South State Corporation Reports Third Quarter 2019 Results and Declares Increase in Quarterly Cash Dividend

COLUMBIA, S.C.–(BUSINESS WIRE)–South State Corporation (NASDAQ: SSB) today released its unaudited results of operations and other financial information for the three-month and nine-month period ended September 30, 2019. The Company reported consolidated net income of $51.6 million, or $1.50 per diluted common share for the three months ended September 30, 2019, a $10.1 million increase, or $0.33 per share increase in EPS, compared to the second quarter of 2019.

“This quarter demonstrated our commitment to enhancing value for our customers, team, and shareholders,” said Robert R. Hill Jr., CEO of South State Corporation. “The Company announced longer term financial targets at the end of 2018, and I am pleased with our progress. The bank continues to see excellent credit quality in the loan portfolio, and we have a balance sheet that is very well positioned. We look forward to building on these results in the quarters ahead.”

Soundness

Our operating principles begin with a focus on soundness. Asset quality and funding strength are among the competitive advantages for South State. Asset quality remains strong with total non-performing assets equal to 0.27% of total assets at September 30, 2019, an increase of 0.01% from June 30, 2019. Non-interest bearing deposits grew by $51.6 million to $3.3 billion, or 6.3% annualized. Our loan and deposit base is well-diversified and we believe this contributes to a stable and high quality balance sheet.

Capital Management

We are focused on utilizing excess capital and have repurchased approximately 8% of outstanding shares since the third quarter 2018. Capital levels remain solid and we continue to preserve our ability to accommodate balance sheet growth and future investments in the company.

During the third quarter of 2019, we remained active in repurchasing company common stock and bought 858,800 shares at an average price of $75.08 per share, a total of $64.5 million. In June of 2019, the Company’s Board of Directors authorized a new Repurchase Program of 2,000,000 shares, and there were 1,000,000 shares available for repurchase under this plan as of September 30, 2019. The Company has acquired 165,000 shares thus far in the fourth quarter of 2019, at an average price of $74.88 per share, or $12.4 million.

Operating Leverage

Operating leverage improved by $13.2 million in the third quarter of 2019 compared to second quarter of 2019, and the efficiency ratio declined to 58.4%. This was largely driven by a decline in noninterest expenses.

The Company announced various cost saving measures earlier this year to include the closure of 13 branch offices during 2019. Twelve of these locations had been closed as of September 30, 2019, with the remaining closure scheduled for late October 2019. In the third quarter of 2019, the Company recognized approximately $3.2 million in cost saves and remain on track to achieve the expected cost saves in 2019 of $10.0 million.

Quarterly Cash Dividend

The Company’s Board of Directors voted to increase the common stock dividend this quarter by $0.03 to $0.46 per share, which is a 7.0% increase compared to last quarter, and a $0.10 per share increase, or 27.8%, compared to the same quarter one year ago. The dividend will be payable on November 15, 2019 to shareholders of record as of November 8, 2019.

Third Quarter 2019 Financial Performance
	Three Months Ended															Nine Months Ended
(Dollars in thousands, except per share data)	Sept. 30,			June 30,			Mar. 31,			Dec. 31,			Sept. 30,			Sept. 30,
INCOME STATEMENT		2019			2019			2019			2018			2018			2019			2018
Interest income
Loans, including fees (8)	$	134,953		$	135,388		$	131,834		$	132,541		$	132,043		$	402,175		$	388,936
Investment securities, federal funds sold and securities purchased under agreements to resell		15,048			14,594			11,556			11,327			11,517			41,198			34,404
Total interest income		150,001			149,982			143,390			143,868			143,560			443,373			423,340
Interest expense
Deposits		16,655			17,393			16,645			15,310			13,220			50,693			30,142
Federal funds purchased, securities sold under agreements to repurchase, and other borrowings		5,973			5,410			3,478			2,166			2,051			14,861			6,374
Total interest expense		22,628			22,803			20,123			17,476			15,271			65,554			36,516
Net interest income		127,373			127,179			123,267			126,392			128,289			377,819			386,824
Provision for loan losses		4,028			3,704			1,488			3,734			3,117			9,220			10,049
Net interest income after provision for loan losses		123,345			123,475			121,779			122,658			125,172			368,599			376,775
Noninterest income		37,582			37,618			32,058			35,642			32,027			107,258			110,107
Pre-tax operating expense		96,364			97,803			97,125			96,664			95,818			291,292			294,395
Branch consolid./acquisition and merger expense		—			2,078			1,114			—			4,476			3,192			29,868
Pension plan termination expense		—			9,526			—			—			—			9,526			—
Total noninterest expense		96,364			109,407			98,239			96,664			100,294			304,010			324,263
Income before provision for income taxes		64,563			51,686			55,598			61,636			56,905			171,847			162,619
Provision for income taxes, includes deferred tax revaluation		12,998			10,226			11,231			12,632			9,823			34,455			32,753
Net income	$	51,565		$	41,460		$	44,367		$	49,004		$	47,082		$	137,392		$	129,866
Adjusted net income (non-GAAP) (3)
Net income (GAAP)	$	51,565		$	41,460		$	44,367		$	49,004		$	47,082		$	137,392		$	129,866
Securities losses (gains), net of tax		(349)			(1,371)			(432)			2			9			(2,152)			514
Provision for income taxes, deferred tax revaluation		—			—			—			—			(1,602)			—			(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		—			1,667			782			—			3,577			2,449			23,607
Adjusted net income (non-GAAP)	$	51,216		$	49,397		$	44,824		$	49,006		$	49,066		$	145,437		$	152,997
Basic earnings per common share	$	1.51		$	1.18		$	1.25		$	1.36		$	1.28		$	3.94		$	3.53
Diluted earnings per common share	$	1.50		$	1.17		$	1.25		$	1.35		$	1.28		$	3.92		$	3.52
Adjusted net income per common share – Basic (non-GAAP) (3)	$	1.50		$	1.41		$	1.26		$	1.36		$	1.34		$	4.17		$	4.18
Adjusted net income per common share – Diluted (non-GAAP) (3)	$	1.49		$	1.40		$	1.26		$	1.35		$	1.33		$	4.15		$	4.15
Dividends per common share	$	0.43		$	0.40		$	0.38		$	0.36		$	0.35		$	1.21		$	1.02
Basic weighted-average common shares outstanding		34,056,771			35,089,129			35,445,087			36,154,922			36,645,181			34,858,503			36,657,198
Diluted weighted-average common shares outstanding		34,300,206			35,299,747			35,618,705			36,364,873			36,893,496			35,068,610			36,909,236
Effective tax rate		20.13%			19.78%			20.20%			20.49%			17.26%			20.05%			20.14%

The Company reported consolidated net income of $51.6 million, or $1.50 per diluted common share for the three-months ended September 30, 2019, a $10.1 million increase, or $0.33 per share improvement in EPS compared to second quarter of 2019. Weighted average diluted share count declined by 1.0 million shares, from the second quarter of 2019, due to the continuation of the Company repurchasing common shares under the Repurchase Program. Compared to the third quarter of 2018, net income totaled $47.1 million, or $1.28 per diluted common share, and weighted average diluted shares were 2.6 million higher than the third quarter of 2019. Net interest income increased by $194,000 compared to the second quarter of 2019 on slightly lower interest expense. The provision for loan losses increased by $324,000, with the nonacquired provision for loan losses increasing $448,000 compared to second quarter of 2019; while the acquired loan loss provision declined by $124,000. Noninterest income was flat compared to second quarter of 2019 at $37.6 million. Excluding securities gains, noninterest income increased by $1.2 million in the third quarter of 2019. Noninterest expense was lower by $13.0 million due primarily to the pension plan termination cost of $9.5 million and $2.1 million in branch consolidation expense and other cost initiatives incurred in second quarter of 2019. In addition, the Company received a $1.6 million credit on its FDIC assessment in 3Q 2019, and expects to receive approximately another credit of $800,000 in the fourth quarter of 2019. The efficiency ratio and adjusted efficiency ratio were 58.4% in 3Q 2019, compared to 66.9% and 59.8%, respectively, in second quarter of 2019.

Income Tax Expense

During the third quarter of 2019, our effective income tax rate increased to 20.13% from 19.78% in the second quarter of 2019 and from 17.26% in the third quarter of 2018. The primary factor in the higher effective tax rate in the third quarter of 2019 compared to the second quarter of 2019 was higher pre-tax book income, primarily related to the charge for the termination of the pension plan and branch consolidation expense and other cost initiatives in second quarter of 2019. Compared to the third quarter of 2018, the higher effective tax rate was attributable to the increase in pre-tax book income and the absence of the tax benefit related to the revaluation of deferred taxes.

Balance Sheet and Capital
(dollars in thousands, except per share and share data)	Ending Balance
	Sept. 30,			June 30,			Mar. 31,			Dec. 31,			Sept. 30,
BALANCE SHEET		2019			2019			2019			2018			2018
Assets
Cash and cash equivalents	$	719,194		$	851,971		$	949,591		$	408,983		$	307,309
Investment securities:
Securities held to maturity		—			—			—			—			500
Securities available for sale, at fair value		1,813,134			1,717,276			1,466,249			1,517,067			1,551,281
Other investments		49,124			49,124			40,624			25,604			19,229
Total investment securities		1,862,258			1,766,400			1,506,873			1,542,671			1,571,010
Loans held for sale		87,393			47,796			33,297			22,925			33,752
Loans:
Acquired credit impaired		390,714			419,961			452,258			485,119			512,633
Acquired non-credit impaired		1,965,603			2,180,281			2,378,737			2,594,826			2,786,102
Non-acquired		8,928,512			8,621,327			8,310,613			7,933,286			7,606,478
Less allowance for non-acquired loan losses		(54,937)			(53,590)			(52,008)			(51,194)			(49,869)
Loans, net		11,229,892			11,167,979			11,089,600			10,962,037			10,855,344
Other real estate owned (“OREO”)		13,415			14,506			11,297			11,410			12,119
Premises and equipment, net		323,506			321,348			322,553			241,076			241,909
Bank owned life insurance		233,206			231,708			230,629			230,105			229,075
Deferred tax asset		27,844			28,240			31,884			37,128			47,943
Mortgage servicing rights		28,674			30,332			32,415			34,727			36,056
Core deposit and other intangibles		53,083			56,351			59,619			62,900			66,437
Goodwill		1,002,900			1,002,900			1,002,900			1,002,900			1,002,900
Other assets		170,717			163,806			136,229			119,466			118,361
Total assets	$	15,752,082		$	15,683,337		$	15,406,887		$	14,676,328		$	14,522,215
Liabilities and Shareholders’ Equity
Deposits:
Noninterest-bearing	$	3,307,532		$	3,255,906		$	3,219,864		$	3,061,769		$	3,157,478
Interest-bearing		8,716,255			8,666,374			8,699,107			8,585,164			8,456,397
Total deposits		12,023,787			11,922,280			11,918,971			11,646,933			11,613,875
Federal funds purchased and securities sold under agreements to repurchase		269,072			298,029			276,891			270,649			279,698
Other borrowings		815,771			816,414			616,250			266,084			115,919
Other liabilities		292,496			272,636			218,298			126,366			144,584
Total liabilities		13,401,126			13,309,359			13,030,410			12,310,032			12,154,076
Shareholders’ equity:
Preferred stock – $.01 par value; authorized 10,000,000 shares		—			—			—			—			—
Common stock – $2.50 par value; authorized 80,000,000 shares		84,757			86,839			88,421			89,574			91,808
Surplus		1,617,004			1,676,229			1,719,396			1,750,495			1,805,685
Retained earnings		646,325			609,444			582,034			551,108			515,155
Accumulated other comprehensive income (loss)		2,870			1,466			(13,374)			(24,881)			(44,509)
Total shareholders’ equity		2,350,956			2,373,978			2,376,477			2,366,296			2,368,139
Total liabilities and shareholders’ equity	$	15,752,082		$	15,683,337		$	15,406,887		$	14,676,328		$	14,522,215
Common shares issued and outstanding		33,902,726			34,735,587			35,368,521			35,829,549			36,723,238

At September 30, 2019, the Company’s total assets were $15.8 billion, an increase of $1.1 billion from December 31, 2018, and an increase of $1.2 billion, or 8.5%, from September 30, 2018. During the third quarter of 2019, changes in the balance sheet include the following:

1. Net loan growth totaled $64.0 million, or 2.3% annualized. Non-acquired loans increased by $307.2 million or 14.1% annualized, and acquired loans decreased by $243.2 million, or 37.0% annualized.
2. Investment securities portfolio grew by $95.9 million to almost $1.9 billion, representing 11.8% of total assets.
3. Non-interest bearing deposits grew by $51.6 million, or 6.3% annualized.
4. Interest bearing deposits grew by $49.9 million, or 2.3% annualized.
5. Repurchased 858,800 common shares totaling $64.5 million.

The Company’s book value per common share increased to $69.34 per share at September 30, 2019, compared to $68.34 at June 30, 2019 and $64.49 at September 30, 2018. Total equity (capital) decreased by $23.0 million due to the shares of common stock repurchased during the third quarter. The decrease from the repurchased stock, net of stock options and vested restricted stock, of $61.3 million was partially offset by an improvement in the change in accumulated comprehensive income of $1.4 million, and net income, net of the dividend paid, of $36.9 million, during the third quarter. Tangible book value (“TBV”) per common share increased by $0.35 per share to $38.20 at September 30, 2019, compared to $37.85 at June 30, 2019, and increased by $2.83 per share, or 8.0%, from $35.37 at September 30, 2018.

“South State continues to make solid progress towards its long-term goals,” said John C. Pollok, Chief Financial Officer. “Our operating leverage continued to improve and with the shares repurchased during 2019, resulted in a 16.6% return on average tangible common equity in the third quarter of 2019.”

Performance and Capital Ratios
	Three Months Ended															Nine Months Ended
	Sept. 30,			June 30,			Mar. 31,			Dec. 31,			Sept. 30,			Sept. 30,		Sept. 30,
PERFORMANCE RATIOS		2019			2019			2019			2018			2018		2019		2018
Return on average assets (annualized)		1.31%			1.08%			1.21%			1.33%			1.28%		1.20%		1.20%
Adjusted return on average assets (annualized) (non-GAAP) (3)		1.30%			1.28%			1.23%			1.33%			1.33%		1.27%		1.41%
Return on average equity (annualized)		8.70%			6.98%			7.61%			8.24%			7.89%		7.76%		7.43%
Adjusted return on average equity (annualized) (non-GAAP) (3)		8.64%			8.32%			7.69%			8.24%			8.23%		8.22%		8.75%
Return on average tangible common equity (annualized) (non-GAAP) (7)		16.62%			13.38%			14.66%			15.91%			15.29%		14.88%		14.60%
Adjusted return on average tangible common equity (annualized) (non-GAAP) (3) (7)		16.51%			15.79%			14.80%			15.91%			15.90%		15.71%		17.04%
Efficiency ratio (tax equivalent)		58.40%			66.87%			63.24%			59.43%			62.31%		62.82%		64.91%
Adjusted efficiency ratio (non-GAAP) (9)		58.40%			59.78%			62.52%			59.43%			59.53%		60.19%		58.94%
Dividend payout ratio (2)		28.48%			33.89%			30.29%			26.63%			27.30%		30.70%		28.88%
Book value per common share	$	69.34		$	68.34		$	67.19		$	66.04		$	64.49
Tangible common equity per common share (non-GAAP) (7)	$	38.20		$	37.85		$	37.15		$	36.30		$	35.37
CAPITAL RATIOS
Equity-to-assets		14.92%			15.14%			15.42%			16.12%			16.31%
Tangible equity-to-tangible assets (non-GAAP) (7)		8.81%			8.99%			9.16%			9.56%			9.65%
Tier 1 common equity (6)		11.2%			11.6%			11.9%			12.1%			12.3%
Tier 1 leverage (6)		9.7%			10.0%			10.5%			10.7%			10.8%
Tier 1 risk-based capital (6)		12.2%			12.6%			12.9%			13.1%			13.3%
Total risk-based capital (6)		12.7%			13.1%			13.4%			13.6%			13.8%
OTHER DATA
Number of branches		157			156			168			168			168
Number of employees (full-time equivalent basis)		2,544			2,544			2,589			2,602			2,640

Asset Quality
	Ending Balance
	Sept 30,			June 30,			Mar. 31,			Dec. 31,			Sept 30,
(Dollars in thousands)		2019			2019			2019			2018			2018
NONPERFORMING ASSETS:
Non-acquired
Non-acquired nonperforming loans	$	19,187		$	15,605		$	15,910		$	15,018		$	15,315
Non-acquired OREO and other nonperforming assets		3,724			4,374			4,070			4,037			3,229
Total non-acquired nonperforming assets		22,911			19,979			19,980			19,055			18,544
Acquired
Acquired nonperforming loans		9,596			9,985			14,558			13,651			10,800
Acquired OREO and other nonperforming assets		9,938			10,412			7,782			7,755			9,302
Total acquired nonperforming assets		19,534			20,397			22,340			21,406			20,102
Total nonperforming assets	$	42,445		$	40,376		$	42,320		$	40,461		$	38,646
	Three Months Ended															Nine Months Ended
	Sept 30,			June 30,			Mar. 31,			Dec. 31,			Sept 30,			Sept 30,		Sept 30,
		2019			2019			2019			2018			2018		2019		2018
ASSET QUALITY RATIOS:
Allowance for non-acquired loan losses as a percentage of non-acquired loans (1)		0.62%			0.62%			0.63%			0.65%			0.66%		0.62%		0.66%
Allowance for non-acquired loan losses as a percentage of non-acquired nonperforming loans		286.32%			343.42%			326.89%			340.88%			325.62%		286.32%		325.62%
Net charge-offs on non-acquired loans as a percentage of average non-acquired loans (annualized) (1)		0.05%			0.02%			0.02%			0.06%			0.07%		0.03%		0.04%
Net charge-offs on acquired non-credit impaired loans as a percentage of average acquired non-credit impaired loans (annualized) (1)		0.15%			0.25%			0.03%			0.09%			0.01%		0.14%		0.06%
Total nonperforming assets as a percentage of total assets		0.27%			0.26%			0.27%			0.28%			0.27%
Excluding Acquired Assets
NPLs as a percentage of period end non-acquired loans (1)		0.21%			0.18%			0.19%			0.19%			0.20%
Total nonperforming assets as a percentage of total non-acquired loans and repossessed assets (1) (4)		0.26%			0.23%			0.24%			0.24%			0.24%
Total nonperforming assets as a percentage of total assets (5)		0.15%			0.13%			0.13%			0.13%			0.13%

Total nonperforming assets increased by $2.1 million to $42.4 million, representing 0.27% of total assets, an increase of 1 basis point compared to June 30, 2019. Non-performing acquired non-credit impaired loans decreased by $389,000 and totaled $9.6 million. Legacy non-performing loans increased by $3.6 million during the third quarter of 2019 to $19.2 million at September 30, 2019. The allowance for loan losses as a percentage of non-acquired nonaccrual loans was 286% at September 30, 2019, down from 343% in the second quarter of 2019, and down from 326% at September 30, 2018.

At September 30, 2019, the allowance for non-acquired loan losses was $54.9 million, or 0.62%, of non-acquired period-end loans and $53.6 million, or 0.62%, at June 30, 2019, and $49.9 million, or 0.66% at September 30, 2018. Net charge-offs within the non-acquired portfolio were $1.1 million, or 0.05% annualized, in the third quarter of 2019, compared to $452,000, or 0.02% annualized, in the second quarter of 2019. Third quarter 2018 net charge-offs totaled $1.3 million, or 0.07% annualized. Net charge-offs (recoveries) related to the non-acquired loan portfolio totaled ($9,000) during the third quarter of 2019 and ($536,000) for the nine months ended September 30, 2019. The remaining net charge-offs were from overdraft and ready reserve accounts and totaled $1.1 million, for the third quarter of 2019, and, for the nine months ended September 30, 2019, totaled $2.6 million.

During the third quarter of 2019, the provision for loan losses totaled $2.5 million for the non-acquired loan portfolio compared to $2.0 million in the second quarter of 2019, and $3.3 million in the third quarter of 2018.

Net charge offs related to “acquired non-credit impaired loans” were $760,000, or 0.15% annualized, in the third quarter of 2019; and the Company recorded a provision for loan losses, accordingly. There was one loan which comprised the majority of the charge-off in this category. Net charge-offs in the second quarter of 2019 totaled $1.4 million, or 0.25% annualized, and in the third quarter of 2018, net charge-offs totaled $70,000, or 0.01% annualized.

During the third quarter of 2019, the Company recorded net impairment of $786,000 within the acquired credit impaired loan pools compared to $251,000 in the second quarter of 2019. During the third quarter of 2018, the Company recorded net impairment (release) of ($284,000).

Total OREO decreased during the third quarter with the disposition of property from both the nonacquired and acquired OREO assets. The decline totaled $1.1 million with a balance of $13.4 million at September 30, 2019. The OREO balance at September 30, 2018 was $12.1 million.

Net Interest Income and Margin
	Three Months Ended
	September 30, 2019									June 30, 2019									September 30, 2018
(Dollars in thousands)	Average			Income/			Yield/			Average			Income/			Yield/			Average			Income/			Yield/
YIELD ANALYSIS	Balance			Expense			Rate			Balance			Expense			Rate			Balance			Expense			Rate
Interest-Earning Assets:
Federal funds sold, reverse repo, and time deposits	$	491,627		$	2,676		2.16	%		$	602,351		$	3,426		2.28	%		$	232,894		$	1,106		1.88	%
Investment securities (taxable)		1,638,461			10,785		2.61	%			1,429,378			9,551		2.68	%			1,389,859			8,890		2.54	%
Investment securities (tax-exempt)		181,434			1,587		3.47	%			191,686			1,617		3.38	%			199,283			1,521		3.03	%
Loans held for sale		58,829			541		3.65	%			33,804			337		4.00	%			35,406			386		4.33	%
Loans		11,225,593			134,412		4.75	%			11,157,942			135,051		4.85	%			10,802,287			131,657		4.84	%
Total interest-earning assets		13,595,944			150,001		4.38	%			13,415,161			149,982		4.48	%			12,659,729			143,560		4.50	%
Noninterest-earning assets		2,014,172									2,004,786									1,929,505
Total Assets	$	15,610,116								$	15,419,947								$	14,589,234
Interest-Bearing Liabilities:
Transaction and money market accounts	$	5,581,057		$	8,932		0.63	%		$	5,515,060		$	9,632		0.70	%		$	5,236,196		$	6,980		0.53	%
Savings deposits		1,323,377			1,027		0.31	%			1,354,812			1,252		0.37	%			1,445,370			1,369		0.38	%
Certificates and other time deposits		1,730,567			6,696		1.54	%			1,749,782			6,509		1.49	%			1,823,855			4,871		1.06	%
Federal funds purchased and repurchase agreements		272,900			612		0.89	%			281,187			673		0.96	%			294,162			599		0.81	%
Other borrowings		816,188			5,361		2.61	%			677,858			4,737		2.80	%			119,412			1,452		4.82	%
Total interest-bearing liabilities		9,724,089			22,628		0.92	%			9,578,699			22,803		0.95	%			8,918,995			15,271		0.68	%
Noninterest-bearing liabilities		3,534,873									3,458,506									3,304,142
Shareholders’ equity		2,351,154									2,382,742									2,366,097
Total Non-IBL and shareholders’ equity		5,886,027									5,841,248									5,670,239
Total liabilities and shareholders’ equity	$	15,610,116								$	15,419,947								$	14,589,234
Net interest income and margin (NON-TAX EQUIV.)				$	127,373		3.72	%					$	127,179		3.80	%					$	128,289		4.02	%
Net interest margin (TAX EQUIVALENT)							3.73	%								3.82	%								4.04	%
Overall Cost of Funds (including demand deposits)							0.69	%								0.71	%								0.50	%

Non-taxable equivalent net interest income was $127.4 million for the third quarter of 2019, an increase of $194,000 from the second quarter of 2019. The increase resulted primarily from lower interest expense on deposits which totaled $175,000. Interest income from the loan portfolio declined by $639,000, which was attributable to lower yields in the acquired loan portfolio on lower average balances, and $4.5 million lower interest income, offset partially by the nonacquired loan portfolio increasing by $3.9 million on higher average balance and slightly lower rate of 4.31% compared to 4.32% in second quarter of 2019. Interest expense increased by $624,000 in other borrowings as FHLB advances entered into in the second quarter of 2019 were outstanding for the entire third quarter of 2019.

Contacts

Media Contact: Jackie Smith (803) 231-3486

Analyst Contact: Jim Mabry (843) 529-5593

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