COLUMBIA, S.C.--(BUSINESS WIRE)--
South State Corporation (SSB) today released its unaudited results of operations and other financial information for the three-month period ended March 31, 2019. Highlights for the first quarter of 2019 include the following:
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- GAAP diluted EPS improvement of 8.7% compared to last year
- Adjusted diluted EPS declined by 9.4% compared to last year
- Loan growth totaled $128.3 million, or 4.7% annualized for the quarter
- Deposit growth totaled $272.0 million, or 9.5% annualized for the quarter, with 58% of the growth from noninterest bearing deposits
- Noninterest expense decreased by $15.2 million, or 13.4%, compared to last year
- Adjusted noninterest expense declined by $5.0 million, or 5.0%, compared to last year
- Asset quality remains strong as net charge-offs on non-acquired loans totaled 2 basis points annualized, or $493,000, during the first quarter of 2019
- Non-performing assets to total assets were 0.27%, and remain at historically low level
- Repurchased 500,000 common shares in Q1 2019 for $33.3 million
- Tangible book value per share improved 9% annualized to $37.15 per share, and the dividend increased $0.05 per share, or 15.2%, compared to last year
During the first quarter of 2019, South State positioned the balance sheet for future growth, and took other actions to improve profitability and include the following:
- Secured longer-term funding of $500.0 million over 4 to 5 year period;
- Increased on-hand liquidity by approximately $600.0 million in order to fund future loan / securities growth;
- With the current environment, plan to continue the systematic repurchase of common shares of the Company; and
- Identified annual cost saving initiatives of approximately $13.0 million (pre-tax), and expect to recognize $10.0 million in 2019, which includes the previously announced branch consolidations of $2.5 million annualized cost savings; allowing for limited growth in noninterest expense.
“The first quarter marked a positive start to the year,” said Robert R. Hill, Jr., CEO of South State Corporation. “South State experienced solid loan and deposit growth, exhibited good expense control, and positioned the balance sheet to accommodate further loan growth. We also continue to utilize our capital position to enhance shareholder value through increased dividends and common stock repurchases. Additionally, during the past few weeks we moved into a new headquarters in Richmond, Virginia and opened the first of two new offices in Raleigh, North Carolina. Both of these markets demonstrated strong results in the first quarter. Finally, we added 13 new bankers to our sales team and experienced further adoption of our digital platform.”
Quarterly Cash Dividend and Common Stock Repurchase Plan
The Board of Directors of South State Corporation declared a quarterly cash dividend on April 25, 2019, of $0.40 per share payable on its common stock. This per share amount is higher by $0.02 per share, or 5.3%, compared to last quarter and $0.06 per share, or 17.6%, higher than the same quarter one year ago. The dividend will be payable on May 17, 2019 to shareholders of record as of May 10, 2019.
As previously announced, the Board of Directors of South State Corporation announced the authorization for the repurchase of up to 1,000,000 common shares of the Company’s common stock (the “Repurchase Program”). During the first quarter of 2019, the Company bought back 500,000 shares during the first week of February at an average price of $66.53 per share, or $33.3 million. This results in an estimated increase in diluted EPS annually of approximately $0.08 per share. The Company intends to remain active in repurchasing shares and will seek authorization for additional share repurchases given the current environment and the Company’s capital strategy. The Company is not obligated to repurchase any such shares under the Repurchase Program, but any such purchases will be executed in open market transactions at prevailing market prices, in privately negotiated transactions, or by other means in accordance with federal securities laws. Repurchases under any approved Repurchase Program must be executed within one year or would require additional Federal Reserve approval.
In addition, as a part of the company’s capital strategy, the Company intends to continue managing capital within the established long-term range of 8% to 9% of tangible common equity to tangible assets; and the dividend payout range for shareholders has been adjusted to 30% to 35% annually, from the historical range of 25% to 30%.
Branch consolidation and other cost initiatives – 2019
In mid-January 2019, the Company scheduled the close of 13 branch locations during 2019. Most are scheduled for the second quarter of 2019. In addition, certain cost reduction initiatives began during the first quarter of 2019. The expected cost associated with these closures and cost initiatives has been estimated to be approximately $3.2 million, and primarily includes personnel, facilities and equipment cost. The annual savings of these closures and cost initiatives is expected to be $13.0 million, and the impact on 2019 is anticipated to be approximately $10.0 million.
First Quarter 2019 Financial Performance
|Three Months Ended|
|(Dollars in thousands, except per share data)||Mar. 31,||Dec. 31,||Sept. 30,||June 30,||Mar. 31,|
|Loans, including fees (8)||$||131,834||$||132,541||$||132,043||$||129,852||$||127,041|
Investment securities, federal funds sold and securities purchased under agreements to resell
|Total interest income||143,390||143,868||143,560||141,732||138,048|
Federal funds purchased, securities sold under agreements to repurchase, and other borrowings
|Total interest expense||20,123||17,476||15,271||12,170||9,075|
|Net interest income||123,267||126,392||128,289||129,562||128,973|
|Provision for loan losses||1,488||3,734||3,117||4,478||2,454|
|Net interest income after provision for loan losses||121,779||122,658||125,172||125,084||126,519|
|Pre-tax operating expense*||97,125||96,664||95,818||96,410||102,167|
|Branch consolid./acquisition and merger expense||1,114||--||4,476||14,096||11,296|
|Total noninterest expense||98,239||96,664||100,294||110,506||113,463|
|Income before provision for income taxes||55,598||61,636||56,905||52,103||53,611|
|Provision for income taxes, includes deferred tax revaluation||11,231||12,632||9,823||11,644||11,285|
|Adjusted net income (non-GAAP) (3)|
|Net income (GAAP)||$||44,367||$||49,004||$||47,082||$||40,459||$||42,326|
|Securities losses (gains), net of tax||(432||)||2||9||505||--|
|Provision for income taxes, deferred tax revaluation||--||--||(1,602||)||613||--|
|FHLB prepayment penalty||107||--||--||--||--|
|Branch consolid./acquisition and merger expense, net of tax||782||-||3,577||11,112||8,918|
|Adjusted net income (non-GAAP)||$||44,824||$||49,006||$||49,066||$||52,689||$||51,244|
|Basic earnings per common share||$||1.25||$||1.36||$||1.28||$||1.10||$||1.15|
|Diluted earnings per common share||$||1.25||$||1.35||$||1.28||$||1.09||$||1.15|
|Adjusted net income per common share - Basic (non-GAAP) (3)||$||1.26||$||1.36||$||1.34||$||1.44||$||1.40|
|Adjusted net income per common share - Diluted (non-GAAP) (3)||$||1.26||$||1.35||$||1.33||$||1.43||$||1.39|
|Dividends per common share||$||0.38||$||0.36||$||0.35||$||0.34||$||0.33|
|Basic weighted-average common shares outstanding||35,445,087||36,154,922||36,645,181||36,676,887||36,646,198|
|Diluted weighted-average common shares outstanding||35,618,705||36,364,873||36,893,496||36,928,981||36,899,068|
|Effective tax rate||20.20||%||20.49||%||17.26||%||22.35||%||21.05||%|
* These lines include a reclassification of network costs directly related to interchange and debit card transaction fees. ASU 2014-09 - Revenue recognition requires netting of these expenses with the related revenue. All periods have been adjusted for this reclassification, and there was no impact to net income or capital for any period presented.
The Company reported consolidated net income of $44.4 million, or $1.25 per diluted common share for the three-months ended March 31, 2019, a $4.6 million decrease, or $0.10 per share decline in EPS compared to the fourth quarter of 2018. Compared to the first quarter of 2018, net income totaled $42.3 million, or $1.15 per diluted common share. Weighted average diluted shares declined by 746,000, from the fourth quarter of 2018, due to the continuation of the Company buying back shares under the Repurchase Program, which improved first quarter diluted EPS by $0.03 per diluted share. Net interest income was down $3.1 million compared to the fourth quarter of 2018 on $478,000 lower interest income and $2.6 million higher interest expense. The interest income decline was primarily the result of acquired loan interest income declining more than the increase in non-acquired loan interest income. Overall acquired loan accretion declined by $525,000 in the first quarter of 2019 compared to the fourth quarter of 2018. The increase in interest expense was due to the continued competition within our markets for deposits and an increase in borrowings from the FHLB. The Company’s cost of interest-bearing liabilities was 0.89% for the first quarter of 2019, an increase of 0.11% from the fourth quarter of 2018. Compared to the first quarter of 2018, cost of funds increased by 0.48% which was primarily the result of rising interest rates and competition within our markets. The total provision for loan losses decreased $2.2 million compared to the fourth quarter of 2018. Valuation allowance impairment (release) related to acquired loans was $13,000 compared to $710,000 impairment in the fourth quarter of 2018. Several pools, in the fourth quarter of 2018, within the acquired credit impaired loan portfolio resulted in declining estimated cash flows and larger impairment. The provision for loan losses related to acquired non-credit impaired loans was lower by $406,000 compared to the fourth quarter of 2018. The provision for loan losses on non-acquired loans was $1.1 million lower compared to the fourth quarter of 2018 due primarily to continuation of strong asset quality indicators and low net charge offs. Noninterest income decreased by $3.6 million resulting primarily from declines in each revenue category, except for net securities gains totaling $541,000 in the first quarter of 2019. Noninterest expense was higher by $1.6 million due to $980,000 in branch consolidation and other cost initiatives and $134,000 in an FHLB prepayment penalty (no merger and conversion related charges incurred in 4Q 2018). Absent the branch consolidation expense, cost initiative expense and the FHLB prepayment penalty, our noninterest expense increased by $461,000, which can be attributed to an increase in other expense related to passive investment losses on tax advantaged investments. All other variances in noninterest expense offset.
Income Tax Expense
During the first quarter of 2019, our effective income tax rate declined to 20.20% from 20.49% in the fourth quarter of 2018 and from 21.05% in the first quarter of 2018. The primary factor in the lower effective tax rate compared to the fourth quarter of 2018 was due to a reduction in pre-tax book income, while the reduction in the rate compared to the first quarter of 2018 was due primarily to an increase in federal tax credits available, offset partially by an increase in pre-tax book income.
Balance Sheet and Capital
|(dollars in thousands, except per share and share data)||Ending Balance|
|Mar. 31,||Dec. 31,||Sept. 30,||June 30,||Mar. 31,|
|Cash and cash equivalents||$||949,591||$||408,983||$||307,309||$||396,849||$||644,504|
|Securities held to maturity||-||-||500||499||1,274|
|Securities available for sale, at fair value||1,466,249||1,517,067||1,551,281||1,577,999||1,640,837|
|Total investment securities||1,506,873||1,542,671||1,571,010||1,597,727||1,665,590|
|Loans held for sale||33,297||22,925||33,752||36,968||42,690|
|Acquired credit impaired||452,258||485,119||512,633||551,979||597,274|
|Acquired non-credit impaired||2,378,737||2,594,826||2,786,102||3,076,424||3,274,938|
|Less allowance for non-acquired loan losses||(52,008||)||(51,194||)||(49,869||)||(47,874||)||(45,203||)|
|Other real estate owned ("OREO")||11,297||11,410||12,119||17,222||11,073|
|Premises and equipment, net||322,553||241,076||241,909||245,288||253,605|
|Bank owned life insurance||230,629||230,105||229,075||227,588||226,222|
|Deferred tax asset||31,884||37,128||47,943||48,853||46,736|
|Mortgage servicing rights||32,415||34,727||36,056||35,107||34,196|
|Core deposit and other intangibles||59,619||62,900||66,437||69,975||70,376|
|Liabilities and Shareholders' Equity|
Federal funds purchased and securities sold under agreements to repurchase
|Preferred stock - $.01 par value; authorized 10,000,000 shares||--||--||--||--||--|
|Common stock - $2.50 par value; authorized 80,000,000 shares||88,421||89,574||91,808||92,064||91,958|
|Accumulated other comprehensive loss||(13,374||)||(24,881||)||(44,509||)||(36,071||)||(30,350||)|
|Total shareholders' equity||2,376,477||2,366,296||2,368,139||2,348,367||2,322,579|
|Total liabilities and shareholders' equity||$||15,406,887||$||14,676,328||$||14,522,215||$||14,566,488||$||14,689,109|
|Common shares issued and outstanding||35,368,521||35,829,549||36,723,238||36,825,556||36,783,438|
At March 31, 2019, the Company’s total assets were $15.4 billion, an increase of $730.6 million, from December 31, 2018, and an increase of $717.8 million, or 4.9%, from March 31, 2018. During the first quarter of 2019, changes in the balance sheet include the following:
- Net loan growth totaled $128.3 million, or 4.7% annualized. Non-acquired loans increased by $377.3 million or 19.3% annualized and acquired loans decreased by $249.0 million, or 32.7% annualized.
- Sold 25,000 shares of Class B VISA common stock recognizing a gain of $3.5 million (11,500 shares remain).
- Sold $134.5 million of investment securities with an average yield of 2.10%; and purchased $122.8 million of investment securities with an average yield of 3.14%. The sold securities resulted in a loss totaling approximately $3.0 million.
- Executed two 90-day FHLB advances of $350.0 million and $150.0 million each with a cash flow hedge, effectively locking in four and five year funding, respectively, at 2.44% and 2.21%. $150.0 million of the proceeds from the advances retired an existing FHLB advance, and the remainder will be utilized to increase the size of the investment portfolio and support future loan growth.
- Deposit growth totaled $272.0 million, or 9.5% annualized.
- Repurchased 500,000 common shares totaling $33.3 million under current Repurchase Program.
- These actions resulted in cash and cash equivalents increasing by $540.6 million from December 31, 2018.
The Company’s book value per common share increased to $67.19 per share at March 31, 2019, compared to $66.04 at December 31, 2018 and $63.14 at March 31, 2018. Total equity (capital) increased by $10.2 million due to the improvement in the unrealized loss position of available for sale securities at March 31, 2019. The shares of common stock repurchased under the Repurchase Program and the dividend paid to the shareholders was offset by the net income recorded during the first quarter of 2019. Tangible book value (“TBV”) per common share increased by $0.85 per share to $37.15 at March 31, 2019, compared to $36.30 at December 31, 2018, and increased by $3.10 per share, or 9.1%, from $34.05 at March 31, 2018. The quarterly increase of $0.85 per share in tangible book value was the result of (1) earnings per share, excluding amortization of intangibles, of $1.32, offset by the dividend paid to shareholders of $0.38 per share; (2) an increase from the change in AOCI of $0.33 per share; (3) the increase from the impact of share-based compensation and employee stock purchases of $0.03 per share; and (4) a net decrease of $0.45 per share due primarily to the buyback of 500,000 shares of common stock.
“The Company took advantage of the balance sheet optionality and increased liquidity to allow for both loan and securities growth,” said John C. Pollok, Chief Financial Officer. “In addition, we will continue to (1) focus on our capital management opportunities, and (2) focus on expense management initiatives identified that should allow for limited expense growth.”
Performance and Capital Ratios
|Three Months Ended|
|Mar. 31,||Dec. 31,||Sept. 30,||June 30,||Mar. 31,|
|Return on average assets (annualized)||1.21||%||1.33||%||1.28||%||1.12||%||1.19||%|
|Adjusted return on average assets (annualized) (non-GAAP) (3)||1.23||%||1.33||%||1.33||%||1.45||%||1.44||%|
|Return on average equity (annualized)||7.61||%||8.24||%||7.89||%||6.96||%||7.41||%|
|Adjusted return on average equity (annualized) (non-GAAP) (3)||7.69||%||8.24||%||8.23||%||9.06||%||8.98||%|
|Return on average tangible common equity (annualized) (non-GAAP) (7)||14.66||%||15.91||%||15.29||%||13.79||%||14.69||%|
|Adjusted return on average tangible common equity (annualized) (non-GAAP) (3) (7)||14.80||%||15.91||%||15.90||%||17.68||%||17.60||%|
|Efficiency ratio (tax equivalent)||63.24||%||59.43||%||62.31||%||65.63||%||66.67||%|
|Adjusted efficiency ratio (non-GAAP) (9)||62.52||%||59.43||%||59.53||%||57.26||%||60.04||%|
|Dividend payout ratio (2)||30.29||%||26.63||%||27.30||%||30.93||%||28.68||%|
|Book value per common share||$||67.19||$||66.04||$||64.49||$||63.77||$||63.14|
|Tangible common equity per common share (non-GAAP) (7)||$||37.15||$||36.30||$||35.37||$||34.64||$||34.05|
|Tangible equity-to-tangible assets (non-GAAP) (7)||9.16||%||9.56||%||9.65||%||9.45||%||9.20||%|
|Tier 1 common equity (6)||11.8||%||12.1||%||12.3||%||12.0||%||11.8||%|
|Tier 1 leverage (6)||10.5||%||10.6||%||10.8||%||10.6||%||10.5||%|
|Tier 1 risk-based capital (6)||12.8||%||13.1||%||13.3||%||13.0||%||12.8||%|
|Total risk-based capital (6)||13.3||%||13.6||%||13.8||%||13.5||%||13.3||%|
|Number of branches||168||168||168||169||179|
|Number of employees (full-time equivalent basis)||2,589||2,602||2,640||2,654||2,700|
|Mar. 31,||Dec. 31,||Sept. 30,||June 30,||Mar. 31,|
|(Dollars in thousands)||2019||2018||2018||2018||2018|
|Non-acquired nonperforming loans||$||15,910||$||15,018||$||15,315||$||14,870||$||14,307|
|Non-acquired OREO and other nonperforming assets||4,070||4,037||3,229||8,179||2,363|
|Total non-acquired nonperforming assets||19,980||19,055||18,544||23,049||16,670|
|Acquired nonperforming loans||14,558||13,651||10,800||9,590||8,233|
|Acquired OREO and other nonperforming assets||7,782||7,755||9,302||9,527||9,139|
|Total acquired nonperforming assets||22,340||21,406||20,102||19,117||17,372|
|Total nonperforming assets||$||42,320||$||40,461||$||38,646||$||42,166||$||34,042|
|Three Months Ended|
|Mar. 31,||Dec. 31,||Sept. 30,||June 30,||Mar. 31,|
|ASSET QUALITY RATIOS:|
Allowance for non-acquired loan losses as a percentage of non-acquired loans (1)
Allowance for non-acquired loan losses as a percentage of non-acquired nonperforming loans
Net charge-offs on non-acquired loans as a percentage of average non-acquired loans (annualized) (1)
Net charge-offs on acquired non-credit impaired loans as a percentage of average acquired non-credit impaired loans (annualized) (1)
Total nonperforming assets as a percentage of total assets
|Excluding Acquired Assets|
|NPLs as a percentage of period end non-acquired loans (1)||0.19||%||0.19||%||0.20||%||0.21||%||0.21||%|
Total nonperforming assets as a percentage of total non-acquired loans and repossessed assets (1) (4)
Total nonperforming assets as a percentage of total assets (5)
Total nonperforming assets increased by $1.9 million to $42.3 million, representing 0.27% of total assets, a decrease of 1 basis point compared to December 31, 2018. The decrease was the result of an increase in total assets of $730.6 million during the quarter. Non-performing acquired non-credit impaired loans increased $907,000, and total $14.6 million. Legacy non-performing loans increased by $892,000 during the first quarter of 2019 to $15.9 million at March 31, 2019. The allowance for loan losses as a percentage of non-acquired nonaccrual loans was 327% at March 31, 2019, down from 341% in the fourth quarter of 2018, and up from 316% at March 31, 2018.
At March 31, 2019, the allowance for non-acquired loan losses was $52.0 million, or 0.63%, of non-acquired period-end loans and $51.2 million, or 0.65%, at December 31, 2018, and $45.2 million, or 0.67% at March 31, 2018. Net charge-offs within the non-acquired portfolio were $493,000, or 0.02% annualized, in the first quarter of 2019, compared to $1.1 million, or 0.06% annualized, in the fourth quarter of 2018. First quarter 2018 net charge-offs totaled $367,000, or 0.02% annualized. Net charge-offs (recoveries) related to the non-acquired loan portfolio were ($235,000) during the first quarter of 2019. The remaining net charge-offs were from overdraft and ready reserve accounts and totaled $728,000.
During the first quarter of 2019, the provision for loan losses totaled $1.3 million for the non-acquired loan portfolio compared to $2.5 million in the fourth quarter of 2018, and $2.1 million in the first quarter of 2018.
Net charge offs related to “acquired non-credit impaired loans” were $168,000, or 0.03% annualized, in the first quarter of 2019; and the Company recorded a provision for loan losses, accordingly. Net charge-offs in the fourth quarter of 2018 totaled $574,000, or 0.09% annualized, and in the first quarter of 2018, net charge-offs totaled $169,000, or 0.02% annualized. The charge off level within the acquired non-credit impaired portfolio remains as expected.
During the first quarter of 2019, the Company recorded a net impairment of $13,000 within the acquired credit impaired loan pools compared to $710,000 impairment in the fourth quarter of 2018. During the first quarter of 2018, the Company recorded net impairment of $163,000.
Total OREO remained relatively consistent from the end of 2018 and declined to $11.3 million at March 31, 2019, down from $11.4 million at December 31, 2018.
Net Interest Income and Margin
|Three Months Ended|
|March 31, 2019||December 31, 2018||March 31, 2018|
|(Dollars in thousands)||Average||Income/||Yield/||Average||Income/||Yield/||Average||Income/||Yield/|
|Federal funds sold, reverse repo, and time deposits||$||248,620||$||1,463||2.39||%||$||172,849||$||1,032||2.37||%||$||165,752||$||660||1.61||%|
|Investment securities (taxable)||1,327,336||8,597||2.63||%||1,358,978||8,838||2.58||%||1,453,480||8,788||2.45||%|
|Investment securities (tax-exempt)||187,732||1,496||3.23||%||188,666||1,457||3.06||%||212,719||1,559||2.97||%|
|Loans held for sale||19,308||214||4.49||%||24,820||291||4.65||%||32,517||307||3.83||%|