3,001,280   2,847,710   2,694,876
Total liabilities and shareholders' equity $ 8,324,607 $ 8,034,389 $ 7,952,004
Net interest income and margin (NON-TAX EQUIV.) $ 83,015 4.47 % $ 82,277 4.70 % $ 80,369 4.60 %
Net interest margin (TAX EQUIVALENT) 4.52 % 4.75 % 4.65 %

Non-taxable equivalent net interest income was $83.0 million for the third quarter of 2015, a $740,000 increase from the second quarter of 2015, resulting primarily from the following:

1. A $221.3 million increase in the average balance of non-acquired loans which resulted in an increase in non-acquired loan interest income of approximately $1.8 million; with the yield decreasing to 3.96% during the third quarter from 4.04% in the second quarter; partially offset by

2. A $128.3 million decrease in the average balance of acquired loans from the second quarter of 2015, coupled with an 18 basis point improvement in the yield resulted in a decline in acquired loan interest income of $1.3 million. The yield improved on acquired loans from 8.18%, in the second quarter of 2015, to 8.36% in the third quarter of 2015. This yield improvement was the result of continued credit releases, which results in more loan accretion (income); and

3. Interest expense increased by $59,000 from the second quarter of 2015. This slight increase was primarily the result of the deposit increase from the acquired branches during the quarter. Compared to third quarter of 2014, the decline in interest expense of $1.4 million was the result of the redemption in $46.3 million of trust preferred securities in early January 2015; and the continued impact of the low interest rate environment on certificates and other time deposits.

During the second and third quarter of 2015, there were certain one-time events which have raised the reported yields on acquired loans (both credit impaired and noncredit impaired portfolios). This includes loans being paid off sooner than expected, coupled with credit releases, which increased the acquired yield. In addition, acquired credit impaired loans are being renewed which is increasing the weighted average life of these loans. The result is expected to lower the yield in the acquired loan portfolio in the fourth quarter of 2015 and in 2016.

Tax-equivalent net interest margin decreased 23 basis points from the second quarter of 2015 and was down 13 basis points from the yield in the third quarter of 2014. The Company's average yield on interest-earning assets decreased 24 basis points while the average rate on interest-bearing liabilities remained the same from the second quarter of 2015 at 19 basis points and down from 30 basis points at September 30, 2014. During the third quarter of 2015, the Company's average total assets increased to $8.3 billion from $8.0 billion at June 30, 2015 and from $7.9 billion at December 31, 2014. Average earning assets increased to $7.4 billion up from $7.0 billion at June 30, 2015. Average interest-bearing liabilities increased to $5.3 billion for third quarter of 2015 from $5.2 billion at June 30, 2015. Average non-interest bearing demand deposits increased by $131.3 million during the quarter and by $251.2 million from September 30, 2014. All of these increases were primarily related to the branch acquisition from Bank of America during the third quarter of 2015. Including the impact of noninterest bearing deposits, the Company's cost of funds remained at 14 basis points in the third quarter 2015 compared to the second quarter of 2015.

Noninterest Income and Expense

  Three Months Ended   Nine Months Ended
Sep. 30,   Jun. 30,   Mar. 31,   Dec. 31,   Sep. 30,

Sep. 30,

(Dollars in thousands)   2015     2015     2015     2014     2014     2015     2014  
Noninterest income:
Fees on deposit accounts $ 19,212 $ 17,699 $ 16,492 $ 17,109 $ 17,637 $ 53,403 $ 52,079
Mortgage banking income 4,817 7,089 6,626 4,072 4,124 18,532 12,098
Trust and investment services income 5,489 5,051 4,934 4,499 4,490 15,474 13,845
Securities gains, net -- -- -- -- (90 ) -- (2 )
Amortization of FDIC indemnification asset (1,871 ) (2,042 ) (3,207 ) (4,177 ) (4,825 ) (7,120 ) (17,718 )
Recoveries of fully charged off acquired loans 879 965 255 1,633 1,596 2,099 4,542
Other   1,245     1,320     1,405     2,163     1,521     3,970     4,554  
Total noninterest income $ 29,771   $ 30,082   $ 26,505   $ 25,299   $ 24,453   $ 86,358   $ 69,398  
 
Noninterest expense:
Salaries and employee benefits $ 40,013 $ 39,754 $ 40,987 $ 39,034 $ 40,029 $ 120,754 $ 119,398
Net occupancy expense 5,395 5,046 5,237 5,701 5,387 15,678 16,758
Information services expense 4,736 4,382 3,958 3,724 3,417 13,076 12,154
Furniture and equipment expense 2,554 2,762 3,145 3,100 3,166 8,461 10,171
Bankcard expense 2,448 2,285 1,980 2,043 2,141 6,713 6,520
OREO expense and loan related 2,717 2,019 3,014 2,520 3,374 7,750 9,313
Business development and staff related 1,797 1,983 2,147 1,736 1,482 5,927 5,122
Amortization of intangibles 2,078 1,964 2,016 2,052 2,080 6,058 6,268
Professional fees 1,383 1,585 1,409 1,459 1,068 4,377 3,501
Supplies, printing and postage expense 1,377 1,402 1,612 2,074 1,681 4,391 4,863
FDIC assessment and other regulatory charges 1,248 1,253 1,184 1,321 1,268 3,685 4,111
Advertising and marketing 1,054 1,009 855 1,172 837 2,918 2,679
Other operating expenses 3,303 3,848 2,941 4,141 2,282 10,092 8,164
Branch consolidation / acquisition expense 3,091 2,237 -- -- -- 5,328 --
Merger and branding related expense   --     --     --     4,599     6,846     --     19,341  
Total noninterest expense $ 73,194   $ 71,529   $ 70,485   $ 74,676   $ 75,058   $ 215,208   $ 228,363  

Noninterest income was lower than the second quarter of 2015 by approximately $311,000 to $29.8 million. The decrease was the result of the following:

  • Lower mortgage banking income of $2.3 million, due primarily to the decline in the value of our mortgage servicing rights and lower secondary market income; which was partially offset by
  • Lower amortization of the FDIC indemnification asset by $171,000;
  • Higher fees on deposit accounts totaling $1.5 million. This increase was the result of increased usage of debit / ATM cards with addition of branches acquired from Bank of America, implementation of certain increased service fees and $1.2 million from NSF fees; and
  • Higher trust and investment services income was due primarily to a fee related to retirement assets transferred from the wealth division.

Compared to the third quarter of 2014, noninterest income grew by $5.3 million due to $3.0 million reduction in amortization of the FDIC indemnification asset primarily from the expiration of the CBT commercial loss sharing agreement with the FDIC; improved fees on deposit accounts totaling $1.6 million with more customers and the implementation of increases in certain services fees; improved trust and investment services income of $1.0 million from more assets under management; and improved mortgage banking income of $693,000 from favorable rate environment and higher volume of loans. These increases were partially offset by a decline in recoveries of acquired loans of $717,000.

On a year-to-date basis (nine-months), noninterest income was up $17.0 million in 2015 compared to 2014. This increase was attributable to the following:

  • Decline in the amortization of the FDIC indemnification asset of $10.6 million;
  • Increase in mortgage banking income of $6.4 million due to the overall favorable mortgage environment in 2015;
  • Increase in trust and investment services income of $1.6 million due to the continued growth of assets under management which now exceeds $4.0 billion;
  • Increase in fees on deposit accounts of $1.3 million primarily from bankcard services income; partially offset by
  • A decline in recoveries of acquired credit impaired loans of $2.4 million.

Noninterest expense was $73.2 million in the third quarter of 2015, an increase of $1.7 million from $71.5 million in the second quarter of 2015. This increase from the second quarter of 2015 was due to $854,000 of expenses related to branch consolidation project and the conversion of the 13 branches acquired from Bank of America during the quarter; $698,000 increase in OREO and other loan related expenses due to more write downs of OREO and increased cost to carry these assets; and increases in information services and net occupancy expense from the additional branches acquired from Bank of America. These increases were offset by decreases in professional fees, business development and staff related, and other expenses during the quarter.

Compared to the third quarter of 2014, noninterest expense improved by $1.9 million with the decline in one-time charges related to merger and conversion expense in 2014 and branch consolidations / acquisition in 2015 of $3.8 million. This decline was offset partially by increases in information services expense, business development and staff related expense, professional fees and other expense.

For the nine-months ended September 30, 2015 and 2014, noninterest expense was down $13.2 million in 2015 compared to 2014 due primarily to reduced one-time expenses (merger / conversion of FFCH in 2014 vs. branch consolidation and branches acquired in 2015) of $14.0 million.

South State Corporation will hold a conference call today, October 23rd; at 11 a.m. Eastern Time during which management will review earnings and performance trends. Callers wishing to participate may call toll-free by dialing 877-506-9272. The number for international participants is 412-380-2004. The conference ID number is 10073291. Participants can also listen to the live audio webcast through the Investor Relations section of www.SouthStateBank.com. A replay will be available beginning October 23rd by 2:00 p.m. Eastern Time until 9:00 a.m. on November 6th, 2015. To listen to the replay, dial 877-344-7529 or 412-317-0088. The passcode is 10073291.

South State Corporation is the largest bank holding company headquartered in South Carolina. Founded over 80 years ago in 1933, the company's primary subsidiary, South State Bank, serves the financial needs of its local communities in 24 South Carolina counties, 13 Georgia counties and 4 North Carolina counties. The bank also operates Minis & Co., Inc. and First Southeast 401K Fiduciaries, Inc., both registered investment advisors; and First Southeast Investor Services, Inc., a limited purpose broker-dealer. South State Corporation has assets of approximately $8.5 billion and its stock is traded under the symbol SSB on the NASDAQ Global Select Market. More information can be found at www.SouthStateBank.com.

Non-GAAP Measures

Statements included in this press release include non-GAAP measures and should be read along with the accompanying tables which provide a reconciliation of non-GAAP measures to GAAP measures. Management believes that these non-GAAP measures provide additional useful information. Non-GAAP measures should not be considered as an alternative to any measure of performance or financial condition as promulgated under GAAP, and investors should consider the company's performance and financial condition as reported under GAAP and all other relevant information when assessing the performance or financial condition of the company. Non-GAAP measures have limitations as analytical tools, and investors should not consider them in isolation or as a substitute for analysis of the company's results or financial condition as reported under GAAP.

  Three Months Ended   Nine Months Ended
(Dollars in thousands, except per share data) Sep. 30,   Jun. 30,   Mar. 31,   Dec. 31,   Sep. 30,

Sep. 30,

RECONCILIATION OF NON-GAAP TO GAAP   2015     2015     2015     2014     2014     2015       2014  
Operating Earnings (non-GAAP) (3)
Net operating earnings available to common shareholders (non-GAAP) $ 27,157 $ 26,348 $ 23,926 $ 24,432 $ 24,171 $ 77,441 $ 66,103
Securities (gains) losses, net of tax -- -- -- -- (63 ) -- (5 )
Branch consolidation/acquisition expense, net of tax (2,017 ) (1,476 ) -- -- -- (3,503 ) --
Merger and branding related expense, net of tax   --     --     --     (3,184 )   (4,781 )   --     (12,982 )
Net income available to common shareholders (GAAP) $ 25,140   $ 24,872   $ 23,926   $ 21,248   $ 19,327   $ 73,938   $ 53,116  
 
Operating earnings per common share - Basic (3)
Operating earnings per common share - Basic (non-GAAP) $ 1.13 $ 1.10 $ 1.00 $ 1.02 $ 1.01 $ 3.23 $ 2.77
Effect to adjust for branch consolidation/acquisition expenses (0.08 ) (0.06 ) -- -- -- (0.14 ) --
Effect to adjust for merger and branding related expenses   --     --     --     (0.13 )   (0.20 )   --     (0.55 )
Earnings per common share - Basic (GAAP) $ 1.05   $ 1.04   $ 1.00   $ 0.89   $ 0.81   $ 3.09   $ 2.22  
 
Operating earnings per common share - Diluted (3)
Operating earnings per common share - Diluted (non-GAAP) $ 1.12 $ 1.09 $ 0.99 $ 1.01 $ 1.00 $ 3.20 $ 2.74
Effect to adjust for branch consolidation/acquisition expenses (0.08 ) (0.06 ) -- -- -- (0.15 ) --
Effect to adjust for merger and branding related expenses   -     --     --     (0.13 )   (0.20 )   -     (0.54 )
Earnings per common share - Diluted (GAAP) $ 1.04   $ 1.03   $ 0.99   $ 0.88   $ 0.80   $ 3.05   $ 2.20  
 
Operating Return of Average Assets (3)
Operating return on average assets (non-GAAP) 1.29 % 1.32 % 1.23 % 1.23 % 1.21 % 1.28 % 1.13 %
Effect to adjust for branch consolidation/acquisition expenses -0.09 % -0.08 % 0.00 % 0.00 % 0.00 % -0.06 % 0.00 %
Effect to adjust for merger and branding related expenses   0.00 %   0.00 %   0.00 %   -0.16 %   -0.25 %   0.00 %   -0.22 %
Return on average assets (GAAP)   1.20 %   1.24 %   1.23 %   1.07 %   0.96 %   1.22 %   0.91 %
 
Operating Return of Average Equity (3)
Operating return on average equity (non-GAAP) 10.39 % 10.36 % 9.73 % 9.93 % 9.99 % 10.17 % 9.30 %
Effect to adjust for securities gains (losses) 0.00 % 0.00 % 0.00 % 0.00 % -0.03 % 0.00 % 0.00 %
Effect to adjust for branch consolidation/acquisition expenses -0.78 % -0.58 % 0.00 % 0.00 % 0.00 % -0.46 % 0.00 %
Effect to adjust for merger and branding related expenses   0.00 %   0.00 %   0.00 %   -1.30 %   -1.97 %   0.00 %   -1.80 %
Return on average equity (GAAP)   9.61 %   9.78 %   9.73 %   8.63 %   7.99 %   9.71 %   7.50 %
 
Operating Return on Average Common Tangible Equity (3) (7)
Operating return on average common tangible equity (non-GAAP) 16.92 % 16.90 % 16.21 % 16.85 % 17.23 % 16.69 % 16.45 %
Effect to adjust for securities gains (losses) 0.00 % 0.00 % 0.00 % 0.00 % -0.03 % 0.00 % 0.00 %
Effect to adjust for branch consolidation/acquisition expenses -0.77 % -0.58 % 0.00 % 0.00 % 0.00 % -0.46 % 0.00 %
Effect to adjust for merger and branding related expenses 0.00 % 0.00 % 0.00 % -1.29 % -1.98 % 0.00 % -1.84 %
Effect to adjust for intangible assets   -6.54 %   -6.54 %   -6.48 %   -6.93 %   -7.24 %   -6.52 %   -7.09 %
Return on average common equity (GAAP)   9.61 %   9.78 %   9.73 %   8.63 %   7.99 %   9.71 %   7.52 %
 
Tangible Book Value Per Common Share (7)
Tangible book value per common share (non-GAAP) $ 27.26 $ 27.31 $ 26.60 $ 25.59 $ 24.78
Effect to adjust for intangible assets   16.04     15.00     15.11     15.19     15.29  
Book value per common share (GAAP) $ 43.30   $ 42.31   $ 41.71   $ 40.78   $ 40.07  
 
Tangible Equity-to-Tangible Assets (7)
Tangible equity-to-tangible assets (non-GAAP) 8.14 % 8.56 % 8.39 % 8.28 % 7.96 %
Effect to adjust for intangible assets   4.20 %   4.10 %   4.17 %   4.30 %   4.31 %
Equity-to-assets (GAAP)   12.34 %   12.66 %   12.56 %   12.58 %   12.27 %

Footnotes to tables:

(1) Loan data excludes mortgage loans held for sale.

(2) The dividend payout ratio is calculated by dividing total dividends paid during the period by the total net income for the same period.

(3) Operating earnings, operating return on average assets, and operating return on average equity are non-GAAP measures and exclude the after-tax effect of gains on acquisitions, gains or losses on sales of securities, OTTI, and merger and branding related expense. Management believes that non-GAAP operating measures provide additional useful information that allows readers to evaluate the ongoing performance of the company. Non-GAAP measures should not be considered as an alternative to any measure of performance or financial condition as promulgated under GAAP, and investors should consider the company's performance and financial condition as reported under GAAP and all other relevant information when assessing the performance or financial condition of the company. Non-GAAP measures have limitations as analytical tools, and investors should not consider them in isolation or as a substitute for analysis of the company's results or financial condition as reported under GAAP. Operating earnings and the related operating return measures (non-GAAP) exclude the following from net income (GAAP) on an after-tax basis: (a) pre-tax merger and branding related expense of $3.1 million, $4.6 million, and $6.8 million, for the quarters ended September 30, 2015, December 31, 2014, and September 30, 2014, respectively; (b) branch consolidation expenses of $2.2 million for the quarter ended June 30, 2015; and (c) securities losses of $90,000 for the quarter ended September 30, 2014.

(4) Repossessed assets include OREO and other nonperforming assets.

(5) Calculated by dividing total non-acquired NPAs by total assets.

(6) September 30, 2015 ratios are estimated and may be subject to change pending the final filing of the FR Y-9C; all other periods are presented as filed. All ratios are rounded down to one decimal point.

(7) The tangible measures are non-GAAP measures and exclude the effect of period end or average balance of intangible assets. The tangible returns on equity and common equity measures also add back the after-tax amortization of intangibles to GAAP basis net income. Management believes that these non-GAAP tangible measures provide additional useful information, particularly since these measures are widely used by industry analysts for companies with prior merger and acquisition activities. Non-GAAP measures should not be considered as an alternative to any measure of performance or financial condition as promulgated under GAAP, and investors should consider the company's performance and financial condition as reported under GAAP and all other relevant information when assessing the performance or financial condition of the company. Non-GAAP measures have limitations as analytical tools, and investors should not consider them in isolation or as a substitute for analysis of the company's results or financial condition as reported under GAAP. The sections titled "Reconciliation of Non-GAAP to GAAP" provide tables that reconcile non-GAAP measures to GAAP.

(8) Includes noncash loan interest income related to the discount on acquired performing loans of $1.6 million; $1.6 million; $1.6 million; $2.3 million; and $2.4 million; respectively during the five quarters above; and $4.8 million and $7.6 million for the nine months ended September 30, 2015, and 2014, respectively.

(9) Operating efficiency ratio is calculated by taking the noninterest expense excluding merger cost divided by net interest income and noninterest income excluding securities gains (losses).

Cautionary Statement Regarding Forward Looking Statements

Statements included in this report which are not historical in nature are intended to be, and are hereby identified as, forward looking statements for purposes of the safe harbor provided by Section 21E of the Securities Exchange Act of 1934. Forward looking statements generally include words such as "expects," "projects," "anticipates," "believes," "intends," "estimates," "strategy," "plan," "potential," "possible" and other similar expressions. The Company cautions readers that forward looking statements are subject to certain risks and uncertainties that could cause actual results to differ materially from anticipated results. Such risks and uncertainties, include, among others, the following possibilities: (1) the outcome of any legal proceedings instituted against the Company; (2) credit risks associated with an obligor's failure to meet the terms of any contract with the bank or otherwise fail to perform as agreed under the terms of any loan-related document; (3) interest risk involving the effect of a change in interest rates on the bank's earnings, the market value of the bank's loan and securities portfolios, and the market value of the Company's equity; (4) liquidity risk affecting the bank's ability to meet its obligations when they come due; (5) risks associated with an anticipated increase in the Company's investment securities portfolio, including risks associated with acquiring and holding investment securities or potentially determining that the amount of investment securities the Company desires to acquire are not available on terms acceptable to the Company; (6) price risk focusing on changes in market factors that may affect the value of traded instruments in "mark-to-market" portfolios; (7) transaction risk arising from problems with service or product delivery; (8) compliance risk involving risk to earnings or capital resulting from violations of or nonconformance with laws, rules, regulations, prescribed practices, or ethical standards; (9) regulatory change risk resulting from new laws, rules, regulations, accounting principles, proscribed practices or ethical standards, including, without limitation, increased capital requirements (including, without limitation, the impact of the capital rules adopted to implement Basel III), Consumer Financial Protection Bureau rules and regulations, and potential changes in accounting principles relating to loan loss recognition; (10) strategic risk resulting from adverse business decisions or improper implementation of business decisions; (11) reputation risk that adversely affects earnings or capital arising from negative public opinion; (12) terrorist activities risk that results in loss of consumer confidence and economic disruptions; (13) cybersecurity risk related to our dependence on internal computer systems and the technology of outside service providers, as well as the potential impacts of third-party security breaches, subjects the company to potential business disruptions or financial losses resulting from deliberate attacks or unintentional events; (14) economic downturn risk potentially resulting in deterioration in the credit markets, greater than expected non-interest expenses, excessive loan losses and other negative consequences, which risks could be exacerbated by potential negative economic developments resulting from federal spending cuts and/or one or more federal budget-related impasses or actions; (15) greater than expected noninterest expenses; (16) excessive loan losses; (17) failure to realize synergies and other financial benefits from, and to limit liabilities associated with, mergers and acquisitions within the expected time frame; (18) potential deposit attrition, higher than expected costs, customer loss and business disruption associated with merger and acquisition integrations, and including, without limitation, potential difficulties in maintaining relationships with key personnel and other integration related-matters; (19) the risks of fluctuations in market prices for Company common stock that may or may not reflect economic condition or performance of the Company; (20) the payment of dividends on Company common stock is subject to regulatory supervision as well as the discretion of the board of directors of the Company, the Company's performance and other factors; and (21) other risks and uncertainties disclosed in the Company's most recent Annual Report on Form 10-K filed with the SEC or disclosed in documents filed or furnished by the Company with or to the SEC after the filing of such Annual report on Form 10-K, any of which could cause actual results to differ materially from future results expressed, implied or otherwise anticipated by such forward looking statements. The Company undertakes no obligation to update or otherwise revise any forward-looking statements, whether as a result of new information, future events, or otherwise.

South State Corporation
Media Contact:
Donna Pullen, 803-765-4558
or
Analyst Contact:
John Pollok, 803-765-4628

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