Market Overview

South State Corporation Reports First Quarter 2019 Results and Declares Increase in 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 period ended March 31, 2019. Highlights for the first
quarter of 2019 include the following:

This press release features multimedia. View the full release here:
https://www.businesswire.com/news/home/20190429005836/en/

  • GAAP diluted EPS improvement of 8.7% compared to last year
  • Adjusted diluted EPS declined by 9.4% compared to last year
  • Loan growth totaled $128.3 million, or 4.7% annualized for the quarter
  • Deposit growth totaled $272.0 million, or 9.5% annualized for the
    quarter, with 58% of the growth from noninterest bearing deposits
  • Noninterest expense decreased by $15.2 million, or 13.4%, compared to
    last year
  • Adjusted noninterest expense declined by $5.0 million, or 5.0%,
    compared to last year
  • Asset quality remains strong as net charge-offs on non-acquired loans
    totaled 2 basis points annualized, or $493,000, during the first
    quarter of 2019
  • Non-performing assets to total assets were 0.27%, and remain at
    historically low level
  • Repurchased 500,000 common shares in Q1 2019 for $33.3 million
  • Tangible book value per share improved 9% annualized to $37.15 per
    share, and the dividend increased $0.05 per share, or 15.2%, compared
    to last year

During the first quarter of 2019, South State positioned the balance
sheet for future growth, and took other actions to improve profitability
and include the following:

  • Secured longer-term funding of $500.0 million over 4 to 5 year period;
  • Increased on-hand liquidity by approximately $600.0 million in order
    to fund future loan / securities growth;
  • With the current environment, plan to continue the systematic
    repurchase of common shares of the Company; and
  • Identified annual cost saving initiatives of approximately $13.0
    million (pre-tax), and expect to recognize $10.0 million in 2019,
    which includes the previously announced branch consolidations of $2.5
    million annualized cost savings; allowing for limited growth in
    noninterest expense.

"The first quarter marked a positive start to the year," said Robert R.
Hill, Jr., CEO of South State Corporation. "South State experienced
solid loan and deposit growth, exhibited good expense control, and
positioned the balance sheet to accommodate further loan growth. We also
continue to utilize our capital position to enhance shareholder value
through increased dividends and common stock repurchases. Additionally,
during the past few weeks we moved into a new headquarters in Richmond,
Virginia and opened the first of two new offices in Raleigh, North
Carolina. Both of these markets demonstrated strong results in the first
quarter. Finally, we added 13 new bankers to our sales team and
experienced further adoption of our digital platform."

Quarterly Cash Dividend and Common Stock Repurchase Plan

The Board of Directors of South State Corporation declared a quarterly
cash dividend on April 25, 2019, of $0.40 per share payable on its
common stock. This per share amount is higher by $0.02 per share, or
5.3%, compared to last quarter and $0.06 per share, or 17.6%, higher
than the same quarter one year ago. The dividend will be payable on May
17, 2019 to shareholders of record as of May 10, 2019.

As previously announced, the Board of Directors of South State
Corporation announced the authorization for the repurchase of up to
1,000,000 common shares of the Company's common stock (the "Repurchase
Program"). During the first quarter of 2019, the Company bought back
500,000 shares during the first week of February at an average price of
$66.53 per share, or $33.3 million. This results in an estimated
increase in diluted EPS annually of approximately $0.08 per share. The
Company intends to remain active in repurchasing shares and will seek
authorization for additional share repurchases given the current
environment and the Company's capital strategy. The Company is not
obligated to repurchase any such shares under the Repurchase Program,
but any such purchases will be executed in open market transactions at
prevailing market prices, in privately negotiated transactions, or by
other means in accordance with federal securities laws. Repurchases
under any approved Repurchase Program must be executed within one year
or would require additional Federal Reserve approval.

In addition, as a part of the company's capital strategy, the Company
intends to continue managing capital within the established long-term
range of 8% to 9% of tangible common equity to tangible assets; and the
dividend payout range for shareholders has been adjusted to 30% to 35%
annually, from the historical range of 25% to 30%.

Branch consolidation and other cost initiatives – 2019

In mid-January 2019, the Company scheduled the close of 13 branch
locations during 2019. Most are scheduled for the second quarter of
2019. In addition, certain cost reduction initiatives began during the
first quarter of 2019. The expected cost associated with these closures
and cost initiatives has been estimated to be approximately $3.2
million, and primarily includes personnel, facilities and equipment
cost. The annual savings of these closures and cost initiatives is
expected to be $13.0 million, and the impact on 2019 is anticipated to
be approximately $10.0 million.

 

First Quarter 2019 Financial Performance

    Three Months Ended
(Dollars in thousands, except per share data) Mar. 31,   Dec. 31,   Sept. 30,   June 30,   Mar. 31,
INCOME STATEMENT 2019 2018 2018 2018 2018
Interest income
Loans, including fees (8) $ 131,834 $ 132,541 $ 132,043 $ 129,852 $ 127,041

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

  11,556     11,327     11,517     11,880     11,007  
Total interest income 143,390 143,868 143,560 141,732 138,048
Interest expense
Deposits 16,645 15,310 13,220 10,009 6,913

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

  3,478     2,166     2,051     2,161     2,162  
Total interest expense   20,123     17,476     15,271     12,170     9,075  
Net interest income 123,267 126,392 128,289 129,562 128,973
Provision for loan losses   1,488     3,734     3,117     4,478     2,454  
Net interest income after provision for loan losses   121,779     122,658     125,172     125,084     126,519  
Noninterest income*   32,058     35,642     32,027     37,525     40,555  
Pre-tax operating expense* 97,125 96,664 95,818 96,410 102,167
Branch consolid./acquisition and merger expense   1,114     --     4,476     14,096     11,296  
Total noninterest expense   98,239     96,664     100,294     110,506     113,463  
Income before provision for income taxes 55,598 61,636 56,905 52,103 53,611
Provision for income taxes, includes deferred tax revaluation   11,231     12,632     9,823     11,644     11,285  
Net income $ 44,367   $ 49,004   $ 47,082   $ 40,459   $ 42,326  
 
Adjusted net income (non-GAAP) (3)
Net income (GAAP) $ 44,367 $ 49,004 $ 47,082 $ 40,459 $ 42,326
Securities losses (gains), net of tax (432 ) 2 9 505 --
Provision for income taxes, deferred tax revaluation -- -- (1,602 ) 613 --
FHLB prepayment penalty 107 -- -- -- --
Branch consolid./acquisition and merger expense, net of tax   782     -     3,577     11,112     8,918  
Adjusted net income (non-GAAP) $ 44,824   $ 49,006   $ 49,066   $ 52,689   $ 51,244  
 
Basic earnings per common share $ 1.25 $ 1.36 $ 1.28 $ 1.10 $ 1.15
Diluted earnings per common share $ 1.25 $ 1.35 $ 1.28 $ 1.09 $ 1.15
Adjusted net income per common share - Basic (non-GAAP) (3) $ 1.26 $ 1.36 $ 1.34 $ 1.44 $ 1.40
Adjusted net income per common share - Diluted (non-GAAP) (3) $ 1.26 $ 1.35 $ 1.33 $ 1.43 $ 1.39
Dividends per common share $ 0.38 $ 0.36 $ 0.35 $ 0.34 $ 0.33
Basic weighted-average common shares outstanding 35,445,087 36,154,922 36,645,181 36,676,887 36,646,198
Diluted weighted-average common shares outstanding 35,618,705 36,364,873 36,893,496 36,928,981 36,899,068
Effective tax rate 20.20 % 20.49 % 17.26 % 22.35 % 21.05 %
 

* These lines include a reclassification of network costs
directly related to interchange and debit card transaction fees.
ASU 2014-09 - Revenue recognition requires netting of these
expenses with the related revenue. All periods have been adjusted
for this reclassification, and there was no impact to net income
or capital for any period presented.

 
 

The Company reported consolidated net income of $44.4 million, or $1.25
per diluted common share for the three-months ended March 31, 2019, a
$4.6 million decrease, or $0.10 per share decline in EPS compared to the
fourth quarter of 2018. Compared to the first quarter of 2018, net
income totaled $42.3 million, or $1.15 per diluted common share.
Weighted average diluted shares declined by 746,000, from the fourth
quarter of 2018, due to the continuation of the Company buying back
shares under the Repurchase Program, which improved first quarter
diluted EPS by $0.03 per diluted share. Net interest income was down
$3.1 million compared to the fourth quarter of 2018 on $478,000 lower
interest income and $2.6 million higher interest expense. The interest
income decline was primarily the result of acquired loan interest income
declining more than the increase in non-acquired loan interest income.
Overall acquired loan accretion declined by $525,000 in the first
quarter of 2019 compared to the fourth quarter of 2018. The increase in
interest expense was due to the continued competition within our markets
for deposits and an increase in borrowings from the FHLB. The Company's
cost of interest-bearing liabilities was 0.89% for the first quarter of
2019, an increase of 0.11% from the fourth quarter of 2018. Compared to
the first quarter of 2018, cost of funds increased by 0.48% which was
primarily the result of rising interest rates and competition within our
markets. The total provision for loan losses decreased $2.2 million
compared to the fourth quarter of 2018. Valuation allowance impairment
(release) related to acquired loans was $13,000 compared to $710,000
impairment in the fourth quarter of 2018. Several pools, in the fourth
quarter of 2018, within the acquired credit impaired loan portfolio
resulted in declining estimated cash flows and larger impairment. The
provision for loan losses related to acquired non-credit impaired loans
was lower by $406,000 compared to the fourth quarter of 2018. The
provision for loan losses on non-acquired loans was $1.1 million lower
compared to the fourth quarter of 2018 due primarily to continuation of
strong asset quality indicators and low net charge offs. Noninterest
income decreased by $3.6 million resulting primarily from declines in
each revenue category, except for net securities gains totaling $541,000
in the first quarter of 2019. Noninterest expense was higher by $1.6
million due to $980,000 in branch consolidation and other cost
initiatives and $134,000 in an FHLB prepayment penalty (no merger and
conversion related charges incurred in 4Q 2018). Absent the branch
consolidation expense, cost initiative expense and the FHLB prepayment
penalty, our noninterest expense increased by $461,000, which can be
attributed to an increase in other expense related to passive investment
losses on tax advantaged investments. All other variances in noninterest
expense offset.

Income Tax Expense

During the first quarter of 2019, our effective income tax rate declined
to 20.20% from 20.49% in the fourth quarter of 2018 and from 21.05% in
the first quarter of 2018. The primary factor in the lower effective tax
rate compared to the fourth quarter of 2018 was due to a reduction in
pre-tax book income, while the reduction in the rate compared to the
first quarter of 2018 was due primarily to an increase in federal tax
credits available, offset partially by an increase in pre-tax book
income.

 

Balance Sheet and Capital

(dollars in thousands, except per share and share data)         Ending Balance
Mar. 31,     Dec. 31,     Sept. 30,     June 30,     Mar. 31,
BALANCE SHEET 2019 2018 2018 2018 2018
Assets
Cash and cash equivalents $ 949,591   $ 408,983   $ 307,309   $ 396,849   $ 644,504  
Investment securities:
Securities held to maturity - - 500 499 1,274
Securities available for sale, at fair value 1,466,249 1,517,067 1,551,281 1,577,999 1,640,837
Other investments   40,624     25,604     19,229     19,229     23,479  
Total investment securities   1,506,873     1,542,671     1,571,010     1,597,727     1,665,590  
Loans held for sale   33,297     22,925     33,752     36,968     42,690  
Loans:
Acquired credit impaired 452,258 485,119 512,633 551,979 597,274
Acquired non-credit impaired 2,378,737 2,594,826 2,786,102 3,076,424 3,274,938
Non-acquired 8,310,613 7,933,286 7,606,478 7,197,539 6,762,512
Less allowance for non-acquired loan losses   (52,008 )   (51,194 )   (49,869 )   (47,874 )   (45,203 )
Loans, net   11,089,600     10,962,037     10,855,344     10,778,068     10,589,521  
Other real estate owned ("OREO") 11,297 11,410 12,119 17,222 11,073
Premises and equipment, net 322,553 241,076 241,909 245,288 253,605
Bank owned life insurance 230,629 230,105 229,075 227,588 226,222
Deferred tax asset 31,884 37,128 47,943 48,853 46,736
Mortgage servicing rights 32,415 34,727 36,056 35,107 34,196
Core deposit and other intangibles 59,619 62,900 66,437 69,975 70,376
Goodwill 1,002,900 1,002,900 1,002,900 1,002,722 999,592
Other assets   136,229     119,466     118,361     110,121     105,004  
Total assets $ 15,406,887   $ 14,676,328   $ 14,522,215   $ 14,566,488   $ 14,689,109  
 
Liabilities and Shareholders' Equity
Deposits:
Noninterest-bearing $ 3,219,864 $ 3,061,769 $ 3,157,478 $ 3,152,828 $ 3,120,818
Interest-bearing   8,699,107     8,585,164     8,456,397     8,485,461     8,542,280  
Total deposits   11,918,971     11,646,933     11,613,875     11,638,289     11,663,098  

Federal funds purchased and securities sold under agreements to
repurchase

276,891 270,649 279,698 331,969 357,574
Other borrowings 616,250 266,084 115,919 115,754 215,589
Other liabilities   218,298     126,366     144,584     132,109     130,269  
Total liabilities   13,030,410     12,310,032     12,154,076     12,218,121     12,366,530  
 
Shareholders' equity:
Preferred stock - $.01 par value; authorized 10,000,000 shares -- -- -- -- --
Common stock - $2.50 par value; authorized 80,000,000 shares 88,421 89,574 91,808 92,064 91,958
Surplus 1,719,396 1,750,495 1,805,685 1,811,446 1,807,989
Retained earnings 582,034 551,108 515,155 480,928 452,982
Accumulated other comprehensive loss   (13,374 )   (24,881 )   (44,509 )   (36,071 )   (30,350 )
Total shareholders' equity   2,376,477     2,366,296     2,368,139     2,348,367     2,322,579  
Total liabilities and shareholders' equity $ 15,406,887   $ 14,676,328   $ 14,522,215   $ 14,566,488   $ 14,689,109  
 
Common shares issued and outstanding 35,368,521 35,829,549 36,723,238 36,825,556 36,783,438
 
 

At March 31, 2019, the Company's total assets were $15.4 billion, an
increase of $730.6 million, from December 31, 2018, and an increase of
$717.8 million, or 4.9%, from March 31, 2018. During the first quarter
of 2019, changes in the balance sheet include the following:

  1. Net loan growth totaled $128.3 million, or 4.7% annualized.
    Non-acquired loans increased by $377.3 million or 19.3% annualized and
    acquired loans decreased by $249.0 million, or 32.7% annualized.
  2. Sold 25,000 shares of Class B VISA common stock recognizing a gain of
    $3.5 million (11,500 shares remain).
  3. Sold $134.5 million of investment securities with an average yield of
    2.10%; and purchased $122.8 million of investment securities with an
    average yield of 3.14%. The sold securities resulted in a loss
    totaling approximately $3.0 million.
  4. Executed two 90-day FHLB advances of $350.0 million and $150.0 million
    each with a cash flow hedge, effectively locking in four and five year
    funding, respectively, at 2.44% and 2.21%. $150.0 million of the
    proceeds from the advances retired an existing FHLB advance, and the
    remainder will be utilized to increase the size of the investment
    portfolio and support future loan growth.
  5. Deposit growth totaled $272.0 million, or 9.5% annualized.
  6. Repurchased 500,000 common shares totaling $33.3 million under current
    Repurchase Program.
  7. These actions resulted in cash and cash equivalents increasing by
    $540.6 million from December 31, 2018.

The Company's book value per common share increased to $67.19 per share
at March 31, 2019, compared to $66.04 at December 31, 2018 and $63.14 at
March 31, 2018. Total equity (capital) increased by $10.2 million due to
the improvement in the unrealized loss position of available for sale
securities at March 31, 2019. The shares of common stock repurchased
under the Repurchase Program and the dividend paid to the shareholders
was offset by the net income recorded during the first quarter of 2019.
Tangible book value ("TBV") per common share increased by $0.85 per
share to $37.15 at March 31, 2019, compared to $36.30 at December 31,
2018, and increased by $3.10 per share, or 9.1%, from $34.05 at March
31, 2018. The quarterly increase of $0.85 per share in tangible book
value was the result of (1) earnings per share, excluding amortization
of intangibles, of $1.32, offset by the dividend paid to shareholders of
$0.38 per share; (2) an increase from the change in AOCI of $0.33 per
share; (3) the increase from the impact of share-based compensation and
employee stock purchases of $0.03 per share; and (4) a net decrease of
$0.45 per share due primarily to the buyback of 500,000 shares of common
stock.

"The Company took advantage of the balance sheet optionality and
increased liquidity to allow for both loan and securities growth," said
John C. Pollok, Chief Financial Officer. "In addition, we will continue
to (1) focus on our capital management opportunities, and (2) focus on
expense management initiatives identified that should allow for limited
expense growth."

 

Performance and Capital Ratios

        Three Months Ended
Mar. 31,     Dec. 31,     Sept. 30,     June 30,     Mar. 31,
PERFORMANCE RATIOS 2019 2018 2018 2018 2018
Return on average assets (annualized) 1.21 % 1.33 % 1.28 % 1.12 % 1.19 %
Adjusted return on average assets (annualized) (non-GAAP) (3) 1.23 % 1.33 % 1.33 % 1.45 % 1.44 %
Return on average equity (annualized) 7.61 % 8.24 % 7.89 % 6.96 % 7.41 %
Adjusted return on average equity (annualized) (non-GAAP) (3) 7.69 % 8.24 % 8.23 % 9.06 % 8.98 %
Return on average tangible common equity (annualized) (non-GAAP) (7) 14.66 % 15.91 % 15.29 % 13.79 % 14.69 %
Adjusted return on average tangible common equity (annualized)
(non-GAAP) (3) (7)
14.80 % 15.91 % 15.90 % 17.68 % 17.60 %
Efficiency ratio (tax equivalent) 63.24 % 59.43 % 62.31 % 65.63 % 66.67 %
Adjusted efficiency ratio (non-GAAP) (9) 62.52 % 59.43 % 59.53 % 57.26 % 60.04 %
Dividend payout ratio (2) 30.29 % 26.63 % 27.30 % 30.93 % 28.68 %
Book value per common share $ 67.19 $ 66.04 $ 64.49 $ 63.77 $ 63.14
Tangible common equity per common share (non-GAAP) (7) $ 37.15 $ 36.30 $ 35.37 $ 34.64 $ 34.05
 
CAPITAL RATIOS
Equity-to-assets 15.42 % 16.12 % 16.31 % 16.12 % 15.81 %
Tangible equity-to-tangible assets (non-GAAP) (7) 9.16 % 9.56 % 9.65 % 9.45 % 9.20 %
Tier 1 common equity (6) 11.8 % 12.1 % 12.3 % 12.0 % 11.8 %
Tier 1 leverage (6) 10.5 % 10.6 % 10.8 % 10.6 % 10.5 %
Tier 1 risk-based capital (6) 12.8 % 13.1 % 13.3 % 13.0 % 12.8 %
Total risk-based capital (6) 13.3 % 13.6 % 13.8 % 13.5 % 13.3 %
 
OTHER DATA
Number of branches 168 168 168 169 179
Number of employees (full-time equivalent basis) 2,589 2,602 2,640 2,654 2,700
 
 
 
 

Asset Quality

        Ending Balance
Mar. 31,     Dec. 31,     Sept. 30,     June 30,     Mar. 31,
(Dollars in thousands) 2019 2018 2018 2018 2018
NONPERFORMING ASSETS:
Non-acquired
Non-acquired nonperforming loans $ 15,910 $ 15,018 $ 15,315 $ 14,870 $ 14,307
Non-acquired OREO and other nonperforming assets   4,070     4,037     3,229     8,179     2,363  
Total non-acquired nonperforming assets   19,980     19,055     18,544     23,049     16,670  
Acquired
Acquired nonperforming loans 14,558 13,651 10,800 9,590 8,233
Acquired OREO and other nonperforming assets   7,782     7,755     9,302     9,527     9,139  
Total acquired nonperforming assets   22,340     21,406     20,102     19,117     17,372  
Total nonperforming assets $ 42,320   $ 40,461   $ 38,646   $ 42,166   $ 34,042  
 
 
Three Months Ended
Mar. 31, Dec. 31, Sept. 30, June 30, Mar. 31,
2019 2018 2018 2018 2018
ASSET QUALITY RATIOS:

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

0.63 % 0.65 % 0.66 % 0.67 % 0.67 %

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

326.89 % 340.88 % 325.62 % 321.95 % 315.95 %

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

0.02 % 0.06 % 0.07 % 0.01 % 0.02 %

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

0.03 % 0.09 % 0.01 % 0.14 % 0.02 %

Total nonperforming assets as a percentage of total assets

0.27 % 0.28 % 0.27 % 0.29 % 0.23 %
Excluding Acquired Assets
NPLs as a percentage of period end non-acquired loans (1) 0.19 % 0.19 % 0.20 % 0.21 % 0.21 %

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

0.24 % 0.24 % 0.24 % 0.32 % 0.25 %

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

0.13 % 0.13 % 0.13 % 0.16 % 0.11 %
 
 

Total nonperforming assets increased by $1.9 million to $42.3 million,
representing 0.27% of total assets, a decrease of 1 basis point compared
to December 31, 2018. The decrease was the result of an increase in
total assets of $730.6 million during the quarter. Non-performing
acquired non-credit impaired loans increased $907,000, and total $14.6
million. Legacy non-performing loans increased by $892,000 during the
first quarter of 2019 to $15.9 million at March 31, 2019. The allowance
for loan losses as a percentage of non-acquired nonaccrual loans was
327% at March 31, 2019, down from 341% in the fourth quarter of 2018,
and up from 316% at March 31, 2018.

At March 31, 2019, the allowance for non-acquired loan losses was $52.0
million, or 0.63%, of non-acquired period-end loans and $51.2 million,
or 0.65%, at December 31, 2018, and $45.2 million, or 0.67% at March 31,
2018. Net charge-offs within the non-acquired portfolio were $493,000,
or 0.02% annualized, in the first quarter of 2019, compared to $1.1
million, or 0.06% annualized, in the fourth quarter of 2018. First
quarter 2018 net charge-offs totaled $367,000, or 0.02% annualized. Net
charge-offs (recoveries) related to the non-acquired loan portfolio were
($235,000) during the first quarter of 2019. The remaining net
charge-offs were from overdraft and ready reserve accounts and totaled
$728,000.

During the first quarter of 2019, the provision for loan losses totaled
$1.3 million for the non-acquired loan portfolio compared to $2.5
million in the fourth quarter of 2018, and $2.1 million in the first
quarter of 2018.

Net charge offs related to "acquired non-credit impaired loans" were
$168,000, or 0.03% annualized, in the first quarter of 2019; and the
Company recorded a provision for loan losses, accordingly. Net
charge-offs in the fourth quarter of 2018 totaled $574,000, or 0.09%
annualized, and in the first quarter of 2018, net charge-offs totaled
$169,000, or 0.02% annualized. The charge off level within the acquired
non-credit impaired portfolio remains as expected.

During the first quarter of 2019, the Company recorded a net impairment
of $13,000 within the acquired credit impaired loan pools compared to
$710,000 impairment in the fourth quarter of 2018. During the first
quarter of 2018, the Company recorded net impairment of $163,000.

Total OREO remained relatively consistent from the end of 2018 and
declined to $11.3 million at March 31, 2019, down from $11.4 million at
December 31, 2018.

 

Net Interest Income and Margin

        Three Months Ended
March 31, 2019     December 31, 2018     March 31, 2018
(Dollars in thousands) Average     Income/     Yield/ Average     Income/     Yield/ Average     Income/     Yield/
YIELD ANALYSIS Balance Expense Rate Balance Expense Rate Balance Expense Rate
Interest-Earning Assets:
Federal funds sold, reverse repo, and time deposits $ 248,620 $ 1,463 2.39 % $ 172,849 $ 1,032 2.37 % $ 165,752 $ 660 1.61 %
Investment securities (taxable) 1,327,336 8,597 2.63 % 1,358,978 8,838 2.58 % 1,453,480 8,788 2.45 %
Investment securities (tax-exempt) 187,732 1,496 3.23 % 188,666 1,457 3.06 % 212,719 1,559 2.97 %
Loans held for sale 19,308 214 4.49 % 24,820 291 4.65 % 32,517 307 3.83 %
Loans   11,023,005   131,620 4.84 %   10,928,294   132,250 4.80 %   10,604,506   126,734 4.85 %
Total interest-earning assets 12,806,001 143,390 4.54 % 12,673,607 143,868 4.50 % 12,468,974 138,048 4.49 %
Noninterest-earning assets   2,006,898   1,924,666   1,960,659
Total Assets $ 14,812,899 $ 14,598,273 $ 14,429,633
 
Interest-Bearing Liabilities:
Transaction and money market accounts $ 5,429,375 $ 9,340 0.70 % $ 5,310,048 $ 8,498 0.63 % $ 5,221,974 $ 2,893 0.22 %
Savings deposits 1,379,688 1,256 0.37 % 1,416,227 1,324 0.37 % 1,443,868 674 0.19 %
Certificates and other time deposits 1,773,365 6,049 1.38 % 1,804,939 5,488 1.21 % 1,758,223 3,346 0.77 %
Federal funds purchased and repurchase agreements 284,350 753 1.07 % 273,994 660 0.96 % 343,974 454 0.54 %
Other borrowings   301,696   2,725 3.66 %   122,676   1,506 4.87 %   225,496   1,708 3.07 %
Total interest-bearing liabilities 9,168,474 20,123 0.89 % 8,927,884 17,476 0.78 % 8,993,535 9,075 0.41 %
Noninterest-bearing liabilities 3,280,126 3,310,416 3,120,746
Shareholders' equity   2,364,299   2,359,973   2,315,352
Total Non-IBL and shareholders' equity   5,644,425   5,670,389   5,436,098
Total liabilities and shareholders' equity $ 14,812,899 $ 14,598,273 $ 14,429,633
Net interest income and margin (NON-TAX EQUIV.) $ 123,267 3.90 % $ 126,392 3.96 % $ 128,973 4.19 %
Net interest margin (TAX EQUIVALENT) 3.92 % 3.98 % 4.22 %
 
Overall Cost of Funds (including demand deposits) 0.67 % 0.57 % 0.31 %
 
 

Non-taxable equivalent net interest income was $123.3 million for the
first quarter of 2019, a $3.1 million decrease from the fourth quarter
of 2018. The decrease resulted from the continued decline in the
acquired loan portfolio partially offset by the growth within the
non-acquired loan portfolio, two fewer days in the first quarter of
2019, and the continued increase in interest expense of $2.6 million.
The highlights follow:

  1. Average balance of non-acquired loans increased by approximately
    $323.2 million and resulted in an increase in non-acquired loan
    interest income of $3.3 million, to $85.5 million. The yield on total
    non-acquired loans was 4.30% up from 4.21% in the fourth quarter of
    2018.
  2. Acquired loan interest income decreased $3.9 million from the fourth
    quarter of 2018 to $46.1 million. The yield on acquired loans for the
    first quarter of 2019 was 6.34%, an increase of 9 basis points from
    the 4Q 2018, while the average balance of acquired loans declined by
    $228.5 million during the first quarter of 2019. During the fourth
    quarter of 2018, the Company performed its first recast of the
    acquired credit impaired loan portfolio of Park Sterling, which
    resulted in $10.2 million release which will impact the acquired loan
    interest income over time. The recognition of this release is also
    dependent upon the level of loan pay downs, pay-offs received, and the
    change in asset quality each quarter. For the first quarter of 2019,
    the total loan yield improved 4 basis points to 4.84% from 4.80% in
    the fourth quarter of 2018. The total loan yield was 4.85% in the
    first quarter of 2018, and included the full quarter impact of the
    Park Sterling loan portfolio.
  3. Interest expense increased by $2.6 million in the first quarter of
    2019 compared to the fourth quarter of 2018. This increase in interest
    expense was within all categories of funding, except savings deposits,
    as rates continued to rise and average balances increased. The
    increase in interest rates was primarily the result of the continued
    competition for deposits which increased interest expense by $1.3
    million in the first quarter of 2019 over the fourth quarter of 2018.
    Interest expense on other borrowings increased compared to the fourth
    quarter of 2018 by $1.2 million due to the increase in FHLB advances.
    Total cost of funds on interest-bearing liabilities was 89 basis
    points, an increase of 11 basis points from the fourth quarter of 2018
    and up 48 basis points from the first quarter of 2018.

Tax-equivalent net interest margin declined 6 basis points from the
fourth quarter of 2018 and declined by 30 basis points from the first
quarter of 2018. During the first quarter of 2019, the Company's average
total assets increased to $14.8 billion at March 31, 2019, an increase
of $214.6 million from December 31, 2018, and an increase of $383.3
million from March 31, 2018. Average earning assets totaled $12.8
billion up $132.4 million from December 31, 2018, and up $337.0 million
from March 31, 2018. Average interest-bearing liabilities totaled $9.2
billion for the first quarter of 2019, an increase of $240.6 million
from the fourth quarter of 2018; and up $174.9 million from the first
quarter of 2018. Average non-interest bearing liabilities declined by
$30.3 million, from December 31, 2018, to $3.3 billion; and was up
$159.4 million from March 31, 2018. Including the impact of noninterest
bearing deposits, the Company's cost of funds was 67 basis points for
the first quarter of 2019 compared to 57 basis points in the fourth
quarter of 2018, and compared to 31 basis points in the first quarter of
2018.

The first table below 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 table now reflects the amount of acquired
credit impaired loan interest income recognized each quarter, split
between (1) contractual loan interest; and (2) the accretion recognized
from the performance of the acquired credit impaired loans.

The second table below shows the split between principal and interest
that will be accreted into interest income over the expected remaining
life of the ACI loans, the third table shows the nonaccretable
difference split between principal and interest which is not expected to
be collected, and the fourth table shows "total acquired accretion
income" recorded over the past five quarters. The amount declined by
$525,000 to $9.1 million from the fourth quarter of 2018 amount of $9.7
million.

The amount of ANCI discount recognized in the first quarter of 2019 was
$3.2 million compared to $3.8 million recognized in the fourth quarter
of 2018. The remaining balance of the discount on the acquired noncredit
impaired loan portfolio totals $30.2 million at March 31, 2019, $33.4
million at December 31, 2018, and $55.3 million at March 31, 2018.

 
1 - Accretable Yield Rollforward (Acquired credit impaired loans)       Mar. 31,     Dec. 31,     Sept. 30,     June 30,     Mar. 31,
(Dollars in thousands) 2019 2018 2018 2018 2018
 
Balance at beginning of period $ 116,754 $ 114,985 $ 121,804 $ 129,857 $ 133,095
 
Contractual interest income * (7,078 ) (7,837 ) (8,228 ) (8,354 ) (8,696 )
Accretion on acquired loans (5,120 ) (5,099 ) (4,892 ) (5,212 ) (3,801 )
Additions from Georgia Bank & Trust Acquisition - - - - -
Additions (decreases) from Park Sterling Bank Acquisition - - - (1,460 ) -
Improved cash flows affecting nonaccretable difference 2,474 14,698 6,350 7,118 9,335
Other changes, net   (52 )   7     (49 )   (145 )   (76 )
 
Balance at end of period $ 106,978   $ 116,754   $ 114,985   $ 121,804   $ 129,857  
* Contractual interest income does not include interest income from
loan advances post-acquisition on lines of credit, late fees or
other loan fees.
 
2 - Principal & Interest of Accretable Yield Period End Balance
Principal - expected to be collected in future periods and recorded
as interest income
$ 46,673 $ 48,896 $ 46,526 $ 50,474 $ 51,046
Interest - expected to be collected in future periods and recorded
as interest income
  60,305     67,859     68,459     71,331     78,811  
Total accretable balance at period end $ 106,978   $ 116,754   $ 114,985   $ 121,805   $ 129,857  
 
3 - Principal & Interest of the Nonaccretable Difference
Contractual principal which is not expected to be collected $ 15,203 $ 19,055 $ 30,081 $ 32,557 $ 25,490
Contractual interest which is not expected to be collected   9,079   $ 5,763     8,341     10,840     8,351  
Total nonaccretable difference $ 24,282   $ 24,818   $ 38,422   $ 43,397   $ 33,841  
 
4 - Acquired accretion income over Past 5 Quarters Three months Ended
(in thousands) Mar. 31, Dec. 31, Sept. 30, June 30, Mar. 31,
2019 2018 2018 2018 2018
Acquired non credit impaired accretion income and fees $ 3,237 $ 3,792 $ 6,786 $ 7,671 $ 9,702
Acquired credit impaired accretion income 5,120 5,099 4,892 5,212 3,801
Other interest and late fees   780     770     742     759     775  
Total acquired accretion income $ 9,137   $ 9,662   $ 12,420   $ 13,642   $ 14,278  
 
 
 
 

Noninterest Income and Expense

    Three Months Ended
Mar. 31,   Dec. 31,   Sept. 30,   June 30,   Mar. 31,
(Dollars in thousands) 2019 2018 2018 2018 2018
Noninterest income:
Fees on deposit accounts * $ 17,808 $ 18,704 $ 17,790 $ 22,612 $ 22,543
Mortgage banking income 2,385 2,501 2,824 3,317 4,948
Trust and investment services income 7,269 7,621 7,527 7,567 7,514
Securities (losses) gains, net 541 (3) (11) (641) --
Recoveries of fully charged off acquired loans 1,867 2,737 1,238 2,167 2,975
Other 2,188 4,082 2,659 2,503 2,575
Total noninterest income $ 32,058 $ 35,642 $ 32,027 $ 37,525 $ 40,555
 
Noninterest expense:
Salaries and employee benefits $ 58,431 $ 57,705 $ 57,934 $ 55,026 $ 62,465
Net occupancy expense 7,199 7,205 7,630 7,815 8,166
Information services expense 9,009 7,877 7,804 8,903 9,738
Furniture and equipment expense 4,413 4,599 4,605 4,519 4,626
FHLB prepayment penalty 134 -- -- -- --
OREO expense and loan related 751 831 (19) 1,037 1,661
Business development and staff related 2,288 2,822 2,463 2,765 2,082
Amortization of intangibles 3,281 3,537 3,537 3,722 3,413
Professional fees 2,240 3,148 2,138 1,898 1,699
Supplies, printing and postage expense 1,504 1,480 1,561 1,406 1,392
FDIC assessment and other regulatory charges 1,535 1,340 2,525 3,277 1,263
Advertising and marketing 807 1,273 1,049 1,163 736
Other operating expenses 5,667 4,847 4,591 4,879 4,926
Branch consolid. or merger / convers related exp. 980 - 4,476 14,096 11,296
Total noninterest expense $ 98,239 $ 96,664 $ 100,294 $ 110,506 $ 113,463

* 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 $ 2,922 $ 3,012 $ 3,172 $ 3,002 $ 2,963
 
 

Noninterest income totaled $32.1 million during the first quarter of
2019, a decrease of $3.6 million from the fourth quarter of 2018. The
decrease was attributable to lower acquired loan recoveries of $870,000,
lower fees on deposit accounts totaling $896,000 from lower NSF fees,
lower trust and investment services income of $352,000 attributable to
less activity than in fourth quarter 2018, and lower other income of
$1.9 million, primarily related the sale of an acquired credit impaired
note resulting in a gain of $1.6 million in the fourth quarter of 2018.
These declines were partially offset by net, securities gains of
$541,000. During the first quarter of 2019, the Company sold stock of
VISA class B shares resulting in a gain of $3.5 million, which was
partially offset by realized losses of $3.0 million on lower yielding
investment securities which were sold.

Compared to the first quarter of 2018, noninterest income declined by
$8.5 million. The decrease was related to the following:

  1. Fees on deposit accounts were down $4.7 million due primarily to the
    impact of the Durbin Amendment, which began in the third quarter of
    2018;
  2. $2.6 million decline in mortgage banking income from lower secondary
    market income with fewer gains from the sale of mortgage loans, and
    with the decline in interest rates late in first quarter 2019 resulted
    in sharp decline in the value of the mortgage servicing right; and
  3. Lower recoveries from acquired loans totaling $1.1 million.

Noninterest expense was $98.2 million in the first quarter of 2019, an
increase of $1.6 million from $96.7 million in the fourth quarter of
2018. Branch consolidation and other cost saving initiatives resulted in
$980,000 of additional expense in the first quarter of 2019. The Company
also incurred a $134,000 penalty related to the prepayment of an FHLB
advance. Other expense increased by $820,000 primarily related to
additional expense related to passive losses of investments in low
income housing that are tax advantaged. All of the other expense
categories offset each other in the quarter.

Compared to the first quarter of 2018, noninterest expense was $15.2
million lower. The net decrease was primarily due to the following: (1)
merger-related and branch consolidated cost declined $10.3 million, as
there were PSTB merger / conversion cost in 1Q 2018, (2) salaries and
benefits decreased $4.0 million due primarily to the cost savings from
the merger with PSTB; and partially offset by (3) a net increase of
$900,000 from the other expense categories primarily in FDIC assessment
and other regulatory charges and professional fees.

South State Corporation will hold a conference call tomorrow, April 30,
2019 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 10130012.
Participants can also listen to the live audio webcast through the
Investor Relations section of www.SouthStateBank.com.
A replay will be available beginning April 30, 2019 by 2:00 p.m. Eastern
Time until 9:00 a.m. on May 14, 2019. To listen to the replay, dial
877-344-7529 or 412-317-0088. The passcode is 10130012.

South State Corporation is a financial services company headquartered
in Columbia, South Carolina with approximately $15.4
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.

 

Noninterest Income and Expense

        Three Months Ended
(Dollars in thousands, except per share data) Mar. 31,     Dec. 31,     Sept. 30,     June 30,     Mar. 31,
RECONCILIATION OF GAAP TO Non-GAAP 2019 2018 2018 2018 2018
Adjusted net income (non-GAAP) (3)
Net income (GAAP) $ 44,367 $ 49,004 $ 47,082 $ 40,459 $ 42,326
Securities losses (gains), net of tax (432 ) 2 9 505 --
Provision for income taxes - Deferred Tax Asset Write-Off -- -- (1,602 ) 613 --
FHLB prepayment penalty 107 -- -- -- --
Merger and branch consolidation/acq. expense, net of tax   782     --     3,577     11,112     8,918  
Adjusted net income (non-GAAP) $ 44,824   $ 49,006   $ 49,066   $ 52,689   $ 51,244  
 
Adjusted net income per common share - Basic (3)
Earnings per common share - Basic (GAAP) $ 1.25 $ 1.36 $ 1.28 $ 1.10 $ 1.15
Effect to adjust for securities losses (gains) (0.01 ) - 0.00 0.01 -
Effect to adjust for provision for income tax DTA Write-Off - - (0.04 ) 0.02 -
Effect to adjust for FHLB prepayment penalty 0.00 - - - -
Effect to adjust for merger & branch consol./acq expenses   0.02     -     0.10     0.31     0.25  
Adjusted net income per common share - Basic (non-GAAP) $ 1.26   $ 1.36   $ 1.34   $ 1.44   $ 1.40  
 
Adjusted net income per common share - Diluted (3)
Earnings per common share - Diluted (GAAP) $ 1.25 $ 1.35 $ 1.28 $ 1.09 $ 1.15
Effect to adjust for securities losses (gains) (0.01 ) - 0.00 0.01 --
Effect to adjust for provision for income tax DTA Write-Off - - (0.05 ) 0.02 --
Effect to adjust for FHLB prepayment penalty 0.00 - - -- --
Effect to adjust for merger & branch consol./acq expenses   0.02     -     0.10     0.31     0.24  
Adjusted net income per common share - Diluted (non-GAAP) $ 1.26   $ 1.35   $ 1.33   $ 1.43   $ 1.39  
 
Adjusted Return of Average Assets (3)
Return on average assets (GAAP) 1.21 % 1.33 % 1.28 % 1.12 % 1.19 %
Effect to adjust for securities losses (gains) -0.01 % 0.00 % 0.00 % 0.01 % 0.00 %
Effect to adjust for provision for income tax DTA Write-Off 0.00 % 0.00 % -0.04 % 0.02 % 0.00 %
Effect to adjust for FHLB prepayment penalty 0.00 % 0.00 % 0.00 % 0.00 % 0.00 %
Effect to adjust for merger & branch consol./acq expenses   0.03 %   0.00 %   0.09 %   0.30 %   0.25 %
Adjusted return on average assets (non-GAAP)   1.23 %   1.33 %   1.33 %   1.45 %   1.44 %
 
Adjusted Return of Average Equity (3)
Return on average equity (GAAP) 7.61 % 8.24 % 7.89 % 6.96 % 7.41 %
Effect to adjust for securities losses (gains) -0.07 % 0.00 % 0.00 % 0.09 % 0.00 %
Effect to adjust for provision for income tax DTA Write-Off 0.00 % 0.00 % -0.27 % 0.11 % 0.00 %
Effect to adjust for FHLB prepayment penalty 0.02 % 0.00 % 0.00 % 0.00 % 0.00 %
Effect to adjust for merger & branch consol./acq expenses   0.13 %   0.00 %   0.61 %   1.90 %   1.57 %
Adjusted return on average equity (non-GAAP)   7.69 %   8.24 %   8.23 %   9.06 %   8.98 %
 
Adjusted Return on Average Common Tangible Equity (3) (7)
Return on average common equity (GAAP) 7.61 % 8.24 % 7.89 % 6.96 % 7.41 %
Effect to adjust for securities losses (gains) -0.07 % 0.00 % 0.00 % 0.09 % 0.00 %
Effect to adjust for provision for income tax DTA Write-Off 0.00 % 0.00 % -0.27 % 0.11 % 0.00 %
Effect to adjust for FHLB prepayment penalty 0.02 % 0.00 % 0.00 % 0.00 % 0.00 %
Effect to adjust for merger & branch consol./acq expenses 0.13 % 0.00 % 0.60 % 1.91 % 1.56 %
Effect to adjust for intangible assets   7.11 %   7.67 %   7.68 %   8.61 %   8.63 %
Adjusted return on average common tangible equity (non-GAAP)   14.80 %   15.91 %   15.90 %   17.68 %   17.60 %
 
Tangible Book Value Per Common Share (7)
Book value per common share (GAAP) $ 67.19 $ 66.04 $ 64.49 $ 63.77 $ 63.14
Effect to adjust for intangible assets   (30.04 )   (29.74 )   (29.12 )   (29.13 )   (29.09 )
Tangible book value per common share (non-GAAP) $ 37.15   $ 36.30   $ 35.37   $ 34.64   $ 34.05  
 
Tangible Equity-to-Tangible Assets (7)
Equity-to-assets (GAAP) 15.42 % 16.12 % 16.31 % 16.12 % 15.81 %
Effect to adjust for intangible assets   -6.26 %   -6.56 %   -6.66 %   -6.67 %   -6.61 %
Tangible equity-to-tangible assets (non-GAAP)   9.16 %   9.56 %   9.65 %   9.45 %   9.20 %
 
 
 
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 third
quarter of 2018. 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 $980,000, $4.5 million, $14.1
million, and $11.3 million, for the quarters ended March 31, 2019,
September 30, 2018, June 30, 2018, and March 31, 2018, respectively;
(b) securities (losses) gains, net of $541,000, ($3,000), ($11,000),
and ($641,000), for the quarter ended March 31, 2019, December 31,
2018, September 30, 2018, and June 30, 2018; and (c) FHLB prepayment
penalty of $134,000 for the quarter ended March 31, 2019. In the
third quarter of 2018 and second quarter of 2018, the Company
revalued its net deferred tax assets with the Tax Act of 2017 with
a(n) (decrease) increase in our income tax provision of ($1.6
million) and $613,000, respectively.
(2)

The dividend payout ratio is calculated by dividing total
dividends paid during the period by the total net income for the
same period. Repossessed assets include OREO and other
nonperforming assets.

(5) Calculated by dividing total non-acquired NPAs by total assets.
(6) March 31, 2019 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 $3.2 million, $3.8 million, $6.7
million, $7.6 million, and $9.6 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 and the
FHLB prepayment penalty 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 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 Corporation ("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)
increased expenses, loss of revenues, and increased regulatory scrutiny
associated with our total assets having exceeded $10.0 billion; (3)
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; (4) ownership dilution
risk associated with potential acquisitions in which South State's stock
may be issued as consideration for an acquired company; (5) potential
deterioration in real estate values; (6) the impact of competition with
other financial institutions, including pricing pressures (including
those resulting from the Tax Cuts and Jobs Act) and the resulting
impact, including as a result of compression to net interest margin;
(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, 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 Tax Cuts and Jobs 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); (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 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) greater than expected
noninterest expenses; (20) 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; (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, and
potential difficulties in maintaining relationships with key personnel;
(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; (26) 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; and (27) other risks and uncertainties disclosed in
South State'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 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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