Market Overview

South State Corporation Reports Second Quarter 2018 Results and Quarterly Cash Dividend

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South State Corporation (NASDAQ:SSB) today released its unaudited
results of operations and other financial information for the
three-month and six-month periods ended June 30, 2018. Highlights for
the second quarter of 2018 include the following:

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  • Second quarter 2018 financial results:
    • Net income was $40.5 million, compared with $42.3 million in the
      first quarter of 2018, a decrease of $1.8 million
    • Diluted EPS of $1.09 compared with $1.15, a decrease of $0.06
    • Adjusted net income (non-GAAP) was $52.7 million, compared to
      $51.2 million, a 2.8% increase, or $1.5 million
    • Adjusted diluted EPS (non-GAAP) of $1.43, compared to $1.39, a
      2.9% increase
    • There are four specific items to note: (1) completed the system
      conversion from the Park Sterling (PSTB) merger and closed 10
      branches; (2) net loan growth totaled $191.6 million, or 7.2%
      annualized; (3) total deposits were flat and interest expense
      increased by $3.1 million; and (4) increased the cash dividend to
      $0.35 per share, up $0.01 per share over last quarter.
  • Performance ratios second quarter 2018 compared to first quarter
    2018
    • Return on average assets totaled 1.12% compared to 1.19%
    • Adjusted return on average assets (non-GAAP) was 1.45% compared to
      1.44%
    • Return on average equity totaled 6.96% compared to 7.41%
    • Return on average tangible equity (non-GAAP) was 13.79% compared
      to 14.69%
    • Adjusted return on average tangible equity (non-GAAP) increased to
      17.68% from 17.60%
    • Efficiency ratio was 65.6% down from 66.7%, due primarily to lower
      salaries and employee benefits
    • Adjusted efficiency ratio (non-GAAP) was 57.3% an improvement from
      60.0% (excluding merger-related and conversion expenses and
      securities losses (gains))
  • Balance sheet linked quarter
    • Cash and cash equivalents decreased by $247.7 million
    • Net loan growth for the quarter totaled $191.6 million, or 7.2%
      annualized, spread across consumer real estate, commercial &
      industrial, and commercial owner occupied real estate, with
      limited CRE growth
    • Noninterest bearing deposits increased by $32.0 million, or 4.1%
      annualized; and interest bearing deposits decreased by $56.8
      million, or 2.7% annualized, led by a reduction in brokered
      deposits of $54.3 million
    • Other borrowings decreased $99.8 million from repayment of FHLB
      advances during the quarter
    • Shareholders' equity increased $25.8 million, primarily from net
      income, net of the dividends paid, of $27.9 million offset by
      accumulated other comprehensive loss ("AOCI") of $5.7 million, net
      of tax, primarily from the available for sale securities portfolio
    • Total equity to total assets increased to 16.12% from 15.81%
    • Tangible equity to tangible assets (non-GAAP) increased to 9.45%
      from 9.20%
  • Asset quality
    • Nonperforming assets (NPAs) increased by $8.1 million, or 23.9%,
      to $42.2 million at June 30, 2018, primarily due to properties
      from branch closures related to the merger with PSTB taken into
      other real estate owned (OREO), from the level at March 31, 2018,
      and increased by $7.8 million, or 22.70% from June 30, 2017
    • NPAs to total assets increased to 0.29% at June 30, 2018, from
      0.23% at March 31, 2018 and improved from 0.31% at June 30, 2017
    • Net charge-offs on non-acquired loans were 0.01% annualized, or
      $189,000, compared to $367,000, or 0.02% annualized in the first
      quarter of 2018. Compared to the second quarter of 2017, net
      charge offs totaled $756,000, or 0.05% annualized.
    • Net charge-offs on acquired non-credit impaired loans were 0.14%
      annualized, or $1.1 million, compared to 0.02% annualized, or
      $169,000 in the first quarter of 2018. In the second quarter of
      2017, net charge-offs were 0.10% annualized, or $429,000.
    • Coverage ratio of ALLL on non-acquired non-performing loans was
      322% at June 30, 2018 compared to 316% at March 31, 2018 and 297%
      at June 30, 2017.

Quarterly Cash Dividend

The Board of Directors of South State Corporation declared a quarterly
cash dividend on July 26, 2018, of $0.35 per share payable on its common
stock. This per share amount is higher by $0.01 per share, or 2.9%,
compared to last quarter and $0.02 per share, or 6.1%, higher than the
same quarter one year ago. The dividend will be payable on August 24,
2018 to shareholders of record as of August 17, 2018.

Durbin Impact

Effective July 1, 2018, the cap on interchange fees under the Durbin
amendment will be in effect for the Company. We expect lower interchange
income of approximately $8.5 million (pre-tax) during the last half of
2018.

Park Sterling – Fair Value Adjustments

During the second quarter of 2018, the Company adjusted the fair values
of certain acquired assets and liabilities. These adjustments are
reflected below in the column labeled "6/30/2018 Fair Value
Adjustments". The adjustments include the following:

1. Loans were adjusted to reflect movement between acquired credit
impaired (ACI) loan portfolio and acquired noncredit impaired (ANCI)
loan portfolio, and the movement in interest rates (from 9/30/2017)
between initial fair values and interest rates at November 30, 2017. The
fair value adjustment (discount) on these loans totaled $9.1 million,
with $2.4 million related to credit and $6.7 million related to
noncredit. This resulted in more acquired loan interest income during
the second quarter of 2018 of approximately $516,000.

2. Intangible assets (core deposit intangible) increased by $3.3 million
from the movement in interest rates, resulting in more amortization
expense during the second quarter of 2018 of $321,000.

3. Interest-bearing liabilities (time deposits) fair values were
adjusted as well for the movement in interest rates resulting in less
premium than originally valued. This resulted in higher interest expense
during the second quarter of 2018 of $236,000.

The reduction in net income resulting from all of these adjustments
totaled approximately $41,000, pre-tax.

South State Corporation           Fair Value of
Park Sterling Corporation

11/30/2017

Net Assets
11/30/2017 Initial

3/3/31/2018

6/30/2018

Acquired at
As Recorded Fair Value Fair Value Fair Value Date of
(Dollars in thousands) by PSTB Adjustments Adjustments Adjustments Acquisition
Assets
Cash and cash equivalents $ 116,454 $ -- $ 116,454
Investment securities 461,261 1,444 (a) 219 462,924
Loans held for sale 2,200 68,686 (b) (50 ) 46 70,882
Loans 2,346,612 (95,878 ) (c) -- (9,131 )

(1)

 

2,241,603
Premises and equipment 61,059 (4,882 ) (d) (387 ) 55,790
Intangible assets 73,090 (46,915 ) (e) 3,321

(2)

 

29,496
Other real estate owned and repossessed assets 2,549 (429 ) (f) 210 2,330
Bank owned life insurance 72,703 -- 72,703
Deferred tax asset 17,963 11,596 (g) 3 2,022 31,584
Other assets   21,595   (476 ) (h)       21,119
Total assets $ 3,175,486 $ (66,854 ) $ (5 ) $ (3,742 ) $ 3,104,885
 
Liabilities
Deposits:
Noninterest-bearing $ 561,874 $ -- $ 561,874
Interest-bearing   1,886,810   2,692   (i)     (612 )

(3)

 

  1,888,890
Total deposits 2,448,684 2,692 -- (612 ) 2,450,764

Federal funds purchased and securites sold under agreements to
repurchase

-- -- --
Other borrowings 329,249 11,689 (j) 340,938
Other liabilities   24,179   2,131   (k)       26,310
Total liabilities   2,802,112   16,512     --     (612 )   2,818,012
Net identifiable assets acquired over liablities assumed 373,374 (83,366 ) (5 ) (3,130 ) 286,873
Goodwill   --   402,951     5     3,130     406,086
Net assets acquired over liabilities assumed $ 373,374 $ 319,585   $ --   $ --   $ 692,959
 
Consideration:
South State Corporation common shares issued 7,480,343
Purchase price per share of the Company's common stock $ 92.05

Company common stock issued and cash exchanged for fractional
shares

$ 688,654
Cash paid for stock option redemptions 4,305
Fair value of total consideration transferred $ 692,959
Initial Fair Value Adjustments:
(a) Adjustment reflects marking the securities portfolio to fair
value as of the acquisition date.
(b) Adjustment reflects a reclass of $68.7 million by SSB of Shared
National Credits (loans) from loans held for investment to loans
held for sale.
(c) Adjustment reflects the fair value adjustments (discount) of
$60.9 million based upon the Company's evaluation of acquired loans.
This amount excludes the allowance for loan losses (ALLL) and fair
value adjustment (discount) of $12.5 million and $21.3 million,
respectively recorded by PSTB and is net of the $68.7 million
reclass related to the Shard National Credits noted in (b) above.
(d) Adjustment reflects the fair value adjustments based on the
Company's evaluation of the acquired premises and equipment.
(e) Adjustment reflects the recording of a 1.66% CDI on the acquired
deposit accounts that totaled $26.2 million offset by a write-off of
$73.1 million of existing goodwill and CDI acquired from PSTB.

(f) Adjustment reflects the fair value adjustments to other real
estate owned (OREO) based on the Company's evaluation of the
acquired OREO portfolio.

(g) Adjustment to record deferred taxes related to the fair value
adjustments and an adjustment from the PSTB rate to the SSB rate.
(h) Adjustment reflects the write-off of accrued interest receivable
and certain prepaid expenses.

(i) Adjustment reflects the premium for fixed maturity time
deposits of $2.95 million offset by the write-off of existing fair
value marks.

(j) Adjustment reflects fair value adjustment (discount) of $2.4
million of PSTB's trust preferred securities offset by the write-off
of existing PSTB discount on senior debt and TRUPs of $14.0 million.
(k) Adjustment reflects the fair value adjustments to employee
benefit plans of $1.5 million along with other adjustments of
miscellaneous liabilities.
                         

Second Quarter 2018 Financial Performance

 
Three Months Ended Six Months Ended
(Dollars in thousands, except per share data) June 30, Mar. 31, Dec. 31, Sept. 30, June 30, June 30,
INCOME STATEMENT 2018 2018 2017 2017 2017 2018 2017
Interest income
Loans, including fees (8) $ 129,852 $ 127,041 $ 108,319 $ 95,864 $ 93,600 $ 256,893 $ 185,352

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

11,880 11,007 9,505 8,547 9,179 22,887 18,413
Total interest income 141,732 138,048 117,824 104,411 102,779 279,780 203,765
Interest expense
Deposits 10,009 6,913 4,220 2,974 2,661 16,922 5,158

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

2,161 2,162 1,330 1,118 1,087 4,323 2,214
Total interest expense 12,170 9,075 5,550 4,092 3,748 21,245 7,372
Net interest income 129,562 128,973 112,274 100,319 99,031 258,535 196,393
Provision for loan losses 4,478 2,454 3,808 2,062 2,313 6,932 6,020
Net interest income after provision for loan losses 125,084 126,519 108,466 98,257 96,718 251,603 190,373
Noninterest income* 37,525 40,555 36,762 33,735 35,316 78,080 69,533
Pre-tax operating expense* 96,410 102,167 84,645 77,718 79,974 198,577 161,455
Branch consolid./acquisition and merger expense 14,096 11,296 17,621 1,551 4,307 25,392 25,331

 

 

 

 

 

 

 

 

Total noninterest expense 110,506 113,463 102,266 79,269 84,281 223,969 186,786
Income before provision for income taxes 52,103 53,611 42,962 52,723 47,753 105,714 73,120
Provision for income taxes, includes deferred tax revaluation 11,644 11,285 40,541 17,677 15,930 22,929 23,033
Net income $ 40,459 $ 42,326 $ 2,421 $ 35,046 $ 31,823 $ 82,785 $ 50,087
 
Adjusted net income (non-GAAP) (3)
Net income (GAAP) $ 40,459 $ 42,326 $ 2,421 $ 35,046 $ 31,823 $ 82,785 $ 50,087

Securities losses (gains), net of tax

505 -- (22) (349) (73) 505 (73)
Provision for income taxes, deferred tax revaluation 613 -- 26,558 -- -- 613 --
Branch consolid./acquisition and merger expense, net of tax 11,112 8,918 12,431 1,031 2,870 20,030 18,007
Adjusted net income (non-GAAP) $ 52,689 $ 51,244 $ 41,388 $ 35,728 $ 34,620 $ 103,933 $ 68,021
 
Basic earnings per common share $ 1.10 $ 1.15 $ 0.08 $ 1.20 $ 1.09 $ 2.25 $ 1.73
Diluted earnings per common share $ 1.09 $ 1.15 $ 0.08 $ 1.19 $ 1.08 $ 2.24 $ 1.71
Adjusted net income per common share - Basic (non-GAAP) (3) $ 1.44 $ 1.40 $ 1.31 $ 1.23 $ 1.19 $ 2.84 $ 2.35
Adjusted net income per common share - Diluted (non-GAAP) (3) $ 1.43 $ 1.39 $ 1.30 $ 1.22 $ 1.18 $ 2.82 $ 2.33
Dividends per common share $ 0.34 $ 0.33 $ 0.33 $ 0.33 $ 0.33 $ 0.67 $ 0.66
Basic weighted-average common shares outstanding 36,676,887 36,646,198 31,654,947 29,114,574 29,094,908

36,656,689

28,985,390
Diluted weighted-average common shares outstanding 36,928,981 36,899,068 31,905,505 29,385,041 29,364,916

36,909,739

29,252,321
Effective tax rate 22.35% 21.05% 94.36% 33.53% 33.36% 21.69% 31.50%
 

* These lines include a reclassfiication 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 $40.5 million, or $1.09
per diluted common share for the three-months ended June 30, 2018, a
$1.8 million decrease from the first quarter of 2018. Interest income
was up $3.7 million as a result of an increase in non-acquired loan
interest income of $5.5 million during the second quarter, partially
offset by lower acquired interest income of $2.8 million, as the
acquired loan portfolio continued to decline during the quarter.
Interest expense increased by $3.1 million, with $1.8 million increase
from transaction and money market accounts, $812,000 attributable to
certificate and other time deposits and $486,000 in savings accounts.
These increases in interest expense were due to the continued higher
cost of the deposit base. The Company's cost of funds was 0.55% for the
second quarter of 2018, an increase of 0.14% from the first quarter of
2018. Compared to the second quarter of 2017, cost of funds increased by
0.33% which was primarily the result of the addition of Park Sterling
funding cost and increases related to the Company's deposit base. The
total provision for loan losses increased $2.0 million compared to the
first quarter of 2018. Valuation allowance (impairment) related to
acquired loans was $359,000 higher than in the first quarter of 2018, as
several pools had reduced cash flows and extensions of timing of
expected cash flows. The provision for loan losses related to acquired
non-credit impaired loans was higher by $1.1 million, compared to the
first quarter of 2018. One loan was charged off during the quarter which
totaled approximately $750,000. The provision for loan losses on
non-acquired loans was $738,000 higher compared to the first quarter of
2018 due primarily to loan growth during the quarter. Noninterest income
decreased by $3.0 million. Mortgage banking income was down $1.6 million
and acquired loan recoveries declined $808,000. Salaries and employee
benefits were $7.4 million lower. This decline was due to lower to
payroll taxes, $2.8 million in bonuses paid to all employees during the
first quarter, and fewer FTEs. Many noninterest expense categories were
lower for the second quarter of 2018 due to the conversion and branch
closures related to the Park Sterling merger.

Income Tax Expense

During the second quarter of 2018, the Company's effective income tax
rate was 22.35%, or $11.6 million. As a result of the changes in fair
value of the Park Sterling opening balance sheet, the Company recorded
$613,000 in additional income tax expense related to the revaluation of
deferred taxes. Without this charge, the effective rate for the second
quarter was 21.17%, compared to the first quarter of 2018 was 21.05%. On
a year-to-date basis, the effective rate was 21.69%, including the
additional deferred tax charge and 21.11% without the charge.

"We continued to produce attractive levels of profitability in the
second quarter," said Robert R. Hill, Jr., CEO of South State
Corporation. "The recently announced management changes put into place
the next generation of leadership at South State. Our bank's talented
team combined with high growth markets, good core funding, a diverse
loan portfolio and a solid capital base put us in a good competitive
position."

         

Balance Sheet and Capital

Ending Balance

June 30,

Mar. 31,

Dec. 31,

Sept. 30,

June 30,

BALANCE SHEET   2018     2018     2017     2017     2017  
Assets
Cash and cash equivalents $ 396,849   $ 644,504   $ 377,627   $ 403,934   $ 431,890  
Investment securities:
Securities held to maturity 499 1,274 2,529 3,678 4,166
Securities available for sale, at fair value 1,577,999 1,640,837 1,648,193 1,319,454 1,340,427
Other investments   19,229     23,479     23,047     13,664     14,301  
Total investment securities   1,597,727     1,665,590     1,673,769     1,336,796     1,358,894  
Loans held for sale   36,968     42,690     70,890     46,321     65,995  
Loans:
Acquired credit impaired 551,979 597,274 618,803 578,863 602,481
Acquired non-credit impaired

3,076,424

3,274,938 3,507,907 1,455,555 1,585,981
Non-acquired

7,197,539

6,762,512 6,492,155 6,230,327 5,992,393
Less allowance for non-acquired loan losses   (47,874 )   (45,203 )   (43,448 )   (41,541 )   (40,149 )
Loans, net  

10,778,068

    10,589,521     10,575,417     8,223,204     8,140,706  
Other real estate owned ("OREO") 17,222 11,073 11,203 13,527 14,430
Premises and equipment, net 245,288 253,605 255,565 198,146 201,539
Bank owned life insurance 227,588 226,222 225,132 151,402 150,476
Deferred tax asset 48,853 46,736 45,902 41,664 39,921
Mortgage servicing rights 35,107 34,196 31,119 29,937 29,930
Core deposit and other intangibles 69,975 70,376 73,789 50,472 52,966
Goodwill 1,002,722 999,592 999,586 597,236 595,817
Other assets   110,121     105,004     126,590     76,471     71,877  
Total assets

$

14,566,488

  $ 14,689,109  

$

14,466,589

  $ 11,169,110   $ 11,154,441  
 
Liabilities and Shareholders' Equity
Deposits:
Noninterest-bearing

$

3,152,828

$ 3,120,818 $ 3,047,432 $ 2,505,570 $ 2,635,147
Interest-bearing   8,485,461     8,542,280     8,485,334     6,556,451     6,396,507  
Total deposits  

11,638,289

    11,663,098     11,532,766     9,062,021     9,031,654  

Federal funds purchased and securities sold under agreements to
repurchase

331,969 357,574 286,857 291,099 334,018
Other borrowings 115,754 215,589 216,385 83,307 98,147
Other liabilities   132,109     130,269     121,661     99,858     85,137  
Total liabilities   12,218,121     12,366,530     12,157,669     9,536,285     9,548,956  
 
Shareholders' equity:
Preferred stock - $.01 par value; authorized 10,000,000 shares -- -- -- -- --
Common stock - $2.50 par value; authorized 80,000,000 shares 92,064 91,958 91,899 73,168 73,148
Surplus 1,811,446 1,807,989 1,807,601 1,136,352 1,134,328
Retained earnings 480,928 452,982 419,847 427,093 401,706
Accumulated other comprehensive loss   (36,071 )   (30,350 )   (10,427 )   (3,788 )   (3,697 )
Total shareholders' equity   2,348,367     2,322,579     2,308,920     1,632,825     1,605,485  
Total liabilities and shareholders' equity

$

14,566,488

  $ 14,689,109  

$

14,466,589

  $ 11,169,110   $ 11,154,441  
 
Common shares issued and outstanding

36,825,556

36,783,438 36,759,656 29,267,369

29,259,264

 

At June 30, 2018, the Company's total assets were $14.6 billion, a
decrease of $122.6 million from March 31, 2018, and an increase of $3.4
billion, or 30.6% from June 30, 2017. During the second quarter of 2018,
cash and cash equivalents decreased by $247.7 million. This was the
result of a decline in total deposits, other borrowings, federal funds
purchased and securities sold under repurchase agreements on the
liability side, and total loans increasing by $191.6 million, or 7.2%
annualized, as nonacquired loans increased by $435.0 million, and
acquired loans declined by $243.5 million. Partially offsetting these
uses of cash was a decline in investment securities by $67.9 million.

The Company's book value per common share increased to $63.77 per share
at June 30, 2018, compared to $63.14 at March 31, 2018 and $54.87 at
June 30, 2017. The increase in capital during the second quarter of 2018
of $25.8 million was related to net income totaling $40.5 million,
partially offset by $12.5 million dividend paid to shareholders. AOCI
reduced capital by $5.7 million. Tangible book value ("TBV") per common
share increased by $0.59 per share to $34.64 at June 30, 2018, compared
to $34.05 at March 31, 2018, and increased by $1.94 per share, or 5.9%,
from $32.70 at June 30, 2017. The quarterly increase of $0.59 per share
in tangible book value was the result of (1) earnings per share,
excluding amortization of intangibles, of $1.18, offset by the dividend
paid to shareholders of $0.34 per share; (2) a decrease in AOCI of $0.16
per share; (3) an increase from the exercise of stock options and
issuance of stock related to employee stock purchase plan of $0.09 per
share; and (4) a decrease of $0.18 per share due to additional goodwill
and core deposit intangible from the revaluation of PSTB acquired assets
and liabilities performed in the second quarter of 2018.

"We continue to absorb and realign the 60% growth in assets from our two
mergers in 2017, and this strategy is producing a core balance sheet
both in terms of loans and funding," said John C. Pollok, CFO. "The
result of this balanced earnings equation creates tremendous optionality
moving forward."

  Three Months Ended   Six Months Ended
June 30,   Mar. 31,   Dec. 31,   Sept. 30,   June 30, June 30,   June 30,
PERFORMANCE RATIOS 2018 2018 2017 2017 2017 2018 2017
Return on average assets (annualized) 1.12% 1.19% 0.08% 1.25% 1.15% 1.15% 0.92%
Adjusted return on average assets (annualized) (non-GAAP) (3) 1.45% 1.44% 1.33% 1.28% 1.25% 1.45% 1.25%
Return on average equity (annualized) 6.96% 7.41% 0.51% 8.57% 7.98% 7.18% 6.39%
Adjusted return on average equity (annualized) (non-GAAP) (3) 9.06% 8.98% 8.75% 8.73% 8.69% 9.02% 8.68%
Return on average tangible common equity (annualized) (non-GAAP) (7) 13.79% 14.69% 1.59% 14.93% 14.16% 14.23% 11.56%
Adjusted return on average tangible common equity (annualized)
(non-GAAP) (3) (7)
17.68% 17.60% 15.83% 15.21% 15.34% 17.64% 15.44%
Efficiency ratio (tax equivalent) 65.63% 66.67% 68.01% 58.79% 62.18% 66.16% 69.57%
Adjusted efficiency ratio (non-GAAP) (9) 57.26% 60.04% 56.29% 57.64% 59.00% 58.65% 60.14%
Dividend payout ratio (2) 30.93% 28.68% 399.30% 27.56% 30.33% 29.78% 38.53%
Book value per common share $ 63.77 $ 63.14 $ 62.81 $ 55.79 $ 54.87
Tangible common equity per common share (non-GAAP) (7) $ 34.64 $ 34.05 $ 33.61 $ 33.66 $ 32.70
 
CAPITAL RATIOS
Equity-to-assets 16.12% 15.81% 15.96% 14.62% 14.39%
Tangible equity-to-tangible assets (non-GAAP) (7) 9.45% 9.20% 9.23% 9.36% 9.11%
Tier 1 common equity (6) 12.0% 11.8% 11.6% 12.1% 11.9%
Tier 1 leverage (6) 10.6% 10.5% 10.4% 10.3% 10.1%
Tier 1 risk-based capital (6) 13.0% 12.8% 12.6% 12.9% 12.8%
Total risk-based capital (6) 13.4% 13.3% 13.0% 13.5% 13.3%
 
OTHER DATA
Number of branches 169 179 182 129 129
Number of employees (full-time equivalent basis) 2,654 2,700 2,719 2,255 2,261
             

Asset Quality

Ending Balance

June 30, Mar. 31, Dec. 31, Sept. 30, June 30,
(Dollars in thousands)   2018     2018     2017     2017     2017  
NONPERFORMING ASSETS:
Non-acquired
Non-acquired nonperforming loans $ 14,870 $ 14,307 $ 14,831 $ 12,896 $ 13,499
Non-acquired OREO and other nonperforming assets   8,179     2,363     2,536     6,330     4,633  
Total non-acquired nonperforming assets   23,049     16,670     17,367     19,226     18,132  
Acquired
Acquired nonperforming loans 9,590 8,233 9,447 6,401 5,793
Acquired OREO and other nonperforming assets   9,527     9,139     9,263     7,846     10,439  
Total acquired nonperforming assets   19,117     17,372     18,710     14,247     16,232  
Total nonperforming assets $ 42,166   $ 34,042   $ 36,077   $ 33,473   $ 34,364  
 

Three Months Ended

Six Months Ended
June 30, Mar. 31, Dec. 31, Sept. 30, June 30, June 30, June 30,
  2018     2018     2017     2017     2017   2018   2017  
ASSET QUALITY RATIOS:

Allowance for non-acquired loan losses as a percentage of
non-acquired loans (1)

0.67 % 0.67 % 0.67 % 0.67 % 0.67 % 0.67 % 0.67 %

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

321.95 % 315.95 % 292.95 % 322.12 % 297.42 % 321.95 % 297.42 %

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

0.01 % 0.02 % 0.02 % 0.04 % 0.05 % 0.02 % 0.05 %

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

0.14 % 0.02 % 0.07 % 0.00 % 0.10 % 0.08 % 0.09 %

Total nonperforming assets as a percentage of total assets

0.29 % 0.23 % 0.25 % 0.30 % 0.31 %
Excluding Acquired Assets
NPLs as a percentage of period end non-acquired loans (1) 0.21 % 0.21 % 0.23 % 0.21 % 0.23 %

Total nonperforming assets as a percentage of total non-acquired
loans and repossessed assets (1) (4)

0.32 % 0.25 % 0.27 % 0.31 % 0.30 %

Total nonperforming assets as a percentage of total assets (5)

0.16 % 0.11 % 0.12 % 0.17 % 0.16 %

Total nonperforming assets increased by $8.1 million to $42.2 million,
representing 0.29% of total assets, an increase of 6 basis points from
the balance at March 31, 2018. The increase was primarily the result of
the closing of branches acquired in the Park Sterling merger during the
second quarter which increased OREO by $6.0 million. Non-accrual loans
increased by $1.9 million during the quarter, however, remain at very
low levels. The allowance for loan losses as a percentage of
non-acquired nonaccrual loans was 322%, up from 316% in the first
quarter of 2018.

During the second quarter of 2018, the Company reported $9.6 million in
nonperforming loans related to "acquired non-credit impaired loans."
This was an increase of $1.4 million from the balance at March 31, 2018;
and an increase of $3.8 million higher than the balance at June 30,
2017, due primarily to the overall growth within this loan portfolio.
Additionally, acquired nonperforming OREO and other assets owned
increased by $388,000 from the balance at March 31, 2018 and declined by
$912,000 from the balance of June 30, 2018.

At June 30. 2018, the allowance for non-acquired loan losses was $47.9
million, or 0.67%, of non-acquired period-end loans and $45.2 million,
or 0.67%, at March 31, 2018, and $40.1 million, or 0.67% at June 30,
2017. Net charge-offs within the non-acquired portfolio were $189,000,
or 0.01% annualized, in the second quarter of 2018, compared to $367,000
for the first quarter of 2018, or 0.02% annualized. Second quarter 2017
net charge-offs totaled $756,000, or 0.05% annualized. The net
charge-offs over the past several quarters were primarily from overdraft
and ready reserve accounts. Net charge-offs related to the non-acquired
loan portfolio were in a net recovery position over the past four
quarters. During the second quarter of 2018, the provision for
non-acquired loan losses totaled $2.9 million compared to $2.1 million
in the first quarter of 2018, and $2.5 million in the second quarter of
2017. The non-acquired provision for loan losses in the second quarter
of 2018 and first quarter of 2017 resulted primarily from the risk and
uncertainties in new and expanded markets resulting from the merger with
PSTB.

Net charge offs related to "acquired non-credit impaired loans" were
$1.1 million, or 0.14% annualized, in the second quarter of 2018; and
the Company recorded a provision for loan losses, accordingly. This
charge off level was primarily the result of a specific relationship,
and was not representative of a particular trend within any of our
markets. Net charge-offs in the first quarter of 2018 totaled $169,000,
or 0.02% annualized, and in the second quarter of 2017, net charge-offs
totaled $429,000, or 0.10% annualized.

During the second of 2018, the Company recorded net impairment within
certain acquired credit impaired loan pools totaling $522,000 compared
to $163,000 valuation allowance in the first quarter of 2018. During the
second quarter of 2017, the Company recorded net release of $572,000.
Impairments are recognized immediately and releases are generally spread
over time.

Total OREO increased to $17.2 million at June 30, 2018, up from $11.1
million at March 31, 2018. The $6.1 million increase was primarily the
result of 10 branches closed during the second quarter of 2018. The
Company expects the OREO balance to decline over the coming quarters as
these assets are sold.

                 

Net Interest Income and Margin

Three Months Ended

June 30, 2018 March 31, 2018 June 30, 2017
(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 $ 203,189 $ 1,218 2.40 % $ 165,752 $ 660 1.61 % $ 266,672 $ 762 1.15 %
Investment securities (taxable) 1,439,334 9,048 2.52 % 1,453,480 8,788 2.45 % 1,206,992 7,020 2.33 %
Investment securities (tax-exempt) 213,712 1,614 3.03 % 212,719 1,559 2.97 % 188,496 1,397 2.97 %
Loans held for sale 32,313 337 4.18 % 32,517 307 3.83 % 48,171 460 3.83 %
Loans   10,723,400   129,515 4.84 %   10,604,506   126,734 4.85 %   8,040,180   93,140 4.65 %
Total interest-earning assets 12,611,948 141,732 4.51 % 12,468,974 138,048 4.49 % 9,750,511 102,779 4.23 %
Noninterest-earning assets   1,934,359   1,960,659   1,321,170
Total Assets

$

14,546,307

$

14,429,633

$ 11,071,681
 
Interest-Bearing Liabilities:
Transaction and money market accounts $ 5,203,265 $ 4,691 0.36 % $ 5,221,974 $ 2,893 0.22 % $ 3,951,515 $ 1,021 0.10 %
Savings deposits 1,459,851 1,160 0.32 % 1,443,868 674 0.19 % 1,379,719 526 0.15 %
Certificates and other time deposits 1,784,269 4,158 0.93 % 1,758,223 3,346 0.77 % 1,050,225 1,114 0.43 %
Federal funds purchased and repurchase agreements 339,917 642 0.76 % 343,974 454 0.54 % 329,256 240 0.29 %
Other borrowings   165,940   1,519 3.67 %   225,496   1,708 3.07 %   106,413   847 3.19 %
Total interest-bearing liabilities 8,953,242 12,170 0.55 % 8,993,535 9,075 0.41 % 6,817,128 3,748 0.22 %
Noninterest-bearing liabilities 3,260,626 3,120,746 2,655,961
Shareholders' equity   2,332,439   2,315,352   1,598,592
Total Non-IBL and shareholders' equity   5,593,065   5,436,098   4,254,553
Total liabilities and shareholders' equity $ 14,546,307

$

14,429,633

$ 11,071,681
Net interest income and margin (NON-TAX EQUIV.) $ 129,562 4.12 % $ 128,973 4.19 % $ 99,031 4.07 %
Net interest margin (TAX EQUIVALENT) 4.14 % 4.22 % 4.13 %
 
Overall Cost of Funds (including demand deposits) 0.40 % 0.31 % 0.16 %

Non-taxable equivalent net interest income was $129.6 million for the
second quarter of 2018, a $589,000 increase from the first quarter of
2018, resulting from the additional interest income on nonacquired
loans, which was mostly offset by a decline in acquired loan interest
income and higher interest expense. The highlights are below:

1. Average balance of non-acquired loans increased by approximately
$384.1 million and resulted in non-acquired loan interest income of
$70.7 million, a $5.5 million increase from the first quarter of 2018.
The yield on total non-acquired loans was 4.06% up from 4.01% in the
first quarter of 2018.

2. Acquired loan interest income decreased $2.8 million from the first
quarter of 2018, to $58.8 million. The yield on acquired loans for the
second quarter of 2018 was 6.30%, an increase of seven basis points from
the first quarter of 2018, while the average balance of acquired loans
declined by $265.2 million during the second quarter of 2018. This
decline in average balance was the result of the continued decline of
the acquired loan portfolio. In addition, during the second quarter of
2018, the Company reviewed additional acquired loans acquired in the
PSTB merger and adjusted their fair values. Any future decline in the
acquired loan yield will be primarily dependent upon the level of loan
pay downs and pay-offs each quarter. The second quarter of 2018 total
loan yield was 4.84% down from 4.85% in the first quarter of 2018 and up
from 4.65% in the second quarter of 2017;

3. Interest expense increased by $3.1 million in the second quarter of
2018 compared to the first quarter of 2018. This increase was within all
categories of funding, except other borrowings. Deposit rates continued
to increase in the rising rate environment and accounted for all of the
increase. Interest expense on other borrowings declined due to the
repayment of FHLB advances totaling $100.0 million in the second quarter
of 2018. The rate increased in other borrowings due to the rate paid on
trust preferred debt, which is tied to a floating rate (three month
LIBOR plus a spread). Total cost of funds on interest-bearing
liabilities was 55 basis points, an increase of 14 basis points from the
first quarter of 2018 and up 33 basis points from the second quarter of
2017. The inclusion of the Park Sterling funding balances resulted in an
increase in the Company's interest-bearing liabilities of approximately
$2.1 billion from the second quarter of 2017.

Tax-equivalent net interest margin declined 8 basis points from the
first quarter of 2018 and improved by 1 basis point from the second
quarter of 2017. During the second quarter of 2018, the Company's
average total assets increased to $14.5 billion from $14.4 billion at
March 31, 2018 and from $11.1 billion at June 30, 2017. Average earning
assets totaled $12.6 billion up $143.0 million compared to the first
quarter of 2018. Average interest-bearing liabilities totaled $9.0
billion for the second quarter of 2018 which was flat compared to the
first quarter 2018; and up from $6.8 billion for the second quarter of
2017. Average non-interest bearing demand deposits increased by $139.9
million during the second quarter of 2018; and increased by $604.7
million from June 30, 2017, due primarily to the merger with Park
Sterling and growth during the past year. Including the impact of
noninterest bearing deposits, the Company's cost of funds was 40 basis
points for the second quarter of 2018 compared to 31 basis points in the
first quarter of 2018, and compared to 16 basis points in the second
quarter of 2017.

         
Accretable Yield Rollforward (Acquired credit impaired loans)
June 30, 2018 June 30, Mar. 31, Dec. 31, Sept. 30, June 30,
(Dollars in thousands) 2018 2018 2017 2017 2017
 
Balance at beginning of period

$

129,857

$ 133,095 $ 132,575 $ 139,283

$

149,723

 
Interest income *

(12,829

)

(12,366 ) (13,561 ) (14,362 ) (14,297 )
Additions from Georgia Bank & Trust Acquisition

-

- 307 - -
Additions (decreases) from Park Sterling Bank Acquisition

(1,460

)

- 8,829 - -
Improved cash flows affecting nonaccretable difference

6,381

9,204 5,118 7,756 3,954
Other changes, net  

(145

)

  (76 )   (173 )   (102 )   (97 )
 
Balance at end of period

$

121,804

  $ 129,857   $ 133,095   $ 132,575  

$

139,283

 
* Interest income does not include interest income from loan
advances post-acquisition on lines of credit, late fees or other
loan fees.
 

The table above reflects the quarterly roll forward of the acquired
credit impaired loan accretable yield, including a fair value adjustment
of $1.5 million recorded in the second quarter of 2018 for the Park
Sterling merger.

The Company recognized noncash loan interest income from the discount
(fair value adjustment) on the acquired noncredit impaired loan
portfolio of $7.6 million, $9.6 million, $6.1 million; $2.2 million; and
$3.3 million, respectively during the five quarters. The remaining
balance of the discount on the acquired noncredit impaired loan
portfolio totals $43.6 million at June 30, 2018.

 

             

Noninterest Income and Expense

 
June 30, Mar. 31, Dec. 31, Sept. 30, June 30, June 30, June 30,
(Dollars in thousands)   2018     2018   2017   2017   2017   2018     2017
Noninterest income:
Fees on deposit accounts * $ 22,612 $ 22,543 $ 21,224 $ 20,143 $ 19,897

$

45,155

$ 39,398
Mortgage banking income 3,317 4,948 3,744 3,446 5,195 8,265 10,764
Trust and investment services income 7,567 7,514 6,698 6,310 6,452 15,081 12,393

Securities (losses) gains, net

(641 ) -- 33 525 110 (641 ) 110
Recoveries of fully charged off acquired loans 2,167 2,975 2,925 1,944 2,171 5,142 3,703
Other   2,503     2,575   2,138   1,367   1,491   5,078     3,165
Total noninterest income $ 37,525   $ 40,555 $ 36,762 $ 33,735 $ 35,316

$

78,080

  $ 69,533
 
Noninterest expense:
Salaries and employee benefits $ 55,026 $ 62,465 $ 50,735 $ 47,245 $ 47,580

$

117,491

$ 96,466
Net occupancy expense 7,815 8,166 6,707 6,214 6,048 15,981 12,436
Information services expense 8,903 9,738 6,686 6,003 6,413 18,641 12,773
Furniture and equipment expense 4,519 4,626 4,146 3,751 3,877 9,145 7,671
Bankcard expense * 311 691 558 443 628 1,002 1,180
OREO expense and loan related 1,037 1,661 1,073 1,753 1,753 2,698 3,895
Business development and staff related 2,765 2,082 2,107 1,728 1,958 4,847 4,028
Amortization of intangibles 3,722 3,413 2,857 2,494 2,495 7,135 5,002
Professional fees 1,898 1,699 1,338 1,265 1,599 3,597 3,372
Supplies, printing and postage expense 1,406 1,392 1,433 1,491 1,570 2,798 3,224
FDIC assessment and other regulatory charges 3,277 1,263 895 918 989 4,540 2,111
Advertising and marketing 1,163 736 1,563 852 989 1,899 1,548
Other operating expenses 4,568 4,235 4,547 3,561 4,075 8,803 7,749
Merger & branch consolidation expense   14,096     11,296   17,621   1,551   4,307   25,392     25,331
Total noninterest expense

$

110,506

  $ 113,463 $ 102,266 $ 79,269 $ 84,281

$

223,969

  $ 186,786

* The company reclassified network expenses directly related to
interchange and transaction fee income out of bankcard expense and
into fees on deposit accounts, pursuant to ASC 606, Revenue
from Contracts with Customers
. This resulted in lower
noninterest income and lower noninterest expense in all periods
presented as follows:

Reclassification amount $ 3,002 $ 2,963 $ 2,336 $ 2,305 $ 2,258 $ 5,965 $ 4,476
 

Noninterest income totaled $37.5 million during the second quarter of
2018, a decrease of $3.0 million from the first quarter of 2018. The
decrease was primarily attributable to mortgage banking income and
acquired loan recoveries. The following provides additional explanations
of noninterest income:

  • Lower mortgage banking income of $1.6 million, from secondary market
    which was down $563,000 due to lower sales volume, with more loans
    being retained on balance sheet; and the income related to the
    mortgage servicing rights, net of the hedge, declined $1.0 million as
    treasury rates and spreads compared to mortgage rates were more muted
    than the sharp increase to both experienced in the first quarter
    resulting in higher gains in Q1 of 2018;
  • Lower recoveries on acquired loans by $808,000; and
  • Securities losses on the disposition of certain lower yielding assets
    totaling $641,000.

Compared to the second quarter of 2017, noninterest income grew by $2.2
million. The increase was primarily related to the merger with PSTB:

1. Higher trust and investment services income of $1.1 million,

2. Higher fees on deposit accounts with more customers from the merger
totaling $2.7 million, and

3. Higher other income of $1.0 million from cash surrender value of bank
owned life insurance and capital markets income.

4. These increases were partially offset by $1.9 million decline in
mortgage banking income from the secondary market aspect of our mortgage
line of business; and

5. Securities losses recorded in 2Q 2018 of $641,000 compared to
$110,000 gain from 2Q 2017.

Noninterest expense was $110.5 million in the second quarter of 2018, a
decrease of $3.0 million from $113.5 million in the first quarter of
2018. Merger and conversion related expense increased $2.8 million from
the cost incurred in the first quarter of 2018, as the system conversion
related to the Park Sterling merger was completed and 10 branches were
closed during the second quarter of 2018. Salaries and employee benefits
declined $7.4 million due primarily to:

(1) Payment of $2.8 million in bonuses to employees 1Q 2018;

(2) Reduced payroll taxes (FICA and unemployment taxes) totaling $2.3
million; and

(3) Fewer FTEs resulting in lower salary & benefits totaling $2.0 million

FDIC assessment and other regulatory charges increased by $2.0 million
in the second quarter of 2018 compared to the first quarter of 2018. The
normal quarterly expense is expected to be approximately $2.3 million
given our current asset size and risk within the balance sheet. Many
other expenses came in lower than the prior quarter, which is reflective
of the conversion and the closure of 10 branches during the quarter.

Compared to the second quarter of 2017, noninterest expense was $26.2
million higher. The net increase was primarily due to five categories of
expense: (1) salaries and benefits increased $7.4 million due primarily
to the additional employees from Park Sterling and the related benefits
and incentives, (2) information services increased $2.5 million due
primarily to the branches added from Park Sterling, (3) net occupancy
and furniture and equipment expense increased by $1.8 million and
$642,000, respectively, due to the addition of branches added from Park
Sterling, (4) $2.3 million increase in the FDIC assessment related to
exceeding $10.0 billion in assets, and (5) amortization of intangibles
increased $1.2 million from additional core deposit intangible related
to Park Sterling. Merger-related and conversion cost increased $9.8
million. In the second quarter of 2017, these cost were primarily
related to the merger with Southeastern Bank Financial Corporation,
compared to PSTB conversion/merger-related cost in the second quarter of
2018.

South State Corporation will hold a conference call tomorrow, July 31,
2018 at 10 a.m. Eastern Time, during which management will review
earnings and performance trends. Callers wishing to participate may call
toll-free by dialing 877-506-9272. The number for international
participants is 412-380-2004. The conference ID number is 10121321.
Participants can also listen to the live audio webcast through the
Investor Relations section of www.SouthStateBank.com.
A replay will be available beginning July 31, 2018 by 2:00 p.m. Eastern
Time until 9:00 a.m. on August 14, 2018. To listen to the replay, dial
877-344-7529 or 412-317-0088. The passcode is 10121321.

South State Corporation is a financial services company headquartered
in Columbia, South Carolina with approximately $14.6 billion in assets.

South State Bank, the company's primary subsidiary, provides
consumer, commercial, mortgage, and wealth management solutions
throughout the Carolinas, Georgia and Virginia.
South State has
served customers since 1934.
Additional information is available
at
www.SouthStateBank.com.

Non-GAAP Measures

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

 

Three Months Ended

 

Six Months Ended

(Dollars in thousands, except per share data) June 30,   Mar.31,   Dec. 31,   Sept. 30,   June 30, June 30,   June 30,
RECONCILIATION OF GAAP TO Non-GAAP   2018     2018     2017     2017     2017     2018     2017  
Adjusted net income (non-GAAP) (3)
Net income (GAAP) $ 40,459 $ 42,326 $ 2,421 $ 35,046 $ 31,823

$

82,785

$ 50,087
Securities losses (gains), net of tax 505 -- (22 ) (349 ) (73 ) 505 (73 )
Provision for income taxes - Deferred Tax Asset Write-Off 613 -- 26,558 -- -- 613 --
Merger and branch consolidation/acq. expense, net of tax   11,112     8,918     12,431     1,031     2,870     20,030     18,007  
Adjusted net income (non-GAAP) $ 52,689   $ 51,244   $ 41,388   $ 35,728   $ 34,620  

$

103,933

  $ 68,021  
 
Adjusted net income per common share - Basic (3)
Earnings per common share - Basic (GAAP) $ 1.10 $ 1.15 $ 0.08 $ 1.20 $ 1.09 $ 2.25 $ 1.73
Effect to adjust for securities losses (gains) 0.01 -- (0.00 ) (0.01 ) (0.00 ) 0.01 --
Effect to adjust for provision for income tax DTA Write-Off 0.02 -- 0.84 -- -- 0.02 --
Effect to adjust for merger & branch consol./acq expenses   0.31     0.25     0.39     0.04     0.10     0.56     0.62  
Adjusted net income per common share - Basic (non-GAAP) $ 1.44   $ 1.40   $ 1.31   $ 1.23   $ 1.19   $ 2.84   $ 2.35  
 
Adjusted net income per common share - Diluted (3)
Earnings per common share - Diluted (GAAP) 1.09 $ 1.15 $ 0.08 $ 1.19 $ 1.08 $ 2.24 $ 1.71
Effect to adjust for securities losses (gains) 0.01 -- (0.00 ) (0.01 ) (0.00 ) 0.01 0.00
Effect to adjust for provision for income tax DTA Write-Off 0.02 -- 0.83 - -- 0.02 --
Effect to adjust for merger & branch consol./acq expenses   0.31     0.24     0.39     0.04     0.10     0.55     0.62  
Adjusted net income per common share - Diluted (non-GAAP) $ 1.43   $ 1.39   $ 1.30   $ 1.22   $ 1.18   $ 2.82   $ 2.33  
 
Adjusted Return of Average Assets (3)
Return on average assets (GAAP) 1.12 % 1.19 % 0.08 % 1.25 % 1.15 % 1.15 % 0.92 %
Effect to adjust for securities losses (gains) 0.01 % 0.00 % 0.00 % 0.00 % 0.00 % 0.01 % 0.00 %
Effect to adjust for provision for income tax DTA Write-Off 0.02 % 0.00 % 0.85 % -0.01 % 0.00 % 0.01 % 0.00 %
Effect to adjust for merger & branch consol./acq expenses   0.30 %   0.25 %   0.40 %   0.04 %   0.10 %   0.28 %   0.33 %
Adjusted return on average assets (non-GAAP)   1.45 %   1.44 %   1.33 %   1.27 %   1.25 %   1.45 %   1.25 %
 
Adjusted Return of Average Equity (3)
Return on average equity (GAAP) 6.96 % 7.41 % 0.51 % 8.57 % 7.98 % 7.18 % 6.39 %
Effect to adjust for securities losses (gains) 0.09 % 0.00 % 0.00 % -0.09 % -0.02 % 0.04 % -0.01 %
Effect to adjust for provision for income tax DTA Write-Off 0.11 % 0.00 % 5.62 % 0.00 % 0.00 % 0.11 % 0.00 %
Effect to adjust for merger & branch consol./acq expenses   1.90 %   1.57 %   2.62 %   0.25 %   0.73 %   1.69 %   2.30 %
Adjusted return on average equity (non-GAAP)   9.06 %   8.98 %   8.75 %   8.73 %   8.69 %   9.02 %   8.68 %
 
Adjusted Return on Average Common Tangible Equity (3) (7)
Return on average common equity (GAAP) 6.96 % 7.41 % 0.51 % 8.57 % 7.98 % 7.18 % 6.39 %
Effect to adjust for securities losses (gains) 0.09 % 0.00 % 0.00 % -0.09 % -0.02 % 0.04 % -0.01 %
Effect to adjust for provision for income tax DTA Write-Off 0.11 % 0.00 % 5.62 % 0.00 % 0.00 % 0.11 % 0.00 %
Effect to adjust for merger & branch consol./acq expenses 1.91 % 1.56 % 2.63 % 0.25 % 0.72 % 1.74 % 2.30 %
Effect to adjust for intangible assets   8.61 %   8.63 %   7.07 %   6.48 %   6.66 %   8.57 %   6.76 %
Adjusted return on average common tangible equity (non-GAAP)   17.68 %   17.60 %   15.83 %   15.21 %   15.34 %   17.64 %   15.44 %
 
Tangible Book Value Per Common Share (7)
Book value per common share (GAAP) $ 63.77 $ 63.14 $ 62.81 $ 55.79 $ 54.87
Effect to adjust for intangible assets   (29.13 )   (29.09 )   (29.20 )   (22.13 )   (22.17 )
Tangible book value per common share (non-GAAP) $ 34.64   $ 34.05   $ 33.61   $ 33.66   $ 32.70  
 
Tangible Equity-to-Tangible Assets (7)
Equity-to-assets (GAAP) 16.12 % 15.81 % 15.96 % 14.62 % 14.39 %
Effect to adjust for intangible assets   -6.67 %   -6.61 %   -6.73 %   -5.26 %   -5.28 %
Tangible equity-to-tangible assets (non-GAAP)   9.45 %   9.20 %   9.23 %   9.36 %   9.11 %
 

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, other-than-temporary-impairment (OTTI), and
merger and branch consolidation related expense. It also reflects
an adjustment for the deferred tax asset revaluation in the second
quarter of 2018 and the fourth quarter of 2017. 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 $14.1 million, $11.3 million,
$17.6 million, $1.6 million, and $4.3 million, for the quarters
ended June 30, 2018, March 31, 2018, December 31, 2017, September
30, 2017, and June 30, 2017, respectively; and (b) securities
gains (losses), net of ($641,000), $33,000, $525,000 and $110,000
for the quarter ended June 30, 2018, December 31, 2017, September
30, 2017 and June 30, 2017. In the second quarter of 2018 and the
fourth quarter of 2017, the Company revalued its net deferred tax
assets with the Tax Act of 2017 with an increase in our income tax
provision of $613,000 and $26.6 million, respectively.

(4) Repossessed assets include OREO and other nonperforming assets.
(5) Calculated by dividing total non-acquired NPAs by total assets.
(6) June 30, 2018 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.
(7) The tangible measures are non-GAAP measures and exclude the effect
of period end or average balance of intangible assets. The tangible
returns on equity and common equity measures also add back the
after-tax amortization of intangibles to GAAP basis net income.
Management believes that these non-GAAP tangible measures provide
additional useful information, particularly since these measures are
widely used by industry analysts for companies with prior merger and
acquisition activities. Non-GAAP measures should not be considered
as an alternative to any measure of performance or financial
condition as promulgated under GAAP, and investors should consider
the company's performance and financial condition as reported under
GAAP and all other relevant information when assessing the
performance or financial condition of the company. Non-GAAP measures
have limitations as analytical tools, and investors should not
consider them in isolation or as a substitute for analysis of the
company's results or financial condition as reported under GAAP. The
sections titled "Reconciliation of Non-GAAP to GAAP" provide tables
that reconcile non-GAAP measures to GAAP.
(8) Includes noncash loan interest income related to the discount on
acquired performing loans of $7.6 million, $9.6 million, $6.1
million, $2.2 million, and $3.3 million, respectively during the
five quarters above.
(9) Adjusted efficiency ratio is calculated by taking the noninterest
expense excluding branch consolidation cost and merger cost divided
by net interest income and noninterest income excluding securities
gains (losses) and OTTI.
 

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 generally include words such as
"expects," "projects," "anticipates," "believes," "intends,"
"estimates," "strategy," "plan," "potential," "possible" and other
similar expressions. South State Corporation ("South State") cautions
readers that forward looking statements are subject to certain risks and
uncertainties that could cause actual results to differ materially from
anticipated results. Such risks and uncertainties, include, among
others, the following possibilities: (1) the outcome of any legal
proceedings instituted against South State or Park Sterling Corporation
("Park Sterling"); (2) the possibility that the anticipated benefits of
the transaction are not realized when expected or at all, including as a
result of the impact of, or problems arising from, the integration of
the two companies or as a result of the strength of the economy and
competitive factors in the areas where South State and Park Sterling do
business; (3) the possibility that the transaction may be more expensive
to complete than anticipated, including as a result of unexpected
factors or events; (4) diversion of management's attention from ongoing
business operations and opportunities; (5) potential adverse reactions
or changes to business or employee relationships, including those
resulting from the announcement or completion of the transaction;
(6) South State's ability to complete the integration of Park Sterling
successfully; (7) 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;
(8) 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; (9) liquidity
risk affecting the bank's ability to meet its obligations when they come
due; (10) 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; (11) price risk
focusing on changes in market factors that may affect the value of
traded instruments in "mark-to-market" portfolios; (12) transaction risk
arising from problems with service or product delivery; (13) compliance
risk involving risk to earnings or capital resulting from violations of
or nonconformance with laws, rules, regulations, prescribed practices,
or ethical standards; (14) regulatory change risk resulting from new
laws, rules, regulations, accounting principles, proscribed practices or
ethical standards, including, without limitation, increased capital
requirements (including, without limitation, the impact of the capital
rules adopted to implement Basel III), Consumer Financial Protection
Bureau rules and regulations, and potential changes in accounting
principles relating to loan loss recognition; (15) strategic risk
resulting from adverse business decisions or improper implementation of
business decisions; (16) reputation risk that adversely affects earnings
or capital arising from negative public opinion; (17) terrorist
activities risk that results in loss of consumer confidence and economic
disruptions; (18) cybersecurity risk related to the dependence of South
State and Park Sterling 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; (19) economic downturn risk potentially resulting
in deterioration in the credit markets, greater than expected
non-interest expenses, excessive loan losses and other negative
consequences, with 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; (20) greater than
expected noninterest expenses; (21) excessive loan losses; (22) failure
to realize synergies and other financial benefits from, and to limit
liabilities associated with, mergers and acquisitions within the
expected time frame; (23) potential deposit attrition, higher than
expected costs, customer loss and business disruption associated with
merger and acquisition integration, including, without limitation,
potential difficulties in maintaining relationships with key personnel
and other integration related-matters; (24) 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; (25) 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; and (26) other risks
and uncertainties disclosed in South State's or Park Sterling's most
recent Annual Report on Form 10-K filed with the U.S. Securities and
Exchange Commission ("SEC) or disclosed in documents filed or furnished
by South State or Park Sterling with or to the SEC after the filing of
such Annual Reports on Form 10-K, and 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.

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