Southstate Bank Corporation · NYSE:SSB
Southstate Bank — South State — Q2 2020 Earnings Presentation
56 slides from Southstate Bank's earnings presentation, Jul 30, 2020
Slide 1: Earnings Call 2Q 2020
Earnings Call 2Q 2020 Friday, July 31, 2020 Exhibit 99.2
Slide 2: Disclaimer
Disclaimer 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 o
Slide 3: How We Operate the Company
How We Operate the Company Soundness Profitability Growth
Slide 4: South State – CenterState Merger of Equals
South State – CenterState Merger of Equals Winter Haven Tampa Orlando Charleston Atlanta Charlotte Richmond SSB (305) Merger of equals closed ahead of schedule creating a premier $38 billion southeast franchise $25 billion in loans $30 billion in deposits Record revenue quarter on a combined busines
Slide 5: Quarterly Highlights
Quarterly Highlights Strong and consistent Pre-Provision Net Revenue (“PPNR”) performance across the two combined companies Significant loss absorption capacity exists through allowance and credit marks Credit metrics remain solid, with low losses and low past dues Liquidity at bank and holding comp
Slide 6: Quarterly Highlights (cont'd)
Quarterly Highlights (cont’d) Record quarter for Mortgage and Correspondent/Capital Markets Q2 20 Provision expense for acquired non-PCD loans & UFC = $2.15 in EPS(1) Q2 20 Merger-related expenses = $0.72 in EPS(1) Unrealized cost saves of $80 million = $0.87 per share(1) upon full realization (expe
Slide 7: Combined Business Basis Historical Pre-Provision Net Revenue
Combined Business Basis Historical Pre-Provision Net Revenue (“PPNR”)(1) Dollars in millions Adjusted PPNR is a Non-GAAP financial measure that excludes the impact of branch consolidation, merger related expenses, securities gains or losses, FHLB Advances prepayment penalty ($199 thousand) and pensi
Slide 8: Bridge from Historical Combined Business Basis PPNR to Reported
Bridge from Historical Combined Business Basis PPNR(1) to Reported Dollars in millions Adjusted PPNR is a Non-GAAP financial measure that excludes the impact of branch consolidation, merger related expenses, securities gains or losses, FHLB Advances prepayment penalty ($199 thousand) and pension pla
Slide 9: Loss Absorption Capacity – June 30, 2020
Loss Absorption Capacity – June 30,2020 Dollars in millions Excludes PPP loans and loan held for sale Includes mark on CSFL loans and prior SSB acquisitions Q2 2020 % of Total Loans (1) Allowance for Credit Losses (“ACL”) Non-PCD ACL $280.3 PCD ACL 154.3 Total ACL $434.6 1.88% Reserve for Unfunded C
Slide 10: Tangible Book Value per Share
Tangible Book Value per Share(1) The tangible measures are non-GAAP measures and exclude the effect of period end or average balance of intangible assets - See reconciliation of GAAP to Non-GAAP measures in Appendix $37.85 $38.20 $39.13 $38.01 $38.33 2Q 19 3Q 19 4Q 19 1Q 20 2Q 20
Slide 11: Tangible Book Value per Share
Tangible Book Value per Share(1) $(1.30) Provision for Loan Losses – Acquired Non- PCD Loans & UFC (“double count”) $(119,079) Tax Benefit (22.56%) $26,864 Impact of Provision Expense – Acquired Non-PCD Loans, net of tax $(92,215) Shares Outstanding 70,907 Impact on Tangible Book Value per Share $(1
Slide 12: Financial Highlights - Reported
Financial Highlights - Reported
Slide 13: Highlights – Linked Quarter
1Q20 2Q20 GAAP Net Income (Loss) $24.1 $(84.9) EPS (Diluted) $0.71 $(1.96) Return on Average Assets 0.60% (1.49)% Non-GAAP* Return on Average Tangible Common Equity 8.35% (19.71)% Non-GAAP, Adjusted* Net Income $27.6 $38.6 EPS $0.82 $0.89 Return on Average Assets 0.69% 0.68% Return on Average Tangib
Slide 14: Balance Sheet
Balance Sheet (unaudited) Dollars in millions ASSETS 1Q 2020 2Q 2020 Cash and cash equivalents $ 1,263 $ 4,364 Securities 2,034 3,272 Loans held for sale 72 603 Loans 11,507 25,499 Less allowance for credit losses (145) (435) Loans, net 11,362 25,064 Goodwill & intangibles 1,050 1,774 Other assets 8
Slide 15: Capital Ratios
Capital Ratios Preliminary * The tangible measures are non-GAAP measures and exclude the effect of period end balance of intangible assets - See reconciliation of GAAP to Non-GAAP measures in Appendix 1Q 2020 2Q 2020(1) Tangible Common Equity* 8.2% 7.6% Tier 1 Leverage 9.5% 13.3% Tier 1 Common Equit
Slide 16: Net Interest Margin
Net Interest Margin Dollars in millions * Tax equivalent Tax equivalent NIM and NII excluding total loan accretion are Non-GAAP financial measures - See reconciliation of GAAP to Non-GAAP measures in Appendix 3.82% 3.73% 3.64% 3.68% 3.24% $127.2 $127.4 $126.5 $128.0 $162.6 2Q 2019 3Q 2019 4Q 2019 1Q
Slide 17: Combined Business Basis Historical Performance
Combined Business Basis Historical Performance
Slide 18: Combined Business Basis Revenue Composition
Combined Business Basis Revenue Composition * Noninterest income and total revenue adjusted by securities gains or losses - See reconciliation of GAAP to Non-GAAP measures in Appendix The combined historical information referred to in this presentation as the “Combined Business Basis” presented is b
Slide 19: Combined Business Basis Net Interest Margin
Combined Business Basis Net Interest Margin Dollars in millions The combined historical information referred to in this presentation as the “Combined Business Basis” presented is based on the reported GAAP results of the Company and CenterState for the applicable periods without adjustments and the
Slide 20: Combined Business Basis Noninterest Income
Combined Business Basis Noninterest Income Dollars in millions * Noninterest income and total revenue adjusted by securities gains or losses - See reconciliation of GAAP to Non-GAAP measures in Appendix The combined historical information referred to in this presentation as the “Combined Business Ba
Slide 21: Combined Business Basis Efficiency Ratio
Combined Business Basis Efficiency Ratio(1) Efficiency Ratio and Adjusted Efficiency Ratio are Non-GAAP financial measures; Adjusted Efficiency Ratio also excludes the impact of branch consolidation, merger related expenses, securities gains or losses, FHLB Advances prepayment penalty and pension pl
Slide 22: Combined Business Basis Loans
Combined Business Basis Loans(1) Dollars in billions Excludes loans held for sale The combined historical information referred to in this presentation as the “Combined Business Basis” presented is based on the reported GAAP results of the Company and CenterState for the applicable periods without ad
Slide 23: Combined Business Basis Deposits
Combined Business Basis Deposits Dollars in billions The combined historical information referred to in this presentation as the “Combined Business Basis” presented is based on the reported GAAP results of the Company and CenterState for the applicable periods without adjustments and the information
Slide 24: Combined Business Basis Investments & FFS
Combined Business Basis Investments & FFS Dollars in billions * Fed funds and interest-earning deposits; excludes noninterest-earning deposits The combined historical information referred to in this presentation as the “Combined Business Basis” presented is based on the reported GAAP results of the
Slide 25: Asset Quality
Asset Quality
Slide 26: Asset Quality
Asset Quality Average and period-end loan balances exclude loans held for sale and PPP loans Net Charge-Offs (“C/Os”) (annualized) & Past Dues 0.05% 0.00% 0.00% 0.10% 0.20% Q1 2020 Q2 2020 Net C/Os / Avg . Loans 27 1,070 0x 500x 1,000x 1,500x Q1 2020 Q2 2020 ACL Coverage of Net C/Os 0.20% 0.17% 0.00
Slide 27: Asset Quality (cont'd)
Asset Quality (cont’d) Dollars in millions Nonperforming Loans & Nonperforming Assets 255% 353% 0% 100% 200% 300% 400% 500% Q1 2020 Q2 2020 Allowance coverage of Nonperforming Loans ACL Coverage 0.39% 0.38% 0.00% 0.10% 0.20% 0.30% 0.40% 0.50% Q1 2020 Q2 2020 Nonperforming Assets Nonperforming Assets
Slide 28: Loans – Industry Exposures
Loans – Industry Exposures(1) Selected Industries (% of total loan portfolio) Lodging $974 4.2% Restaurants $505 2.2% Retail CRE $2,215 9.6% Dollars in millions, unless otherwise noted Excludes loans held for sale and PPP loans Total Portfolio $23.2 Billion Commercial 71% Mortgage 19% Consumer 10%
Slide 29: Lodging Portfolio
Lodging Portfolio 57% weighted average loan to value Lodging is $974 million or 4.2% of loan portfolio(1) 62% of portfolio under deferral(2) Top 3 MSA’s: Charleston, Greenville, Charlotte Dollars in millions Loan portfolio excluding loans held for sale and PPP loans As of 7/24/20, including anticipa
Slide 30: Restaurant Portfolio
Restaurant Portfolio 55% weighted average loan to value Restaurant is $505 million or 2.2% of loan portfolio(1) 28% of portfolio under deferral(2) Top 3 MSA’s: Orlando, Atlanta, Charleston Dollars in millions Loan portfolio excluding loans held for sale and PPP loans As of 7/24/20, including anticip
Slide 31: Retail CRE Portfolio
Retail CRE Portfolio 57% weighted average loan to value Retail CRE is $2.2 billion or 9.6% of loan portfolio(1) 19% of portfolio under deferral(2) Top 3 MSA’s: Orlando, Miami, Tampa Dollars in millions Loan portfolio excluding loans held for sale and PPP loans As of 7/24/20, including anticipated 2n
Slide 32: Loan Deferrals
Loan Deferrals(1) Dollars in millions, unless otherwise noted Excludes loans held for sale and PPP loans * As of July 24, 2020, including anticipated 2nd deferrals $3,511 $3,771 $4,107 $2,741 14.99% 16.19% 17.45% 11.65% 0.00% 5.00% 10.00% 15.00% 20.00% $- $1,000 $2,000 $3,000 $4,000 $5,000 $6,000 Ap
Slide 33: Appendix
Appendix
Slide 34: PPP Update
PPP Update Over 19,500 SBA loans ~$2.4 Billion(1) Total fees of ~$90 million (3.71% average), with $16 million in capitalized origination costs/fees paid $7 million net fees recognized in Q2; Unrecognized net fees of $67 million at June 30, 2020 Maturity of our PPP loans: 2 years 53 basis points imp
Slide 35: Consumer Digital Services 2Q20 Quarterly Comparison
Consumer Digital Services 2Q20 Quarterly Comparison
Slide 36: Consumer Digital Services 2Q20 Quarterly Comparison (cont'd)
Consumer Digital Services 2Q20 Quarterly Comparison (cont’d) Zelle became live end of Q2 of 2019 for Person-to-Person payments resulting in a higher transaction volume in comparison to previously reported quarters
Slide 37: Consumer Digital Services 2Q20 – South State only
South State only Dollars in thousands Consumer Digital Services 2Q20 Consumer & Mortgage Loans 705 1,108 0 200 400 600 800 1,000 1,200 1,400 Online Consumer Loan Production Units 2020 YTD 2019 505 $25,877 $39,973 $0 $10,000 $20,000 $30,000 $40,000 $50,000 $60,000 $ in thousands Online Consumer Loans
Slide 38: 2nd Quarter 2020 Highlights – Noninterest Income
2nd Quarter 2020 Highlights Noninterest Income 1Q 2020 2Q 2020 Net Change Fees on Deposit Accounts $ 18.1 $ 16.7 $ (1.4) Correspondent Banking / Capital Markets 0.5 10.1 9.6 Mortgage Banking 14.6 18.3 3.7 Wealth Management 7.4 7.1 (0.3) Other Income 3.5 2.1 (1.4) Total Noninterest Income $ 44.1 $ 54
Slide 39: 2nd Quarter 2020 Highlights – Noninterest Expense
2nd Quarter 2020 Highlights Dollars in millions * Adjusted is a Non-GAAP financial measure that excludes the impact of merger related expenses and FHLB Advances prepayment penalty - See reconciliation of GAAP to Non-GAAP measures in Appendix (1) FHLB Advances prepayment penalty was $199 thousand Non
Slide 40: Average Interest Earning Assets
Average Interest Earning Assets Dollars in millions Quarterly averages Average Balance % of Earning Assets 1Q 2020 % of Earning Assets 2Q 2020 Net Change Short-Term Investments 3.8% $538 10.0% $2,035 $1,497 Investment Securities 14.4% 2,023 11.4% 2,307 284 Loans – Acquired 14.4% 2,016 26.0% 5,271 3,
Slide 41: Merger-Related Expenses/Deal Costs
Merger-Related Expenses/Deal Costs(1) $40.2 million incurred during Q2 2020 $36.6 million recognized on CSFL side, pre-merger System conversion scheduled for Q2 2021 Cost save realization process on track Dollars in thousands, unless otherwise noted Only includes SSB/CSFL merger-related expenses Mer
Slide 42: PCD Loan Criteria
PCD Loan Criteria • Loans graded Watch, Special Mention, or Substandard • Loans on Non-Accrual • Partial Charge Down • TDR • Specific Reserve • Over 30 days past due as of merger close date • DTI exceptions of 43% or higher • Supervisory LTV exceptions • Low Credit Scores (less than 640 for secured
Slide 43: Significant Purchase Accounting Marks
Significant Purchase Accounting Marks(1) CenterState (“CSFL”) Estimated 6/7/2020 Loan Portfolio Merger Accounting Impacts ~$151 million credit mark on PCD loans (~4.9%) Non-PCD credit mark of ~$109 million and total interest premium of ~$8 million totaling ~$101 million to be accreted into interest
Slide 44: On Acquired Assets, Assumed Liabilities and Exchanged Consideration
On Acquired Assets, Assumed Liabilities and Exchanged Consideration Estimated Fair Value Recorded(1) Initial As Recorded Fair Value As Recorded by (Dollars in thousands) by CSFL Adjustments the Company Assets Cash and cash equivalents $ 2,566,450 $ — $ 2,566,450 Investment securities 1,188,403 5,507
Slide 45: On Acquired Assets, Assumed Liabilities and Exchanged Consideration (cont'd)
On Acquired Assets, Assumed Liabilities and Exchanged Consideration (cont’d) Estimated Fair Value Recorded(1) Explanation of fair value adjustments (a)— Represents the reversal of CSFL's existing fair value adjustments of $40.7 million and the adjustment to record securities at fair value (premium)
Slide 46: Historical Income Statements Combined Company Basis
Historical Income Statements Combined Company Basis (Unaudited) Dollars in thousands Through June 7, 2020 Does not include purchase accounting adjustments The combined historical information referred to in this presentation as the “Combined Company Basis” presented is based on the reported GAAP resu
Slide 47: Historical Income Statements Combined Company Basis (cont'd)
Historical Income Statements Combined Company Basis (Unaudited) (cont’d) Dollars in thousands Through June 7, 2020 Does not include purchase accounting adjustments The combined historical information referred to in this presentation as the “Combined Company Basis” presented is based on the reported
Slide 48: Historical Efficiency Ratios Combined Company Basis
Historical Efficiency Ratios Combined Company Basis (Unaudited) (cont’d) Dollars in thousands Through June 7, 2020 Does not include purchase accounting adjustments Legacy CSFL also adjusted noninterest expense by intangible assets’ amortization expenses for the adjusted efficiency ratios, which were
Slide 49: Non-GAAP Reconciliations: Tangible Book Value per Share & TCE Ratio
Non-GAAP Reconciliations Tangible Book Value per Share & Tangible Common Equity (“TCE”) Ratio Dollars in thousands, except for per share data Tangible Book Value per Share 2Q19 3Q19 4Q19 1Q20 2Q20 Shareholders' common equity (excld. preferred stock) $ 2,373,978 $ 2,350,956 $ 2,373,013 $ 2,321,043 $4
Slide 50: Non-GAAP Reconciliations: Return on Average Tangible Common Equity
Non-GAAP Reconciliations Return on Average Tangible Common Equity 1Q20 2Q20 Net income (loss) (GAAP) $ 24,110 $ (84,935) Plus: Amortization of intangibles 3,007 4,665 Effective tax rate, excluding DTA write-off 15% 23% Amortization of intangibles, net of tax 2,556 3,612 Net income plus after-tax amo
Slide 51: Adjusted Net Income (Loss) & Adjusted EPS
Adjusted Net Income (Loss) 1Q20 2Q20 Net income (loss) (GAAP) $ 24,110 $ (84,935) Plus: Merger and branch consolidation related expense, net of tax 3,510 31,191 Provision for credit losses - Non-PCD loans & UFC - 92,212 FHLB advances prepayment penalty, net of tax - 154 Adjusted Net Income (Loss) (N
Slide 52: Adjusted Return on Average Assets & Tangible Common Equity
Non-GAAP Reconciliations Adjusted Return on Average Assets & Average Tangible Common Equity Adjusted Return on Average Assets 1Q20 2Q20 Net operating earnings (non-GAAP) $ 27,620 $ 38,622 Total average assets 16,052,933 22,898,925 Adjusted Return on Average Assets (Non-GAAP) 0.69% 0.68% Adjusted Ret
Slide 53: Non-GAAP Reconciliations: Net Interest Margin, Tax Equivalent
Non-GAAP Reconciliations Net Interest Margin, Tax Equivalent Dollars in thousands, unless otherwise noted 2Q19 3Q19 4Q19 1Q20 2Q20 Net interest income (GAAP) $ 127,179 $ 127,373 $ 126,456 $ 128,013 $162,557 Tax equivalent adjustments 521 496 503 530 579 Net interest income (tax equivalent) (Non-GAAP
Slide 54: Acquired Non-PCD Provision and Merger Expense Impact to EPS
Non-GAAP Reconciliations Acquired Non-PCD Provision and Merger Expense Impact to EPS (Non-GAAP) Dollars in millions, except per share data Diluted At effective tax rate of 22.56% 2Q20 Net Loss (GAAP) $ (84,935) Weighted average common shares outstanding 43,318 Earnings Per Share ("EPS"), diluted $ (
Slide 55: PPP Impact to TCE
Non-GAAP Reconciliations PPP Impact to TCE (Non-GAAP) Dollars in millions 2Q20 Shareholders' equity (GAAP) $ 4,492 Less: Intangible assets 1,774 Tangible common equity (non-GAAP) $ 2,718 Total assets (GAAP) 37,725 Less: Intangible assets 1,774 Tangible asset (non-GAAP) $ 35,951 Tangible Common Equit
Slide 56: South State
Ss SOUTH STATE