News Details

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 six-month period ended June 30, 2016. Highlights of the second quarter 2016 include the following:

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• Net income was $24.5 million for the 2Q 2016 equal to the 1Q 2016, while net operating earnings improved by $3.5 million to $28.5 million from 1Q 2016 of $25.0 million, a 13.8% increase
  • Earnings per share (EPS) – diluted was $1.01 for 1Q and 2Q of 2016 compared to $1.03 in 2Q 2015, a 1.9% decrease;
  • Operating earnings per share – diluted was $1.18 for 2Q 2016 compared to $1.04 for 1Q 2016 and $1.09 in 2Q 2015, a 8.3% increase;
  • Increased dividend paid to common shareholders by 25.0%, or $0.06, since June 30, 2015

• Net loan growth (non-acquired loans exceeded acquired loan runoff) during 2Q 2016 was $253.1 million, or 16.5% annualized
  • Non-acquired loan growth totaled $344.2 million or 31.0% annualized growth; which
  • Outpaced acquired loan runoff of $91.1 million
• Performance ratios 2Q 2016 to 1Q 2016
  • Return on average assets was 1.13% compared to 1.15%
  • Operating return on average assets improved to 1.32% from 1.18%
  • Return on average tangible equity was 14.59% compared to 15.04%
  • Operating return on average tangible equity improved to 16.85% from 15.36%
  • Efficiency ratio was 64.54% compared to 64.07%
  • Operating efficiency ratio improved to 60.81% from 63.22% (excluding branch consolidation expenses and the charge for the early termination of the FDIC loss share agreements)

• Balance sheet 2Q 2016
  • Cash and cash equivalents decreased by $215.4 million with growth in loans
  • Other real estate owned (“OREO”) decreased $3.5 million to $22.4 million, including the disposition of 45 properties during the second quarter of 2016
  • Early termination of loss share agreements with the FDIC during the 2Q 2016
  • Noninterest bearing deposits increased by $96.6 million, or 19.2% annualized
  • Shareholders’ equity increased $22.3 million to $1.1 billion
  • Equity to assets improved to 12.66% from 12.48%
  • Tangible equity to tangible assets improved to 8.66% from 8.43%
• Asset quality improvement from 1Q 2016
  • Nonperforming assets (NPAs) declined by 8.0%, or $4.0 million, to $45.9 million
  • NPAs to total assets improved to 0.53% from 0.58%
  • Net charge offs on non-acquired loans were 0.06% in 2Q 2106 down from 0.09%
  • Net charge offs on acquired non-credit impaired loans decreased to 0.07% in 2Q 2016 compared to 0.08%
  • Coverage ratio of ALLL on non-acquired non-performing loans improved to 201.1% from 182.6%

Quarterly Cash Dividend

The Board of Directors of South State Corporation has declared a quarterly cash dividend of $0.31 per share payable on its common stock. This per share amount is $0.01 per share, or 3.3% higher than the dividend paid in the immediately preceding quarter and is $0.06 per share, or 24.0%, higher than a year ago. The dividend will be payable on August 19, 2016 to shareholders of record as of August 12, 2016.

Merger with Southeastern Bank Financial Corporation (“SBFC” or “Southeastern”)

On June 17, 2016, we announced jointly the signing of a definitive merger agreement with SBFC. As of March 31, 2016, SBFC, headquartered in Augusta, Georgia, had approximately $1.9 billion in assets, $1.6 billion in deposits and $1.0 billion in loans. This merger will add 12 offices in the Augusta, Ga and Aiken, SC markets. Southeastern currently ranks second in market share in the Augusta metro market. Under the terms of the agreement, shareholders of Southeastern are expected to receive 0.7307 shares of South State Corporation stock for each share of SBFC common stock. Pending regulatory and shareholder approvals, the closing and system conversion is scheduled to occur in the first quarter of 2017.

Branch Initiatives - Update

The Company announced the consolidation of 11 locations during the second, third and fourth quarters of 2016. During the second quarter, the Company closed 8 locations. The remaining three locations will be closed during third and fourth quarter of 2016. The expected one-time cost and cost savings remain on target as previously disclosed.

Second Quarter 2016 Financial Performance

The Company reported consolidated net income of $24.5 million, or $1.01 per diluted common share for the three-months ended June 30, 2016 equal to the first quarter of 2016. Interest income was down $436,000 primarily from lower income from investment securities. This decline was partially offset by lower interest expense of $233,000 which was the result of lower yield and lower balances on certificates and other time deposits. The provision for loan losses increased by a net $170,000. The provision for loan losses on non-acquired loans increased by $520,000, and was offset by the decline in the provision for loan losses on acquired loans by $350,000. Noninterest income increased by $2.1 million from the following items: Mortgage banking income increased by $1.4 million primarily from additional gains from the sale of mortgage loans; improved fees on deposit accounts of $1.4 million primarily from bankcard services; and additional income from the resolution of acquired loans of $2.2 million. These improvements were offset partially by a $3.0 million increase in the amortization of indemnification asset, which resulted from the early termination of the FDIC loss share agreements. Noninterest expense increased by $1.8 million with $615,000 coming from branch consolidation expenses and $1.1 million coming from operational charge offs, increased sales and use tax, and increased secondary mortgage repurchase activity. During the quarter, our effective income tax rate declined to 33.63% from 33.90% in the first quarter of 2016.

“These results reflect the ongoing progress in many areas of our company. Our growth is driven by attracting talented bankers to the team, and a strong and growing reputation as the alternative to the big banks. We see this activity across our markets, and it is balanced across loan categories and lines of business,” said Robert R. Hill, Jr., CEO of South State Corporation. “Growth in customer relationships is also creating shareholder value. Increasing tangible book value, earnings per share, and dividends are priorities, and all are evident in the results for the quarter and for the first half of 2016. Our team is well-positioned to make further gains with a strong and liquid balance sheet, and competitive products and services. We look forward to the Southeastern Bank Financial Corporation merger and welcoming their talented team in early 2017.”

Balance Sheet and Capital

At June 30, 2016, the Company’s total assets were $8.7 billion, an increase of $53.2 million from March 31, 2016 and an increase of $166.6 million from December 31, 2015. During the second quarter of 2016, the Company experienced asset growth primarily in loans of $253.3 million, excluding the change in the allowance for loan losses, and in investment securities totaling $11.6 million. These increases were primarily offset by a decline in cash and cash equivalents of $215.4 million from funding the loan growth during the quarter. OREO declined by $3.5 million due to the disposition of 45 properties during the second quarter. Mortgage servicing rights asset decreased $1.3 million due to the decline in fair value of the servicing rights from the decrease in interest rates during the quarter. Our net deferred tax asset decreased $6.1 million primarily from the increase in the deferred tax liability ($1.8 million) associated with the larger unrealized gain in available for sale securities, increase in deferred tax liability ($1.0 million) associated with deferred loan cost resulting from the loan growth, and less deferred tax asset ($3.0 million) associated with the recognition of acquired loan interest income. Total deposits increased $2.0 million due to noninterest bearing deposit growth of $96.6 million, or 19.2% annualized, while interest bearing deposits decreased by $94.6 million, in time deposits and money market accounts. Fed funds purchased and securities sold under repurchase agreements increased by $29.0 million during the second quarter.

The Company’s book value per common share increased to $45.64 per share at June 30, 2016, compared to $44.75 at March 31, 2016, and $43.84 at December 31, 2015. Capital increased $22.3 million due primarily to net income of $24.5 million, which was offset by the common dividend paid of $7.3 million. Accumulated other comprehensive income (“AOCI”) increased during the second quarter of 2016 due to the increased unrealized gains in the AFS securities portfolio during the quarter of $2.9 million, net of tax. Tangible book value (“TBV”) per common share increased by $0.98 per share to $29.86 at June 30, 2016, compared to $28.88 at March 31, 2016, and increased by $1.98 per share from $27.88 at December 31, 2015. The quarterly increase was primarily the result of earnings per share, excluding amortization of intangibles, of $1.07 and the increase in AOCI of $0.12 per share, offset by the dividend paid to shareholders of $0.30 per share.

The total risk-based capital (RBC) ratio is estimated to be 12.6% down from March 31, 2016 of 13.0%, due primarily to loan growth and the loss from the early termination of loss share agreements with the FDIC, which was announced on June 23, 2016. Total RBC was also down from December 31, 2015 of 13.3%, for the same two reasons above. Tier 1 leverage ratio increased from March 31, 2016 of 9.4% to 9.5% at June 30, 2016. The Company’s capital position remains “well-capitalized” by all measures at June 30, 2016.

“During the second quarter, we had $253.1 million of net loan growth which was 16.5% annualized,” said John C. Pollok, COO and CFO. “The termination of the loss share agreements with the FDIC should help our efficiencies and improve our results going forward. In addition, the low interest rate environment continues to contribute to our overall low cost of funds (including noninterest bearing deposit balances) of 11 basis points down from 14 basis points a year ago.”

Asset Quality

During the second quarter of 2016, overall asset quality improved as NPAs declined by $4.0 million, or 8.0%, to $45.9 million, and represented 0.53% of total assets. Compared to June 30, 2015, NPAs have declined by $19.6 million, or 29.9%, and represented 0.81% of total assets. During the second quarter of 2016, non-acquired NPAs, excluding acquired loans and acquired OREO, declined by $1.8 million, or 6.6%, to $25.2 million. Non-acquired nonperforming loans decreased by $863,000, or 4.5%, and non-acquired OREO and other assets repossessed decreased $917,000, or 11.8%. Non-acquired NPAs as a percentage of total non-acquired loans and repossessed assets declined to 0.52% compared to 0.60% in the first quarter of 2016.

During the second quarter, the Company reported $4.4 million in nonperforming loans related to “acquired non-credit impaired loans”. This was an increase of $487,000 from the first quarter of 2016. Additionally, acquired nonperforming OREO and other assets owned declined by $2.7 million to $16.3 million from March 31, 2016 and by $5.5 million from December 31, 2015.

At June 30, 2016, the allowance for non-acquired loan losses was $36.9 million, or 0.77%, of non-acquired period-end loans. The current allowance for loan losses provides 2.01 times coverage of period-end non-acquired nonperforming loans, up from 1.83 times at March 31, 2016, and 1.82 times at December 31, 2015. At June 30, 2015, this coverage was 1.41 times. Net charge-offs within the non-acquired portfolio were $676,000, or 0.06% annualized, in the second quarter compared to $955,000 for the first quarter, or 0.09% annualized. Second quarter 2015 net charge-offs totaled $1.1 million, or 0.12% annualized. During the second quarter, the non-acquired allowance for loan losses was increased by $2.5 million compared to $2.0 million in the first quarter of 2016 through the provision for loan losses. The increase was primarily due to the loan growth within the non-acquired loan portfolio during the second quarter of 2016.

Net charge offs related to “acquired non-credit impaired loans” were $181,000, or 0.08% annualized, and the Company recorded a provision for loan losses, accordingly, during the second quarter of 2016. These charge-offs were relatively flat over the past three quarters. This was lower than the second quarter 2015 of $533,000, or 0.18% annualized, net charge offs.

Total OREO decreased by $3.5 million during the second quarter to $22.4 at June 30, 2016. This decline was primarily the result the disposition of 45 properties during the quarter. Overall, OREO and loan related costs declined by $900,000 compared to the first quarter 2016, and decreased by $1.1 million compared to the second quarter of 2015. This was the result of fewer write downs of property and less cost to carry of these assets (including taxes and insurance).

Net Interest Income and Margin

Non-taxable equivalent net interest income was $81.4 million for the second quarter of 2016, a $203,000 decrease from the first quarter of 2016, resulting primarily from the following:

1. A $292.7 million increase in the average balance of non-acquired loans which resulted in an increase in non-acquired loan interest income of approximately $2.1 million; with the yield decreasing to 3.86% during the second quarter from 3.93% in the first quarter; fully offset by

2. A $90.3 million decrease in the average balance of acquired loans from the first quarter of 2016, coupled with a 9 basis point decline in the yield resulted in a decline in acquired loan interest income of $2.2 million. The yield declined on acquired loans from 8.03%, in the first quarter of 2016, to 7.94%, in the second quarter of 2016. As the total loan portfolio continues to remix (more non-acquired loans and less acquired loans), the yield on the total loan portfolio declined from 5.10% in the first quarter of 2016 to 4.93% in the second quarter of 2016. Compared to the second quarter of 2015, the loan portfolio yield declined from 5.53%; and

3. Interest expense declined by $233,000 from the first quarter of 2016. This decline was primarily the result of the decrease in interest expense on certificates and other time deposits. Compared to the second quarter of 2015, interest expense declined $508,000, primarily the result of lower interest expense on certificates and other time deposits and from lower interest expense on other borrowings. The interest rate on $20.6 million of trust preferred securities repriced to a lower floating rate from a fixed rate in the third quarter of 2015 saving $171,000.

Tax-equivalent net interest margin decreased 10 basis points from the first quarter of 2016 and declined by 48 basis points in the second quarter of 2015. The Company’s average yield on interest-earning assets decreased 11 basis points while the average rate on interest-bearing liabilities decreased 1 basis point from the first quarter of 2016. During the second quarter of 2016, the Company’s average total assets increased to $8.7 billion from $8.6 billion at March 31, 2016 and from $8.0 billion at June 30, 2015. Average earning assets increased to $7.8 billion up from $7.6 billion at March 31, 2016. Average interest-bearing liabilities remained the same at $5.5 billion for both second quarter of 2016 and first quarter of 2016 and were up compared to second quarter of 2015 at $5.2 billion. Average non-interest bearing demand deposits increased by $104.8 million during the quarter and by $295.6 million from June 30, 2015. Including the impact of noninterest bearing deposits, the Company’s cost of funds equaled 11 basis points in the second quarter of 2016 compared to 12 basis points in the first quarter of 2016.

Noninterest Income and Expense

Noninterest income was higher than the first quarter of 2016 by approximately $2.1 million to $32.1 million. The increase was the result of the following:

• Higher mortgage banking income of $1.4 million due primarily to an increased volume of mortgage loans sold and the related gain in the secondary market;
• Higher fees on deposit accounts totaling $1.4 million. This increase was the result of higher usage of debit/ ATM cards and receipt of revenue sharing proceeds from VISA;
• Higher recoveries on acquired credit impaired loans of $1.1 million, which resulted from not sharing recoveries during the quarter due to the early termination of our loss share agreements;
• Resolution of acquired credit impaired loan of $1.1 million; partially offset by
• Higher amortization of the FDIC indemnification asset by $3.0 million due to the early termination of all loss share agreements, which included a payment to the FDIC of $2.3 million.

Compared to the second quarter of 2015, noninterest income grew by $2.0 million due to $3.8 million improvement in fees of deposit accounts in bankcard services and service charges on deposit accounts primarily the result of the purchase of Bank of America branches in the third quarter of 2015, $1.1 million improvement from recoveries on acquired loans as a result of the early termination of LSAs, and $1.1 million improvement in other income due to the positive resolution of an acquired credit impaired loan. These improvements were offset by the $4.4 million charge related to the early termination of LSAs which was $2.4 million greater than the amortization of the FDIC indemnification asset in the second quarter of 2015; and lower mortgage banking income of $1.5 million due to lower gains on sold mortgage loans offset by the positive change in fair value of the mortgage pipeline.

Noninterest expense was $73.9 million in the second quarter of 2016, an increase of $1.9 million from $72.0 million in the first quarter of 2016. This increase was due to $615,000 of expenses related to branch consolidation with the closing of eight locations. Other expense was higher by $1.8 million due primarily to an increase in operational charge offs, an increase in sales and use taxes, and an increase in secondary mortgage repurchase activity. Business development and staff related expense increased by $329,000 due to the loan production during the quarter. Professional fees increased by $247,000, as the Company prepares to pass the $10.0 billion in assets threshold. Salaries and benefits were down during the quarter by $895,000 due primarily to lower cost related to our self-funded medical plan. OREO expense and other loan related costs were $900,000 lower than the first quarter of 2016 due to lower write downs and less cost to carry of these assets due to the decline in OREO and nonperforming loans.

Compared to the second quarter of 2015, noninterest expense increased by $2.3 million. The increases were in the following categories and were primarily the result of the additional branches acquired from Bank of America during the third quarter of 2015: salary and employee benefits of $783,000, net occupancy expense of $495,000, information services expense of $701,000, bankcard expenses of $755,000, and supplies, printing and postage of $327,000. In addition, there was $1.1 million increase in operational charge offs, donations, and passive losses on tax advantaged investments. These increases were offset by decreases in the following categories: OREO and loan related expenses by $1.1 million due to lower number of properties, fewer write downs, and lower carrying cost; branch consolidation cost by $664,000 and FDIC assessment and other regulatory charges by $236,000 due to lower assessment from the FDIC.

South State Corporation will hold a conference call today, July 22nd at 10 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 10088427. Participants can also listen to the live audio webcast through the Investor Relations section of www.SouthStateBank.com. A replay will be available beginning July 22nd by 2:00 p.m. Eastern Time until 9:00 a.m. on August 5th, 2016. To listen to the replay, dial 877-344-7529 or 412-317-0088. The passcode is 10088427.

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 24 South Carolina counties, 13 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 $8.7 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 which 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.