EX-99.1 2 ssb-20200730xex99d1.htm EX-99.1
South State Corporation
8-K on 07/31/2020   Download
SEC Document
SEC Filing

Exhibit 99.1

SSC_NewsRelease_Corp

For Immediate Release

Media Contact:

Jackie Smith (803) 231-3486

South State Corporation Reports Second Quarter 2020 Results and

Declares Quarterly Cash Dividend

WINTER HAVEN, FL—July 30, 2020—South State Corporation (NASDAQ: SSB) today released its unaudited results of operations and other financial information for the three-month and six-month period ended June 30, 2020.

The Company reported consolidated net loss of ($1.96) per diluted common share for the three months ended June 30, 2020, compared to net income of $0.71 per diluted common share for the three months ended March 31, 2020.  Contributing to the net loss was the initial provision for credit losses (“PCL”) recorded on acquired non-purchase credit deteriorated (“NonPCD”) loans and unfunded commitments (“UFC”) which totaled $119 million, pre-tax, and merger-related costs of $40 million, pre-tax.

Adjusted net income (non-GAAP) totaled $0.89 per diluted share for the three months ended June 30, 2020, compared to $0.82 per diluted share, in the first quarter of 2020, and compared to $1.40 per diluted share in the year ago period.  Adjusted net income includes two primary adjustments:  (1) the initial PCL on NonPCD loans and UFC of $92 million, after-tax, and (2) merger-related costs of $31 million, after-tax.

Highlights of the second quarter included:

Closed the merger of equals with CenterState Bank Corporation (“CSFL”) on June 7th (see page 7 for additional details).
After recording a total loan loss provision expense of $151 million, $119 million of which was for the CenterState acquired NonPCD loans and unfunded commitments (the initial provision), and after $40 million in merger-related costs, the company reported a net loss of ($85 million) for the quarter, resulting in an ROAA of (1.49%), annualized.  The initial provision expense on the acquired NonPCD loans is a result of the accounting requirements for mergers under the Current Expected Credit Loss (“CECL”) standard, which became effective in 2020.
The quarter’s results only include the operations of CenterState for the final 23 days of the quarter.  On a combined historical basis* (as if the companies had been merged for the full quarter, a Non-GAAP measure), Pre-Provision Net Revenue (“PPNR”) was $157 million, for a 1.68% PPNR ROAA.  On the same combined basis, the Company had record revenue for the quarter.
Strong core deposit growth.
Minimal net charge-offs of $101,000, or 0.00% annualized.
Significant allowance for credit losses and credit marks on the balance sheet due to provision for credit losses and required purchase accounting marks.
Ending tangible book value (“TBV”) per share of $38.33, up $0.32 from Q1.

We are pleased to have closed our merger of equals between South State and CenterState on June 7th, said John C. Corbett, Chief Executive Officer.  “While accounting rules under the recently-implemented CECL standard required us to book a large provision for credit loss expense on the closing of the merger, leading us to report a net loss for the quarter, I am very pleased with the underlying fundamental operating performance of the Company.


*      The combined historical information presented is based on the reported GAAP results of the Company for three-month period ended June 30, 2019 and historical GAAP results of CenterState for the period from April 1, 2020 through June 7, 2020.  The combined historical financial information set forth in this release has not been prepared in accordance with Article 11 of Regulation S-X, and therefore does not reflect any of the pro forma adjustments that would be required thereby.

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“53 days into our merger, we are off to a solid start,” said Robert R. Hill, Jr., Executive Chairman. “We are building a sound, profitable, and growing company and I am pleased with our team’s progress to date.”

“In a quarter in which over 90% of our employees are working from home, the team produced record revenues”, Corbett continued.  “And, while we are operating in an uncertain economic environment due to the pandemic, our credit metrics remain at strong levels, with low past dues, minimal charge-offs, and low non-performing assets.  The underlying performance of the business, the loss absorption capacity existing on the balance sheet post-merger, and the way our team has performed give me great confidence in the future.”

COVID-19 Response

Our team continues to respond impressively to the challenges presented by the COVID-19 pandemic.  The health and safety of our employees and customers remain our top priority.  We continue to adjust our operations to adhere to CDC and local government recommendations in the markets we serve.  Our branch drive-through locations remain open and our digital channels have been key in delivery of essential banking services to customers.  Many of our support personnel continue to work from home.

Loan / Deposit Growth

As of June 30, 2020, we have assisted our customers with over 19,000 Paycheck Protection Program (“PPP”) loans with an outstanding balance of $2.3 billion.   We have recognized $7.3 million in deferred loan fees, net of costs related to these loans in the income statement, and have another $66.6 million net to be recognized over the life of these loans.  During the second quarter, net loans grew $15.3 billion due to the merger with CenterState and the PPP loans.  With the merger as well as strong customer deposit growth, total deposits ended the quarter up $17.6 billion, including core deposit growth of $15.1 billion.

Quarterly Cash Dividend and 2020 Annual Meeting of Shareholders

The Company’s Board of Directors declared a common stock dividend of $0.47 per share, payable on August 21, 2020 to shareholders of record as of August 14, 2020.

The Board of Directors also established that the Company’s 2020 Annual Meeting of Shareholders will be held on Wednesday, September 30, 2020, at 10:00 a.m., Eastern Time, at One Buckhead Plaza, 3060 Peachtree Road, N.W., Atlanta, Georgia 30305. The record date for the determination of shareholders of the Company entitled to receive notice of and to vote at the 2020 Annual Meeting shall be the close of business on Monday, August 10, 2020. Because the date of the 2020 Annual Meeting differs by more than thirty days from the anniversary date of the 2019 Annual Meeting of Stockholders, which was held on April 25, 2019, the deadlines for any shareholder proposals pursuant to Rule 14a-8 under the Securities Exchange Act of 1934, as amended (the “Exchange Act”) and for any shareholder nomination or proposal outside of Rule 14a-8, as listed in the Company’s 2019 Proxy Statement on Schedule 14A, as filed with the Securities and Exchange Commission (the “SEC”) on March 9, 2019, are no longer applicable. Pursuant to the Company’s bylaws and Rule 14a-5(f) of the Exchange Act, the Company is hereby providing notice of the revised deadlines for such proposals via this Form 8-K.

To be considered for inclusion in this year’s proxy materials for the 2020 Annual Meeting, shareholder proposals must be submitted in writing by August 9, 2020. In addition to complying with this deadline, shareholder proposals intended to be considered for inclusion in the Company’s proxy materials for the 2020 Annual Meeting must also comply with the Company’s bylaws and all applicable rules and regulations promulgated by the SEC under the Exchange Act. Additionally, any shareholder who intends to submit a proposal regarding a director nomination or who intends to submit a proposal regarding any other matter of business at the 2020 Annual Meeting to be included in the Company’s proxy materials for the 2020 Annual Meeting must also ensure that notice of any such nomination or proposal (including any additional information specified in the bylaws) is received by the Corporate Secretary at the Company’s principal executive offices on or before the close of business on August 9, 2020. The August 9, 2020 deadline will also apply in determining whether notice of a shareholder proposal is timely for purposes of exercising discretionary voting authority with respect to proxies under Rule 14a-4(c)(1) of the Exchange Act.   Further, under the Company’s bylaws, shareholder proposals not intended for inclusion in 2020 Annual Meeting proxy statement pursuant to Rule 14a-8 but intended to be raised at the 2020 Annual Meeting must be received no later than August 9, 2020, and must comply with the procedural, informational and other requirements outlined in the Company’s bylaws.

Any shareholder proposal for inclusion in the Company’s proxy materials, notice of proposed business to be brought before the 2020 Annual Meeting or director nomination should be sent to: Corporate Secretary, South State Corporation, 1101 First Street South, Winter Haven, Florida 33880.

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Second Quarter 2020 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

2020

2020

2019

2019

2019

2020

2019

Interest income

    

    

    

    

    

    

    

    

    

    

    

    

    

    

 

Loans, including fees (6)

$

167,707 

$

133,034 

$

132,615 

$

134,953 

$

135,388 

$

300,741 

$

267,222 

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

12,857 

14,766 

14,839 

15,048 

14,594 

27,623 

26,150 

Total interest income

180,564 

147,800 

147,454 

150,001 

149,982 

328,364 

293,372 

Interest expense

Deposits

12,624 

14,437 

15,227 

16,655 

17,393 

27,061 

34,038 

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

5,383 

5,350 

5,771 

5,973 

5,410 

10,732 

8,888 

Total interest expense

18,007 

19,787 

20,998 

22,628 

22,803 

37,793 

42,926 

Net interest income

162,557 

128,013 

126,456 

127,373 

127,179 

290,571 

250,446 

Provision for credit losses

151,474 

36,533 

3,557 

4,028 

3,704 

188,007 

5,192 

Net interest income after provision for loan losses

11,083 

91,480 

122,899 

123,345 

123,475 

102,564 

245,254 

Noninterest income

54,347 

44,132 

36,307 

37,582 

37,618 

98,479 

69,676 

Pre-tax operating expense

134,634 

103,118 

99,134 

96,364 

97,803 

237,753 

194,928 

Merger and/or branch consolid. expense

40,279 

4,129 

1,494 

— 

2,078 

44,408 

3,058 

Federal Home Loan Bank advances prepayment fee

199 

— 

— 

— 

— 

199 

134 

Pension plan termination expense

— 

— 

— 

— 

9,526 

— 

9,526 

Total noninterest expense

175,112 

107,247 

100,628 

96,364 

109,407 

282,360 

207,646 

(Loss) income before provision for income taxes

(109,682)

28,365 

58,578 

64,563 

51,686 

(81,317)

107,284 

Provision for income taxes

(24,747)

4,255 

9,487 

12,998 

10,226 

(20,492)

21,457 

Net (loss)income

$

(84,935)

$

24,110 

$

49,091 

$

51,565 

$

41,460 

$

(60,825)

$

85,827 

Adjusted net income (non-GAAP) (3)

Net income (loss) (GAAP)

$

(84,935)

$

24,110 

$

49,091 

$

51,565 

$

41,460 

$

(60,825)

$

85,827 

Securities gains, net of tax

— 

— 

(20)

(349)

(1,371)

— 

(1,803)

FHLB prepayment penalty

154 

— 

— 

— 

— 

154 

107 

Pension plan termination expense, net of tax

— 

— 

— 

— 

7,641 

— 

7,641 

Initial provision for credit losses - NonPCD loans and UFC

92,212 

— 

— 

— 

— 

92,212 

— 

Merger and/or branch consolid. expense

31,191 

3,510 

1,252 

— 

1,667 

34,701 

2,449 

Adjusted net income (non-GAAP)

$

38,622 

$

27,620 

$

50,323 

$

51,216 

$

49,397 

$

66,242 

$

94,221 

Basic (loss) earnings per common share

$

(1.96)

$

0.72 

$

1.46 

$

1.51 

$

1.18 

$

(1.58)

$

2.43 

Diluted (loss)earnings per common share

$

(1.96)

$

0.71 

$

1.45 

$

1.50 

$

1.17 

$

(1.58)

$

2.42 

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

$

0.89 

$

0.82 

$

1.49 

$

1.50 

$

1.41 

$

1.72 

$

2.67 

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

$

0.89 

$

0.82 

$

1.48 

$

1.49 

$

1.40 

$

1.72 

$

2.66 

Dividends per common share

$

0.47 

$

0.47 

$

0.46 

$

0.43 

$

0.40 

$

0.94 

$

0.78 

Basic weighted-average common shares outstanding

43,317,736 

33,566,051 

33,677,851 

34,056,771 

35,089,129 

38,438,535 

35,267,574 

Diluted weighted-average common shares outstanding

43,317,736 

33,804,908 

33,964,216 

34,300,206 

35,299,747 

38,438,535 

35,461,383 

Adjusted diluted weighted-average common shares outstanding *

43,606,333 

33,804,908 

33,964,216 

34,300,206 

35,299,747 

38,793,092 

35,461,383 

Effective tax rate

22.56 

%  

15.00 

%  

16.20 

%  

20.13 

%  

19.78 

%  

25.20 

%  

20.00 

%

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

The Company reported consolidated net loss of ($84.9) million, or ($1.96) per diluted common share for the three-months ended June 30, 2020, a decrease of $109.0 million, or $2.67 per diluted common share, from the first quarter of 2020.  The net loss in the second quarter of 2020 was the result of the initial PCL recorded on the acquired NonPCD loans and the merger-related cost incurred from the merger with CSFL.  Weighted-average diluted shares increased by 9.5 million shares, or 28.1%, compared to the first quarter of 2020, due primarily to the merger with CSFL in early June, in which the Company issued 37.3 million shares.  Net interest income increased by $34.5 million, compared to the first quarter of 2020, on lower interest expense of $1.8 million and higher interest income of $32.8 million.  The PCL increased by $114.9 million, due to the PCL on NonPCD loans and unfunded commitments associated with CSFL.  Noninterest income was up $10.2 million compared to first quarter of 2020 to $54.3 million in the second quarter of 2020, due to the strong results from mortgage banking and correspondent banking and capital markets income.  Correspondent banking was added to the Company from the merger with CSFL and contributed $8.3 million in the month of June.  Noninterest expense was higher in the second quarter of 2020 compared to the first quarter of 2020 by $67.9 million due primarily to higher salaries and employee benefits totaling $20.7 million and higher merger-related costs of $36.2 million.  Adjusted noninterest expense was up approximately 30% over first quarter 2020, which relates directly to the addition of CSFL operating expense in the month of June.  The efficiency ratio and adjusted efficiency ratio were 80.5% and 61.9% in 2Q 2020, respectively, compared to 62.1% and 59.7% in 1Q 2020, respectively.

Current Expected Credit Losses (“CECL”)

Effective January 1, 2020, the Company adopted ASU 2016-13 (“CECL”), which impact the allowance for loan losses and the liability for UFC.  CECL requires that any allowance for credit losses (“ACL”) related to NonPCD loans be charged to the income statement.  Therefore, during the second quarter of 2020, the Company recorded $119.1 million in provision for credit losses related to

3


acquired CSFL NonPCD loans and UFC.  Below is a table showing the roll forward of the ACL and UFC for the second quarter of 2020:

Allowance for Credit Losses ("ACL & UFC")

NonPCD ACL

PCD ACL

UFC

Total

Ending balance 3/31/2020

    

$

137,376 

    

$

7,409 

    

$

8,555 

    

$

153,340 

 

ACL - PCD loans from CSFL

 

150,946 

150,946 

Initial provision for credit losses - CSFL

109,442 

 

9,637 

119,079 

Charge offs

(1,638)

(1,638)

Acquired charge offs

(728)

(65)

(793)

Recoveries

1,206 

1,206 

Acquired recoveries

351 

773 

1,124 

Provision for credit losses

34,292 

(4,756)

2,859 

32,395 

Ending balance 6/30/2020

$

280,301 

$

154,307 

$

21,051 

$

455,659 

Period end loans (includes PPP Loans)

$

22,175,393 

$

3,323,754 

$

25,499,147 

$

25,499,147 

Reserve to Loans (includes PPP Loans)

1.26 

%  

4.64 

%  

0.08 

%  

1.79 

%

Period end loans (excludes PPP Loans)

$

19,839,060 

N/A

$

23,162,814 

$

23,162,814 

Reserve to Loans (excludes PPP Loans)

1.41 

%  

N/A

0.09 

%  

1.97 

%

The ACL related to all loans totals $434.6 million compared to $144.8 million at March 31, 2020, and was recorded as a contra asset on its own line within the balance sheet, while the liability for UFC of $21.1 million was recorded on its own line in the liabilities section of the balance sheet.  The total provision for credit losses, including the initial provision for credit losses  – CSFL, totaled $151.5 million for the second quarter of 2020 and was recorded in the income statement, accordingly.  In the first quarter of 2020, the provision for credit losses totaled $36.5 million.

Income Tax Expense

During the second quarter of 2020, our effective tax rate increased to 22.56% from 15.00% in the first quarter of 2020 and from 19.78% in the second quarter of 2019.  The primary reason for the increase in the effective tax rate compared to the first quarter of 2020 was a pre-tax book loss that was generated during the current quarter.  This along with the other rate reducing items also shown in the first quarter of the year increased the benefit that was recorded for the quarter.  This is also what drove the increase in the rate from the second quarter of 2019, along with additional federal tax credits available in the current quarter.

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Balance Sheet and Capital

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

Ending Balance

June 30,

Mar. 31,

Dec. 31,

Sept. 30,

June 30,

BALANCE SHEET

2020

2020

2019

2019

2019

Assets

    

    

    

    

    

    

    

    

    

    

Cash and cash equivalents

$

4,363,708 

$

1,262,836 

$

688,704 

$

719,194 

$

851,971 

Investment securities:

Securities available for sale, at fair value

3,138,212 

1,971,195 

1,956,047 

1,813,134 

1,717,276 

Other investments

133,430 

62,994 

49,124 

49,124 

49,124 

Total investment securities

3,271,642 

2,034,189 

2,005,171 

1,862,258 

1,766,400 

Loans held for sale

603,275 

71,719 

59,363 

87,393 

47,796 

Loans:

Acquired - PCD

3,323,754 

311,271 

356,782 

390,714 

419,961 

Acquired - NonPCD

11,577,833 

1,632,700 

1,760,427 

1,965,603 

2,180,281 

Non-acquired

10,597,560 

9,562,919 

9,252,831 

8,928,512 

8,621,327 

Less allowance for loan losses

(434,608)

(144,785)

(56,927)

(54,937)

(53,590)

Loans, net

25,064,539 

11,362,105 

11,313,113 

11,229,892 

11,167,979 

Bank property held for sale

25,541 

5,412 

5,425 

8,424 

5,785 

Other real estate owned ("OREO")

18,016 

7,432 

6,539 

4,991 

8,721 

Premises and equipment, net

627,943 

312,151 

317,321 

323,506 

321,348 

Bank owned life insurance

556,807 

233,849 

234,567 

233,206 

231,708 

Deferred tax asset

107,532 

46,365 

31,316 

27,844 

28,240 

Mortgage servicing rights

25,441 

26,365 

30,525 

28,674 

30,332 

Core deposit and other intangibles

170,911 

46,809 

49,816 

53,083 

56,351 

Goodwill

1,603,383 

1,002,900 

1,002,900 

1,002,900 

1,002,900 

Other assets

1,286,618 

230,779 

176,332 

170,717 

163,806 

Total assets

$

37,725,356 

$

16,642,911 

$

15,921,092 

$

15,752,082 

$

15,683,337 

Liabilities and Shareholders' Equity

Deposits:

Noninterest-bearing

$

9,915,700 

$

3,367,422 

$

3,245,306 

$

3,307,532 

$

3,255,906 

Interest-bearing

20,041,585 

8,977,125 

8,931,790 

8,716,255 

8,666,374 

Total deposits

29,957,285 

12,344,547 

12,177,096 

12,023,787 

11,922,280 

Federal funds purchased and securities sold under agreements to repurchase

720,479 

325,723 

298,741 

269,072 

298,029 

Other borrowings

1,089,279 

1,316,100 

815,936 

815,771 

816,414 

Reserve for unfunded commitments

21,051 

8,555 

335 

335 

335 

Other liabilities

1,445,411 

326,943 

255,971 

292,161 

272,301 

Total liabilities

33,233,506 

14,321,868 

13,548,079 

13,401,126 

13,309,359 

Shareholders' equity:

Preferred stock - $.01 par value; authorized 10,000,000 shares

— 

— 

— 

— 

— 

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

177,268 

83,611 

84,361 

84,757 

86,839 

Surplus

3,759,166 

1,584,322 

1,607,740 

1,617,004 

1,676,229 

Retained earnings

542,677 

643,345 

679,895 

646,325 

609,444 

Accumulated other comprehensive income

12,739 

9,765 

1,017 

2,870 

1,466 

Total shareholders' equity

4,491,850 

2,321,043 

2,373,013 

2,350,956 

2,373,978 

Total liabilities and shareholders' equity

$

37,725,356 

$

16,642,911 

$

15,921,092 

$

15,752,082 

$

15,683,337 

Common shares issued and outstanding

70,907,119 

33,444,236 

33,744,385 

33,902,726 

34,735,587 

At June 30, 2020, the Company’s total assets were $37.7 billion, an increase of $21.1 billion from March 31, 2020, and an increase of 126.7%.  The changes in each line item during the quarter were primarily the result of the merger with CSFL.  Below are highlights:

1.Cash and cash equivalents increased by $3.1 billion, due to the deposits that many customers have placed with the Company through the Paycheck Protection Program from both South State and CenterState, and the disposition of securities at CenterState prior to the merger.
2.Investment securities portfolio increased by $1.2 billion, and totaled $3.3 billion, representing 8.7% of total assets.
3.Non-interest bearing deposits increased by $6.5 billion.
4.Interest bearing deposits grew by $11.1 billion.
5.Other borrowings decreased by $500.0 million due to repaying $300.0 million of FHLB advances and $200.0 million Federal Reserve borrowings.

5


6.Equity increased by $2.2 billion from the following:  (a) the Company issued 37.3 million shares at $60.27 per share in the merger with CSFL totaling $2.2 billion, (b) other comprehensive income increased by $3.0 million and (c) impact of stock awards increased equity by $6.7 million, which were offset by (d) quarterly dividend of $15.7 million, (e) the quarterly net loss of $84.9 million.

The Company’s book value per common share decreased to $63.35 per share at June 30, 2020, compared to $69.40 per share at March 31, 2020 and $68.34 at June 30, 2019.  TBV per common share increased by $0.32 per share to $38.33 at June 30, 2020, compared to $38.01 at March 31, 2020, and increased by $0.48 per share, or 1.3%, from $37.85 at June 30, 2019.    Total equity (capital) increased by $2.2 billion as a result of the merger with CSFL in June.

Merger with CSFL

The merger with CSFL closed on June 7, 2020, ahead of our original expectation of the third quarter of 2020 and despite the many challenges faced in the current environment.  The Company issued 37,271,069 shares using an exchange ratio of 0.3001. The total purchase price was $2.262 billion. The initial (preliminary) allocation of the purchase price to the fair value of assets and liabilities acquired was completed and is included the following table:

South State Corporation

    

    

    

    

    

Fair Value of

CenterState Bank Corporation

Net Assets

Merger Date of June 7, 2020

Acquired at

As Recorded

Fair Value

Date of

(Dollars in thousands)

by CSFL

Adjustments

Acquisition

Assets

Cash and cash equivalents

$

2,566,450

$

$

2,566,450

Investment securities

1,188,403

5,507

1,193,910

Loans held for sale

453,578

453,578

Loans

12,969,091

(48,342)

12,920,749

Premises and equipment

324,396

2,392

326,788

Intangible assets

1,294,211

(1,163,349)

130,862

Other real estate owned and repossessed assets

10,849

(791)

10,058

Bank owned life insurance

333,053

333,053

Deferred tax asset

54,123

(8,681)

45,442

Other assets

1,061,136

(604)

1,060,532

Total assets

$

20,255,290

$

(1,213,868)

$

19,041,422

Liabilities

Deposits:

Noninterest-bearing

$

5,291,443

$

$

5,291,443

Interest-bearing

10,312,370

19,702

10,332,072

Total deposits

15,603,813

19,702

15,623,515

Federal funds purchased and securities sold under agreements to repurchase

401,546

401,546

Other borrowings

278,900

(7,401)

271,499

Other liabilities

1,088,048

(4,592)

1,083,456

Total liabilities

17,372,307

7,709

17,380,016

Net identifiable assets acquired over liabilities assumed

2,882,983

(1,221,577)

1,661,406

Goodwill

600,483

600,483

Net assets acquired over liabilities assumed

$

2,882,983

$

(621,094)

$

2,261,888

Consideration:

South State Corporation common shares issued

37,271,069

Purchase price per share of the Company's common stock

$

60.27

Company common stock issued and cash exchanged for fractional shares

$

2,246,401

Stock Option Conversion

8,080

Restricted Stock Conversion

7,407

Fair value of total consideration transferred

$

2,261,888

6


Below are observations of the merger between the Company and CSFL:

Goodwill was approximately $815.0 million less than announced in January 2020, due primarily to the stock price decline from $85.52 on January 24, 2020 to $60.27 at closing.
Core deposit intangible of 1.75%, or $190.5 million was modeled compared to actual result of 1.14% (pre-tax), or $125.9 million.
The fair value adjustments for the loans (excluding PPP loans acquired) resulted in $269.1 million discount, or 2.26%, compared to $130.0 million, or 1.1%, originally modeled.
On track to achieve approximately $80.0 million of cost saves, or 10%, of the combined entity’s noninterest expense.
Merger cost incurred during the first and second quarters have been as expected.
We are now fully focused on the integration and conversion aspects of the combined company and expect the core conversion to occur in the second quarter of 2021.

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

Ending Balance

June 30,

March 31,

December 31,

September 30,

June 30,

LOAN PORTFOLIO

    

2020 

    

2020 

    

2019 

    

2019 

    

2019 

Commercial non-owner occupied real estate:

Construction and land development

$

1,999,062

$

1,105,308

$

1,016,692

$

1,024,627

$

956,548

Commercial non-owner occupied

6,021,317

2,371,371

2,322,590

2,356,335

2,397,240

Total commercial non-owner occupied real estate

8,020,379

3,476,679

3,339,282

3,380,962

3,353,788

Consumer real estate:

Consumer owner occupied

4,421,247

2,665,405

2,704,405

2,757,424

2,759,920

Home equity loans

1,378,406

758,482

758,020

773,363

778,234

Total consumer real estate

5,799,653

3,423,887

3,462,425

3,530,787

3,538,154

Commercial owner occupied real estate

4,762,520

2,177,738

2,158,701

2,093,795

2,047,933

Commercial and industrial

5,341,363

1,418,421

1,386,303

1,261,527

1,271,464

Other income producing property

650,237

327,696

346,554

361,879

367,353

Consumer non real estate

916,623

674,791

662,883

654,422

641,276

Other

8,372

7,678

13,892

1,457

1,601

Total loans

$

25,499,147

$

11,506,890

$

11,370,040

$

11,284,829

$

11,221,569

7


Performance and Capital Ratios

Three Months Ended

Six Months Ended

    

June 30,

    

Mar. 31,

    

Dec. 31,

    

Sept. 30,

    

June 30,

    

June 30,

    

June 30,

 

PERFORMANCE RATIOS

2020

2020

2019

2019

2019

2020

2019

Return on average assets (annualized)

-1.49

%

0.60

%

1.23

%

1.31

%

1.08

%

-0.63

%

1.14

%

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

0.68

%

0.69

%

1.26

%

1.30

%

1.28

%

0.68

%

1.26

%

Return on average equity (annualized)

-11.78

%

4.15

%

8.26

%

8.70

%

6.98

%

-4.67

%

7.29

%

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

5.36

%

4.75

%

8.47

%

8.64

%

8.32

%

5.09

%

8.01

%

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

-19.71

%

8.35

%

15.79

%

16.62

%

13.38

%

-7.52

%

14.01

%

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

10.23

%

9.45

%

16.17

%

16.51

%

15.79

%

9.83

%

15.30

%

Efficiency ratio (tax equivalent)

80.52

%

62.11

%

61.64

%

58.40

%

66.87

%

72.32

%

65.10

%

Adjusted efficiency ratio (non-GAAP) (7)

61.91

%

59.72

%

60.73

%

58.40

%

59.78

%

60.89

%

61.12

%

Dividend payout ratio (2)

N/A

65.70

%

31.62

%

28.48

%

33.89

%

N/A

32.03

%

Book value per common share

$

63.35

$

69.40

$

70.32

$

69.34

$

68.34

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

$

38.33

$

38.01

$

39.13

$

38.20

$

37.85

CAPITAL RATIOS

Equity-to-assets

11.91

%

13.95

%

14.90

%

14.92

%

15.14

%

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

7.56

%

8.15

%

8.88

%

8.81

%

8.99

%

Tier 1 common equity (4) *

10.7

%

11.0

%

11.3

%

11.2

%

11.6

%

Tier 1 leverage (4) *

13.3

%

9.5

%

9.7

%

9.7

%

10.0

%

Tier 1 risk-based capital (4) *

10.7

%

12.0

%

12.3

%

12.2

%

12.6

%

Total risk-based capital (4) *

12.9

%

12.7

%

12.8

%

12.7

%

13.1

%

OTHER DATA

Number of branches

305

155

155

157

156

Number of employees (full-time equivalent basis)

5,369

2,583

2,547

2,544

2,544

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

8


Asset Quality

Ending Balance

June 30,

Mar. 31,

Dec. 31,

Sept 30,

June 30,

(Dollars in thousands)

    

2020

    

2020

    

2019

    

2019

    

2019

NONPERFORMING ASSETS:

Non-acquired

Non-acquired nonperforming loans

$

22,883

$

23,912

$

22,816

$

19,187

$

15,605

Non-acquired OREO and other nonperforming assets

1,689

941

1,011

1,464

1,321

Total non-acquired nonperforming assets

24,572

24,853

23,827

20,651

16,926

Acquired

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

100,399

32,791

11,114

9,596

9,985

Acquired OREO and other nonperforming assets

16,987

6,802

5,848

7,207

7,680

Total acquired nonperforming assets

117,386

39,593

16,962

16,803

17,665

Total nonperforming assets *

$

141,958

$

64,446

$

40,789

$

37,454

$

34,591

Three Months Ended

June 30,

Mar. 31,

Dec. 31,

Sept 30,

June 30,

    

2020

    

2020

    

2019

    

2019

    

2019

 

ASSET QUALITY RATIOS:

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

N/A

N/A

0.62

%

0.62

%

0.62

%

Allowance for credit losses as a percentage of loans

1.70

%

1.26

%

N/A

N/A

N/A

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

1.88

%

N/A

N/A

N/A

N/A

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

N/A

N/A

249.50

%

286.32

%

343.42

%

Allowance for credit losses as a percentage of nonperforming loans *

352.53

%

255.34

%

N/A

N/A

N/A

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

N/A

N/A

0.06

%

0.05

%

0.02

%

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

0.00

%

0.05

%

N/A

N/A

N/A

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

N/A

N/A

-0.01

%

0.15

%

0.25

%

Total nonperforming assets as a percentage of total assets *

0.38

%

0.39

%

0.26

%

0.24

%

0.22

%

Nonperforming loans as a percentage of period end loans *

0.48

%

0.49

%

0.30

%

0.25

%

0.23

%

*    Total nonperforming assets now include nonaccrual loans that are purchase credit deteriorated (PCD loans).  In prior periods, these loans, which were called acquired credit impaired (“ACI”) loans were excluded from nonperforming assets.  The adoption of CECL resulted in the discontinuation of the pool-level accounting for ACI loans and replaced it with loan-level evaluation for PCD nonaccrual status.  The Company’s nonperforming loans increased by $21.0 million in the first quarter of 2020 from these loans.  The Company has not assumed or taken on any additional risk relative to these assets.  With the merger with CSFL, the amount of acquired nonaccruals loans increased by approximately $69.9 million.  Lastly, nonperforming assets have been reduced by former bank property held for sale.  Prior to the merger, the Company included this information in nonperforming assets but is now reported as a separate item on the balance sheet.  All periods have been reclassified to reflect this change.

Total nonperforming assets increased by $77.5 million to $141.9 million, representing 0.38% of total assets, a decrease of 1 basis point compared to March 31, 2020.  The increase was due primarily to the merger with CSFL and the addition of the nonaccrual loans and OREO acquired.  Non-acquired non-performing loans decreased by $1.0 million during the second quarter of 2020 to $22.9 million at June 30, 2020.  The ACL as a percentage of total nonperforming loans was 353% at June 30, 2020, up from 255% of total nonperforming loans at March 31, 2020.

At June 30, 2020, the ACL was $434.6 million, or 1.70%, of period end loans.  Additionally, unfunded commitments have a reserve of $21.1 million, or 0.08% of period end loans.  The ACL was $144.8 million, or 1.26%, of period end loans at March 31, 2020.  Net charge-offs totaled $101,000, or 0.00%, annualized of average total loans, in the second quarter of 2020 compared to $1.3 million, or 0.05%, annualized in the first quarter of 2020.

9


During the second quarter of 2020, the provision for credit losses totaled $151.5 million for the loan portfolio compared to $36.5 million for the provision for credit losses, in the first quarter of 2020.   The significant increase in the second quarter of 2020, was the result of the merger with CSFL and the initial provision for credit losses recorded on NonPCD loans acquired, the unfunded commitment liability related to CSFL, and the additional PCL related to non-acquired South State loans totaled $28.4 million.  This initial PCL on NonPCD acquired loans totaled $119.1 million.  With the adoption of CECL, non-acquired unfunded commitments reserve related to the South State portfolio was increased by $2.9 million through the provision for credit losses during the second quarter of 2020.

Total OREO increased during the second quarter of 2020 to $18.0 million, or $10.6 million from the balance at March 31, 2020, due to the merger with CSFL.

Net Interest Income and Margin

Three Months Ended

June 30, 2020

March 31, 2020

June 30, 2019

(Dollars in thousands)

Average

Income/

Yield/

Average

Income/

Yield/

Average

Income/

Yield/

YIELD ANALYSIS

Balance

Expense

Rate

Balance

Expense

Rate

Balance

Expense

Rate

Interest-Earning Assets:

    

    

    

    

    

    

    

    

    

    

    

    

    

    

    

    

    

    

 

Federal funds sold, reverse repo, and time deposits

$

2,033,910

$

432

0.09

%  

$

538,310

$

1,452

1.08

%  

$

602,351

$

3,426

2.28

%

Investment securities (taxable)

1,426,206

10,920

3.08

%  

1,851,052

11,915

2.59

%  

1,429,378

9,551

2.68

%

Investment securities (tax-exempt)

881,265

1,505

0.69

%  

171,674

1,399

3.28

%  

191,686

1,617

3.38

%

Loans held for sale

203,267

1,498

2.96

%  

41,812

331

3.18

%  

33,804

337

4.00

%

Loans

15,717,387

166,209

4.25

%  

11,439,676

132,703

4.67

%  

11,156,942

135,051

4.86

%

Total interest-earning assets

20,262,035

180,564

3.58

%  

14,042,524

147,800

4.23

%  

13,414,161

149,982

4.48

%

Noninterest-earning assets

2,636,890

2,010,409

2,004,786

Total Assets

$

22,898,925

$

16,052,933

$

15,418,947

Interest-Bearing Liabilities:

Transaction and money market accounts

$

8,132,276

$

5,096

0.25

%  

$

5,976,771

$

7,682

0.52

%  

$

5,515,060

$

9,632

0.70

%

Savings deposits

1,699,377

336

0.08

%  

1,323,770

650

0.20

%  

1,354,812

1,252

0.37

%

Certificates and other time deposits

2,321,684

7,192

1.25

%  

1,642,749

6,104

1.49

%  

1,749,782

6,509