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.
This press release features multimedia. View
the full release here:
https://www.businesswire.com/news/home/20200730005855/en/
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.”
“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.”
_______________ * 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.
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.
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 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.
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:
- 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.
- Investment securities portfolio increased by $1.2 billion, and
totaled $3.3 billion, representing 8.7% of total assets.
- Non-interest bearing deposits increased by $6.5 billion.
- Interest bearing deposits grew by $11.1 billion.
- Other borrowings decreased by $500.0 million due to repaying
$300.0 million of FHLB advances and $200.0 million Federal Reserve
borrowings.
- 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
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 has
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
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.
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.
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
1.49
%
Federal funds purchased and repurchase agreements
415,304
391
0.38
%
328,372
615
0.75
%
281,187
673
0.96
%
Other borrowings
1,216,884
4,992
1.65
%
887,431
4,735
2.15
%
677,858
4,737
2.80
%
Total interest-bearing liabilities
13,785,525
18,007
0.53
%
10,159,093
19,786
0.78
%
9,578,699
22,803
0.95
%
Noninterest-bearing liabilities
6,212,957
3,557,492
3,458,506
Shareholders' equity
2,900,443
2,336,348
2,382,742
Total Non-IBL and shareholders' equity
9,113,400
5,893,840
5,841,248
Total liabilities and shareholders' equity
$
22,898,925
$
16,052,933
$
15,419,947
Net interest income and margin (NON-TAX EQUIV.)
$
162,557
3.23
%
$
128,014
3.67
%
$
127,179
3.80
%
Net interest margin (TAX EQUIVALENT)
3.24
%
3.68
%
3.82
%
Total Deposit Cost of Funds
0.29
%
0.48
%
0.59
%
Overall Cost of Funds (including demand deposits)
0.37
%
0.59
%
0.71
%
Non-taxable equivalent net interest income was $162.6 million
for the second quarter of 2020, an increase of $34.5 million from
the first quarter of 2020. The increase resulted from higher
interest income of $32.8 million, which was the result of our
merger with CSFL in early June, thereby increasing the average
balances of all assets. Total interest expense declined by $1.8
million, even with the average balances increasing. This was the
result of the current low rate environment and the reduction in
interest credited on deposit accounts and other borrowings. Loan
interest income included $10.1 million of loan interest income
accretion in the second quarter of 2020 compared to $10.9 million
in the first quarter of 2020. The higher accretion in the first
quarter of 2020 was directly related to the adoption of CECL and
elimination of loan pools, resulting in an acceleration of the
recognition of the loan discount. The yield on the acquired loan
portfolio declined to 5.08% compared 7.14% in the first quarter of
2020; while the non-acquired loan portfolio declined to 3.84% from
4.14% in the first quarter of 2020. The average balance of loans
increased by $4.3 billion in the second quarter of 2020, as a
result of the merger with CSFL and PPP loans.
Tax-equivalent net interest margin declined by 44 basis points
from the first quarter of 2020 and declined by 58 basis points from
the second quarter of 2019. These declines are directly
attributable to the current economic environment from the COVID19
pandemic and the stimulus from the CARES Act. Average balances
increased due to the merger with CSFL in early June. In response to
the COVID pandemic, the Company reduced interest rates on both
loans and deposits, and the second quarter of 2020 reflects many of
the rate reductions that were initiated in March of 2020. During
the second quarter of 2020, the Company’s average total assets
increased to $22.9 billion, an increase of $6.8 billion from the
first quarter of 2020, and an increase of $7.5 billion from the
second quarter of 2019. Average earning assets totaled $20.3
billion up $6.2 billion from first quarter of 2020, and up $6.8
billion from the second quarter of 2019. Average interest-bearing
liabilities totaled $13.8 billion at June 30, 2020, an increase of
$3.6 billion from March 31, 2020; and up $4.2 billion from June 30,
2019. Average non-interest bearing liabilities increased by $2.7
billion, from March 31, 2020, to $6.2 billion; and was up $2.8
billion from June 30, 2019. Including the impact of noninterest
bearing deposits, the Company’s overall cost of funds declined to
37 basis points for the second quarter of 2020 compared to 59 basis
points in the first quarter of 2020, and decreased from 71 basis
points in the year ago period.
Acquired Loans and Loan Accretion
With the adoption of CECL, loan accretion, accretable yield, and
the related discounts are now consistently accounted for within the
balance sheet and income statement. Acquired loans reflected the
following results in the second quarter of 2020:
- Contractual interest income totaled $56.5 million, or 4.31%
yield.
- Loan accretion totaled $10.1 million, compared to $10.9 million
in the first quarter of 2020. The amount of accretion recognized in
June related to the CSFL loan portfolio totaled $2.9 million.
- Including the loan accretion, total interest income was $66.6
million on acquired loans resulting in 5.08% yield during the
second quarter of 2020.
Below is a table of the remaining discount on acquired loans,
which will be accreted into loan interest income over the
contractual life of the loan and includes the additional discount
recorded from the merger with CSFL (dollars in thousands):
Unrecognized discount on
acquired loans Beginning balance, March 31, 2020
$
52,200
Additional discount from the CSFL merger
118,710
Loan accretion recognized in 2Q 2020
(10,108
)
Ending balance, June 30, 2020
$
160,802
Noninterest Income and Expense
Three Months Ended Six Months Ended June 30,
Mar. 31, Dec. 31, Sept. 30, June 30,
June 30, June 30, (Dollars in thousands)
2020
2020
2019
2019
2019
2020
2019
Noninterest income: Fees on deposit accounts
$
16,679
$
18,141
$
19,161
$
19,725
$
18,741
$
34,820
$
36,549
Mortgage banking income
18,371
14,647
3,757
6,115
5,307
33,018
7,692
Trust and investment services income
7,138
7,389
6,935
7,320
7,720
14,527
14,989
Securities gains, net
--
--
24
437
1,709
--
2,250
Correspondent banking and capital market income
10,067
493
1,357
690
861
10,560
846
Bank owned life insurance income
1,381
2,530
1,361
1,498
1,339
3,911
2,901
Recoveries of fully charged off acquired loans
--
--
2,232
1,401
1,347
--
3,214
Other
711
932
1,480
396
594
1,643
1,235
Total noninterest income
$
54,347
$
44,132
$
36,307
$
37,582
$
37,618
$
98,479
$
69,676
Noninterest expense: Salaries and employee benefits
$
81,720
$
60,978
$
58,218
$
59,551
$
58,547
$
142,698
$
116,978
Pension plan termination expense
-
-
--
--
9,526
-
9,526
Occupancy expense
15,959
12,287
12,113
11,883
11,849
28,246
23,461
Information services expense
12,155
9,306
8,919
8,878
8,671
21,462
17,680
FHLB prepayment penalty
199
--
--
--
--
199
134
OREO expense and loan related
1,107
587
1,013
597
881
1,694
1,632
Business development and staff related
1,447
2,244
2,905
2,018
2,171
3,691
4,459
Amortization of intangibles
4,665
3,007
3,267
3,268
3,268
7,672
6,549
Professional fees
2,848
2,494
2,862
2,442
2,781
5,342
5,021
Supplies, printing and postage expense
1,610
1,505
1,464
1,418
1,495
3,115
2,999
FDIC assessment and other regulatory charges
2,403
2,058
1,327
228
1,455
4,461
2,990
Advertising and marketing
531
814
1,491
1,052
959
1,345
1,766
Other operating expenses
10,189
7,838
5,555
5,029
5,726
18,027
11,393
Branch consolid. or merger / convers related exp.
40,279
4,129
1,494
-
2,078
44,408
3,058
Merger and branding related expense
--
--
--
--
--
--
--
Total noninterest expense
$
175,112
$
107,247
$
100,628
$
96,364
$
109,407
$
282,360
$
207,646
Noninterest income totaled $54.3 million for the second quarter
of 2020 compared to $44.1 million in the first quarter of 2020, an
increase of $10.2 million. The largest variance came from the
addition of correspondent banking income from the CSFL merger,
which resulted in an increase of $8.3 million and capital markets
income improved by $1.3 million. Mortgage banking income improved
by $3.7 million from the gain on sale of mortgage loans in
secondary market of $13.0 million, which was partially offset by
the MSR, net of the hedge, of $9.3 million. These increases were
partially offset by decreases in fees on deposit accounts of $1.5
million, primarily from lower NSF fees, lower Bank owned life
insurance income primarily from a death claim received in the first
quarter of 2020 that totaled $1.2 million and lower wealth income
of $251,000. The impact of CSFL on the second quarter reflects only
23 days of June.
Compared to the second quarter of 2019, noninterest income
increased by $16.7 million due to the impact of correspondent
banking and capital markets income discussed above and improved
mortgage banking income which increased by $13.0 million. Secondary
market mortgage income was up $18.4 million from the increase in
the mortgage pipeline and the higher margin; offset partially by
MSR, net of the hedge, which decreased by $5.4 million. These
increases were offset by the following: no securities gains or
losses in 2Q 2020 compared to a gain of $1.7 million, no recoveries
from acquired loans (which now flow through the allowance for
credit losses) resulted in a $1.3 million decrease, and a decline
in service charges on deposit accounts of $2.0 million, reflective
of higher deposit balances and less NSF fees.
Noninterest expense was $175.1 million in the second quarter of
2020, an increase of $67.9 million from $107.2 million in the first
quarter of 2020. The increase was primarily related to the addition
of expense from the merger with CSFL. Merger-related costs totaled
$40.3 million for the quarter and was an increase $36.2 million
from the first quarter of 2020. The other line items of noninterest
expense reflect approximately a 30% increase in the aggregate
reflective of the expenses incurred with the addition of CSFL in
the second quarter. Adjusted noninterest expense totaled $134.6
million in 2Q 2020, which was $31.5 million higher than first
quarter of 2020, and resulted in an adjusted efficiency ratio of
61.9% compared to 59.7%, in first quarter of 2020.
Compared to the second quarter of 2019, noninterest expense was
higher by $65.7 million. The net increase was primarily due the
merger with CSFL in June 2020, and includes $38.2 million of
additional merger-related or branch consolidation cost. Adjusted
noninterest expense (non-GAAP) increased $36.8 million, compared to
the second quarter of 2019.
Conference Call
South State Corporation (NASDAQ:SSB) will announce its second
quarter 2020 earnings results in a news release after the market
closes on July 30, 2020. At 10 a.m. Eastern Time on July 31, 2020,
South State will host a conference call to discuss its second
quarter results. Callers wishing to participate may call toll-free
by dialing 877-506-9272. The number for international participants
is 412-380-2004. The conference ID number is 10146098. Participants
can also listen to the live audio webcast through the Investor
Relations section of www.SouthStateBank.com. A replay will be
available beginning July 31, 2020 by 2:00 p.m. Eastern Time until
9:00 a.m. on August 14, 2020. To listen to the replay, dial
877-344-7529 or 412-317-0088. The passcode is 10146098.
***************
South State Corporation (NASDAQ: SSB) is a financial
services company headquartered in Winter Haven, Florida. South
State Bank, N.A., the company’s nationally chartered bank
subsidiary, provides consumer, commercial, mortgage and wealth
management solutions to more than one million customers throughout
Florida, Alabama, Georgia, the Carolinas and Virginia. The bank
also serves clients coast to coast through its correspondent
banking division. Additional information is available at
SouthStateBank.com.
Non-GAAP Measures
Statements included in this press release include non-GAAP
measures and should be read along with the accompanying tables
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.
Pre-provision net revenue (in thousands) June 30,
2020 Net loss (GAAP)
$
(84,935
)
PCL legacy SSB
31,259
PCL legacy CSB NonPCD and UFC - Day 1
119,079
PCL legacy CSB for June
1,136
Tax provision (benefit)
(24,747
)
Merger-related costs
40,279
FHLB advance prepayment cost
199
CSB pre-merger PPNR
74,791
Pre-provision net revenue (PPNR) Non-GAAP
$
157,061
SSB average asset balance June 30, 2020 (GAAP)
$
22,898,925
CSB average asset balance pre-merger
14,604,081
Total average balance June 30, 2020 (Non-GAAP)
$
37,503,006
1.68% ROAA
PPNR
Three Months Ended Six Months Ended (Dollars in
thousands, except per share data)
June 30, Mar. 31,
Dec. 31, Sept. 30, June 30, June 30,
June 30, RECONCILIATION OF GAAP TO Non-GAAP
2020
2020
2019
2019
2019
2020
2019
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
)
PCL - NonPCD loans & unfunded commitments
92,212
--
--
--
--
92,212
--
Pension plan termination expense, net of tax
--
--
--
--
7,641
--
7,641
FHLB prepayment penalty, net of tax
154
--
--
--
--
154
107
Merger and branch consolidation/acq. expense, net of tax
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
Adjusted net income per common share - Basic (3)
Earnings (loss) per common share - Basic (GAAP)
$
(1.96
)
$
0.72
$
1.46
$
1.51
$
1.18
$
(1.58
)
$
2.43
Effect to adjust for securities gains
--
--
(0.01
)
(0.01
)
(0.04
)
-
(0.05
)
Effect to adjust for PCL - NonPCD loans & unfunded commitments
2.13
--
-
-
-
2.40
--
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
0.72
0.10
0.04
-
0.05
0.90
0.07
Adjusted net income per common share - Basic (non-GAAP)
$
0.89
$
0.82
$
1.49
$
1.50
$
1.41
$
1.73
$
2.67
Adjusted net income per common share - Diluted (3)
Earnings (loss) per common share - Diluted (GAAP)
$
(1.96
)
$
0.71
$
1.45
$
1.50
$
1.17
$
(1.58
)
$
2.42
Effect to adjust for securities gains
--
--
(0.01
)
(0.01
)
(0.04
)
--
(0.05
)
Effect to adjust for PCL - NonPCD loans & unfunded commitments
2.11
--
-
-
-
2.38
--
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
0.72
0.11
0.04
-
0.05
0.89
0.07
Effect of adjusted weighted ave shares due to adjusted net income
0.02
0.01
Adjusted net income per common share - Diluted (non-GAAP)
$
0.89
$
0.82
$
1.48
$
1.49
$
1.40
$
1.71
$
2.66
Adjusted Return of Average Assets (3) Return on
average assets (GAAP)
-1.49
%
0.60
%
1.23
%
1.31
%
1.08
%
-0.63
%
1.14
%
Effect to adjust for securities gains
0.00
%
0.00
%
0.00
%
-0.01
%
-0.04
%
0.00
%
-0.02
%
Effect to adjust for PCL - NonPCD loans & unfunded commitments
1.62
%
0.00
%
0.00
%
0.00
%
0.00
%
0.95
%
0.00
%
Effect to adjust for pension plan termination expense, net of tax
0.00
%
0.00
%
0.00
%
0.00
%
0.20
%
0.00
%
0.10
%
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
0.55
%
0.09
%
0.03
%
0.00
%
0.04
%
0.36
%
0.04
%
Adjusted return on average assets (non-GAAP)
0.68
%
0.69
%
1.26
%
1.30
%
1.28
%
0.68
%
1.26
%
Adjusted Return of Average Equity (3) Return on
average equity (GAAP)
-11.78
%
4.15
%
8.26
%
8.70
%
6.98
%
-4.67
%
7.29
%
Effect to adjust for securities gains
0.00
%
0.00
%
0.00
%
-0.06
%
-0.23
%
0.00
%
-0.15
%
Effect to adjust for PCL - NonPCD loans & unfunded commitments
12.79
%
0.00
%
0.00
%
0.00
%
0.00
%
7.08
%
0.00
%
Effect to adjust for pension plan termination expense, net of tax
0.00
%
0.00
%
0.00
%
0.00
%
1.29
%
0.00
%
0.65
%
Effect to adjust for FHLB prepayment penalty, net of tax
0.02
%
0.00
%
0.00
%
0.00
%
0.00
%
0.01
%
0.01
%
Effect to adjust for merger & branch consol./acq expenses, net
of tax
4.33
%
0.60
%
0.21
%
0.00
%
0.28
%
2.67
%
0.20
%
Adjusted return on average equity (non-GAAP)
5.36
%
4.75
%
8.47
%
8.64
%
8.32
%
5.09
%
8.00
%
Adjusted Return on Average Common Tangible Equity (3)
(5) Return on average common equity (GAAP)
-11.78
%
4.15
%
8.26
%
8.70
%
6.98
%
-4.67
%
7.29
%
Effect to adjust for securities gains
0.00
%
0.00
%
0.00
%
-0.06
%
-0.23
%
0.00
%
-0.15
%
Effect to adjust for PCL - NonPCD loans & unfunded commitments
12.79
%
0.00
%
0.00
%
0.00
%
0.00
%
7.08
%
0.00
%
Effect to adjust for pension plan termination expense, net of tax
0.00
%
0.00
%
0.00
%
0.00
%
1.29
%
0.00
%
0.65
%
Effect to adjust for FHLB prepayment penalty, net of tax
0.02
%
0.00
%
0.00
%
0.00
%
0.00
%
0.01
%
0.01
%
Effect to adjust for merger & branch consol./acq expenses, net
of tax
4.32
%
0.60
%
0.21
%
0.00
%
0.28
%
2.67
%
0.21
%
Effect to adjust for intangible assets
4.88
%
4.70
%
7.70
%
7.87
%
7.47
%
4.74
%
7.29
%
Adjusted return on average common tangible equity (non-GAAP)
10.23
%
9.45
%
16.17
%
16.51
%
15.79
%
9.83
%
15.30
%
Adjusted efficiency ratio (5) Efficiency ratio
80.52
%
62.11
%
61.64
%
58.40
%
66.87
%
Effect to adjust for merger and branch consolidation related
expenses
-18.61
%
-2.39
%
-0.91
%
0.00
%
-7.09
%
Adjusted efficiency ratio
61.91
%
59.72
%
60.73
%
58.40
%
59.78
%
Tangible Book Value Per Common Share (5) Book value
per common share (GAAP)
$
63.35
$
69.40
$
70.32
$
69.34
$
68.34
Effect to adjust for intangible assets
(25.02
)
(31.39
)
(31.19
)
(31.14
)
(30.49
)
Tangible book value per common share (non-GAAP)
$
38.33
$
38.01
$
39.13
$
38.20
$
37.85
Tangible Equity-to-Tangible Assets (5)
Equity-to-assets (GAAP)
11.91
%
13.95
%
14.90
%
14.92
%
15.14
%
Effect to adjust for intangible assets
-4.35
%
-5.80
%
-6.02
%
-6.11
%
-6.15
%
Tangible equity-to-tangible assets (non-GAAP)
7.56
%
8.15
%
8.88
%
8.81
%
8.99
%
Footnotes to tables:
(1)
Loan data excludes mortgage loans held for
sale.
(2)
The dividend payout ratio is calculated by
dividing total dividends paid during the period by the total net
income for the same period.
(3)
Adjusted earnings, adjusted return on
average assets, and adjusted return on average equity are non-GAAP
measures and exclude the after-tax effect of gains on acquisitions,
gains or losses on sales of securities, and merger and branch
consolidation related expense. Management believes that non-GAAP
adjusted measures provide additional useful information that allows
readers to evaluate the ongoing performance of the company.
Non-GAAP measures should not be considered as an alternative to any
measure of performance or financial condition as promulgated under
GAAP, and investors should consider the company's performance and
financial condition as reported under GAAP and all other relevant
information when assessing the performance or financial condition
of the company. Non-GAAP measures have limitations as analytical
tools, and investors should not consider them in isolation or as a
substitute for analysis of the company's results or financial
condition as reported under GAAP. Adjusted earnings and the related
adjusted return measures (non-GAAP) exclude the following from net
income (GAAP) on an after-tax basis: (a) pre-tax merger and branch
consolidation related expense of $40.3 million, $4.1 million, $1.5
million, and $2.1 million, for the quarters ended June 30, 2020,
March 31, 2020, December 31, 2019, and June 30, 2019, respectively;
(b) securities (losses) gains, net of $24,000, $437,000, and $1.7
million, for the quarters ended December 31, 2019, September 30,
2019, and June 30, 2019, respectively; (c) Pension plan termination
expense of $9.5 million for the quarter ended June 30, 2019; and
(d) FHLB prepayment penalty of $199,000 and $134,000 for the
quarter ended June 30, 2020 and March 31, 2019.
(4)
June 30, 2020 ratios are estimated and may
be subject to change pending the final filing of the FR Y-9C; all
other periods are presented as filed.
(5)
The tangible measures are non-GAAP
measures and exclude the effect of period end or average balance of
intangible assets. The tangible returns on equity and common equity
measures also add back the after-tax amortization of intangibles to
GAAP basis net income. Management believes that these non-GAAP
tangible measures provide additional useful information,
particularly since these measures are widely used by industry
analysts for companies with prior merger and acquisition
activities. Non-GAAP measures should not be considered as an
alternative to any measure of performance or financial condition as
promulgated under GAAP, and investors should consider the company's
performance and financial condition as reported under GAAP and all
other relevant information when assessing the performance or
financial condition of the company. Non-GAAP measures have
limitations as analytical tools, and investors should not consider
them in isolation or as a substitute for analysis of the company's
results or financial condition as reported under GAAP. The sections
titled "Reconciliation of Non-GAAP to GAAP" provide tables that
reconcile non-GAAP measures to GAAP.
(6)
Includes loan accretion (interest) income
related to the discount on acquired loans of $10.1 million, $10.9
million $7.4 million, $8.1 million, and $9.1 million, respectively,
during the five quarters above.
(7)
Adjusted efficiency ratio is calculated by
taking the noninterest expense excluding branch consolidation cost
and merger cost, pension plan termination and the FHLB prepayment
penalty divided by net interest income and noninterest income
excluding securities gains (losses).
Cautionary Statement Regarding Forward Looking
Statements
Statements included in this communication, which are not
historical in nature are intended to be, and are hereby identified
as, forward looking statements for purposes of the safe harbor
provided by Section 27A of the Securities Act of 1933 and Section
21E of the Securities Exchange Act of 1934. Forward looking
statements are based on, among other things, management’s beliefs,
assumptions, current expectations, estimates and projections about
the financial services industry, the economy and South State. Words
and phrases such as “may,” “approximately,” “continue,” “should,”
“expects,” “projects,” “anticipates,” “is likely,” “look ahead,”
“look forward,” “believes,” “will,” “intends,” “estimates,”
“strategy,” “plan,” “could,” “potential,” “possible” and variations
of such words and similar expressions are intended to identify such
forward-looking statements. South State cautions readers that
forward looking statements are subject to certain risks,
uncertainties and assumptions that are difficult to predict with
regard to, among other things, timing, extent, likelihood and
degree of occurrence, which could cause actual results to differ
materially from anticipated results. Such risks, uncertainties and
assumptions, include, among others, the following: (1) economic
downturn risk, potentially resulting in deterioration in the credit
markets, greater than expected noninterest expenses, excessive loan
losses and other negative consequences, which risks could be
exacerbated by potential negative economic developments resulting
from federal spending cuts and/or one or more federal
budget-related impasses or actions; (2) 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 CARES 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 CARES Act, the Consumer Financial Protection
Bureau rules and regulations, and the possibility of changes in
accounting standards, policies, principles and practices, including
changes in accounting principles relating to loan loss recognition
(CECL); (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)
major catastrophes such as earthquakes, floods or other natural or
human disasters, including infectious disease outbreaks, including
the recent outbreak of a novel strain of coronavirus, a respiratory
illness, the related disruption to local, regional and global
economic activity and financial markets, and the impact that any of
the foregoing may have on South State and its customers and other
constituencies; and (28) risks related to the 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) the risk that the integration of each party’s operations will
be materially delayed or will be more costly or difficult than
expected or that the parties are otherwise unable to successfully
integrate each party’s businesses into the other’s businesses,
(iii) the amount of the costs, fees, expenses and charges related
to the merger, (iv) reputational risk and the reaction of each
company's customers, suppliers, employees or other business
partners to the merger, and (29) other factors that may affect
future results of South State and CenterState, as disclosed in
South State’s Annual Report on Form 10-K, as amended, Quarterly
Reports on Form 10-Q, and Current Reports on Form 8-K, and
CenterState’s Annual Report on Form 10-K, Quarterly Reports on Form
10-Q, and Current Reports on Form 8-K, in each case filed by South
State or CenterState, as applicable, with the U.S. Securities and
Exchange Commission (“SEC”) and available on the SEC’s website at
http://www.sec.gov, any of which could cause actual results to
differ materially from future results expressed, implied or
otherwise anticipated by such forward-looking statements.
All forward-looking statements speak only as of the date they
are made and are based on information available at that time. South
State does not undertake any obligation to update or otherwise
revise any forward-looking statements, whether as a result of new
information, future events, or otherwise, except as required by
federal securities laws. As forward-looking statements involve
significant risks and uncertainties, caution should be exercised
against placing undue reliance on such statements.
View source
version on businesswire.com: https://www.businesswire.com/news/home/20200730005855/en/
Jackie Smith (803) 231-3486
SouthState (NASDAQ:SSB)
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