Company Announcements

South State Corporation Reports Third Quarter 2020 Results and Declares Quarterly Cash Dividend

WINTER HAVEN, Fla.--(BUSINESS WIRE)--Oct. 29, 2020-- 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, 2020.

This press release features multimedia. View the full release here: https://www.businesswire.com/news/home/20201029006124/en/

The Company reported consolidated net income of $1.34 per diluted common share for the three months ended September 30, 2020, compared to net loss of ($1.96) per diluted common share for the three months ended June 30, 2020, and compared to $1.50 per diluted common share one year ago. Contributing to the net loss in the second quarter of 2020 was the initial provision for credit losses (“PCL”) recorded on acquired non-purchase credit deteriorated (“NonPCD”) loans and unfunded commitments (“UFC”) which totaled $119.1 million, pre-tax, and merger-related costs of $40.3 million, pre-tax related to the June 7, 2020 merger with CenterState Bank Corporation (“CSFL”).

Adjusted net income (non-GAAP) totaled $1.58 per diluted share for the three months ended September 30, 2020, compared to $0.89 per diluted share, in the second quarter of 2020, and compared to $1.49 per diluted share in the year ago period. Adjusted net income in the third quarter of 2020 removes $17.4 million of merger-related costs, after-tax; and in the second quarter of 2020 removed two primary adjustments: (1) the initial PCL on NonPCD loans and UFC of $92.2 million, after-tax, and (2) merger-related costs of $31.2 million, after-tax.

Highlights of the third quarter included:

  • Return on Average Equity of 8.3%.
  • Return on Average Tangible Common Equity of 14.7% (Non-GAAP); Adjusted Return on Average Tangible Common Equity of 17.1% (Non-GAAP).
  • Return on Average Assets (“ROAA”) of 1.00%, and Adjusted ROAA of 1.18% (Non-GAAP).
  • Third quarter of 2020 Pre-Provision Net Revenue (“PPNR ”) was $170 million, or 1.79% PPNR ROAA. This compares to the second quarter of 2020, where on a combined historical basis* (as if the companies had been merged for the full quarter, Non-GAAP), PPNR of $157 million, or 1.68% PPNR ROAA. The second quarter’s results only include the operations of CSFL for the final 23 days of the quarter.
  • Book value per share of $64.34 increased by $0.99 per share from 2Q 2020.
  • Tangible book value (“TBV”) per share of $39.83, up $1.50 from 2Q 2020 (Non-GAAP).
  • Record quarterly revenue of $385 million (compared to actual prior period and combined historical basis).
  • Net interest margin, declined by 2 basis points to 3.22% during 3Q 2020 from 2Q 2020.
  • Significant allowance for credit losses and credit marks on the balance sheet representing 2.58% of total loans (excluding PPP loans).
  • Net charge-offs of $594,000, or 0.01% annualized.
  • As of 10/23/2020, loan deferrals totaled $452.4million, or 1.98% of the total loan portfolio, excluding PPP loans and held for sale loans.

“After closing our merger late in the second quarter, we are pleased with our first full quarter of operations as a combined company,” said John C. Corbett, Chief Executive Officer. “Our fee businesses continue to perform well, leading us to another record quarter of revenue. While the current environment includes challenges and uncertainties, we look forward to the future with great optimism.”

Robert R. Hill, Jr., Executive Chairman added, “The CenterState and South State partnership is about the long-term but you can clearly see the progress being made in the short-term. Progress with technology, products, efficiency, and talent all have us uniquely positioned. We are off to a solid start.”

_______________
*The combined historical information presented is based on the reported GAAP results of the Company for three-month period ended June 30, 2020 and historical GAAP results of CSFL for the period from April 1, 2020 through June 7, 2020. The combined historical financial information set forth in this release has not been prepared in accordance with Article 11 of Regulation S-X, and therefore does not reflect any of the pro forma adjustments that would be required thereby.

Loan / Deposit Growth

As of September 30, 2020, we have assisted customers with nearly 20,000 Paycheck Protection Program (“PPP”) loans and have an outstanding balance of $2.4 billion. We have recognized $8.5 million in deferred loan fees, net of costs in the income statement during the third quarter of 2020, and $15.9 million on a YTD basis. $53.3 million of net deferred fees remains to be recognized over the life of these loans. During the third quarter, loans (nonacquired and acquired) declined by $261.3 million, or 4.1% annualized. The third quarter decline in loans was centered in construction and development loans and single-family residential mortgage loans. Total deposits increased $12.7 million with core deposit growth totaling $310.6 million, or 4.8% annualized.

Quarterly Cash Dividend

The Company’s Board of Directors declared a common stock dividend of $0.47 per share, payable on November 20, 2020 to shareholders of record as of November 13, 2020.

 

Third Quarter 2020 Financial Performance

Three Months Ended

Nine Months Ended

(Dollars in thousands, except per share data)

Sept. 30,

June 30,

Mar. 31,

Dec. 31,

Sept. 30,

Sept. 30,

INCOME STATEMENT

2020

2020

2020

2019

2019

2020

2019

Interest income
Loans, including fees (6)

$

280,825

 

$

167,707

 

$

133,034

 

$

132,615

 

$

134,953

 

$

581,566

 

$

402,175

 

Investment securities, federal funds sold and securities purchased under agreements to resell

 

14,469

 

 

12,857

 

 

14,766

 

 

14,839

 

 

15,048

 

 

42,092

 

 

41,198

 

Total interest income

 

295,294

 

 

180,564

 

 

147,800

 

 

147,454

 

 

150,001

 

 

623,658

 

 

443,373

 

Interest expense
Deposits

 

15,154

 

 

12,624

 

 

14,437

 

 

15,227

 

 

16,655

 

 

42,215

 

 

50,693

 

Federal funds purchased, securities sold under agreements to repurchase, and other borrowings

 

9,792

 

 

5,383

 

 

5,350

 

 

5,771

 

 

5,973

 

 

20,525

 

 

14,861

 

Total interest expense

 

24,946

 

 

18,007

 

 

19,787

 

 

20,998

 

 

22,628

 

 

62,740

 

 

65,554

 

Net interest income

 

270,348

 

 

162,557

 

 

128,013

 

 

126,456

 

 

127,373

 

 

560,918

 

 

377,819

 

Provision for credit losses ("PCL")

 

29,797

 

 

151,474

 

 

36,533

 

 

3,557

 

 

4,028

 

 

217,804

 

 

9,220

 

Net interest income after provision for loan losses

 

240,551

 

 

11,083

 

 

91,480

 

 

122,899

 

 

123,345

 

 

343,114

 

 

368,599

 

Noninterest income

 

114,790

 

 

54,347

 

 

44,132

 

 

36,307

 

 

37,582

 

 

213,269

 

 

107,258

 

Pre-tax operating expense

 

215,225

 

 

134,634

 

 

103,118

 

 

99,134

 

 

96,364

 

 

452,977

 

 

291,158

 

Merger and/or branch consolid. expense

 

21,662

 

 

40,279

 

 

4,129

 

 

1,494

 

 

--

 

 

66,070

 

 

3,192

 

Federal Home Loan Bank advances prepayment fee

 

--

 

 

199

 

 

--

 

 

--

 

 

--

 

 

199

 

 

134

 

Pension plan termination expense

 

--

 

 

--

 

 

--

 

 

--

 

 

--

 

 

--

 

 

9,526

 

Total noninterest expense

 

236,887

 

 

175,112

 

 

107,247

 

 

100,628

 

 

96,364

 

 

519,246

 

 

304,010

 

Income (loss) before provision for income taxes

 

118,454

 

 

(109,682

)

 

28,365

 

 

58,578

 

 

64,563

 

 

37,137

 

 

171,847

 

Provision for income taxes

 

23,233

 

 

(24,747

)

 

4,255

 

 

9,487

 

 

12,998

 

 

2,741

 

 

34,455

 

Net income (loss)

$

95,221

 

$

(84,935

)

$

24,110

 

$

49,091

 

$

51,565

 

$

34,396

 

$

137,392

 

 
Adjusted net income (non-GAAP) (3)
Net income (loss) (GAAP)

$

95,221

 

$

(84,935

)

$

24,110

 

$

49,091

 

$

51,565

 

$

34,396

 

$

137,392

 

Securities gains, net of tax

 

(12

)

 

--

 

 

--

 

 

(20

)

 

(349

)

 

(12

)

 

(2,152

)

FHLB prepayment penalty

 

--

 

 

154

 

 

--

 

 

--

 

 

--

 

 

154

 

 

107

 

Pension plan termination expense, net of tax

 

--

 

 

--

 

 

--

 

 

--

 

 

--

 

 

--

 

 

7,641

 

Initial provision for credit losses - NonPCD loans and UFC

 

--

 

 

92,212

 

 

--

 

 

--

 

 

--

 

 

92,212

 

 

--

 

Merger and/or branch consolid. expense

 

17,413

 

 

31,191

 

 

3,510

 

 

1,252

 

 

-

 

 

52,114

 

 

2,449

 

Adjusted net income (non-GAAP)

$

112,622

 

$

38,622

 

$

27,620

 

$

50,323

 

$

51,216

 

$

178,864

 

$

145,437

 

 
Basic earnings (loss) per common share

$

1.34

 

$

(1.96

)

$

0.72

 

$

1.46

 

$

1.51

 

$

0.70

 

$

3.94

 

Diluted earnings (loss) per common share

$

1.34

 

$

(1.96

)

$

0.71

 

$

1.45

 

$

1.50

 

$

0.69

 

$

3.92

 

Adjusted net income per common share - Basic (non-GAAP) (3)

$

1.59

 

$

0.89

 

$

0.82

 

$

1.49

 

$

1.50

 

$

3.63

 

$

4.17

 

Adjusted net income per common share - Diluted (non-GAAP) (3)

$

1.58

 

$

0.89

 

$

0.82

 

$

1.48

 

$

1.49

 

$

3.60

 

$

4.15

 

Dividends per common share

$

0.47

 

$

0.47

 

$

0.47

 

$

0.46

 

$

0.43

 

$

1.41

 

$

1.21

 

Basic weighted-average common shares outstanding

 

70,905,027

 

 

43,317,736

 

 

33,566,051

 

 

33,677,851

 

 

34,056,771

 

 

49,330,267

 

 

34,858,503

 

Diluted weighted-average common shares outstanding

 

71,075,866

 

 

43,317,736

 

 

33,804,908

 

 

33,964,216

 

 

34,300,206

 

 

49,635,882

 

 

35,068,610

 

Adjusted diluted weighted-average common shares outstanding *

 

71,075,866

 

 

43,606,333

 

 

33,804,908

 

 

33,964,216

 

 

34,300,206

 

 

49,635,882

 

 

35,068,610

 

Effective tax rate

 

19.61

%

 

22.56

%

 

15.00

%

 

16.20

%

 

20.13

%

 

7.38

%

 

20.05

%

 

*Adjusted diluted weighted average common shares was calculated with the result of adjusted net income (non-GAAP).

 

The Company reported consolidated net income of $95.2 million, or $1.34 per diluted common share for the three-months ended September 30, 2020, an increase of $180.2 million, or $3.30 per diluted common share, from the second quarter of 2020. The net loss in the second quarter of 2020 was the result of the initial PCL recorded on the acquired NonPCD loans and the merger-related cost incurred from the merger with CSFL. Weighted-average diluted shares increased by 27.8 million shares, or 64.1%, compared to the second quarter of 2020, due primarily to the merger with CSFL in early June, in which the Company issued 37.3 million shares. These shares were outstanding all of the third quarter of 2020 compared to only 23 days in the second quarter of 2020. Net interest income increased by $107.8 million in the third quarter of 2020, compared to the second quarter of 2020, due to the full quarter impact of the merger with CSFL in the third quarter of 2020 compared to only 23 days in the second quarter of 2020. Interest income on acquired loans included $22.4 million of loan accretion. The PCL decreased by $121.7 million, due to the PCL on NonPCD loans and unfunded commitments associated with CSFL merger that were recognized in the second quarter of 2020. Noninterest income in was up $60.4 million compared to second quarter of 2020 to $114.8 million in the third quarter of 2020, due to the strong results from mortgage banking (primarily within the secondary market) and correspondent banking and capital markets income. Correspondent banking was added to the Company from the merger with CSFL and contributed $24.4 million in the third quarter of 2020 compared to $8.3 million in the month of June during the second quarter of 2020. Noninterest expense was higher in the third quarter of 2020 compared to the second quarter of 2020 by $61.8 million due primarily to the full quarter impact of the expenses of CSFL. Merger-related expense were lower by $18.6 million compared to the second quarter of 2020 when all professional services were incurred at legal close in early June of 2020. Adjusted noninterest expense was up approximately 59.9% over second quarter 2020, which relates directly to the addition of CSFL operating expense for all of the third quarter of 2020. The efficiency ratio (Non-GAAP) and adjusted efficiency ratio were 61.4% and 55.8% in 3Q 2020, respectively, compared to 80.5% and 61.9% in 2Q 2020, respectively.

Current Expected Credit Losses (“CECL”)

Effective January 1, 2020, the Company adopted ASU 2016-13 (“CECL”), which impacts the allowance for credit losses and the liability for UFC. Below is a table showing the roll forward of the ACL and UFC for the third quarter of 2020:

 

Allowance for Credit Losses ("ACL & UFC")

NonPCD ACL

PCD ACL

Total

UFC

Ending balance 6/30/2020

$

280,301

 

$

154,307

 

$

434,608

 

$

21,051

 

Measurement period adj - PCD loans from CSFL merger

 

(1,542

)

 

(1,542

)

Charge offs

 

(1,897

)

 

(1,897

)

Acquired charge offs

 

(886

)

 

(1,859

)

 

(2,745

)

Recoveries

 

1,220

 

 

1,220

 

Acquired recoveries

 

691

 

 

2,137

 

 

2,828

 

Provision for credit losses

 

7,077

 

 

610

 

 

7,687

 

 

22,110

 

Ending balance 9/30/2020

$

286,506

 

$

153,653

 

$

440,159

 

$

43,161

 

 
Period end loans (includes PPP Loans)

$

22,094,095

 

$

3,143,720

 

$

25,237,815

 

 

N/A

 

Reserve to Loans (includes PPP Loans)

 

1.30

%

 

4.89

%

 

1.74

%

 

N/A

 

Period end loans (excludes PPP Loans)

$

19,742,374

 

$

3,143,720

 

$

22,886,094

 

 

N/A

 

Reserve to Loans (excludes PPP Loans)

 

1.45

%

 

4.89

%

 

1.92

%

 

N/A

 

Unfunded commitments (off balance sheet) *

$

4,584,160

 

Reserve to unfunded commitments (off balance sheet)

 

0.94

%

 

* Unfunded commitments excludes unconditionally cancelable commitments and letters of credit.

The ACL related to all loans totals $440.2 million compared to $434.6 million at June 30, 2020, and was recorded as a contra asset on its own line within the balance sheet, while the liability for UFC of $43.2 million was recorded on its own line in the liabilities section of the balance sheet. The total provision for credit losses recorded in the third quarter of 2020 was $29.8 million, including $22.1 million related to the liability for unfunded commitments (which was the result of a change in the methodology with the merger of CSFL and the Company). In the second quarter of 2020, (including the initial provision for credit losses related to acquired NonPCD loans and UFC from CSFL) the total provision for credit losses was $151.5 million.

Income Tax Expense

During the third quarter of 2020, our effective tax rate decreased to 19.61% from 22.56% in the second quarter of 2020 and from 20.13% in the third quarter of 2019. The primary reason for the decline relates to the fact that the Company was back in a pre-tax income position in 3Q 2020 compared to a pre-tax loss position in 2Q 2020, and the impact of the rate reducing items on the effective tax rate. The lower effective tax rate in 3Q 2020 compared to 3Q 2019 was mainly due to an increase in federal tax credits, as well as additional tax-exempt income resulting from the merger with CSFL. Lastly, an additional income tax benefit was recorded when legacy South State’s deferred taxes were revalued as a result of the merger. This was slightly offset by an increase in pre-tax income compared to the same period in 2019.

Balance Sheet and Capital

(dollars in thousands, except per share and share data)

Ending Balance

Sept. 30,

June 30,

Mar. 31,

Dec. 31,

Sept. 30,

BALANCE SHEET

2020

2020

2020

2019

2019

Assets
Cash and cash equivalents

$

4,471,639

 

$

4,363,708

 

$

1,262,836

 

$

688,704

 

$

719,194

 

Investment securities:
Securities available for sale, at fair value

 

3,561,929

 

 

3,137,718

 

 

1,971,195

 

 

1,956,047

 

 

1,813,134

 

Other investments

 

185,199

 

 

133,924

 

 

62,994

 

 

49,124

 

 

49,124

 

Total investment securities

 

3,747,128

 

 

3,271,642

 

 

2,034,189

 

 

2,005,171

 

 

1,862,258

 

Loans held for sale

 

456,141

 

 

603,275

 

 

71,719

 

 

59,363

 

 

87,393

 

Loans:
Acquired - PCD

 

3,143,761

 

 

3,323,754

 

 

311,271

 

 

356,782

 

 

390,714

 

Acquired - NonPCD

 

10,557,968

 

 

11,577,833

 

 

1,632,700

 

 

1,760,427

 

 

1,965,603

 

Non-acquired

 

11,536,086

 

 

10,597,560

 

 

9,562,919

 

 

9,252,831

 

 

8,928,512

 

Less allowance for loan losses

 

(440,159

)

 

(434,608

)

 

(144,785

)

 

(56,927

)

 

(54,937

)

Loans, net

 

24,797,656

 

 

25,064,539

 

 

11,362,105

 

 

11,313,113

 

 

11,229,892

 

Bank property held for sale

 

24,504

 

 

25,541

 

 

5,412

 

 

5,425

 

 

8,424

 

Other real estate owned ("OREO")

 

13,480

 

 

18,016

 

 

7,432

 

 

6,539

 

 

4,991

 

Premises and equipment, net

 

626,259

 

 

627,943

 

 

312,151

 

 

317,321

 

 

323,506

 

Bank owned life insurance

 

556,475

 

 

556,807

 

 

233,849

 

 

234,567

 

 

233,206

 

Deferred tax asset

 

107,500

 

 

107,532

 

 

46,365

 

 

31,316

 

 

27,844

 

Mortgage servicing rights

 

34,578

 

 

25,441

 

 

26,365

 

 

30,525

 

 

28,674

 

Core deposit and other intangibles

 

171,637

 

 

170,911

 

 

46,809

 

 

49,816

 

 

53,083

 

Goodwill

 

1,566,524

 

 

1,603,383

 

 

1,002,900

 

 

1,002,900

 

 

1,002,900

 

Other assets

 

1,245,845

 

 

1,286,618

 

 

230,779

 

 

176,332

 

 

170,717

 

Total assets

$

37,819,366

 

$

37,725,356

 

$

16,642,911

 

$

15,921,092

 

$

15,752,082

 

 
Liabilities and Shareholders' Equity
Deposits:
Noninterest-bearing

$

9,681,095

 

$

9,915,700

 

$

3,367,422

 

$

3,245,306

 

$

3,307,532

 

Interest-bearing

 

20,288,859

 

 

20,041,585

 

 

8,977,125

 

 

8,931,790

 

 

8,716,255

 

Total deposits

 

29,969,954

 

 

29,957,285

 

 

12,344,547

 

 

12,177,096

 

 

12,023,787

 

Federal funds purchased and securities sold under agreements to repurchase

 

706,723

 

 

720,479

 

 

325,723

 

 

298,741

 

 

269,072

 

Other borrowings

 

1,089,637

 

 

1,089,279

 

 

1,316,100

 

 

815,936

 

 

815,771

 

Reserve for unfunded commitments

 

43,161

 

 

21,051

 

 

8,555

 

 

335

 

 

335

 

Other liabilities

 

1,446,478

 

 

1,445,411

 

 

326,943

 

 

255,971

 

 

292,161

 

Total liabilities

 

33,255,953

 

 

33,233,506

 

 

14,321,868

 

 

13,548,079

 

 

13,401,126

 

 
Shareholders' equity:
Preferred stock - $.01 par value; authorized 10,000,000 shares

 

--

 

 

--

 

 

--

 

 

--

 

 

--

 

Common stock - $2.50 par value; authorized 160,000,000 shares

 

177,321

 

 

177,268

 

 

83,611

 

 

84,361

 

 

84,757

 

Surplus

 

3,764,482

 

 

3,759,166

 

 

1,584,322

 

 

1,607,740

 

 

1,617,004

 

Retained earnings

 

604,564

 

 

542,677

 

 

643,345

 

 

679,895

 

 

646,325

 

Accumulated other comprehensive income

 

17,046

 

 

12,739

 

 

9,765

 

 

1,017

 

 

2,870

 

Total shareholders' equity

 

4,563,413

 

 

4,491,850

 

 

2,321,043

 

 

2,373,013

 

 

2,350,956

 

Total liabilities and shareholders' equity

$

37,819,366

 

$

37,725,356

 

$

16,642,911

 

$

15,921,092

 

$

15,752,082

 

 
Common shares issued and outstanding

 

70,928,304

 

 

70,907,119

 

 

33,444,236

 

 

33,744,385

 

 

33,902,726

 

 

At September 30, 2020, the Company’s total assets were $37.8 billion, an increase of $94.0 million from June 30, 2020. Below are highlights of certain line items:

1. Cash and cash equivalents increased by $107.9 million to $4.5 billion.
2. Investment securities portfolio increased by $476.0 million, and totaled $3.7 billion, representing 9.9% of total assets, an increase from 8.7% at June 30, 2020.
3. Total loans decreased by $261.3 million, with non-acquired loans increasing by $938.5 million and acquired loans decreasing by $1.2 billion.
4. Goodwill decreased by $36.9 million from measurement period adjustments related to fair value mark of loans (reduced loan discount) totaling $29.8 million, an intangible related to correspondent banking business acquired in the CSFL merger of $10.0 million, fair value adjustments to bank property of $6.0 million, and reduced deferred tax asset of $9.0 million
5. Non-interest bearing deposits decreased by $234.6 million.
6. Interest bearing deposits grew by $247.3 million.
7. Equity increased by $71.6 million during the third quarter from the following: (a) net income of $95.2 million, (b) other comprehensive income increasing by $4.3 million and (c) impact of equity awards increasing capital by $5.4 million, which were all partially offset by (d) dividends of $33.3 million.

The Company’s book value per common share increased to $64.34 per share at September 30, 2020, compared to $63.35 per share at June 30, 2020 and decreased compared to $69.34 at September 30, 2019. TBV per common share increased by $1.50 per share to $39.83 at September 30, 2020, compared to $38.33 at June 30, 2020, and increased by $1.63 per share, or 4.28%, from $38.20 at September 30, 2019. Total tangible equity (capital) increased by $107.7 million in the third quarter of 2020.

The following table presents a summary of the loan portfolio by type (dollars in thousands):

 

Ending Balance

Sept. 30,

June 30,

March 31,

Dec. 31,

Sept. 30,

LOAN PORTFOLIO

2020

2020

2020

2019

2019

 
Construction and land development

$

1,840,111

$

1,999,062

$

1,105,308

$

1,016,692

$

1,024,627

Commercial non-owner occupied real estate

 

5,936,372

 

6,021,317

 

2,371,371

 

2,322,590

 

2,356,335

Commercial owner occupied real estate

 

4,846,020

 

4,762,520

 

2,177,738

 

2,158,701

 

2,093,795

Consumer owner occupied real estate

 

4,311,186

 

4,421,247

 

2,665,405

 

2,704,405

 

2,757,424

Home equity loans

 

1,347,798

 

1,378,406

 

758,482

 

758,020

 

773,363

Commercial and industrial

 

5,419,120

 

5,341,363

 

1,418,421

 

1,386,303

 

1,261,527

Other income producing property

 

629,497

 

650,237

 

327,696

 

346,554

 

361,879

Consumer non real estate

 

900,171

 

916,623

 

674,791

 

662,883

 

654,422

Other

 

7,540

 

8,372

 

7,678

 

13,892

 

1,457

Total loans

$

25,237,815

$

25,499,147

$

11,506,890

$

11,370,040

$

11,284,829

 

The following table presents a summary of the deposit types (dollars in thousands):

 

Ending Balance

Sept. 30,

June 30,

March 31,

Dec. 31,

Sept. 30,

DEPOSITS

2020

2020

2020

2019

2019

 

Type

Demand deposits

$

9,681,095

$

9,915,700

$

3,367,422

$

3,245,306

$

3,307,532

Interest bearing deposits

 

6,414,905

 

6,192,915

 

2,963,679

 

2,989,467

 

2,812,912

Savings

 

2,618,877

 

2,503,514

 

1,337,730

 

1,309,896

 

1,317,705

Money market

 

7,404,299

 

7,196,456

 

3,029,769

 

2,977,029

 

2,869,217

Time deposits

 

3,850,778

 

4,148,700

 

1,645,947

 

1,655,398

 

1,716,421

 
Total deposits

$

29,969,954

$

29,957,285

$

12,344,547

$

12,177,096

$

12,023,787

 
Core deposits (excludes CDs)

 

26,119,176

 

25,808,585

 

10,698,600

 

10,521,698

 

10,307,366

 

Merger with CSFL

The merger with CSFL closed on June 7, 2020. The Company issued 37,271,069 shares using an exchange ratio of 0.3001. The total purchase price was $2.262 billion. The initial (preliminary) allocation of the purchase price to the fair value of assets and liabilities acquired was completed as of June 30, 2020. Below is a table that reflects that initial allocation of the purchase price and additional measurement period adjustments recorded during the third quarter of 2020:

 

South State Corporation

Fair Value of

CenterState Bank Corporation

Net Assets

Merger Date of June 7, 2020

Measurement

Acquired at

As Recorded

Fair Value

Period

Date of

(Dollars in thousands)

by CSFL

Adjustments

Adjustments

Acquisition

Assets
Cash and cash equivalents

$

2,566,450

$

--

 

$

2,566,450

Investment securities

 

1,188,403

 

5,507

 

 

--

 

 

1,193,910

Loans held for sale

 

453,578

 

--

 

 

453,578

Loans

 

12,969,091

 

(48,342

)

 

29,834

 

 

12,950,583

Premises and equipment

 

324,396

 

2,392

 

 

5,999

 

 

332,787

Intangible assets

 

1,294,211

 

(1,163,349

)

 

10,000

 

 

140,862

Other real estate owned and repossessed assets

 

10,849

 

(791

)

 

(49

)

 

10,009

Bank owned life insurance

 

333,053

 

--

 

 

333,053

Deferred tax asset

 

54,122

 

(8,681

)

 

(8,952

)

 

36,489

Other assets

 

1,061,136

 

(604

)

 

26

 

 

1,060,558

Total assets

$

20,255,289

$

(1,213,868

)

$

36,858

 

$

19,078,279

 
Liabilities
Deposits:
Noninterest-bearing

$

5,291,443

$

--

 

$

--

 

$

5,291,443

Interest-bearing

 

10,312,370

 

19,702

 

 

--

 

 

10,332,072

Total deposits

 

15,603,813

 

19,702

 

 

--

 

 

15,623,515

Federal funds purchased and securities sold under agreements to repurchase

 

401,546

 

--

 

 

--

 

 

401,546

Other borrowings

 

278,900

 

(7,401

)

 

--

 

 

271,499

Other liabilities

 

1,088,048

 

(4,592

)

 

--

 

 

1,083,456

Total liabilities

 

17,372,307

 

7,709

 

 

--

 

 

17,380,016

Net identifiable assets acquired over liabilities assumed

 

2,882,982

 

(1,221,577

)

 

36,858

 

 

1,698,263

Goodwill

 

600,483

 

 

(36,858

)

 

563,625

Net assets acquired over liabilities assumed

$

2,882,982

$

(621,094

)

$

--

 

$

2,261,888

 
Consideration:
South State Corporation common shares issued

 

37,271,069

Purchase price per share of the Company's common stock

$

60.27

Company common stock issued and cash exchanged for fractional shares

$

2,246,401

Stock Option Conversion

 

8,080

Restricted Stock Conversion

 

7,407

Fair value of total consideration transferred

$

2,261,888

 

The measurement period adjustments related to the merger between the Company and CSFL include the following:

  • Goodwill was reduced by $36.9 million with the measurement period adjustments recorded during the third quarter of 2020, resulting in total goodwill from the merger with CSFL of $563.6 million.
  • Lower loan mark (discount) of $29.8 million from an updated loan valuation ($28.3 million) and revised lower loan marks on certain PCD loans ($1.5 million).
  • The fair value adjustments for certain premises where updated appraisals were received and totaled $6.0 million.
  • Identification of an intangible related to the correspondent banking business totaling $10.0 million.
  • Deferred tax liability recorded for each of these adjustments totaling $9.0 million.

In addition, with respect to the merger and conversion:

  • Merger cost incurred during the third quarter was as expected at $21.7 million, and included contract terminations, professional fees, and severance and support incentives to personnel.
  • The merger integration, conversion, and cost savings identification process continues to be on schedule.
 

Performance and Capital Ratios

Three Months Ended

Nine Months Ended

Sept. 30,

June 30,

Mar. 31,

Dec. 31,

Sept. 30,

Sept. 30,

Sept. 30,

PERFORMANCE RATIOS

2020

2020

2020

2019

2019

2020

2019

Return on average assets (annualized)

 

1.00

%

 

-1.49

%

 

0.60

%

 

1.23

%

 

1.31

%

0.18

%

1.20

%

Adjusted return on average assets (annualized) (non-GAAP) (3)

 

1.18

%

 

0.68

%

 

0.69

%

 

1.26

%

 

1.30

%

0.93

%

1.27

%

Return on average equity (annualized)

 

8.31

%

 

-11.78

%

 

4.15

%

 

8.26

%

 

8.70

%

1.41

%

7.76

%

Adjusted return on average equity (annualized) (non-GAAP) (3)

 

9.83

%

 

5.36

%

 

4.75

%

 

8.47

%

 

8.64

%

7.31

%

8.22

%

Return on average tangible common equity (annualized) (non-GAAP) (5)

 

14.66

%

 

-19.71

%

 

8.35

%

 

15.79

%

 

16.62

%

3.51

%

14.88

%

Adjusted return on average tangible common equity (annualized) (non-GAAP) (3) (5)

 

17.14

%

 

10.23

%

 

9.45

%

 

16.17

%

 

16.51

%

13.58

%

15.71

%

Efficiency ratio (tax equivalent)

 

61.39

%

 

80.52

%

 

62.11

%

 

61.64

%

 

58.40

%

66.82

%

62.82

%

Adjusted efficiency ratio (non-GAAP) (7)

 

55.78

%

 

61.91

%

 

59.72

%

 

60.73

%

 

58.40

%

58.29

%

60.19

%

Dividend payout ratio (2)

 

35.01

%

 

N/A

 

 

65.70

%

 

31.62

%

 

28.48

%

188.71

%

30.70

%

Book value per common share

$

64.34

 

$

63.35

 

$

69.40

 

$

70.32

 

$

69.34

 

Tangible common equity per common share (non-GAAP) (5)

$

39.83

 

$

38.33

 

$

38.01

 

$

39.13

 

$

38.20

 

 
CAPITAL RATIOS
Equity-to-assets

 

12.07

%

 

11.91

%

 

13.95

%

 

14.90

%

 

14.92

%

Tangible equity-to-tangible assets (non-GAAP) (5)

 

7.83

%

 

7.56

%

 

8.15

%

 

8.88

%

 

8.81

%

Tier 1 common equity (4) *

 

11.5

%

 

10.7

%

 

11.0

%

 

11.3

%

 

11.2

%

Tier 1 leverage (4) *

 

8.1

%

 

13.3

%

 

9.5

%

 

9.7

%

 

9.7

%

Tier 1 risk-based capital (4) *

 

11.5

%

 

10.7

%

 

12.0

%

 

12.3

%

 

12.2

%

Total risk-based capital (4) *

 

13.9

%

 

12.9

%

 

12.7

%

 

12.8

%

 

12.7

%

 
OTHER DATA
Number of branches

 

305

 

 

305

 

 

155

 

 

155

 

 

157

 

Number of employees (full-time equivalent basis)

 

5,266

 

 

5,369

 

 

2,583

 

 

2,547

 

 

2,544

 

 

*The regulatory capital ratios presented above include the assumption of the transitional method relative to the CAREs Act in relief of COVID-19 pandemic on the economy and financial institutions in the United States. The referenced relief allows a total five-year “phase in” of the CECL impact on capital and relief over the next two years for the impact on the allowance for credit losses resulting from COVID-19.

Asset Quality

Ending Balance

Sept. 30,

June 30,

Mar. 31,

Dec. 31,

Sept 30,

(Dollars in thousands)

2020

2020

2020

2019

2019

NONPERFORMING ASSETS:
Non-acquired
Non-acquired nonperforming loans

$

22,463

 

$

22,883

 

$

23,912

 

$

22,816

 

$

19,187

 

Non-acquired OREO and other nonperforming assets

 

825

 

 

1,689

 

 

941

 

 

1,011

 

 

1,464

 

Total non-acquired nonperforming assets

 

23,288

 

 

24,572

 

 

24,853

 

 

23,827

 

 

20,651

 

Acquired
Acquired nonperforming loans (2019 periods acquired non-credit impaired loans only) *

 

89,974

 

 

100,399

 

 

32,791

 

 

11,114

 

 

9,596

 

Acquired OREO and other nonperforming assets

 

12,904

 

 

16,987

 

 

6,802

 

 

5,848

 

 

7,207

 

Total acquired nonperforming assets

 

102,878

 

 

117,386

 

 

39,593

 

 

16,962

 

 

16,803

 

Total nonperforming assets *

$

126,166

 

$

141,958

 

$

64,446

 

$

40,789

 

$

37,454

 

 

Three Months Ended

Sept. 30,

June 30,

Mar. 31,

Dec. 31,

Sept 30,

2020

2020

2020

2019

2019

ASSET QUALITY RATIOS:
Allowance for non-acquired loan losses as a percentage of non-acquired loans (1)

 

N/A

 

 

N/A

 

 

N/A

 

 

0.62

%

 

0.62

%

Allowance for credit losses as a percentage of loans

 

1.74

%

 

1.70

%

 

1.26

%

 

N/A

 

 

N/A

 

Allowance for credit losses as a percentage of loans, excluding PPP loans

 

1.92

%

 

1.88

%

 

N/A

 

 

N/A

 

 

N/A

 

Allowance for non-acquired loan losses as a percentage of non-acquired nonperforming loans

 

N/A

 

 

N/A

 

 

N/A

 

 

249.50

%

 

286.32

%

Allowance for credit losses as a percentage of nonperforming loans *

 

391.47

%

 

352.53

%

 

255.34

%

 

N/A

 

 

N/A

 

Net charge-offs on non-acquired loans as a percentage of average (annualized) (1)

 

N/A

 

 

N/A

 

 

N/A

 

 

0.06

%

 

0.05

%

Net charge-offs as a percentage of average loans (annualized)

 

0.01

%

 

0.00

%

 

0.05

%

 

N/A

 

 

N/A

 

Net charge-offs on acquired loans as a percentage of average acquired loans (annualized) (1)

 

N/A

 

 

N/A

 

 

N/A

 

 

-0.01

%

 

0.15

%

Total nonperforming assets as a percentage of total assets *

 

0.33

%

 

0.38

%

 

0.39

%

 

0.26

%

 

0.24

%

Nonperforming loans as a percentage of period end loans *

 

0.45

%

 

0.48

%

 

0.49

%

 

0.30

%

 

0.25

%

 

*Total nonperforming assets now include nonaccrual loans that are purchase credit deteriorated (“PCD loans”). In prior periods, these loans, which were called acquired credit impaired (“ACI”) loans, were excluded from nonperforming assets. The adoption of CECL resulted in the discontinuation of the pool-level accounting for ACI loans and replaced it with loan-level evaluation for PCD nonaccrual status. The Company’s nonperforming loans increased by $21.0 million in the first quarter of 2020 from these loans. The Company has not assumed or taken on any additional risk relative to these assets. With the merger with CSFL, the amount of acquired nonaccruals loans increased by approximately $69.9 million.

Total nonperforming assets decreased by $15.8 million to $126.2 million, representing 0.33% of total assets, a decrease of 5 basis points compared to June 30, 2020. The decrease was due primarily to the reduction in nonperforming assets acquired, both in loans ($10.4 million) and in OREO ($4.1 million). Non-acquired non-performing assets decreased by $1.3 million during the third quarter of 2020 to $23.3 million at September 30, 2020. The ACL as a percentage of total nonperforming loans was 391% at September 30, 2020, up from 353% of total nonperforming loans at June 30, 2020.

At September 30, 2020, the ACL was $440.2 million, or 1.74%, of period end loans. Additionally, unfunded commitments have a reserve of $43.2 million, or 0.94% of unfunded commitments (off balance sheet). The ACL was $434.6 million, or 1.70%, of period end loans at June 30, 2020. Net charge-offs totaled $594,000, or 0.01%, annualized of average total loans, in the third quarter of 2020 compared to $101,000, or 0.00%, annualized in the second quarter of 2020.

During the third quarter of 2020, the provision for credit losses totaled $29.8 million for the loan portfolio compared to $151.5 million for the provision for credit losses in the second quarter of 2020. The significant provision in the second quarter of 2020 was the result of the merger with CSFL and the initial provision for credit losses recorded on NonPCD loans acquired, the unfunded commitment liability related to CSFL, and the additional PCL related to non-acquired South State loans totaled $28.4 million. This initial PCL on NonPCD acquired loans and UFC totaled $119.1 million. The total provision for credit losses of $29.8 million recorded in the third quarter of 2020 included $22.1 million related to the liability for unfunded commitments and $7.7 million from the expected lifetime losses of loans outstanding. Prior to the merger, each of CSFL and the Company ran separate CECL models. The CECL calculation at June 30, 2020 was the result of combining the results of the two models. During the third quarter, the Company consolidated into one CECL model. This change led to an increase in the reserve for unfunded commitments since the consolidated model used a differing methodology from that used for 2Q 2020.

Total OREO decreased during the third quarter of 2020 to $13.5 million, a $4.5 million decrease from the balance at June 30, 2020.

 

Net Interest Income and Margin

Three Months Ended

September 30, 2020

June 30, 2020

September 30, 2019

(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

$

4,406,376

$

1,215

0.11

%

$

2,033,910

$

432

0.09

%

$

491,627

$

2,676

2.16

%

Investment securities (taxable)

 

2,792,649

 

11,118

1.58

%

 

2,109,609

 

10,920

2.08

%

 

1,638,461

 

10,785

2.61

%

Investment securities (tax-exempt)

 

435,339

 

2,136

1.95

%

 

197,862

 

1,505

3.06

%

 

181,434

 

1,587

3.47

%

Loans held for sale

 

556,670

 

4,151

2.97

%

 

203,267

 

1,498

2.96

%

 

58,829

 

541

3.65

%

Loans

 

25,312,632

 

276,674

4.35

%

 

15,717,387

 

166,209

4.25

%

 

11,225,593

 

134,412

4.75

%

Total interest-earning assets

 

33,503,666

 

295,294

3.51

%

 

20,262,035

 

180,564

3.58

%

 

13,595,944

 

150,001

4.38

%

Noninterest-earning assets

 

4,361,551

 

2,636,890

 

2,014,172

Total Assets

$

37,865,217

$

22,898,925

$

15,610,116

 
Interest-Bearing Liabilities:
Transaction and money market accounts

$

13,671,430

$

7,853

0.23

%

$

8,132,276

$

5,096

0.25

%

$

5,581,057

$

8,932

0.63

%

Savings deposits

 

2,570,500

 

584

0.09

%

 

1,699,377

 

336

0.08

%

 

1,323,377

 

1,027

0.31

%

Certificates and other time deposits

 

4,007,542

 

6,717

0.67

%

 

2,321,684

 

7,192

1.25

%

 

1,730,567

 

6,696

1.54

%

Federal funds purchased and repurchase agreements

 

710,369

 

509

0.29

%

 

415,304

 

391

0.38

%

 

272,900

 

612

0.89

%

Other borrowings

 

1,089,399

 

9,283

3.39

%

 

1,216,884

 

4,992

1.65

%

 

816,188

 

5,361

2.61

%

Total interest-bearing liabilities

 

22,049,240

 

24,946

0.45

%

 

13,785,525

 

18,007

0.53

%

 

9,724,089

 

22,628

0.92

%

Noninterest-bearing liabilities

 

11,259,916

 

6,212,957

 

3,534,873

Shareholders' equity

 

4,556,061

 

2,900,443

 

2,351,154

Total Non-IBL and shareholders' equity

 

15,815,977

 

9,113,400

 

5,886,027

Total liabilities and shareholders' equity

$

37,865,217

$

22,898,925

$

15,610,116

Net interest income and margin (NON-TAX EQUIV.)

$

270,348

3.21

%

$

162,557

3.23

%

$

127,373

3.72

%

Net interest margin (TAX EQUIVALENT)

3.22

%

3.24

%

3.73

%

Total Deposit Cost of Funds

0.20

%

0.29

%

0.56

%

Overall Cost of Funds (including demand deposits)

0.31

%

0.37

%

0.69

%

 

The net interest margin (“NIM”) declined by 2 basis points to 3.22% at September 30, 2020, from 3.24% at June 30, 2020, and declined from 3.73% from September 30, 2019. These declines were the result of the current low interest rate environment from the COVID-19 pandemic and the stimulus from the CARES Act. The yield on the acquired loan portfolio declined to 4.76% compared 5.08% in the second quarter of 2020, while the non-acquired loan portfolio only declined 1 basis point to 3.83% from 3.84% in the second quarter of 2020. Deposit cost declined by 9 basis points to 20 basis points in the third quarter of 2020. Including the impact of noninterest bearing deposits, the Company’s overall cost of funds declined to 31 basis points for the third quarter of 2020 compared to 37 basis points in the second quarter of 2020, and decreased from 69 basis points in the year ago period. The average balances for each category and the totals increased significantly in the third quarter of 2020, due primarily from the full quarter impact of the CSFL merger compared to only 23 days included in the second quarter of 2020.

Acquired Loans and Loan Accretion

With the adoption of CECL, loan accretion, accretable yield, and the related discounts are now consistently accounted for within the balance sheet and income statement. Acquired loans reflected the following results in the third quarter of 2020:

  • Contractual interest income totaled $146.3 million, or 4.13% yield.
  • Loan accretion totaled $22.4 million, compared to $10.1 million in the second quarter of 2020. The amount of accretion recognized in third quarter from the CSFL acquired loan portfolio totaled $14.7 million compared to $2.9 million in the second quarter which only included 23 days from the merger closing date.
  • Including the loan accretion, total interest income was $168.8 million on acquired loans resulting in 4.76% yield during the third quarter of 2020, down from 5.08% in the second quarter of 2020.

The table below reflects the remaining discount on acquired loans, which will be accreted into loan interest income over the contractual life of the loan and includes the discount recorded from the merger with CSFL, including a third quarter of 2020 measurement period adjustment primarily related to an updated loan valuation (dollars in thousands):

 
Unrecognized discount on acquired loans
Beginning balance, June 30, 2020

$

160,802

 

Measurement period adjustment of discount from the CSFL merger

 

(27,996

)

Loan accretion recognized in 3Q 2020

 

(22,445

)

Ending balance, September 30, 2020

$

110,361

 

 

Noninterest Income and Expense

Three Months Ended

Nine Months Ended

Sept. 30,

June 30,

Mar. 31,

Dec. 31,

Sept. 30,

Sept. 30,

Sept. 30,

(Dollars in thousands)

2020

2020

2020

2019

2019

2020

2019

Noninterest income:
Fees on deposit accounts

$

24,346

$

16,679

$

18,141

$

19,161

$

19,725

$

59,166

$

56,274

Mortgage banking income

 

48,022

 

18,371

 

14,647

 

3,757

 

6,115

 

81,040

 

13,807

Trust and investment services income

 

7,404

 

7,138

 

7,389

 

6,935

 

7,320

 

21,931

 

22,309

Securities gains, net

 

15

 

--

 

--

 

24

 

437

 

15

 

2,687

Correspondent banking and capital market income

 

26,432

 

10,067

 

493

 

1,357

 

690

 

36,992

 

1,536

Bank owned life insurance income

 

4,127

 

1,381

 

2,530

 

1,361

 

1,498

 

8,038

 

4,399

Recoveries of fully charged off acquired loans

 

--

 

--

 

--

 

2,232

 

1,401

 

--

 

4,615

Other

 

4,444

 

711

 

932

 

1,480

 

396

 

6,087

 

1,631

Total noninterest income

$

114,790

$

54,347

$

44,132

$

36,307

$

37,582

$

213,269

$

107,258

 
Noninterest expense:
Salaries and employee benefits

$

134,919

$

81,720

$

60,978

$

58,218

$

59,551

$

277,617

$

176,529

Pension plan termination expense

 

-

 

-

 

-

 

--

 

--

 

-

 

9,526

Occupancy expense

 

23,845

 

15,959

 

12,287

 

12,113

 

11,883

 

52,091

 

35,344

Information services expense

 

18,855

 

12,155

 

9,306

 

8,919

 

8,878

 

40,316

 

26,558

FHLB prepayment penalty

 

--

 

199

 

--

 

--

 

--

 

199

 

134

OREO expense and loan related

 

1,146

 

1,107

 

587

 

1,013

 

597

 

2,840

 

2,229

Business development and staff related

 

2,599

 

1,447

 

2,244

 

2,905

 

2,018

 

6,290

 

6,477

Amortization of intangibles

 

9,560

 

4,665

 

3,007

 

3,267

 

3,268

 

17,232

 

9,817

Professional fees

 

4,385

 

2,848

 

2,494

 

2,862

 

2,442

 

9,727

 

7,463

Supplies, printing and postage expense

 

2,755

 

1,610

 

1,505

 

1,464

 

1,418

 

5,870

 

4,417

FDIC assessment and other regulatory charges

 

2,849

 

2,403

 

2,058

 

1,327

 

228

 

7,310

 

3,218

Advertising and marketing

 

1,203

 

531

 

814

 

1,491

 

1,052

 

2,548

 

2,818

Other operating expenses

 

13,109

 

10,189

 

7,838

 

5,555

 

5,029

 

31,136

 

16,422

Branch consolid. or merger / convers related exp.

 

21,662

 

40,279

 

4,129

 

1,494

 

-

 

66,070

 

3,058

Merger and branding related expense

 

--

 

--

 

--

 

--

 

--

 

--

 

--

Total noninterest expense

$

236,887

$

175,112

$

107,247

$

100,628

$

96,364

$

519,246

$

304,010

 

Noninterest income totaled $114.8 million for the third quarter of 2020 compared to $54.3 million in the second quarter of 2020, an increase of $60.4 million. This large increase within all categories was due to the inclusion of income for the full quarter from the merger with CSFL compared to only 23 days in the second quarter of 2020. The largest increases were $29.7 million in mortgage banking income and $16.4 million in correspondent banking and capital markets income. Mortgage banking income improved by $23.5 million from the gains within the secondary market, net of commissions; and from $6.2 million of income associated with the MSR, net of the hedge.

Compared to the third quarter of 2019, noninterest income increased by $77.2 million due to the impact of merger with CSFL. Correspondent banking and capital markets income discussed above improved by $25.7 million and mortgage banking income increased by $41.9 million. Secondary market mortgage income was up $39.9 million from the increase in the gain on sale of mortgage loans, from both higher volume of loans and at higher margins. The other categories of noninterest income all increased, except for recoveries from acquired loans, which now flow through the allowance for credit losses, and resulted in a $1.4 million decrease.

Noninterest expense was $236.9 million in the third quarter of 2020, an increase of $61.8 million from $175.1 million in the second quarter of 2020. The increase was related to the full quarter impact of expense associated with the merger with CSFL (compared to only 23 days in 2Q 2020). Merger-related costs totaled $21.7 million for the quarter and was a decrease of $18.6 million from the second quarter of 2020. Adjusted noninterest expense totaled $215.2 million in 3Q 2020, which was $80.6 million higher than second quarter of 2020, and resulted in an adjusted efficiency ratio of 55.8% compared to 61.9%, in second quarter of 2020.

Compared to the third quarter of 2019, noninterest expense was higher by $140.5 million. The increase was due to the merger with CSFL in June 2020, and the inclusion of the combined company expenses for all of the third quarter of 2020. In addition, the third quarter of 2020 includes $21.7 million of additional merger-related cost. Adjusted noninterest expense (non-GAAP) increased $118.9 million, compared to the third quarter of 2019.

Conference Call

The Company will announce its third quarter 2020 earnings results in a news release after the market closes on October 29, 2020. At 10:30 a.m. Eastern Time on October 30, 2020, the Company will host a conference call to discuss its third quarter results. Callers wishing to participate may call toll-free by dialing 877-506-9272. Participants may also pre-register for the conference by navigating to https://dpregister.com/sreg/10148509/da2c128419. A dial in number and unique PIN will be provided upon completion of registration. Alternatively, individuals may listen to the live webcast of the presentation by visiting the link at the Company’s website at www.SouthStateBank.com. An audio replay of the live webcast is expected to be available by the evening of October 30, 2020 through the Investor Relations section of www.SouthStateBank.com.

***************

South State Corporation is a financial services company headquartered in Winter Haven, Florida. South State Bank, N.A., the company’s nationally chartered bank subsidiary, provides consumer, commercial, mortgage and wealth management solutions to more than one million customers throughout Florida, Alabama, Georgia, the Carolinas and Virginia. The bank also serves clients coast to coast through its correspondent banking division. Additional information is available at SouthStateBank.com.

Non-GAAP Measures

Statements included in this press release include non-GAAP measures and should be read along with the accompanying tables that 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.

 
Pre-provision net revenue (in thousands)

Sept. 30, 2020

June 30, 2020

 
Netincome (loss) (GAAP)

$

95,221

 

$

(84,935

)

PCL legacy SSB

 

29,797

 

 

31,259

 

PCL legacy CSB NonPCD and UFC - Day 1

 

-

 

 

119,079

 

PCL legacy CSB for June

 

-

 

 

1,136

 

Tax provision (benefit)

 

23,233

 

 

(24,747

)

Merger-related costs

 

21,662

 

 

40,279

 

Securities gain

 

(15

)

 

-

 

FHLB advance prepayment cost

 

-

 

 

199

 

CSB pre-merger PPNR

 

-

 

 

74,791

 

 
Pre-provision net revenue (PPNR) Non-GAAP

$

169,898

 

$

157,061

 

 
SSB average asset balance (GAAP)

$

37,865,217

 

$

22,898,925

 

CSB average asset balance pre-merger

 

14,604,081

 

Total average balance June 30, 2020 (Non-GAAP)

$

37,503,006

 

 
ROAA PPNR

 

1.79

%

 

1.68

%

 

Three Months Ended

Nine Months Ended

(Dollars in thousands, except per share data)

Sept. 30,

June 30,

Mar. 31,

Dec. 31,

Sept. 30,

Sept. 30,

Sept. 30,

RECONCILIATION OF GAAP TO Non-GAAP

2020

2020

2020

2019

2019

2020

2019

Adjusted net income (non-GAAP) (3)
Net income (loss) (GAAP)

$

95,221

 

$

(84,935

)

$

24,110

 

$

49,091

 

$

51,565

 

$

34,396

 

$

137,392

 

Securities gains, net of tax

 

(12

)

 

--

 

 

--

 

 

(20

)

 

(349

)

 

(12

)

 

(2,152

)

PCL - NonPCD loans & unfunded commitments

 

--

 

 

92,212

 

 

--

 

 

--

 

 

--

 

 

92,212

 

 

--

 

Pension plan termination expense, net of tax

 

--

 

 

--

 

 

--

 

 

--

 

 

--

 

 

--

 

 

7,641

 

FHLB prepayment penalty, net of tax

 

--

 

 

154

 

 

--

 

 

--

 

 

--

 

 

154

 

 

107

 

Merger and branch consolidation/acq. expense, net of tax

 

17,413

 

 

31,191

 

 

3,510

 

 

1,252

 

 

--

 

 

52,114

 

 

2,449

 

Adjusted net income (non-GAAP)

$

112,622

 

$

38,622

 

$

27,620

 

$

50,323

 

$

51,216

 

$

178,864

 

$

145,437

 

 
Adjusted net income per common share - Basic (3)
Earnings (loss) per common share - Basic (GAAP)

$

1.34

 

$

(1.96

)

$

0.72

 

$

1.46

 

$

1.51

 

$

0.70

 

$

3.94

 

Effect to adjust for securities gains

 

(0.00

)

 

--

 

 

--

 

 

(0.01

)

 

(0.01

)

 

(0.00

)

 

(0.06

)

Effect to adjust for PCL - NonPCD loans & unfunded commitments

 

--

 

 

2.13

 

 

--

 

 

-

 

 

-

 

 

1.87

 

 

--

 

Effect to adjust for pension plan termination expense, net of tax

 

--

 

 

--

 

 

--

 

 

-

 

 

-

 

 

--

 

 

0.22

 

Effect to adjust for FHLB prepayment penalty, net of tax

 

--

 

 

0.00

 

 

--

 

 

-

 

 

-

 

 

0.00

 

 

--

 

Effect to adjust for merger & branch consol./acq expenses, net of tax

 

0.25

 

 

0.72

 

 

0.10

 

 

0.04

 

 

-

 

 

1.06

 

 

0.07

 

Adjusted net income per common share - Basic (non-GAAP)

$

1.59

 

$

0.89

 

$

0.82

 

$

1.49

 

$

1.50

 

$

3.63

 

$

4.17

 

 
Adjusted net income per common share - Diluted (3)
Earnings (loss) per common share - Diluted (GAAP)

$

1.34

 

$

(1.96

)

$

0.71

 

$

1.45

 

$

1.50

 

$

0.69

 

$

3.92

 

Effect to adjust for securities gains

 

(0.00

)

 

--

 

 

--

 

 

(0.01

)

 

(0.01

)

 

(0.00

)

 

(0.06

)

Effect to adjust for PCL - NonPCD loans & unfunded commitments

 

--

 

 

2.11

 

 

--

 

 

-

 

 

-

 

 

1.86

 

 

--

 

Effect to adjust for pension plan termination expense, net of tax

 

--

 

 

--

 

 

--

 

 

-

 

 

-

 

 

--

 

 

0.22

 

Effect to adjust for FHLB prepayment penalty, net of tax

 

--

 

 

0.00

 

 

--

 

 

-

 

 

-

 

 

0.00

 

 

--

 

Effect to adjust for merger & branch consol./acq expenses, net of tax

 

0.24

 

 

0.72

 

 

0.11

 

 

0.04

 

 

-

 

 

1.05

 

 

0.07

 

Effect of adjusted weighted ave shares due to adjusted net income

 

-

 

 

0.02

 

 

--

 

Adjusted net income per common share - Diluted (non-GAAP)

$

1.58

 

$

0.89

 

$

0.82

 

$

1.48

 

$

1.49

 

$

3.60

 

$

4.15

 

 
Adjusted Return of Average Assets (3)
Return on average assets (GAAP)

 

1.00

%

 

-1.49

%

 

0.60

%

 

1.23

%

 

1.31

%

 

0.18

%

 

1.20

%

Effect to adjust for securities gains

 

0.00

%

 

0.00

%

 

0.00

%

 

0.00

%

 

-0.01

%

 

0.00

%

 

-0.02

%

Effect to adjust for PCL - NonPCD loans & unfunded commitments

 

0.00

%

 

1.62

%

 

0.00

%

 

0.00

%

 

0.00

%

 

0.48

%

 

0.00

%

Effect to adjust for pension plan termination expense, net of tax

 

0.00

%

 

0.00

%

 

0.00

%

 

0.00

%

 

0.00

%

 

0.00

%

 

0.07

%

Effect to adjust for FHLB prepayment penalty, net of tax

 

0.00

%

 

0.00

%

 

0.00

%

 

0.00

%

 

0.00

%

 

0.00

%

 

0.00

%

Effect to adjust for merger & branch consol./acq expenses, net of tax

 

0.18

%

 

0.55

%

 

0.09

%

 

0.03

%

 

0.00

%

 

0.27

%

 

0.02

%

Adjusted return on average assets (non-GAAP)

 

1.18

%

 

0.68

%

 

0.69

%

 

1.26

%

 

1.30

%

 

0.93

%

 

1.27

%

 
Adjusted Return of Average Equity (3)
Return on average equity (GAAP)

 

8.31

%

 

-11.78

%

 

4.15

%

 

8.26

%

 

8.70

%

 

1.41

%

 

7.76

%

Effect to adjust for securities gains

 

0.00

%

 

0.00

%

 

0.00

%

 

0.00

%

 

-0.06

%

 

0.00

%

 

-0.12

%

Effect to adjust for PCL - NonPCD loans & unfunded commitments

 

0.00

%

 

12.79

%

 

0.00

%

 

0.00

%

 

0.00

%

 

3.77

%

 

0.00

%

Effect to adjust for pension plan termination expense, net of tax

 

0.00

%

 

0.00

%

 

0.00

%

 

0.00

%

 

0.00

%

 

0.00

%

 

0.43

%

Effect to adjust for FHLB prepayment penalty, net of tax

 

0.00

%

 

0.02

%

 

0.00

%

 

0.00

%

 

0.00

%

 

0.01

%

 

0.01

%

Effect to adjust for merger & branch consol./acq expenses, net of tax

 

1.52

%

 

4.33

%

 

0.60

%

 

0.21

%

 

0.00

%

 

2.12

%

 

0.14

%

Adjusted return on average equity (non-GAAP)

 

9.83

%

 

5.36

%

 

4.75

%

 

8.47

%

 

8.64

%

 

7.31

%

 

8.22

%

 
Adjusted Return on Average Common Tangible Equity (3) (5)
Return on average common equity (GAAP)

 

8.31

%

 

-11.78

%

 

4.15

%

 

8.26

%

 

8.70

%

 

1.41

%

 

7.76

%

Effect to adjust for securities gains

 

0.00

%

 

0.00

%

 

0.00

%

 

0.00

%

 

-0.06

%

 

0.00

%

 

-0.12

%

Effect to adjust for PCL - NonPCD loans & unfunded commitments

 

0.00

%

 

12.79

%

 

0.00

%

 

0.00

%

 

0.00

%

 

3.77

%

 

0.00

%

Effect to adjust for pension plan termination expense, net of tax

 

0.00

%

 

0.00

%

 

0.00

%

 

0.00

%

 

0.00

%

 

0.00

%

 

0.43

%

Effect to adjust for FHLB prepayment penalty, net of tax

 

0.00

%

 

0.02

%

 

0.00

%

 

0.00

%

 

0.00

%

 

0.01

%

 

0.01

%

Effect to adjust for merger & branch consol./acq expenses, net of tax

 

1.52

%

 

4.32

%

 

0.60

%

 

0.21

%

 

0.00

%

 

2.13

%

 

0.14

%

Effect to adjust for intangible assets

 

7.31

%

 

4.88

%

 

4.70

%

 

7.70

%

 

7.87

%

 

6.26

%

 

7.49

%

Adjusted return on average common tangible equity (non-GAAP)

 

17.14

%

 

10.23

%

 

9.45

%

 

16.17

%

 

16.51

%

 

13.58

%

 

15.71

%

 
Adjusted efficiency ratio (5)
Efficiency ratio

 

61.39

%

 

80.52

%

 

62.11

%

 

61.64

%

 

58.40

%

Effect to adjust for merger and branch consolidation related expenses

 

-5.61

%

 

-18.61

%

 

-2.39

%

 

-0.91

%

 

0.00

%

Adjusted efficiency ratio

 

55.78

%

 

61.91

%

 

59.72

%

 

60.73

%

 

58.40

%

 
Tangible Book Value Per Common Share (5)
Book value per common share (GAAP)

$

64.34

 

$

63.35

 

$

69.40

 

$

70.32

 

$

69.34

 

Effect to adjust for intangible assets

 

(24.51

)

 

(25.02

)

 

(31.39

)

 

(31.19

)

 

(31.14

)

Tangible book value per common share (non-GAAP)

$

39.83

 

$

38.33

 

$

38.01

 

$

39.13

 

$

38.20

 

 
Tangible Equity-to-Tangible Assets (5)
Equity-to-assets (GAAP)

 

12.07

%

 

11.91

%

 

13.95

%

 

14.90

%

 

14.92

%

Effect to adjust for intangible assets

 

-4.24

%

 

-4.35

%

 

-5.80

%

 

-6.02

%

 

-6.11

%

Tangible equity-to-tangible assets (non-GAAP)

 

7.83

%

 

7.56

%

 

8.15

%

 

8.88

%

 

8.81

%

 

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) Adjusted earnings, adjusted return on average assets, and adjusted 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, and merger and branch consolidation related expense. Management believes that non-GAAP adjusted 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. Adjusted earnings and the related adjusted return measures (non-GAAP) exclude the following from net income (GAAP) on an after-tax basis: (a) pre-tax merger and branch consolidation related expense of $21.7 million, $40.3 million, $4.1 million, and $1.5 million, for the quarters ended September 30, 2020, June 30, 2020, March 31, 2020, and December 31, 2019, respectively; (b) securities (losses) gains, net of $15,000, $24,000, and $437,000, for the quarters ended September 30, 2020, December 31, 2019, and September 30, 2019, respectively; and (c) FHLB prepayment penalty of $199,000 for the quarter ended June 30, 2020.
(4) September 30, 2020 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.
(5) 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.
(6) Includes loan accretion (interest) income related to the discount on acquired loans of $22.4 million, $10.1 million, $10.9 million $7.4 million, and $8.1 million, respectively, during the five quarters above.
(7) Adjusted efficiency ratio is calculated by taking the noninterest expense excluding branch consolidation cost and merger cost, pension plan termination and the FHLB prepayment penalty divided by net interest income and noninterest income excluding securities gains (losses).

Cautionary Statement Regarding Forward Looking Statements

Statements included in this communication, 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 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. Forward looking statements are based on, among other things, management’s beliefs, assumptions, current expectations, estimates and projections about the financial services industry, the economy and South State. Words and phrases such as “may,” “approximately,” “continue,” “should,” “expects,” “projects,” “anticipates,” “is likely,” “look ahead,” “look forward,” “believes,” “will,” “intends,” “estimates,” “strategy,” “plan,” “could,” “potential,” “possible” and variations of such words and similar expressions are intended to identify such forward-looking statements. South State cautions readers that forward looking statements are subject to certain risks, uncertainties and assumptions that are difficult to predict with regard to, among other things, timing, extent, likelihood and degree of occurrence, which could cause actual results to differ materially from anticipated results. Such risks, uncertainties and assumptions, include, among others, the following: (1) economic downturn risk, potentially resulting in deterioration in the credit markets, greater than expected noninterest 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; (2) controls and procedures risk, including the potential failure or circumvention of our controls and procedures or failure to comply with regulations related to controls and procedures; (3) potential deterioration in real estate values; (4) the impact of competition with other financial institutions, including pricing pressures (including those resulting from the CARES Act) and the resulting impact, including as a result of compression to net interest margin; (5) 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; (6) 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 South State’s equity; (7) liquidity risk affecting the bank’s ability to meet its obligations when they come due; (8) risks associated with an anticipated increase in South State’s investment securities portfolio, including risks associated with acquiring and holding investment securities or potentially determining that the amount of investment securities South State desires to acquire are not available on terms acceptable to South State; (9) price risk focusing on changes in market factors that may affect the value of traded instruments in “mark-to-market” portfolios; (10) transaction risk arising from problems with service or product delivery; (11) compliance risk involving risk to earnings or capital resulting from violations of or nonconformance with laws, rules, regulations, prescribed practices, or ethical standards; (12) regulatory change risk resulting from new laws, rules, regulations, accounting principles, proscribed practices or ethical standards, including, without limitation, the possibility that regulatory agencies may require higher levels of capital above the current regulatory-mandated minimums and including the impact of the recently enacted CARES Act, the Consumer Financial Protection Bureau rules and regulations, and the possibility of changes in accounting standards, policies, principles and practices, including changes in accounting principles relating to loan loss recognition (CECL); (13) strategic risk resulting from adverse business decisions or improper implementation of business decisions; (14) reputation risk that adversely affects earnings or capital arising from negative public opinion; (15) terrorist activities risk that results in loss of consumer confidence and economic disruptions; (16) cybersecurity risk related to the dependence of South State on internal computer systems and the technology of outside service providers, as well as the potential impacts of third party security breaches, subjects each company to potential business disruptions or financial losses resulting from deliberate attacks or unintentional events; (17) greater than expected noninterest expenses; (18) noninterest income risk resulting from the effect of regulations that prohibit financial institutions from charging consumer fees for paying overdrafts on ATM and one-time debit card transactions, unless the consumer consents or opts‑in to the overdraft service for those types of transactions; (19) excessive loan losses; (20) failure to realize synergies and other financial benefits from, and to limit liabilities associated with, the merger with CSFL within the expected time frame, and ownership dilution risk associated with potential acquisitions in which South State’s stock may be issued as consideration for an acquired company; (21) potential deposit attrition, higher than expected costs, customer loss and business disruption associated with the merger with CSFL integration, including, without limitation, and potential difficulties in maintaining relationships with key personnel; (22) the risks of fluctuations in market prices for South State common stock that may or may not reflect economic condition or performance of South State; (23) the payment of dividends on South State common stock is subject to regulatory supervision as well as the discretion of the board of directors of South State, South State’s performance and other factors; (24) operational, technological, cultural, regulatory, legal, credit and other risks associated with the exploration, consummation and integration of potential future acquisition, whether involving stock or cash consideration; (25) major catastrophes such as earthquakes, floods or other natural or human disasters, including infectious disease outbreaks, including the recent outbreak of the COVID-19 coronavirus, and the related disruption to local, regional and global economic activity and financial markets, and the impact that any of the foregoing may have on South State and its customers and other constituencies; and (26) other risks related to the merger of South State and CSFL including, among others, (i) the risk that the cost savings and any revenue synergies from the merger may not be fully realized or may take longer than anticipated to be realized, (ii) the risk that the integration of each party’s operations will be materially delayed or will be more costly or difficult than expected or that the parties are otherwise unable to successfully integrate each party’s businesses into the other’s businesses, (iii) the amount of the costs, fees, expenses and charges related to the merger, (iv) reputational risk and the reaction of each company's customers, suppliers, employees or other business partners to the merger, and (27) other factors that may affect future results of South State and CenterState, as disclosed in South State’s Annual Report on Form 10-K, as amended, Quarterly Reports on Form 10-Q, and Current Reports on Form 8-K, and CenterState’s Annual Report on Form 10-K, Quarterly Reports on Form 10-Q, and Current Reports on Form 8-K, in each case filed by South State or CenterState, as applicable, with the U.S. Securities and Exchange Commission (“SEC”) and available on the SEC’s website at http://www.sec.gov, any of which could cause actual results to differ materially from future results expressed, implied or otherwise anticipated by such forward-looking statements.

All forward-looking statements speak only as of the date they are made and are based on information available at that time. South State does not undertake any obligation to update or otherwise revise any forward-looking statements, whether as a result of new information, future events, or otherwise, except as required by federal securities laws. As forward-looking statements involve significant risks and uncertainties, caution should be exercised against placing undue reliance on such statements.

Jackie Smith (803) 231-3486

 

Source: South State Corporation

Jackie Smith (803) 231-3486