News Details

Increases Quarterly Cash Dividend

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 periods ended September 30, 2014. Highlights of the third quarter 2014 include the following:

• Net income available to common shareholders of $19.3 million, or $0.80 diluted EPS in 3Q 2014, up 7.7%, compared to $17.9 million, or $0.74 diluted EPS in 2Q 2014, and up 67.9% from $11.5 million, or $0.52 diluted EPS in 3Q 2013;
• Operating earnings of $24.2 million, or $1.00 diluted operating EPS, up 9.1%, compared to $22.2 million, or $0.92 diluted operating EPS in 2Q 2014, and up 28.3% from $18.8 million, or $0.85 diluted operating EPS in 3Q 2013 (operating earnings exclude merger and branding expenses and include preferred stock dividends paid);
• Successfully executed the system conversion related to the First Financial merger and rebranded the Company to South State Bank;
• Return on average assets was 0.96% annualized in 3Q 2014, up from 0.91% in 2Q 2014 and 0.66% in 3Q 2013; Operating return on average assets was 1.21% annualized in 3Q 2014 compared to 1.12% in 2Q 2014 and 1.07% in 3Q 2013;
• Return on average tangible common equity was 14.0% annualized in 3Q 2014 compared to 13.6% in 2Q 2014, and 10.4% in 3Q 2013; Operating return on average tangible common equity was 17.2% in 3Q 2014 compared to 16.6% in 2Q 2014 and 16.4% in 3Q 2013;
• Tangible common equity per share increased by $0.66 during the third quarter to $24.78;
• Net charge-offs of non-acquired loans increased to 0.26% annualized in 3Q2014, compared to 0.17% annualized in 2Q 2014 and decreased from 0.45% annualized in 3Q 2013;
• Operating efficiency ratio decreased to 61.3% in 3Q2014, compared to 63.6% in 2Q2014 and 64.3% in 3Q2013;
• Legacy loan growth for 3Q 2014 was $130.1 million or 16.4% annualized.

Quarterly Cash Dividend

The Board of Directors of South State Corporation has declared a quarterly cash dividend of $0.22 per share payable on its common stock. This per share amount is $0.01 per share, or 4.8% higher than the dividend paid in the immediately preceding quarter and is $0.03 per share, or 15.8%, higher than a year ago. The dividend will be payable on November 21, 2014 to shareholders of record as of November 14, 2014.

Third Quarter 2014 Financial Performance

Please refer to the accompanying tables for detailed comparative data on results of operations and financial results.

The Company reported consolidated net income available to common shareholders of $19.3 million, or $0.80 per diluted common share for the three months ended September 30, 2014 up from $17.9 million, or $0.74 per diluted common share for the three months ended June 30, 2014. The $1.4 million increase was primarily the result of a lower provision for income taxes of $1.0 million. During the quarter, our effective income tax rate declined to 30.16% compared to 34.30%. This decrease was primarily the result of additional tax credits (both federal and state related) included in the December 31, 2013 returns filed in September 2014 than what was included in the 2013 income tax provision, and additional tax credits for 2014. These additional tax credits for 2014 were the result of our investment in certain tax advantaged community projects and “new job” related credits in South Carolina.

“Our third quarter results were highlighted by operating return on tangible equity exceeding 17%, operating return on average assets of 1.21% and a year over year increase in operating earnings of 28.3%,” said Robert R. Hill, Jr., CEO of South State Corporation. “We are also pleased to achieve $1.00 in operating earnings per share for the third quarter, a number we have previously discussed as a post integration target for the company. Our team has done an outstanding job with our merger and branding integration that was completed during the third quarter. The company's performance has allowed a third consecutive quarterly dividend increase to $0.22 per share this quarter, an increase of 15.8% in our dividend year over year.”

Asset Quality

During the third quarter of 2014, the Company’s trend of improved asset quality continued, excluding acquired loans and acquired other real estate owned (OREO), as nonperforming loans declined by $4.8 million, or 13.7%. Non-acquired nonperforming assets (NPAs) as a percentage of total non-acquired loans and repossessed assets declined to 1.20% compared to 1.39% in the second quarter of 2014. NPAs, excluding acquired NPAs, declined by $4.5 million from the second quarter 2014 level of $44.3 million.

During the third quarter, the Company reported $5.9 million in nonperforming loans related to “acquired non-credit impaired loans”. In addition, acquired nonperforming OREO and other assets owned declined by $3.0 million from June 30, 2014. Total nonperforming assets, including acquired assets, declined from $89.9 million at June 30, 2014 to $88.2 million at September 30, 2014. From September 30, 2013, total nonperforming assets, including acquired assets, has declined by more than 30%, or $38.0 million.

At September 30, 2014, the allowance for non-acquired loan losses was $34.8 million or 1.05% of non-acquired period-end loans. The current allowance for loan losses provides 1.14 times coverage of period-end non-acquired nonperforming loans, up from 1.00 times at the end of the second quarter of 2014. Net charge-offs within the non-acquired portfolio were $2.1 million for the quarter or 0.26% annualized, up from the second quarter of 2014 of $1.3 million or 0.17% annualized, and down from the second quarter of 2013 of $3.0 million or 0.45% annualized.

During the quarter, net charge offs related to “acquired non-credit impaired loans” were $438,000 or 0.12% annualized, and the Company recorded a provision for loan losses, accordingly.

Total OREO decreased by $2.5 million during the third quarter to $51.2 million compared to the second quarter of 2014 of $53.7 million. Non-acquired OREO increased by $357,000, while acquired (covered and uncovered) OREO declined by $2.8 million. This decline was the result of our continued effort in disposition of these assets. Additionally, OREO assets (both acquired and non-acquired) were written down during the quarter by approximately $2.3 million, an increase of $2.0 million over the write downs from second quarter. As a result, our OREO and loan related costs were up significantly during the quarter to $3.4 million compared to the second quarter of $1.9 million.

Net Interest Income and Margin

Non-taxable equivalent net interest income was $80.4 million for the third quarter of 2014, a $605,000 decrease from the second quarter of 2014, resulting primarily from the following:

1. A $140.4 million decrease in the average balance of acquired loans from the second quarter of 2014, coupled with a decrease of 5 basis points in the yield on acquired loans from 7.33% to 7.28% which resulted in a decrease of $2.4 million; which was mostly offset by

2. Non-acquired loans average balance growing by more than $184.5 million and the yield on these loans declined from 4.18% during the second quarter to 4.15% resulting in an increase in interest income of $2.1 million; and

3. The increase in interest expense from funding sources was $122,000. Certificates and other time deposits accounted for approximately half of the increase and money market accounts the other half, as the deposit base of both categories declined during the quarter and the related rate paid increased by 4 basis points and 1 basis point, respectively.

Tax-equivalent net interest margin decreased 10 basis points from the second quarter of 2014 and by 46 basis points from the third quarter of 2013. The Company’s average yield on interest-earning assets decreased 9 basis points while the average rate on interest-bearing liabilities increased 1 basis point from the second quarter of 2014. During the third quarter of 2014, the Company’s average total assets slightly increased to $8.0 billion and average earning assets remained at $6.9 billion. Average interest-bearing liabilities declined by approximately $78.8 million. Average non-interest bearing demand deposits increased by $65.1 million during the quarter and by $297.0 million from September 30, 2013.

Noninterest Income and Expense

Noninterest income was flat from the second quarter of 2014 at $24.5 million for the third quarter 2014. All categories declined, except for the amortization of the FDIC indemnification asset and other revenue, which combined offset the declines in all categories. Compared to the third quarter of 2013, noninterest income grew significantly by $9.3 million due primarily to the First Financial merger which included three months of revenue in 2014 compared to two months of the quarter in 2013. Additionally, the amortization of the indemnification asset declined by approximately $2.8 million.

Noninterest expense was $75.1 million in the third quarter of 2014, down from $75.9 million from the second quarter of 2014. This decrease from the second quarter of 2014 was primarily due to lower cost in all categories totaling approximately $2.7 million, which was the result of the system conversion in July and eight branch closures throughout the quarter. These lower costs were offset by increases in OREO and loan related expenses of $1.5 million and merger and brand-related expense of $336,000 to $6.8 million. The efficiency ratio for the quarter was 71.0%, down from 71.5% in the second quarter. Our operating efficiency ratio, which excludes merger and brand-related expenses and OREO and loan related expenses, declined to 61.3% compared to 63.6% in the second quarter.

Compared to the third quarter of 2013, noninterest expense was slightly down from the third quarter of 2013 which was $75.4 million. There was a significant increase as a result of the First Financial merger in salaries and benefits expense of approximately $5.6 million, which was offset by declines in merger and branding related expenses, information services, advertising and marketing, and in other expense.

Balance Sheet and Capital

At September 30, 2014, the Company’s total assets were $7.9 billion, down from $8.0 billion at September 30, 2013, and flat from $7.9 billion at December 31, 2013. Since December 31, 2013, the Company has experienced asset growth in the following areas: cash and short-term investments by $23.6 million, or 4.9%, non-acquired loans by $439.5 million, or 15.3%, loans held for sale by $42.1 million, or 137.5%, and the investment securities portfolio by $13.4 million, or 1.7%. Loans held for sale increased primarily from the increase in closings of mortgage loans from the pipeline. Fully offsetting these increases were decreases in acquired loans by $463.7 million, the FDIC receivable by $55.5 million and OREO by $13.7 million.

The Company’s book value per common share increased to $40.07 per share at September 30, 2014, compared to $39.50 at June 30, 2014. Capital increased by $14.0 million due primarily to net income of $19.3 million, which was offset by the common dividend paid of $5.1 million. Accumulated comprehensive income decreased by $1.5 million, net of tax, in the third quarter, primarily the result of change in the fair value of the available for sale investment securities portfolio. As of September 30, 2014, capital was within $3.0 million from the level at September 30, 2013 even with the redemption of $65.0 million of preferred stock in March of 2014. Tangible book value (“TBV”) per common share increased by $0.66 per share to $24.78 at September 30, 2014, from $24.12 at June 30, 2014. This increase was primarily the result of the strong net income during the quarter, net of the dividend paid to shareholders.

In addition, tangible common equity to tangible assets increased to 7.94% at September 30, 2014 up from 7.63% at the end of the second quarter of 2014. Tangible common equity was 6.87% at September 30, 2013.

The total risk-based capital ratio is estimated to be around 14.1% up from June 30, 2014 of 13.8%. Tier 1 leverage ratio increased to approximately 9.1% from 8.9% at June 30, 2014. The increase was driven by net income for the quarter. The Company’s capital position remains “well-capitalized” by all measures at September 30, 2014.

“Our balance sheet continued to strengthen during the quarter as nonperforming assets declined both in loans and in OREO. Non-acquired loans now comprise more than 58% of our total loans compared to 56% last quarter. The FDIC receivable balance declined another $12.8 million through cash collections and negative accretion. Our capital position improved by $14.0 million and noninterest bearing deposits increased another $31.0 million,” said John C. Pollok, COO and CFO.

South State Corporation will hold a conference call today, October 28^th, 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 10053513. 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 28^th by 2:00 p.m. Eastern Time until 9:00 a.m. on November 12, 2014. To listen to the replay, dial 877-344-7529 or 412-317-0088. The pass code is 10053513.

South State Corporation is the largest bank holding company headquartered in South Carolina. Founded in 1933, the company’s primary subsidiary, South State Bank, has been serving the financial needs of its local communities in 19 South Carolina counties, 12 Georgia counties and 4 North Carolina counties for over 80 years.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 $7.9 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.

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, including, without limitation, the merger with First Financial Holdings, Inc. ("FFCH"), within the expected time frame; (18) potential deposit attrition, higher than expected costs, customer loss and business disruption associated with merger and acquisition integration, including, without limitation, with respect to FFCH, 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.