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Edited Transcript of SSB earnings conference call or presentation 29-Jan-19 3:00pm GMT

Q4 2018 South State Corp Earnings Call

Columbia Jan 30, 2019 (Thomson StreetEvents) -- Edited Transcript of South State Corp earnings conference call or presentation Tuesday, January 29, 2019 at 3:00:00pm GMT

TEXT version of Transcript

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Corporate Participants

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* James C. Mabry

South State Corporation - EVP of IR & Mergers-Acquisitions

* John C. Pollok

South State Corporation - Senior EVP, CFO & Director

* Robert R. Hill

South State Corporation - CEO & Director

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Conference Call Participants

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* Blair Craig Brantley

Brean Capital, LLC, Research Division - SVP and Senior Equity Research Analyst

* Catherine Fitzhugh Summerson Mealor

Keefe, Bruyette, & Woods, Inc., Research Division - MD and SVP

* Christopher William Marinac

FIG Partners, LLC, Research Division - Director of Research

* Jennifer Haskew Demba

SunTrust Robinson Humphrey, Inc., Research Division - MD

* Nancy Avans Bush

NAB Research, LLC, Research Division - Research Analyst

* Stephen Kendall Scouten

Sandler O'Neill + Partners, L.P., Research Division - MD, Equity Research

* Tyler Stafford

Stephens Inc., Research Division - MD

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Presentation

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Operator [1]

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Good morning, and welcome to the South State Corporation Quarterly Earnings Conference Call. Today's call is being recorded. (Operator Instructions) I will now turn the call over to Jim Mabry, South State Corporation Executive Vice President in charge of Investor Relations and M&A.

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James C. Mabry, South State Corporation - EVP of IR & Mergers-Acquisitions [2]

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Thank you for calling in today to the South State Corporation Earnings Conference Call.

Before beginning, I want to remind listeners that the discussion contains forward-looking statements regarding our financial condition and results. Please refer to Slide #2 for cautions regarding forward-looking statements and discussion regarding the use of non-GAAP measures.

I would now like to introduce Robert Hill, our Chief Executive Officer, who will begin the call.

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Robert R. Hill, South State Corporation - CEO & Director [3]

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Good morning. I'll begin the call by providing an overview of the 2018 performance and then offer insight on our near-term focus. John Pollok, will review the year in more detail, and we will conclude the call with questions from research analysts.

2018 was a year of significant transition for South State. While digesting over 60% growth from 2 recent mergers, repositioning the loan portfolio, making technology investments and absorbing the revenue reduction of Durbin, the company still increased adjusted EPS by 13%. 2018 was a year where 2 of our 3 primary objectives were accomplished: significant steps were made in building upon the soundness of the bank and profitability metrics continued to be very good. Our growth, however, was slower than normal during 2018.

In December, we hosted an Investor Day in New York featuring our executive team and 3 members of our Board of Directors. The purpose of this day was to provide more clarity around our key strategic objectives. The company enters 2019 with a focus on growing what has been built over the last couple of decades. Our goal is to have success in all 3 of the primary objectives in 2019 while building a franchise that is deep and dense in great markets.

For the year, net income was $178.9 million or $4.86 per diluted share, representing a 1.23% return on average assets and 14.93% return on tangible equity. Adjusted net income totaled $202.1 million or $5.50 per diluted share and represents a 1.39% return on assets and 16.76% return on tangible equity.

We made the strategic decision to reduce certain segments of the acquired loan portfolio, around 3%, and still experienced 4% net loan growth for the year. I'm particularly pleased with the 23% growth in commercial production, excluding CRE. Over the past several months, we've rolled out a new commercial treasury platform. Conversion of the existing customers is going smoothly, and the expanded capabilities provided by the new system have already led to success in winning new customers to the bank.

Asset quality remains at record levels with total net loan losses of $125,000 for the year. Nonperforming assets represented 0.28% of total assets, up only 3 basis points from a year ago. Our portfolio is diverse in both type and geography and is granular with an average loan size of less than $130,000.

Loans at South State are largely funded by core deposits. Creation of a strong and reliable funding base has been a priority of the bank for decades. While our cost of funds was up for the year, funding strength remains a key competitive advantage at South State.

As a result of high profitability and lower balance sheet growth, capital levels continue to build. Total risk-based capital climbed at 13.5% at year-end. While we were disappointed with the downward move in our stock price, it did provide an opportunity to put some of the excess capital to work. The company repurchased 1 million shares of common stock during 2018, and the Board of Directors has just approved a new 1 million share buyback plan for 2019. The Board of Directors has also declared a quarterly cash dividend of $0.38 per share, representing a $0.02 increase to shareholders of record as of February 15, 2019.

I will now turn the call over to John Pollok for more detail on the financial performance for the quarter.

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John C. Pollok, South State Corporation - Senior EVP, CFO & Director [4]

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Thank you, Robert. It was nice to see our revenues increase by $1.7 million this quarter compared to the third quarter as lower net interest income was more than offset by higher noninterest revenues. Looking back over 2018, total revenue was at its highest point in the first quarter, which was our first full quarter after the Park Sterling merger. Total revenues were lower in the second quarter of the year, mostly tied to lower mortgage banking income and lower acquired loan recoveries, and then of course, the third quarter included the Durbin impact on our bank card revenue.

Beginning with Slide #5, you can see that our net interest margin decreased to 3.98%, a decline of 6 basis points linked quarter with a total yield on interest-earning assets flat while the cost of interest-bearing liabilities increased by 10 basis points. The yield on our interest-earning assets remaining flat is primarily the result of $2.7 million less purchase accounting loan accretion, outweighing the nice improvement in our legacy portfolio yields. The acquired loan yield was down 13 basis points, and the legacy loan yield was up 9. The cost of interest-bearing liabilities increase is due to the increased funding pressure from the recent fed rate hikes, primarily impacting rates on transaction and money market accounts and certificates of deposit. Our total cost of funds increased 7 basis points for the quarter to 57 basis points.

Slide #6 shows you some of the repricing characteristics of our loan portfolio. Our contractual loan yields benefited from meaningful increases in LIBOR and prime rates during the quarter.

Slide #7 shows the higher-yielding acquired book represented 25% of interest-earning assets in the fourth quarter compared to 27% in the third.

Slide #8 shows that loan accretion declined from 8.7% of total interest income in the third quarter to 6.7% in the fourth quarter. You can also see the impact that loan accretion has on our loan yields at the bottom of the slide. We had our first recast this quarter on the Park Sterling loan portfolio, which resulted in a $10.2 million credit release. This quarter had only 1 month impact of this release, which resulted in approximately $500,000 in additional loan accretion.

Turning to noninterest income on Slide #10. We had improvements in all categories with the exception of mortgage banking. Mortgage banking was lower on about $150,000 less secondary market income and about $175,000 less mortgage servicing rights-related income. With secondary market activity down from prior periods, we had made some recent staff reductions in the mortgage area in an effort to improve our overall profitability in future periods. Fees on deposit accounts were up $900,000 on about $600,000 seasonally higher debit card income and about $300,000 higher on service charges and fees. Wealth had another strong quarter with $7.6 million in income, up from $7.5 million linked quarter. Acquired loan recoveries were up $1.5 million, and other income was up $1.4 million, primarily from a successfully acquired credit impaired note sale.

Our efficiency ratio, as shown on Slide #11, showed a nice improvement, down to 59.4% from 62.3% in the third quarter, mostly due to the absence of merger cost this quarter. Our adjusted efficiency ratio showed only a slight improvement linked quarter as lower net interest income was more than offset by higher noninterest income, and the adjusted noninterest expense was only $900,000 higher.

Slide #12 shows linked quarter variances in noninterest expense. The main variances this quarter were $1.2 million in lower FDIC assessment expense and a $1.2 million in higher professional fees and marketing expense and a $900,000 increase in OREO and loan-related expense. We continue to strive to limit noninterest expense growth while still investing in new strategic initiatives, as can be seen in the increase in professional fees this quarter. To this end, we are beginning the process of closing 13 branch locations, most of which are expected to take place in the latter half of the second quarter. These reductions are anticipated to have cost saves, about $1.5 million for 2019 and about $2.5 million on an annual basis.

Slide #13 shows GAAP EPS of $4.86 for 2018 compared to $2.93 for 2017, a 66% improvement. Adjusted earnings per share for the quarter totaled $1.35, bringing 2018 adjusted EPS to $5.50. This represents a 13% increase over 2017.

Tangible book value, as shown on Slide #14, shows a $0.93 increase in tangible book value to $36.30. During the quarter, we've repurchased 900,000 shares of common stock at $66.76 per share, lowering capital by $60.1 million. This decline in capital was mostly offset by increases in net income, less dividends and improvements in AOCI. AOCI improved $19.6 million as the declining treasury yields improved the unrealized losses on the AFS securities. The aforementioned 900,000 shares of common stock repurchase this quarter, coupled with the 100,000 shares repurchased in the third quarter, completed the existing 1 million share authorization we had in place. At year-end, our common shares outstanding totaled 35,829,549 shares, and we have received approval for a new 1 million share authorization to aid in our capital planning efforts going forward.

I will now turn the call over to Robert for some summary comments.

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Robert R. Hill, South State Corporation - CEO & Director [5]

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Thanks, John. Strong asset quality, high capital levels, attractive core funding, a great team and the ability to do business in growing markets cause us to be excited about the future. We appreciate your interest in South State.

This concludes our prepared remarks. And I would like to ask the operator to open the call for questions.

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Questions and Answers

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Operator [1]

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(Operator Instructions) And our first question comes from Jennifer Demba of SunTrust.

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Jennifer Haskew Demba, SunTrust Robinson Humphrey, Inc., Research Division - MD [2]

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Two questions for John Pollok. First, what prompted you to initiate this branch closing effort? And two, can you talk about your net interest margin outlook for the year, assuming we get no rate hikes?

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John C. Pollok, South State Corporation - Senior EVP, CFO & Director [3]

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Jennifer, we'll start off on the branch closings. I think as we've entered this year and we talked about at an Investor Day is we've spent a lot of time over the last few years integrating companies and was really pleased to see in the fourth quarter, our GAAP earnings and our adjusted earnings are the same, and I think that really shows that it gives us time to kind of focus more internally. So I think our goal is to really limit expense growth in the company while still investing in the company. And so if you kind of look at the branch piece of this, these 13 locations, that brings us down to about 155 branches. We started the year at 182. So I think branch rationalization is just kind of part of something we got to stay focused on. When we weren't in as much M&A mode, we did this before. So we're continuing to try to rationalize that branch structure. Those 13 offices that we're going to reduce, and that's going to reduce FTEs by another 50, which is really, really nice to see from the expense side. So Jennifer, I think just kind of staying very focused there on the branches. If you switch over and you look at the digital side of our company is digital account openings, to include loans, are about 10% of the volume now. So you're seeing customer habits are really switched there. And now on the deposit side, about 20% of our deposits are really kind of through the digital channel. So you're just seeing more and more adoption there. So that's kind of some of the reasons why. The margin outlook, it's just kind of tricky, right? The yield curves will invert it in the middle. We still have a fair amount of acquired accretion coming through. Obviously, the Park Sterling release is going to help drive that. So Jennifer, I hope that we can begin to see some stability in the margin as we enter the second half of the year.

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Operator [4]

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Our next question comes from Tyler Stafford of Stephens Inc.

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Tyler Stafford, Stephens Inc., Research Division - MD [5]

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Maybe, John, just to start on the expense topic where Jennifer started. So at the Investor Day, you laid out the 0% to 3% expense growth target for the year. I'm just wondering if these branch closures will help you get towards the bottom end of that range if they're incremental to that or if you could actually see expenses decline year-over-year, given the branch closures.

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John C. Pollok, South State Corporation - Senior EVP, CFO & Director [6]

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It's a little early in the year to really tell, Tyler. I'm not sure.

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Tyler Stafford, Stephens Inc., Research Division - MD [7]

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Okay. And then I appreciate the new disclosures around the accretion and the recast. But just from a simple high-level perspective, would you expect to grow net interest income year-over-year in 2019?

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John C. Pollok, South State Corporation - Senior EVP, CFO & Director [8]

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I would think as we enter the later half of the year, depending on growth, I would think we should be able to do that.

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Tyler Stafford, Stephens Inc., Research Division - MD [9]

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Okay. And then just lastly for me, was there any seasonality on the deposit side towards the end of the year that you expect to flow back on the balance sheet to start 2019?

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John C. Pollok, South State Corporation - Senior EVP, CFO & Director [10]

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No.

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Tyler Stafford, Stephens Inc., Research Division - MD [11]

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Okay. So those deposit balance declines weren't seasonal?

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John C. Pollok, South State Corporation - Senior EVP, CFO & Director [12]

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No, I don't -- it doesn't appear. We just got -- we've got bigger deposits today. We've got some customers that have larger deposits. We're still doing a really good job opening checking accounts. It's kind of our first full year with Park, so again, seasonality is still a little harder to judge. But I think now as we've kind of remixed the balance sheet, kind of getting into the seasonality, so maybe it'll make more sense this year.

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Operator [13]

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Our next question comes from Stephen Scouten of Sandler O'Neill.

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Stephen Kendall Scouten, Sandler O'Neill + Partners, L.P., Research Division - MD, Equity Research [14]

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So I'm curious as to what you guys are seeing in your markets with your customers. I mean, it just look like you still had pretty strong organic production and growth, x the kind of acquired runoff. So obviously, the markets were telling us something in 4Q I don't think we're seeing in most bank earnings. But I'm just kind of curious what you're seeing and hearing from your borrowers and customers and how you think the overall economy is doing in your geography.

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Robert R. Hill, South State Corporation - CEO & Director [15]

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So Stephen, this is Robert. I'll start. Overall, our local economy is still pretty healthy and pretty, pretty steady. But in Q4, I spent a lot of time with a lot of businesses in our markets and kind of really, I think, pretty good insight into how they were thinking and feeling. It was very interesting. It was diverse. It was -- if it was a company that had an international component, you could see a lot of uncertainty in kind of pulling the reins back in to try to figure out where they were headed. As a purely domestic company, you just didn't see that same level of uncertainty, so kind of some mixed signals depending on the type of company that is operating in our markets. The tariff impact was not a huge deal to most companies, but you clearly saw it across-the-board in construction costs. So you saw the impact there. And across-the-board, what we do hear is wage pressure, those skilled entry-level-type jobs. We heard that pretty consistently. But -- so I'd say a little bit more of a headwind, some spottiness of uncertainty, mixed signals that will create probably overall a little bit of slowdown. Now with that said, our -- in the second half of '18, we saw our pipeline slow down a little bit, not a lot. But December was a really good month for us, so we ended the year strong. And our pipeline, as we again moved into this year, the pipeline popped up pretty good. Now we do have -- asked about seasonality on deposits, we typically do have a little bit of seasonality on the loan side. So the first quarter is typically not our strongest. But overall, it looks like loan demand continues to be pretty, pretty steady. Now I didn't touch on the residential side, but residential is pretty much off across-the-board. And so we're not off as much as -- many of our competitors are all 15% to 20%. I think we're down low single digits. So we're still having fairly good production there, although it's softer than it has been historically. But we're seeing residential softening in many of our markets.

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Stephen Kendall Scouten, Sandler O'Neill + Partners, L.P., Research Division - MD, Equity Research [16]

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Okay, great. That's really helpful color. Maybe thinking about the core NIM, just for a second, x the accretion. I know that accretion's going to be somewhat lumpy and hard to predict, but it looked like the core NIM was better this quarter by maybe 3 basis points or so, so a nice move there. Is that something, on a core basis x accretion, we could continue to see some help? Or how can we kind of think about that, maybe in 1Q '19 with the benefit of December hike and then throughout the rest of the year if we don't get any additional hikes?

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John C. Pollok, South State Corporation - Senior EVP, CFO & Director [17]

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Stephen, this is John. I'll start. I think the thing that we're excited about is we're really starting to see the new loan yields creep up. We're now getting loan yields almost up to the 4.70% range, and so we are beginning to see that. I think on the funding side, it's still challenging. And so I think that's still a little bit of an unknown there. But over time, that's all going to settle out. I think as we've said, we're going to continue to protect our deposit base. And so over time, that will begin to settle in. But we are excited just to finally see some of the loan yields begin to really move up.

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Stephen Kendall Scouten, Sandler O'Neill + Partners, L.P., Research Division - MD, Equity Research [18]

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Okay, great. That's very helpful. And then maybe just lastly for me on the share repurchase from here. Looks like the stock's still trading a little bit bellow where you guys executed the repurchase in 4Q. So would that be fair to assume if the share stay around this level, you all would remain aggressively the incremental buyback authorization? Or is there a capital threshold you want to stay above? Or how do we think about the pace of that buyback from here?

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John C. Pollok, South State Corporation - Senior EVP, CFO & Director [19]

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Stephen, I'll start. I think we're going to continue to be active with where we are today. I think one of the things that we tried and pressed on everybody in our company is the optionality that we have. And clearly, we're generating a lot of capital. Some view accretion as not real earnings, but it is real earnings, it is real capital. In fact, when you look at accretion, we have to work pretty hard on those loans to rehabilitate a lot of those. So we continue to see that on the capital side. Our growth rate, as we mentioned, it was about 4% for the fourth quarter. So we've got the optionality to do that. We're not overly concentrated in CRE, the risk-based capital. So I think kind of at the end of the day, we're going to continue at these levels to kind of be active on the share repurchase.

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Operator [20]

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Our next question comes from Catherine Mealor of KBW.

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Catherine Fitzhugh Summerson Mealor, Keefe, Bruyette, & Woods, Inc., Research Division - MD and SVP [21]

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Ask a couple of small modeling questions. So the first is back on accretable yield. So the acquired noncredit here, accretion was about $3 million lower this quarter at 3.8. John, how do you -- how we think what drove that decline? And is this a better kind of base level to think about for next year for the acquired noncredit impaired book outside of just kind of it's already recovery that I know are hard to predict?

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John C. Pollok, South State Corporation - Senior EVP, CFO & Director [22]

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Little hard to predict. A couple of things there on the quarter change, one, in the third quarter, we had a fairly large loan payout that generated a little bit of that, and then we're just seeing the remixing down. So if you kind of look at our acquired loan runoff, it's slowed. And of course, when that slows, that's just less of that acquired noncredit impaired accretion coming in. And so we did see some slowness there. But at the end of the day, Catherine, it's going to continue to be a little bit lumpy. It will trend down over time. But clearly, the slowing of the runoff and not having some kind of onetime event, that -- we didn't have that this quarter.

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Catherine Fitzhugh Summerson Mealor, Keefe, Bruyette, & Woods, Inc., Research Division - MD and SVP [23]

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Got it. And then the Park Sterling recast, can you clarify? I think you said that about -- there was about $500,000 in additional accretion from that this quarter, but that was only of 1 month. And so we should get for a full quarter, that we should get another $1 million bump from that next quarter. Am I thinking about that right?

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John C. Pollok, South State Corporation - Senior EVP, CFO & Director [24]

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That sounds reasonable.

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Catherine Fitzhugh Summerson Mealor, Keefe, Bruyette, & Woods, Inc., Research Division - MD and SVP [25]

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Okay. And then at the acquired credit impaired or noncredit impaired bucket?

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John C. Pollok, South State Corporation - Senior EVP, CFO & Director [26]

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Excuse me, repeat the question one more time.

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Catherine Fitzhugh Summerson Mealor, Keefe, Bruyette, & Woods, Inc., Research Division - MD and SVP [27]

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Is that the -- in the acquired credit impaired bucket or the noncredit impaired bucket?

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John C. Pollok, South State Corporation - Senior EVP, CFO & Director [28]

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That's in the acquired credit impaired bucket.

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Catherine Fitzhugh Summerson Mealor, Keefe, Bruyette, & Woods, Inc., Research Division - MD and SVP [29]

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Okay, great. And then off of that, so you said at the end of the quarter, you added $150 million of new borrowings. What was the average rate of those borrowings?

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John C. Pollok, South State Corporation - Senior EVP, CFO & Director [30]

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About 2.64%.

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Catherine Fitzhugh Summerson Mealor, Keefe, Bruyette, & Woods, Inc., Research Division - MD and SVP [31]

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Okay. And then last little mini modeling question was you mentioned that there were higher other fees. How much of that was in full reverses capital markets?

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John C. Pollok, South State Corporation - Senior EVP, CFO & Director [32]

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How much of that -- I didn't hear the first part of your question.

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Catherine Fitzhugh Summerson Mealor, Keefe, Bruyette, & Woods, Inc., Research Division - MD and SVP [33]

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Sorry, how much of -- so you mentioned in the press release that other fees, the increase in other fees were from higher BOLI and capital markets fees. Is there any way to specify how much was BOLI versus capital market?

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John C. Pollok, South State Corporation - Senior EVP, CFO & Director [34]

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No, I think that's right. Our other fees were up because we sold a note out of the acquired loan book, and that was really the driver. And that's what drove it up. Unfortunately, with the way the accounting works is some would say that should've come back through the NIM. But as we look at selling an acquired loan note, that was really the driver in that other category.

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Operator [35]

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Our next question comes from Nancy Bush of NAB Research.

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Nancy Avans Bush, NAB Research, LLC, Research Division - Research Analyst [36]

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I have kind of a forward-looking question for you. It seems like in the last few months, I've seen more mention of FinTech in both its positive and negative aspects for the banking industry than I've seen in quite a long time. And we seem to be getting to some sort of tipping point here about the subject of FinTech. And you've mention your digital account openings, et cetera. How much time do you have to devote to FinTech, thinking about FinTech as a competitor or how it can be a positive for you? And then is there some need now for heightened investment for technology?

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Robert R. Hill, South State Corporation - CEO & Director [37]

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Nancy, this is Robert. I'll start. We laid out our digital road map probably 24 to 36 months ago that included what we want to do with online account opening, online lending, what we want to do in the treasury management space. We're probably halfway through that. We've got other things that we did in terms of outsourcing some things that really aren't core to our businesses or core to our customers and getting out of some things that we had traditionally been in. So we really kind of got more laser focused just on our digital roadmap. It was laid out years ago. We kind of knew what the cost was going to be to implement and execute that. We don't really see it spiking from here. And as you heard from John on the expense side, our goal is to find ways to operate more efficiently internally to help pay for the investments we have to make. But just like treasury, we've made huge investment in treasury in both talent and technology. And now our treasury deposits are almost 25% of our total deposits. And one of the unique things about our company is 81% of our accounts, of our dollars of deposits are transaction accounts, so a lot of volume. So I think we just rolled out the online lending platform and online account opening platform in the last 18 months. So 10% there is a start, but there's a lot more progress that we can make there. And the last point I'd make is really just our interaction digitally with our customer continues to grow meaningfully, both through marketing digital channels, which are fairly -- very price-attractive way to market our company and to connect. But now we have a digital relationship with about 2/3 of our customers. So it is ongoing and growing, and I -- but I think we can absorb the cost increases with making the business more efficient.

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Nancy Avans Bush, NAB Research, LLC, Research Division - Research Analyst [38]

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Right. So you don't see here some kind of new point of disruption going on. You see yourself as being able to stick with the plan that you've had for a while, and there are not new applications and things popping up that you're going to suddenly find the need to invest in.

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Robert R. Hill, South State Corporation - CEO & Director [39]

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I don't -- I think the technology costs seems manageable. I think it's about penetration and how do you market it, how do you communicate with your customer, how do you interact with those customers. A large number of our new accounts, the largest component of our new customer base is our millennials. So I think there are a lot of things that we're doing on that front that aren't that expensive. I think it's more of a mindset shift and getting some of these foundational pieces in place that we needed and time to focus on it.

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Operator [40]

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(Operator Instructions) And our next question comes from Christopher Marinac of FIG partners.

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Christopher William Marinac, FIG Partners, LLC, Research Division - Director of Research [41]

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Want to ask about new hires this year. And will they be centered primarily in Charlotte and Richmond or perhaps just talking about the new hires and the footprint?

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Robert R. Hill, South State Corporation - CEO & Director [42]

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I'll start, and then John can maybe talk about the kind of -- maybe the net FTE changes overall for the company for the year. But that's kind of the net number. The specifics is we've invested a lot in Richmond, have done a great job. We're recruiting talent there on the commercial side as well as the Charlotte market. Those teams have -- we've added talent in both those places. We've done it in other parts of the footprint. But I would say Raleigh, Richmond, Charlotte have been the primary areas of focus for the company. Same thing -- that's the commercial bank. Same thing really in wealth is we didn't have much presence in those markets, and the banks that we acquired didn't have a strong wealth presence. So we're certainly investing in the wealth businesses and having really good success there as well. So really across-the-board, those would be the 3 primary markets. The other is we've been able to hire back to digital online the way we think about our company, the way we deliver. We've been able to add some great talent in a number of technical areas inside the company, be it risk management, be it mortgage lending, just to help us change how we think about how we deliver and operate our company. So I'd say Richmond, Raleigh, Charlotte and then some more technical expertise have been the kind of 2 primary areas.

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John C. Pollok, South State Corporation - Senior EVP, CFO & Director [43]

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To follow on what Robert said, we're down 117 FTEs for the year. We were down 38 linked quarter, and then we're going to be down another 50 just from the branch closings. So I think it's just continued focus on trying to be more efficient and then trying to reinvest on the sales side. But clearly, they will continue to be a focus.

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Christopher William Marinac, FIG Partners, LLC, Research Division - Director of Research [44]

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Great. That's all for [it], guys. John, just a last question on the recast and Park Sterling. Is that sort of on a 3-year timetable to kind of collect the most of that? Is that a realistic time frame?

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John C. Pollok, South State Corporation - Senior EVP, CFO & Director [45]

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I think it is. I think one of the things, I mentioned it earlier, about accretion, accretion is not free. Some of these loans, we have rehabilitated and some we have moved out of the bank. But clearly, as you do that, sometimes you get an extension on it, right, Chris? So the accretion could go out over a longer period of time. But I think a 3-year time horizon right now makes a lot of sense. As balances get a lot smaller, that will continue to really drive out the weighted average life.

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Operator [46]

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Our next question comes from Blair Brantley of Brean Capital.

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Blair Craig Brantley, Brean Capital, LLC, Research Division - SVP and Senior Equity Research Analyst [47]

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I just have a follow-up on the CRE commentary. Just given some of the flexibility you have, just wanted a better view of how you're looking at these different segments and by market too, as to what the opportunities are and just kind of pricing and structure and things like that.

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Robert R. Hill, South State Corporation - CEO & Director [48]

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So Blair, I'll start, and John can chime in. But if you look at our CRE, if you look at our overall commercial production the last year, it was up pretty nicely. But our CRE production was really flat, a lot of churn. We've seen a lot of churn in that portfolio. There's been a lot of somewhat irrational competition. We have transaction to the day that was priced in -- I think it was the Charlotte market, and it was 15 years fixed rate and 15 years interest-only. So we've kind of -- we picked our spots. Most of the relationships that we have on the CRE side are very robust and long-term. It's not just a transaction here or there. But overall, I think that, that is not a high-growth area for the company. I think it'll be steady, consistent production. But we're not -- we're at a little over 200% CRE to risk-based capital. We have a lot of firepower, over $1 billion in firepower. But you're not going to see us move that number up to 300%. That won't happen either. But we're being selectively opportunistic. There's still pretty good demand in most of our markets for CRE. So our pipeline there remains healthy. So it's not negative, but it's not huge growth either.

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John C. Pollok, South State Corporation - Senior EVP, CFO & Director [49]

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And Blair, what I would add is it -- the runoff's slowing, right? So I think that's what we're beginning to see, and so that should just kind of help with those balances some. We already have less runoff as we get through the year.

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Blair Craig Brantley, Brean Capital, LLC, Research Division - SVP and Senior Equity Research Analyst [50]

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Okay. And then in terms of the average earning asset balances, would you expect that growth to kind of mirror loan growth? Or what's the -- any update there?

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John C. Pollok, South State Corporation - Senior EVP, CFO & Director [51]

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No, I think that's a fair statement. Yes, it would mirror the loan growth.

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Operator [52]

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There are no further questions, so I will now turn the call back over to John Pollok.

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John C. Pollok, South State Corporation - Senior EVP, CFO & Director [53]

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Yes. One thing I wanted to go back to on Catherine's question, so Catherine, on the other noninterest income, that BOLI and capital markets inquiries. I was thinking you were talking linked quarter. That's year-over-year. And the main reason that is up year-over-year is, if you remember, in the fourth quarter of last year, we only had 1 month of Park Sterling. And of course, this year, we've got a full -- we've got them in for a full quarter.

Thanks, everyone, for your time today. We would be participating in the KBW Financial Services Conference in Florida beginning on February 13. We look forward to reporting to you again soon.

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Operator [54]

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The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.