EX-99.1 2 tm205893d1_ex99-1.htm EXHIBIT 99.1

Exhibit 99.1

 

 

 

For Immediate Release Media Contact: Jackie Smith (803) 231-3486
  Analyst Contact: Jim Mabry (843) 529-5593

 

South State Corporation Reports Fourth Quarter 2019 Results and

Declares Increase in Quarterly Cash Dividend

 

COLUMBIA, S.C.—January 27, 2020—South State Corporation (NASDAQ: SSB) today released its unaudited results of operations and other financial information for the three-month and twelve-month period ended December 31, 2019.

 

The Company reported consolidated net income of $1.45 per diluted common share for the three months ended December 31, 2019, compared to $1.35 per diluted common share for the three months ended December 31, 2018. For the year ended December 31, 2019, net income totaled $5.36 per diluted common share, compared to $4.86 per diluted common share, an increase of 10.3%.

 

Adjusted net income (non-GAAP) totaled $1.48 per diluted share for the three months ended December 31, 2019, compared to $1.35 per diluted share one year ago. For the year ended December 31, 2019, adjusted net income (non-GAAP) totaled $5.63 per diluted share, compared to $5.50 per diluted share, an increase of 2.4%.

 

Soundness

 

Balance sheet strength and optionality remains a core commitment. Asset quality was exceptional with net charge-offs on non-acquired loans at 0.06% in the fourth quarter of 2019 and 0.04% for fiscal year 2019. Capital levels were strong and tangible book value increased by 7.8% in 2019. We preserved the integrity of our balance sheet while repurchasing over 2.1 million shares, or ~6%, of the Company’s outstanding common stock during 2019.

 

Profitability

 

The Company enacted several initiatives in 2019 to improve our operating leverage including closing thirteen branches, termination of the pension plan, and began the process of implementing a new commercial loan system. Expenses decreased in FY19 by $16.3 million (GAAP) and $0.6 million (adjusted – non-GAAP), a decrease of 3.9% and 0.2%, respectively. We remain focused on controlling expense growth and recently announced additional branch optimization plans for 2020.

 

Loan / Deposit Growth

 

During 2019, we invested in expansion of our branch presence in Raleigh, NC, and opened a new market headquarters in Richmond, VA. We continue to recruit talent from large institutions and benefit from our deep and dense footprint in vibrant economic markets. Net loan growth was 3.2% in 2019 fueled by 9% growth in C&I loans. Overall deposits grew by 4.6% to over $12.1 billion, and we added ~4,500 transaction accounts during the year.

 

Quarterly Cash Dividend

 

The Company’s Board of Directors voted to increase the common stock dividend this quarter by $0.01 to $0.47 per share, which is a 2.2% increase compared to last quarter, and a $0.09 per share increase, or 23.7%, compared to the same quarter one year ago. The dividend will be payable on February 14, 2020 to shareholders of record as of February 7, 2020. This dividend represents the 8th consecutive quarterly increase in the cash dividend paid to the shareholders of SSB.

 

1

 

 

Fourth Quarter 2019 Financial Performance

 

   Three Months Ended   Twelve Months Ended 
   Dec. 31,   Sept. 30,   June 30,   Mar. 31,   Dec. 31,   Dec. 31, 
(Dollars in thousands, except per share data)  2019   2019   2019   2018   2018   2019   2018 
INCOME STATEMENT                                   
Interest income                                   
Loans, including fees (8)  $132,615   $134,953   $135,388   $131,834   $132,541   $534,790   $521,478 
Investment securities, federal funds sold and securities purchased under agreements to resell   14,839    15,048    14,594    11,556    11,327    56,037    45,730 
Total interest income   147,454    150,001    149,982    143,390    143,868    590,827    567,208 
Interest expense                                   
Deposits   15,227    16,655    17,393    16,645    15,310    65,920    45,452 
Federal funds purchased, securities sold under agreements to repurchase, and other borrowings   5,771    5,973    5,410    3,478    2,166    20,632    8,540 
Total interest expense   20,998    22,628    22,803    20,123    17,476    86,552    53,992 
Net interest income   126,456    127,373    127,179    123,267    126,392    504,275    513,216 
Provision for loan losses   3,557    4,028    3,704    1,488    3,734    12,777    13,783 
Net interest income after provision for loan losses   122,899    123,345    123,475    121,779    122,658    491,498    499,433 
Noninterest income   36,307    37,582    37,618    32,058    35,642    143,565    145,749 
Pre-tax operating expense   99,134    96,364    97,803    97,125    96,664    400,086    391,059 
Branch consolid./acquisition and merger expense   1,494    --    2,078    1,114    --    4,552    29,868 
Pension plan termination expense   --    --    9,526    --    --    --    4,539 
Total noninterest expense   100,628    96,364    109,407    98,239    96,664    404,638    420,927 
Income before provision for income taxes   58,578    64,563    51,686    55,598    61,636    230,425    224,255 
Provision for income taxes   9,487    12,998    10,226    11,231    12,632    43,942    45,384 
Net income  $49,091   $51,565   $41,460   $44,367   $49,004   $186,483   $178,871 
Adjusted net income (non-GAAP) (3)                                   
Net income (GAAP)  $49,091   $51,565   $41,460   $44,367   $49,004   $186,483   $178,871 
Securities losses (gains), net of tax   (20)   (349)   (1,371)   (432)   2    (2,173)   520 
Provision for income taxes, deferred tax revaluation   --    --    --    --    --    --    (990)
FHLB prepayment penalty   --    --    --    107    --    107    -- 
Pension plan termination expense, net of tax   --    --    7,641    --    --    7,641    -- 
Branch consolid./acquisition and merger expense, net of tax   1,252    -    1,667    782    --    3,701    23,692 
Adjusted net income (non-GAAP)  $50,323   $51,216   $49,397   $44,824   $49,006   $195,759   $202,093 
Basic earnings per common share  $1.46   $1.51   $1.18   $1.25   $1.36   $5.40   $4.90 
Diluted earnings per common share  $1.45   $1.50   $1.17   $1.25   $1.35   $5.36   $4.86 
Adjusted net income per common share - Basic (non-GAAP) (3)  $1.49   $1.50   $1.41   $1.26   $1.36   $5.66   $5.53 
Adjusted net income per common share - Diluted (non-GAAP) (3)  $1.48   $1.49   $1.40   $1.26   $1.35   $5.63   $5.50 
Dividends per common share  $0.46   $0.43   $0.40   $0.38   $0.36   $1.67   $1.38 
Basic weighted-average common shares outstanding   33,677,851    34,056,771    35,089,129    35,445,087    36,154,922    34,560,544    36,530,112 
Diluted weighted-average common shares outstanding   33,964,216    34,300,206    35,299,747    35,618,705    36,364,873    34,797,444    36,775,632 
Effective tax rate   16.20%   20.13%   19.78%   20.20%   20.49%   19.07%   20.24%

 

The Company reported consolidated net income of $49.1 million, or $1.45 per diluted common share for the three months ended December 31, 2019, a decrease of $2.5 million, or 4.8% from the third quarter of 2019. Diluted EPS was $1.50 in the third quarter of 2019, or $51.6 million. Compared to the fourth quarter of 2018, Diluted EPS improved $0.10, due to the decline in weighted average diluted share count of 2.4 million shares. The decline in weighted-average diluted shares resulted from the continuation of the Company repurchasing common shares over the past year. Net interest income decreased by $917,000 compared to the third quarter of 2019 on lower interest income, offset partially by lower expense. The provision for loan losses decreased by $471,000, with the nonacquired provision for loan losses increasing $978,000 compared to third quarter of 2019; while the acquired loan loss provision declined by $1.4 million. Noninterest income was down $1.3 million compared to third quarter of 2019 to $36.3 million in the fourth quarter of 2019. Excluding securities gains, noninterest income decreased by $862,000 in the fourth quarter of 2019. Noninterest expense was higher in the fourth quarter of 2019 compared to the third quarter of 2019 by $4.3 million due primarily to higher FDIC assessment cost of $1.1 million, higher branch consolidation cost of $1.5 million, and higher business development and staff related cost of $887,000. The Company received a $760,000 credit on its FDIC assessment in 4Q 2019, which was lower than the credit received in 3Q 2019 of $1.6 million. The efficiency ratio and adjusted efficiency ratio were 61.6% and 60.7% in 4Q 2019, respectively, compared to 58.4% for both in the third quarter of 2019.

 

2

 

 

Income Tax Expense

 

During the fourth quarter of 2019, our effective income tax rate decreased to 16.20% from 20.13% in the third quarter of 2019 and from 20.49% in the fourth quarter of 2018. The primary factor in the lower effective tax rate in the fourth quarter of 2019 was the recognition of additional income tax credits received, specifically one credit totaling approximately $2.4 million. During 2019, the Company has increased its investment in qualified affordable housing projects and other tax advantaged opportunities by approximately $39.4 million, resulting in the additional tax credits available to assist in lowering the effective tax rate in 2019 compared to 2018. In addition, pre-tax income was lower in the fourth quarter of 2019 by approximately $6.0 million than in the third quarter of 2019, further lowering the effective rate for the quarter. Compared to the fourth quarter of 2018, the lower effective rate was the result of additional federal tax credits discussed above and lower pre-tax income.

 

Current Expected Credit Losses (“CECL”) - update

 

Consistent with our prior estimates, the current estimate of our allowance for credit losses (ACL) with the adoption of ASU 2016-13 (CECL) is expected to be between $105.0 and $120.0 million, including the liability for unfunded commitments. The increase in the ACL is driven by the acquired non-credit impaired loan portfolio (ANCI), the non-acquired loan portfolio, and reserve on unfunded commitments. The total increase will range between $43.0 million and $58.0 million (pre-tax) from the allowance for loan losses and reserve on unfunded commitments recorded at December 31, 2019. The estimated decline in equity, net of tax, will range from $33.5 million to $45.2 million. Our loan portfolio is segregated into 10 loan segments (models) that use a 24-month forecast period and a 12-month reversion period. Based upon the estimates described above, our tangible common equity ratio will reduce by 20 – 30 basis points. The estimates of the initial impact from the adoption of CECL were based upon our current analysis, composition, characteristics and quality of our loan portfolio, as well as assumptions, management judgments, and forecasted economic conditions, and are subject to continued review and refinement during the first quarter of 2020.

 

3

 

 

 

 

Balance Sheet and Capital

 

   Ending Balance 
   Dec. 31,   Sept. 30,   June 30,   Mar. 31,   Dec. 31, 
(dollars in thousands, except per share and share data)  2019   2019   2019   2019   2018 
BALANCE SHEET                    
Assets                    
Cash and cash equivalents  $688,704   $719,194   $851,971   $949,591   $408,983 
Investment securities:                         
Securities available for sale, at fair value   1,956,047    1,813,134    1,717,276    1,466,249    1,517,067 
Other investments   49,124    49,124    49,124    40,624    25,604 
Total investment securities   2,005,171    1,862,258    1,766,400    1,506,873    1,542,671 
Loans held for sale   59,363    87,393    47,796    33,297    22,925 
Loans:                         
Acquired credit impaired   356,782    390,714    419,961    452,258    485,119 
Acquired non-credit impaired   1,760,427    1,965,603    2,180,281    2,378,737    2,594,826 
Non-acquired   9,252,831    8,928,512    8,621,327    8,310,613    7,933,286 
Less allowance for non-acquired loan losses   (56,927)   (54,937)   (53,590)   (52,008)   (51,194)
Loans, net   11,313,113    11,229,892    11,167,979    11,089,600    10,962,037 
Other real estate owned ("OREO")   11,964    13,415    14,506    11,297    11,410 
Premises and equipment, net   317,321    323,506    321,348    322,553    241,076 
Bank owned life insurance   234,567    233,206    231,708    230,629    230,105 
Deferred tax asset   31,316    27,844    28,240    31,884    37,128 
Mortgage servicing rights   30,525    28,674    30,332    32,415    34,727 
Core deposit and other intangibles   49,816    53,083    56,351    59,619    62,900 
Goodwill   1,002,900    1,002,900    1,002,900    1,002,900    1,002,900 
Other assets   176,332    170,717    163,806    136,229    119,466 
Total assets  $15,921,092   $15,752,082   $15,683,337   $15,406,887   $14,676,328 
                          
Liabilities and Shareholders' Equity                         
Deposits:                         
Noninterest-bearing  $3,245,306   $3,307,532   $3,255,906   $3,219,864   $3,061,769 
Interest-bearing  $8,931,790    8,716,255    8,666,374    8,699,107    8,585,164 
Total deposits   12,177,096    12,023,787    11,922,280    11,918,971    11,646,933 
Federal funds purchased and securities sold under agreements to repurchase 298,741               269,072               298,029               276,891               270,649    
Other borrowings   815,936    815,771    816,414    616,250    266,084 
Other liabilities   256,306    292,496    272,636    218,298    126,366 
Total liabilities   13,548,079    13,401,126    13,309,359    13,030,410    12,310,032 
                          
Shareholders' equity:                         
Preferred stock - $.01 par value; authorized 10,000,000 shares   --    --    --    --    -- 
Common stock - $2.50 par value; authorized 80,000,000 shares   84,361    84,757    86,839    88,421    89,574 
Surplus   1,607,740    1,617,004    1,676,229    1,719,396    1,750,495 
Retained earnings   679,895    646,325    609,444    582,034    551,108 
Accumulated other comprehensive income (loss)   1,017    2,870    1,466    (13,374)   (24,881)
Total shareholders' equity   2,373,013    2,350,956    2,373,978    2,376,477    2,366,296 
Total liabilities and shareholders' equity  $15,921,092   $15,752,082   $15,683,337   $15,406,887   $14,676,328 
                          
Common shares issued and outstanding   33,744,385    33,902,726    34,735,587    35,368,521    35,829,549 

 

At December 31, 2019, the Company’s total assets were $15.9 billion, an increase of $1.2 billion from December 31, 2018, and an increase of 8.5%. During the fourth quarter of 2019, changes in the balance sheet include the following:

 

1.Net loan growth totaled $85.2 million, or 3.0% annualized. Non-acquired loans increased by $324.3 million or 14.4% annualized, and acquired loans decreased by $239.1 million, or 40.3% annualized.
2.Investment securities portfolio grew by $142.9 million to $2.0 billion, representing 12.6% of total assets.
3.Non-interest bearing deposits declined by $62.2 million, or 7.5% annualized.
4.Interest bearing deposits grew by $215.5 million, or 9.8% annualized.
5.Equity increased by $22.1 million as the Company only repurchased 165,000 common shares totaling $12.4 million, and at an average price of $74.88 per share.

 

4

 

 

The Company’s book value per common share increased to $70.32 per share at December 31, 2019, compared to $69.34 at September 30, 2019 and $66.04 at December 31, 2018. Total equity (capital) increased by $22.1 million due to net income totaling $49.1 million, offset by the dividend paid of $15.5 million during the fourth quarter of 2019. Tangible book value (“TBV”) per common share increased by $0.93 per share to $39.13 at December 31, 2019, compared to $38.20 at September 30, 2019, and increased by $2.83 per share, or 7.8%, from $36.30 at December 31, 2018. 

 

Performance and Capital Ratios

 

   Three Months Ended   Twelve Months Ended
   Dec. 31,   Sept. 30,   June 30,   Mar. 31,   Dec. 31,   Dec. 31,   Dec. 31, 
PERFORMANCE RATIOS  2019   2019   2019   2019   2018   2019   2018 
Return on average assets (annualized)   1.23%   1.31%   1.08%   1.21%   1.33%   1.21%   1.23%
Adjusted return on average assets (annualized) (non-GAAP) (3)   1.26%   1.30%   1.28%   1.23%   1.33%   1.27%   1.39%
Return on average equity (annualized)   8.26%   8.70%   6.98%   7.61%   8.24%   7.89%   7.63%
Adjusted return on average equity (annualized) (non-GAAP) (3)   8.47%   8.64%   8.32%   7.69%   8.24%   8.28%   8.62%
Return on average tangible common equity (annualized) (non-GAAP) (7)   15.79%   16.62%   13.38%   14.66%   15.91%   15.11%   14.93%
Adjusted return on average tangible common equity (annualized) (non-GAAP) (3) (7)   16.17%   16.51%   15.79%   14.80%   15.91%   15.82%   16.76%
Efficiency ratio (tax equivalent)   61.64%   58.40%   66.87%   63.24%   59.43%   62.52%   63.57%
Adjusted efficiency ratio (non-GAAP) (9)   60.73%   58.40%   59.78%   62.52%   59.43%   60.33%   59.06%
Dividend payout ratio (2)   31.62%   28.48%   33.89%   30.29%   26.63%   30.94%   28.27%
Book value per common share  $70.32   $69.34   $68.34   $67.19   $66.04           
Tangible common equity per common share (non-GAAP) (7)  $39.13   $38.20   $37.85   $37.15   $36.30           
                                    
CAPITAL RATIOS                                   
Equity-to-assets   14.90%   14.92%   15.14%   15.42%   16.12%          
Tangible equity-to-tangible assets (non-GAAP) (7)   8.88%   8.81%   8.99%   9.16%   9.56%          
Tier 1 common equity (6)   11.3%   11.2%   11.6%   11.9%   12.1%          
Tier 1 leverage (6)   9.7%   9.7%   10.0%   10.5%   10.7%          
Tier 1 risk-based capital (6)   12.3%   12.2%   12.6%   12.9%   13.1%          
Total risk-based capital (6)   12.8%   12.7%   13.1%   13.4%   13.6%          
                                    
OTHER DATA                                   
Number of branches   155    157    156    168    168           
Number of employees (full-time equivalent basis)   2,547    2,544    2,544    2,589    2,602           

 

5

 

 

Asset Quality

   Ending Balance 
   Dec. 31,   Sept 30,   June 30,   Mar. 31,   Dec. 31, 
(Dollars in thousands)  2019   2019   2019   2019   2018 
NONPERFORMING ASSETS:                         
Non-acquired                         
Non-acquired nonperforming loans  $22,816   $19,187   $15,605   $15,910   $15,018 
Non-acquired OREO and other nonperforming assets   3,705    3,724    4,374    4,070    4,037 
Total non-acquired nonperforming assets   26,521    22,911    19,979    19,980    19,055 
Acquired                         
Acquired nonperforming loans   11,114    9,596    9,985    14,558    13,651 
Acquired OREO and other nonperforming assets   8,579    9,938    10,412    7,782    7,755 
Total acquired nonperforming assets   19,693    19,534    20,397    22,340    21,406 
Total nonperforming assets  $46,214   $42,445   $40,376   $42,320   $40,461 

 

   Three Months Ended   Twelve Months Ended 
   Dec. 31,   Sept 30,   June 30,   Mar. 31,   Dec. 31,   Dec. 31,   Dec. 31, 
   2019   2019   2019   2019   2018   2019   2018 
ASSET QUALITY RATIOS:                                   
Allowance for non-acquired loan losses as a percentage of non-acquired loans (1)   0.62%   0.62%   0.62%   0.63%   0.65%   0.62%   0.65%
Allowance for non-acquired loan losses as a percentage of non-acquired nonperforming loans   249.50%   286.32%   343.42%   326.89%   340.88%   249.50%   340.88%
Net charge-offs on non-acquired loans as a percentage of average non-acquired loans (annualized) (1)   0.06%   0.05%   0.02%   0.02%   0.06%   0.04%   0.04%
Net charge-offs on acquired non-credit impaired loans as a percentage of average acquired non-credit impaired loans (annualized) (1)   -0.01%   0.15%   0.25%   0.03%   0.09%   0.11%   0.06%
Total nonperforming assets as a percentage of total assets   0.29%   0.27%   0.26%   0.27%   0.28%          
Excluding Acquired Assets                                   
NPLs as a percentage of period end non-acquired loans (1)   0.25%   0.21%   0.18%   0.19%   0.19%          
Total nonperforming assets as a percentage of total non-acquired loans and repossessed assets (1) (4)   0.29%   0.26%   0.23%   0.24%   0.24%          
Total nonperforming assets as a percentage of total assets (5)   0.17%   0.15%   0.13%   0.13%   0.13%          

 

Total nonperforming assets increased by $3.8 million to $46.2 million, representing 0.29% of total assets, an increase of 2 basis points compared to September 30, 2019. Non-performing acquired non-credit impaired loans increased by $1.5 million and totaled $11.1 million. Legacy non-performing loans increased by $3.6 million during the fourth quarter of 2019 to $22.8 million at December 31, 2019. The allowance for loan losses as a percentage of non-acquired nonaccrual loans was 250% at December 31, 2019, down from 286% in the third quarter of 2019, and down from 341% at December 31, 2018.

 

At December 31, 2019, the allowance for non-acquired loan losses was $56.9 million, or 0.62%, of non-acquired period-end loans and $54.9 million, or 0.62%, at September 30, 2019, and $51.2 million, or 0.65% at December 31, 2018. Net charge-offs within the non-acquired portfolio were $1.5 million, or 0.06% annualized, in the fourth quarter of 2019, compared to $1.1 million, or 0.05% annualized, in the third of 2019. Fourth quarter 2018 net charge-offs totaled $1.1 million, or 0.06% annualized. Net charge-offs (recoveries) related to the non-acquired loan portfolio totaled $348,000 during the fourth quarter of 2019 and ($188,000) for the twelve months ended December 31, 2019. The remaining net charge-offs were from overdraft and ready reserve accounts and totaled $1.1 million, for the fourth quarter of 2019, and, for the twelve months ended December 31, 2019, totaled $3.7 million.

 

During the fourth quarter of 2019, the provision for loan losses totaled $3.5 million for the non-acquired loan portfolio compared to $2.5 million in the third quarter of 2019, and $2.5 million in the fourth quarter of 2018.

 

6

 

 

Net charge offs (recoveries) related to “acquired non-credit impaired loans” were ($36,000), or -0.01% annualized, in the fourth quarter of 2019; and the Company recorded a “negative” provision for loan losses, accordingly. Net charge-offs in the third quarter of 2019 totaled $760,000, or 0.15% annualized, and in the fourth quarter of 2018, net charge-offs totaled $574,000, or 0.09% annualized.

 

During the fourth quarter of 2019, the Company recorded net impairment of $134,000 within the acquired credit impaired loan pools compared to $786,000 in the third quarter of 2019. During the fourth quarter of 2018, the Company recorded net impairment of $710,000.

 

Total OREO decreased during the fourth quarter with the disposition of property from both the nonacquired and acquired OREO assets. The decline totaled $1.5 million with a balance of $12.0 million at December 31, 2019. The OREO balance at December 31, 2018 was $11.4 million.

 

Net Interest Income and Margin

 

   Three Months Ended 
   December 31, 2019   September 30, 2019   December 31, 2018 
   Average   Income/   Yield/   Average   Income/   Yield/   Average   Income/   Yield/ 
(Dollars in thousands)  Balance   Expense   Rate   Balance   Expense   Rate   Balance   Expense   Rate 
YIELD ANALYSIS                                    
Interest-Earning Assets:                                             
Federal funds sold, reverse repo, and time deposits  $573,957   $2,337    1.62%  $491,627   $2,676    2.16%  $172,849   $1,032    2.37%
Investment securities (taxable)   1,713,050    11,016    2.55%   1,638,461    10,785    2.61%   1,358,978    8,838    2.58%
Investment securities (tax-exempt)   176,261    1,486    3.34%   181,434    1,587    3.47%   188,666    1,457    3.06%
Loans held for sale   73,541    664    3.58%   58,829    541    3.65%   24,820    291    4.65%
Loans   11,297,402    131,951    4.63%   11,225,593    134,412    4.75%   10,928,294    132,250    4.80%
     Total interest-earning assets   13,834,211    147,454    4.23%   13,595,944    150,001    4.38%   12,673,607    143,868    4.50%
Noninterest-earning assets   2,024,648              2,014,172              1,924,666           
     Total Assets  $15,858,859             $15,610,116             $14,598,273           
Interest-Bearing Liabilities:                                    
Transaction and money market accounts  $5,768,724   $8,010    0.55%  $5,581,057   $8,932    0.63%  $5,310,048   $8,498    0.63%
Savings deposits   1,313,991    769    0.23%   1,323,377    1,027    0.31%   1,416,227    1,324    0.37%
Certificates and other time deposits   1,684,633    6,448    1.52%   1,730,567    6,696    1.54%   1,804,939    5,488    1.21%
Federal funds purchased and repurchase agreements   290,287    590    0.81%   272,900    612    0.89%   273,994    660    0.96%
Other borrowings   815,847    5,181    2.52%   816,188    5,361    2.61%   122,676    1,506    4.87%
     Total interest-bearing liabilities   9,873,482    20,998    0.84%   9,724,089    22,628    0.92%   8,927,884    17,476    0.78%
Noninterest-bearing liabilities   3,628,741              3,534,873              3,310,416           
Shareholders' equity   2,356,636              2,351,154              2,359,973           
     Total Non-IBL and shareholders' equity   5,985,377              5,886,027              5,670,389           
     Total liabilities and shareholders' equity  $15,858,859             $15,610,116             $14,598,273           
Net interest income and margin (NON-TAX EQUIV.)       $126,456    3.63%       $127,373    3.72%       $126,392    3.96%
Net interest margin (TAX EQUIVALENT)             3.64%             3.73%             3.98%
                                              
Overall Cost of Funds (including demand deposits)             0.63%             0.69%             0.57%

 

Non-taxable equivalent net interest income was $126.5 million for the fourth quarter of 2019, a decrease of $917,000 from the third quarter of 2019. The decrease resulted from lower interest income of $2.5 million in loan interest income partially offset by lower interest expense totaling $1.6 million. All funding components declined from the third quarter of 2019 in a declining rate environment. Interest income from the loan portfolio declined by $2.5 million, which was attributable to lower yields in the acquired loan portfolio and the non-acquired loan portfolio. The yield on the acquired loan portfolio declined to 6.28% at December 31, 2019 from 6.32% at September 30, 2019; while the non-acquired loan portfolio declined to 4.23% at December 31, 2019 from 4.31% at September 30, 2019. The average balance of loans increased by $71.8 million in the fourth quarter of 2019.

 

Tax-equivalent net interest margin declined 9 basis points from the third quarter of 2019 and declined by 34 basis points from the fourth quarter of 2018. During the fourth quarter of 2019, the Company’s average total assets increased to $15.9 billion, an increase of $248.7 million from the third quarter of 2019, and an increase of $1.3 billion from the fourth quarter of 2018. Average earning assets totaled $13.8 billion up $238.3 million from third quarter of 2019, and up $1.2 billion from the fourth quarter of 2018. Average interest-bearing liabilities totaled $9.9 billion at December 31, 2019, an increase of $149.4 million from September 30, 2019; and up $945.6 million from December 31, 2018. Average non-interest bearing liabilities increased by $93.9 million, from September 30, 2019, to $3.6 billion; and was up $318.3 million from December 31, 2018. Including the impact of noninterest bearing deposits, the Company’s overall cost of funds declined to 63 basis points for the fourth quarter of 2019 compared to 69 basis points in the third quarter of 2019, and increased when compared to 57 basis points one year ago.

 

7

 

 

 

Acquired Loans and Accretable Yield

 

The first table below reflects the quarterly roll forward of the acquired credit impaired loan accretable yield. The table 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 acquired credit impaired (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 decreased in the fourth quarter of 2019 to $7.4 million when compared $8.1 million in the third quarter of 2019, as the loan balances for the acquired loan portfolios declined.

 

The amount of acquired noncredit impaired (ANCI) discount recognized in the fourth quarter of 2019 was $3.9 million compared to $2.7 million recognized in the third quarter of 2019. The increase recognized was primarily related to a larger decline in acquired consumer owner occupied loans than in prior quarters. The remaining balance of the discount on the acquired noncredit impaired loan portfolio totals $20.3 million at December 31, 2019, $24.2 million at September 30, 2019, and $33.4 million at December 31, 2018.

 

   Dec. 31,   Sept. 30,   June 30,   Mar. 31,   Dec. 31, 
   2019   2019   2019   2019   2018 
1 - Accretable Yield Rollforward (Acquired credit impaired loans)                         
(Dollars in thousands)                         
Balance at beginning of period  $90,135   $100,613   $106,978   $116,754   $114,985 
                          
Contractual interest income *   (6,000)   (6,327)   (7,111)   (7,078)   (7,837)
Accretion on acquired loans   (2,835)   (4,691)   (5,167)   (5,120)   (5,099)
Additions (decreases) from Park Sterling Bank Acquisition   -    -    -    -    - 
Improved cash flows affecting nonaccretable difference   817    541    5,994    2,474    14,698 
Other changes, net   (19)   (1)   (81)   (52)   7 
                          
Balance at end of period  $82,098   $90,135   $100,613   $106,978   $116,754 
                          

 

* 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  $35,436   $39,220   $43,616   $46,673   $48,896 
Interest - expected to be collected in future periods and recorded as interest income   46,662    50,915    56,997    60,305    67,858 
Total accretable balance at period end  $82,098   $90,135   $100,613   $106,978   $116,754 
                          
3 - Principal & Interest of the Nonaccretable Difference                         
Contractual principal which is not expected to be collected  $9,122   $9,878   $13,151   $15,203   $19,055 
Contractual interest which is not expected to be collected   4,817    5,414   $5,005    9,079    5,763 
Total nonaccretable difference  $13,939   $15,292   $18,156   $24,282   $24,818 

 

    Three months Ended 
    Dec. 31,    Sept 30,    June 30,    Mar. 31    Dec. 31, 
    2019    2019    2019    2019    2018 
4 - Acquired accretion income over Past 5 Quarters                         
(in thousands)                         
Acquired non credit impaired accretion income and fees  $3,896   $2,667   $3,209   $3,237   $3,792 
Acquired credit impaired accretion income   2,835    4,691    5,167    5,120    5,099 
Other interest and late fees   685    712    773    780    770 
Total acquired accretion income  $7,416   $8,070   $9,149   $9,137   $9,662 

 

8

 

 

Noninterest Income and Expense

 

   Three Months Ended   Twelve Months Ended 
   Dec. 31,   Sept. 30,   June 30,   Mar. 31,   Dec. 31,   Dec. 31,   Dec. 31, 
(Dollars in thousands)  2019   2019   2019   2019   2018   2019   2018 
Noninterest income:                                   
Fees on deposit accounts  $19,161   $19,725   $18,741   $17,808   $18,704   $75,435   $81,649 
Mortgage banking income   3,757    6,115    5,307    2,385    2,501    17,564    13,590 
Trust and investment services income   6,935    7,320    7,720    7,269    7,621    29,244    30,229 
Securities (losses) gains, net   24    437    1,709    541    (3)   2,711    (655)
Recoveries of fully charged off acquired loans   2,232    1,401    1,347    1,867    2,737    6,847    9,117 
Other   4,198    2,584    2,794    2,188    4,082    11,764    11,819 
Total noninterest income  $36,307   $37,582   $37,618   $32,058   $35,642   $143,565   $145,749 
                                    
Noninterest expense:                                   
Salaries and employee benefits  $58,218   $59,551   $58,547   $58,431   $57,705   $234,747   $233,130 
Pension plan termination expense   -    -    9,526    --    --    9,526    -- 
Occupancy expense   12,113    11,883    11,849    11,612    11,804    47,457    49,165 
Information services expense   8,919    8,878    8,671    9,009    7,877    35,477    34,322 
FHLB prepayment penalty   --    --    --    134    --    134    - 
OREO expense and loan related   1,013    597    881    751    831    3,242    3,510 
Business development and staff related   2,905    2,018    2,171    2,288    2,822    9,382    10,132 
Amortization of intangibles   3,267    3,268    3,268    3,281    3,537    13,084    14,209 
Professional fees   2,862    2,442    2,781    2,240    3,148    10,325    8,883 
Supplies, printing and postage expense   1,464    1,418    1,495    1,504    1,480    5,881    5,839 
FDIC assessment and other regulatory charges   1,327    228    1,455    1,535    1,340    4,545    8,405 
Advertising and marketing   1,491    1,052    959    807    1,273    4,309    4,221 
Other operating expenses   5,555    5,029    5,726    5,667    4,847    21,977    19,243 
Branch consolid. or merger / convers related exp.   1,494    -    2,078    980    -    4,552    29,868 
Total noninterest expense  $100,628   $96,364   $109,407   $98,239   $96,664   $404,638   $420,927 

 

Noninterest income totaled $36.3 million for the fourth quarter of 2019 and $37.6 million in the third quarter of 2019, a decrease of $1.3 million. The largest variance was in mortgage banking income which declined by $2.4 million. This decline was the result of lower secondary market income totaling $2.1 million and lower mortgage servicing related income accounting for the difference. Trust and investment services income was lower by $385,000, and fees on deposit accounts were lower by $564,000. These decreases were more than offset by more recoveries on acquired loans totaling $831,000 (received one large recovery which was not anticipated in the fourth quarter of 2019); higher other income totaling $1.6 million from capital markets income and gain on the sale of loans.

 

Compared to the fourth quarter of 2018, noninterest income increased by $665,000 due primarily to fees on deposit accounts and mortgage banking income. These were offset partially by lower trust and investment services income and lower recoveries of acquired loans.

 

Noninterest expense was $100.6 million in the fourth quarter of 2019, an increase of $4.3 million from $96.4 million in the third quarter of 2019. The increase was primarily related to the following: (1) the closure of one branch in late October resulted in branch consolidation cost totaling $1.5 million, (2) higher FDIC assessment and other regulatory expense of $1.1 million related to a credit received from the FDIC in the third quarter of 2019 totaling $1.6 million, and (3) higher business development and staff related cost of $887,000 from higher recruitment and relocation cost, higher business development and higher travel. Adjusted noninterest expense totaled $99.1 million in 4Q 2019, which was $2.8 million higher than third quarter of 2019, and resulted in an adjusted efficiency ratio of 60.7% compared to 58.4% in third quarter of 2019.

 

Compared to the fourth quarter of 2018, noninterest expense was higher by $4.0 million. The net increase was primarily due to the following: (1)  branch consolidated cost of $1.5 million, from the closure of one branch in late October 2019, (2) higher information services expense of $1.0 million due primarily to lower credits received from our core processor, (3) higher salary and employee benefits totaling $513,000, which was the result of higher salary, benefits and commissions partially offset by lower incentive, and (4) higher other expense related to more passive losses related to CRA investments acquired in 2019. Adjusted noninterest expense (non-GAAP) increased $2.5 million, or 10.1% annualized, compared to the fourth quarter of 2018. Adjusted noninterest expense decreased by $633,000, or 0.02%, in 2019 to $390.4 million compared to $391.1 million in 2018.

 

9

 

 

With today’s announcement that South State Corporation (“South State”) has entered into a merger agreement with CenterState Bank Corporation (“CenterState”), South State has canceled its live conference webcast to review fourth quarter 2019 financial results that was scheduled for Tuesday, January 28, 2019 at 10:00 am ET. Instead, South State and CenterState will jointly host a live conference call and webcast today at 8:30 am ET to discuss the merger, and South State will also discuss its fourth quarter 2019 financial results. To listen to the live call, please dial 877-506-9272 and enter 10138864 for the conference ID. The number for international participants is 412-380-2004. The webcast of the conference call, along with related slides, will be accessible through South State’s and CenterState’s websites as well. The conference call will also be available for replay beginning at 2:00 p.m. Eastern Time on January 27, 2020 until 9:00 a.m. on February 10, 2020. To listen to the replay dial 877-344-7529 or 412-317-0088. The passcode is 10138864.

 

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

 

South State Corporation is a financial services company headquartered in Columbia, South Carolina with approximately $15.9 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.

 

10

 

 

 

   Three Months Ended   Twelve Months Ended 
   Dec. 31,   Sept. 30,   June 30,   Mar. 31,   Dec. 31,   Dec. 31,   Dec. 31, 
(Dollars in thousands, except per share data)  2019   2019   2019   2019   2018   2019   2018 
RECONCILIATION OF GAAP TO Non-GAAP                            
Adjusted net income (non-GAAP) (3)                            
Net income (GAAP)  $49,091   $51,565   $41,460   $44,367   $49,004   $186,483   $178,871 
Securities losses (gains), net of tax   (20)   (349)   (1,371)   (432)   2    (2,173)   520 
Provision for income taxes - Deferred Tax Asset Write-Off   --    --    --    --    --    --    (990)
Pension plan termination expense, net of tax   --    --    7,641    --    --    7,641    -- 
FHLB prepayment penalty, net of tax   --    --    --    107    --    107    -- 
Merger and branch consolidation/acq. expense, net of tax   1,252    --    1,667    782    --    3,701    23,692 
Adjusted net income (non-GAAP)  $50,323   $51,216   $49,397   $44,824   $49,006   $195,759   $202,093 
                                    
Adjusted net income per common share - Basic (3)                                   
Earnings per common share - Basic (GAAP)  $1.45   $1.51   $1.18   $1.25   $1.36   $5.40   $4.90 
Effect to adjust for securities losses (gains)   (0.01)   (0.01)   (0.04)   (0.01)   -    (0.06)   0.01 
Effect to adjust for provision for income tax DTA Write-Off   -    -    -    -    -    -    (0.03)
Effect to adjust for pension plan termination expense, net of tax   -    -    0.22    -    -    0.22    -- 
Effect to adjust for FHLB prepayment penalty, net of tax   -    -    -    0.00    -    -    -- 
Effect to adjust for merger & branch consol./acq expenses, net of tax   0.04    -    0.05    0.02    -    0.10    0.65 
Adjusted net income per common share - Basic (non-GAAP)  $1.48   $1.50   $1.41   $1.26   $1.36   $5.66   $5.53 
                                    
Adjusted net income per common share - Diluted (3)                                   
Earnings per common share - Diluted (GAAP)  $1.45   $1.50   $1.17   $1.25   $1.35   $5.36   $4.86 
Effect to adjust for securities losses (gains)   -    (0.01)   (0.04)   (0.01)   -    (0.06)   0.01 
Effect to adjust for provision for income tax DTA Write-Off   -    -    -    -    -    -    (0.02)
Effect to adjust for pension plan termination expense, net of tax   -    -    0.22    -    -    0.22    -- 
Effect to adjust for FHLB prepayment penalty, net of tax   -    -    -    0.00    -    0.00    -- 
Effect to adjust for merger & branch consol./acq expenses, net of tax   0.04    -    0.05    0.02    -    0.11    0.65 
Adjusted net income per common share - Diluted (non-GAAP)  $1.49   $1.49   $1.40   $1.26   $1.35   $5.63   $5.50 
                                    
Adjusted Return of Average Assets (3)                                   
Return on average assets (GAAP)   1.23%   1.31%   1.08%   1.21%   1.33%   1.21%   1.23%
Effect to adjust for securities losses (gains)   0.00%   -0.01%   -0.04%   -0.01%   0.00%   -0.01%   0.00%
Effect to adjust for provision for income tax DTA Write-Off   0.00%   0.00%   0.00%   0.00%   0.00%   0.00%   -0.01%
Effect to adjust for pension plan termination expense, net of tax   0.00%   0.00%   0.20%   0.00%   0.00%   0.05%   0.00%
Effect to adjust for FHLB prepayment penalty, net of tax   0.00%   0.00%   0.00%   0.00%   0.00%   0.00%   0.00%
Effect to adjust for merger & branch consol./acq expenses, net of tax   0.03%   0.00%   0.04%   0.03%   0.00%   0.02%   0.17%
Adjusted return on average assets (non-GAAP)   1.26%   1.30%   1.28%   1.23%   1.33%   1.27%   1.39%
                                    
Adjusted Return of Average Equity (3)                                   
Return on average equity (GAAP)   8.26%   8.70%   6.98%   7.61%   8.24%   7.89%   7.63%
Effect to adjust for securities losses (gains)   0.00%   -0.06%   -0.23%   -0.07%   0.00%   -0.09%   0.02%
Effect to adjust for provision for income tax DTA Write-Off   0.00%   0.00%   0.00%   0.00%   0.00%   0.00%   -0.06%
Effect to adjust for pension plan termination expense, net of tax   0.00%   0.00%   1.29%   0.00%   0.00%   0.32%   0.00%
Effect to adjust for FHLB prepayment penalty, net of tax   0.00%   0.00%   0.00%   0.02%   0.00%   0.00%   0.00%
Effect to adjust for merger & branch consol./acq expenses, net of tax   0.21%   0.00%   0.28%   0.13%   0.00%   0.16%   1.03%
Adjusted return on average equity (non-GAAP)   8.47%   8.64%   8.32%   7.69%   8.24%   8.28%   8.62%
                                    
Adjusted Return on Average Common Tangible Equity (3) (7)                                   
Return on average common equity (GAAP)   8.26%   8.70%   6.98%   7.61%   8.24%   7.89%   7.63%
Effect to adjust for securities losses (gains)   0.00%   -0.06%   -0.23%   -0.07%   0.00%   0.32%   0.02%
Effect to adjust for provision for income tax DTA Write-Off   0.00%   0.00%   0.00%   0.00%   0.00%   0.00%   -0.06%
Effect to adjust for pension plan termination expense, net of tax   0.00%   0.00%   1.29%   0.00%   0.00%   -0.09%   0.00%
Effect to adjust for FHLB prepayment penalty, net of tax   0.00%   0.00%   0.00%   0.02%   0.00%   0.00%   0.00%
Effect to adjust for merger & branch consol./acq expenses, net of tax   0.21%   0.00%   0.28%   0.13%   0.00%   0.16%   1.01%
Effect to adjust for intangible assets   7.70%   7.87%   7.47%   7.11%   7.67%   7.54%   8.16%
Adjusted return on average common tangible equity (non-GAAP)   16.17%   16.51%   15.79%   14.80%   15.91%   15.82%   16.76%
                                    
Tangible Book Value Per Common Share (7)                                   
Book value per common share (GAAP)  $70.32   $69.34   $68.34   $67.19   $66.04           
Effect to adjust for intangible assets   (31.19)   (31.14)   (30.49)   (30.04)   (29.74)          
Tangible book value per common share (non-GAAP)  $39.13   $38.20   $37.85   $37.15   $36.30           
                                    
Tangible Equity-to-Tangible Assets (7)                                   
Equity-to-assets (GAAP)   14.90%   14.92%   15.14%   15.42%   16.12%          
Effect to adjust for intangible assets   -6.02%   -6.11%   -6.15%   -6.26%   -6.56%          
Tangible equity-to-tangible assets (non-GAAP)   8.88%   8.81%   8.99%   9.16%   9.56%          

 

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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 of $990,000 included in the 12 months ended December 31, 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 $1.5 million, $2.1 million, and $980,000, for the quarters ended December 31, 2019, June 30, 2019, and March 31, 2019, respectively; (b) securities (losses) gains, net of $24,000, $437,000, $1.7 million, $541,000, and ($3,000), for the quarters ended December 31, 2019, September 30, 2019, June 30, 2019, March 31, 2019, and December 31, 2018, respectively; (c) Pension plan termination expense of $9.5 million for the quarter ended June 30, 2019; and (d) FHLB prepayment penalty of $134,000 for the quarter ended March 31, 2019.
(4)Repossessed assets include OREO and other nonperforming assets.
(5)Calculated by dividing total non-acquired NPAs by total assets.
(6)December 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 $3.9 million, $2.7 million, $3.2 million, $3.2 million, and $3.8 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.

 

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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; (27) risks related to the proposed merger of South State and CenterState, including, among others, (i) the risk that the cost savings and any revenue synergies from the merger may not be fully realized or may take longer than anticipated to be realized, (ii) disruption to the parties’ businesses as a result of the announcement and pendency of the merger, (iii) the occurrence of any event, change or other circumstances that could give rise to the termination of the merger agreement between CenterState and South State, (iv) the risk that the integration of each party’s operations will be materially delayed or will be more costly or difficult than expected or that the parties are otherwise unable to successfully integrate each party’s businesses into the other’s businesses, (v) the failure to obtain the necessary approvals by the shareholders of South State or CenterState, (vi) the amount of the costs, fees, expenses and charges related to the merger, (vii) the ability of each of South State and CenterState to obtain required governmental approvals of the merger (and the risk that such approvals may result in the imposition of conditions that could adversely affect the combined company or the expected benefits of the transaction), (viii) reputational risk and the reaction of each company's customers, suppliers, employees or other business partners to the merger, (ix) the failure of the closing conditions in the merger agreement to be satisfied, or any unexpected delay in closing the merger, (x) the possibility that the merger may be more expensive to complete than anticipated, including as a result of unexpected factors or events and (xi) the dilution caused by South State’s issuance of additional shares of its common stock in the merger, and (28) 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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